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PROSPECTUS
July 2, 1996
WARBURG PINCUS
SMALL COMPANY VALUE FUND
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PROSPECTUS July 2, 1996
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. One fund is described in this Prospectus:
WARBURG PINCUS SMALL COMPANY VALUE FUND seeks long-term capital appreciation by
investing primarily in a portfolio of equity securities of small capitalization
companies.
NO LOAD CLASS OF COMMON SHARES
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The Fund offers two classes of shares. A class of Common Shares that is 'no
load' is offered by this Prospectus (i) directly from the Fund's distributor,
Counsellors Securities Inc., and (ii) through various brokerage firms including
Charles Schwab & Company, Inc. Mutual Fund OneSource'tm' Program; Fidelity
Brokerage Services, Inc. FundsNetwork'tm' Program; Jack White & Company, Inc.;
and Waterhouse Securities, Inc. Common Shares are subject to a 12b-1 fee of .25%
per annum.
LOW MINIMUM INVESTMENT
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The minimum initial investment in the Fund is $2,500 ($500 for an IRA or Uniform
Gifts to Minors Act account) and the minimum subsequent investment is $100.
Through the Automatic Monthly Investment Plan, subsequent investment minimums
may be as low as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Funds at (800) 927-2874. Information
regarding the status of shareholder accounts may also be obtained by calling
Warburg Pincus Funds at the same number. The Statement of Additional
Information, as amended or supplemented from time to time, bears the same date
as this Prospectus and is incorporated by reference in its entirety into this
Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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THE FUND'S EXPENSES
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The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. For a description of Advisor Shares see 'General Information.'
Common Shares pay the Fund's distributor a 12b-1 fee. See 'Management of the
Fund -- Distributor.'
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Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................... 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees............................................................ 0
12b-1 Fees................................................................. .25%
Other Expenses............................................................. 1.50%
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Total Fund Operating Expenses (after fee waivers)`D'....................... 1.75%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual
return
and (2) redemption at the end of each time period:
1 year..................................................................... $18
3 years.................................................................... $55
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`D' Absent waiver of fees by the Fund's investment adviser and co-administrator,
Management Fees for the Fund would equal 1.00%, Other Expenses would equal
2.72%, and Total Fund Operating Expenses would equal 3.97%. Other Expenses
are based on annualized estimates of expenses for the fiscal year ending
October 31, 1996, net of any fee waivers or expense reimbursements. The
investment adviser and co-administrator are under no obligation to continue
these waivers.
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The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of the Fund. Certain broker-
dealers and financial institutions also may charge their clients fees in
connection with investments in Common Shares, which fees are not reflected in
the table. The Example should not be considered a representation of past or
future expenses; actual Fund expenses may be greater or less than those shown.
Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers, Inc. (the 'NASD').
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FINANCIAL HIGHLIGHTS
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(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 the Fund 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.
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FOR THE PERIOD
DECEMBER 29, 1995
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1996
(UNAUDITED)
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NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 10.00
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Income from Investment Operations:
Net Investment Loss............................................... (.01)
Net Gain on Securities (both realized and unrealized)............. 2.63
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Total from Investment Operations.............................. 2.62
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Less Distributions:
Dividends from Net Investment Income.............................. .00
Distributions from Capital Gains.................................. .00
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Total Distributions........................................... .00
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NET ASSET VALUE, END OF PERIOD........................................ $ 12.62
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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/remibursements.......................................... 2.22%*
Portfolio Turnover Rate............................................... 27.22%`D'
Average Commission Rate#.............................................. $ .0570
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`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.
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund seeks long-term capital appreciation. This objective is a
fundamental policy and may not be amended without first obtaining the approval
of a majority of the outstanding shares of the Fund. Any investment involves
risk and, therefore, there can be no assurance that the Fund will achieve its
investment objective. See 'Portfolio Investments' and 'Certain Investment
Strategies' for descriptions of certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues its
investment objective by investing primarily in a portfolio of equity securities
of small capitalization companies that Warburg, Pincus Counsellors, Inc., the
Fund's investment adviser ('Warburg'), considers to be relatively undervalued.
Current income is a secondary consideration in selecting portfolio investments.
Under normal market conditions the Fund will invest at least 65% of its total
assets in common stocks, preferred stocks, debt securities convertible into
common stocks, warrants and other rights of small companies (i.e., companies
having stock market capitalizations of $1 billion or less at the time of initial
purchase).
Warburg will determine whether a company is undervalued based on a variety of
measures, including price/earnings ratio, price/book ratio, price/cash flow
ratio, earnings growth and debt/capital ratio. Other relevant factors, including
a company's asset value, franchise value and quality of management, will also be
considered. The Fund will invest primarily in companies whose securities are
traded on U.S. stock exchanges or in the U.S. over-the-counter market, but may
invest up to 20% of its assets in foreign securities.
PORTFOLIO INVESTMENTS
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INVESTMENT GRADE DEBT. The Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) that are
not convertible into common stock for the purpose of seeking capital
appreciation. The interest income to be derived may be considered as one factor
in selecting debt securities for investment by Warburg. Because the market value
of debt obligations can be expected to vary inversely to changes in prevailing
interest rates, investing in debt obligations may provide an opportunity for
capital appreciation when interest rates are expected to decline. The success of
such a strategy is dependent upon Warburg's ability to accurately forecast
changes in interest rates. The market value of debt obligations may also be
expected to vary depending upon, among other factors, the ability of the issuer
to repay principal and interest, any change in investment rating and general
economic conditions. A security will be deemed to be investment grade if it is
rated within the four highest grades by Moody's Investors Service, Inc.
('Moody's') or Standard & Poor's Ratings Group ('S&P') or, if unrated, is
determined to be of comparable quality by Warburg. Bonds rated in the fourth
highest grade may have speculative
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characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. Subsequent to its purchase by
a Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require sale of such securities, although Warburg will consider such event in
its determination of whether the Fund should continue to hold the securities.
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market instruments, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations and for temporary
defensive purposes may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the
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supervision of the Fund's Board of Directors (the 'Board'), monitors the
creditworthiness of those bank and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate this risk. A repurchase agreement is
considered to be a loan under the Investment Company Act of 1940, as amended
(the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury, and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by the Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities. The Fund does not
currently intend during the coming year to hold more than 5% of its net assets
in convertible securities rated below investment grade.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, see 'Portfolio
Investments' beginning at page 4 and 'Certain Investment Strategies' beginning
at page 8.
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SMALL COMPANIES. Investing in securities of small companies may involve
greater risks since these securities may have limited marketability and, thus,
may be more volatile. Because smaller companies normally have fewer shares
outstanding than larger companies, it may be more difficult for the Fund to buy
or sell significant amounts of such shares without an unfavorable impact on
prevailing prices. In addition, small companies are typically subject to a
greater degree of changes in earnings and business prospects than are larger,
more established companies. There is typically less publicly available
information concerning smaller companies than for larger, more established ones.
Therefore, an investment in the Fund may involve a greater degree of risk than
an investment in other mutual funds that seek capital appreciation by investing
in better-known, larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1993 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1993 Act ('Rule 144A Securities'). An
investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Fund's governing Board determines on an ongoing basis that an adequate
trading market exists for the security. In addition, to an adequate trading
market, the Board will also consider factors such as trading activity,
availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board will carefully monitor any
investments by the Fund in Rule 144A Securities. The Board may adopt guidelines
and delegate to Warburg the daily function of determining and monitoring the
liquidity of Rule 144A Securities, although the Board will retain ultimate
responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
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PORTFOLIO TRANSACTIONS AND TURNOVER RATE
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The Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the Fund. The Fund will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with its investment objective and policies. It is not possible to
predict the Fund's portfolio turnover rate. However, it is anticipated that the
Fund's annual turnover rate should not exceed 100%. High portfolio turnover
rates (100% or more) may result in dealer mark ups or underwriting commissions
as well as other transaction costs, including correspondingly higher brokerage
commissions. In addition, short-term gains realized from portfolio turnover may
be taxable to shareholders as ordinary income. See 'Dividends, Distributions and
Taxes -- Taxes' below and 'Investment Policies -- Portfolio Transactions' in the
Fund's Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
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Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery, (ii) lending portfolio securities and (iii) entering into
reverse repurchase agreements and dollar rolls. Detailed information concerning
the Fund's strategies and related risks is contained below and in the Fund's
Statement of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in the
securities of foreign issuers located in any foreign country. There are certain
risks involved in investing in securities of companies and governments of
foreign nations which are in addition to the usual risks inherent in domestic
investments. These risks include those resulting from fluctuations in currency
exchange rates, revaluation of currencies, future adverse political and economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions, reduced availability of public
information concerning issuers, the lack of uniform accounting, auditing and
financial reporting standards and other regulatory practices and requirements
that are often generally less rigorous than those applied in the United States.
Moreover, securities of many foreign companies may be less liquid and their
prices more volatile than those of securities of comparable U.S. companies.
Certain foreign countries are known to
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experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Fund may, but is not required to, engage in a number of strategies involving
options, futures and forward currency contracts. These strategies, commonly
referred to as 'derivatives,' may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE THE FUND'S INVESTMENT RISK. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Fund's net asset value and performance. Therefore, an investment in the Fund may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Fund's use of these strategies may be limited by
position and exercise limits established by securities and commodities exchanges
and the NASD and by the Internal Revenue Code of 1986, as amended (the 'Code').
Securities and Stock Index Options. The Fund may write put and call options
on up to 25% of the net asset value of the stock and debt securities in its
portfolio and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options; the Fund may also utilize up to 10% of its
assets to purchase options on stocks and debt securities that are traded on U.S.
and foreign exchanges, as well as over-the-counter ('OTC') options. The
purchaser of a put option on a security has the right to compel the purchase by
the writer of the underlying security, while the purchaser of a call option has
the right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, the Fund may also utilize up to
10% of its total assets to purchase exchange-listed and OTC put and call options
on stock indexes, and may also write such options. A stock index measures the
movement of a certain group of stocks by assigning relative values to the common
stocks included in the index.
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The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. The Fund may engage in options, futures and currency
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in
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a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. The Fund will engage in hedging transactions only when deemed advisable
by Warburg, and successful use of hedging transactions will depend on Warburg's
ability to correctly predict movements in the hedge and the hedged position and
the correlation between them, which could prove to be inaccurate. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities, indexes and currencies; currency, interest rate and
stock index futures contracts and options on these futures contracts; and
forward currency contracts. The use of these strategies may require that the
Fund maintain cash or certain liquid high-grade debt obligations or other assets
that are acceptable as collateral to the appropriate regulatory authority in a
segregated account with its custodian or a designated sub-custodian to the
extent the Fund's obligations with respect to these strategies are not otherwise
'covered' through ownership of the underlying security, financial instrument or
currency or by other portfolio positions or by other means consistent with
applicable regulatory policies. Segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
SHORT SALES AGAINST THE BOX. The Fund may enter into a short sale of
securities such that when the short position is open the Fund owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one 'against the box,' will be entered into by the Fund for the
purpose of receiving a portion of the interest earned by the executing broker
from the proceeds of the sale. The proceeds of the sale will generally be held
by the broker until the settlement date when the Fund delivers securities to
close out its short position. Although prior to delivery
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the Fund will have to pay an amount equal to any dividends paid on the
securities sold short, the Fund will receive the dividends from the securities
sold short or the dividends from the preferred stock or interest from the debt
securities convertible or exchangeable into the securities sold short, plus a
portion of the interest earned from the proceeds of the short sale. The Fund
will deposit, in a segregated account with its custodian or a qualified
subcustodian, the securities sold short or convertible or exchangeable preferred
stocks or debt securities in connection with short sales against the box. The
Fund will endeavor to offset transaction costs associated with short sales
against the box with the income from the investment of the cash proceeds. Not
more than 10% of the Fund's net assets (taken at current value) may be held as
collateral for short sales against the box at any one time.
The extent to which the Fund may make short sales may be limited by Code
requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
INVESTMENT GUIDELINES
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The Fund may invest up to 10% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. In addition, up to 5% of the Fund's total assets may be
invested in the securities of issuers which have been in continuous operation
for less than three years, and up to an additional 5% of its total assets may be
invested in warrants. The Fund may borrow from banks for temporary or emergency
purposes, such as meeting anticipated redemption requests, provided that reverse
repurchase agreements and any other borrowing by the Fund may not exceed 30% of
its total assets, and may pledge its assets to the extent necessary to secure
permitted borrowings. Whenever borrowings (including reverse repurchase
agreements) exceed 5% of the value of the Fund's net assets, the Fund will not
make any investments (including roll-overs). Except for the limitations on
borrowing, the investment guidelines set forth in this paragraph may be changed
at any time without shareholder consent by vote of the Board, subject to the
limitations contained in the 1940 Act. A complete list of investment
restrictions that the Fund has adopted identifying additional restrictions that
cannot be changed without the approval of the majority of the Fund's outstanding
shares is contained in the Statement of Additional Information.
MANAGEMENT OF THE FUND
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INVESTMENT ADVISER. The Fund employs Warburg as investment adviser to the
Fund. Warburg, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Fund in
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accordance with the Fund's investment objective and stated investment policies.
Warburg makes investment decisions for the Fund and places orders to purchase or
sell securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee calculated
at an annual rate of 1.00% of the Fund's average daily net assets. Although this
advisory fee is higher than that paid by most other investment companies,
including money market and fixed income funds, Warburg believes that it is
comparable to fees charged by other mutual funds with similar policies and
strategies. The advisory agreement between the Fund and Warburg provides that
Warburg will reimburse the Fund to the extent certain expenses that are
described in the Statement of Additional Information exceed applicable state
expense limitations. Warburg and the Fund's co-administrators may voluntarily
waive a portion of their fees from time to time and temporarily limit the
expenses to be paid by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of May 31, 1996,
Warburg managed approximately $16.3 billion of assets, including
approximately $9.7 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership. E.M. Warburg, Pincus & Co.,
Inc. ('EMW') controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. George U. Wyper is the portfolio manager of the Fund. Mr.
Wyper is a managing director of EMW, which he joined in August 1994, before
which time he was chief investment officer of White River Corporation and
president of Hanover Advisors, Inc. (1993-August 1994), chief investment officer
of Fund American Enterprises, Inc. (1990-1993) and the director of fixed income
investments at Fireman's Fund Insurance Company (1987-1990). Kyle F. Frey is
associate portfolio manager and research analyst of the Fund. Mr. Frey has been
with Warburg since 1989, before which time he was with Goldman, Sachs & Co.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which
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include preparing materials for meetings of the Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in other
regulatory filings as necessary and monitoring and developing compliance
procedures for the Fund. As compensation, the Fund pays Counsellors Service a
fee calculated at an annual rate of .10% of the Fund's average daily net assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation the Fund pays PFPC a
fee calculated at an annual rate of .10% of the Fund's average daily net assets,
subject to a minimum annual fee and exclusive of out-of-pocket expenses. PFPC
has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC'), serves as custodian of
the Fund's U.S. assets, and Fiduciary Trust Company International ('Fiduciary')
serves as custodian of the Fund's non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. Fiduciary's principal
business address is Two World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Fund. It has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ('BFDS'), responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. Counsellors
Securities receives a fee at an annual rate equal to .25% of the average daily
net assets of Fund's Common Shares for distribution services, pursuant to a
shareholder servicing and distribution plan (the '12b-1 Plan') adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (i) the sale of the Common Shares, (ii) ongoing servicing
and/or maintenance of the accounts of Common Shareholders of the Fund and (iii)
sub-transfer agency services, subaccounting services or administrative services
related to the sale of the Common Shares, all as set forth in the 12b-1 Plan.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
expenses actually incurred by Counsellors Securities and the payments may exceed
distribution expenses actually incurred. The Board evaluates the appropriateness
of the 12b-1 Plan
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on a continuing basis and in doing so consider all relevant factors, including
expenses borne by Counsellors Securities and amounts received under the 12b-1
Plan.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and choose its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO OPEN AN ACCOUNT
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In order to invest in the Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 927-2874. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information (i) about investing in
the Fund through a tax-deferred retirement plan, such as an Individual
Retirement Account ('IRA') or a Simplified Employee Pension IRA ('SEP-IRA'), or
(ii) about opening a Uniform Gifts to Minors Act or Uniform Transfers to Minors
Act ('UGMA') account, an investor should telephone Warburg Pincus Funds at (800)
927-2874 or write to Warburg Pincus Funds at the address set forth above.
Investors should consult their own tax advisers about the establishment of
retirement plans and UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874.
HOW TO PURCHASE SHARES
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Common Shares of the Fund may be purchased either by mail or, with special
advance instructions, by wire.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check
or money order made payable to the Fund or Warburg Pincus Funds (in U.S.
currency) should be sent along with the completed account
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application to Warburg Pincus Funds through its distributor, Counsellors
Securities Inc., at the address set forth above. Checks payable to the investor
and endorsed to the order of the Fund or Warburg Pincus Funds will not be
accepted as payment and will be returned to the sender. If payment is received
in proper form by the close of regular trading on the New York Stock Exchange
(the 'NYSE') (currently 4:00 p.m., Eastern time) on a day that the Fund
calculates its net asset value (a 'business day'), the purchase will be made at
the Fund's net asset value calculated at the end of that day. If payment is
received after the close of regular trading on the NYSE, the purchase will be
effected at the Fund's net asset value determined for the next business day
after payment has been received. Checks or money orders that are not in proper
form or that are not accompanied or preceded by a complete account application
will be returned to the sender. Shares purchased by check or money order are
entitled to receive dividends and distributions beginning on the day after
payment has been received. Checks or money orders in payment for shares of more
than one Warburg Pincus Fund should be made payable to Warburg Pincus Funds and
should be accompanied by a breakdown of amounts to be invested in each fund. If
a check used for purchase does not clear, the Fund will cancel the purchase and
the investor may be liable for losses or fees incurred. For a description of the
manner of calculating the Fund's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase Common Shares in the Fund by wiring
funds from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 927-2874. Federal funds may be wired to
Counsellors Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Small Company Value Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received by the close of regular trading on the NYSE
and payment by wire is received on the same day in proper form in accordance
with instructions set forth above, the shares will be priced according to the
net asset value of the Fund on that day and are entitled to dividends and
distributions beginning on that day. If payment by wire is received in proper
form by the close of the NYSE without a prior telephone order, the purchase will
be priced according to the net asset value of the Fund on that day and is
entitled to dividends and distributions beginning on that
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day. However, if a wire in proper form that is not preceded by a telephone order
is received after the close of regular trading on the NYSE, the payment will be
held uninvested until the order is effected at the close of business on the next
business day. Payment for orders that are not accepted will be returned to the
prospective investor after prompt inquiry. If a telephone order is placed and
payment by wire is not received on the same day, the Fund will cancel the
purchase and the investor may be liable for losses or fees incurred.
The minimum initial investment in the Fund is $2,500 and the minimum
subsequent investment is $100, except that subsequent minimum investments can be
as low as $50 under the Automatic Monthly Investment Plan described in the next
section. For retirement plans and UGMA accounts, the minimum initial investment
is $500. The Fund reserves the right to change the initial and subsequent
investment minimum requirements at any time. In addition, the Fund may, in its
sole discretion, waive the initial and subsequent investment minimum
requirements with respect to investors who are employees of EMW or its
affiliates or persons with whom Warburg has entered into an investment advisory
agreement. Existing investors will be given 15 days' notice by mail of any
increase in investment minimum requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Fund
are not normally issued.
PURCHASES THROUGH INTERMEDIARIES. The Fund understands that some
broker-dealers (other than Counsellors Securities), financial institutions,
securities dealers and other industry professionals, including certain of the
programs discussed below, may impose certain conditions on their clients or
customers that invest in the Fund, which are in addition to or different than
those described in this Prospectus, and may charge their clients or customers
direct fees. Certain features of the Fund, such as the initial and subsequent
investment minimums, redemption fees and certain trading restrictions, may be
modified or waived in these programs, and administrative charges may be imposed
for the services rendered. Therefore, a client or customer should contact the
organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his accounts with the organization.
These organizations will be responsible for promptly transmitting client or
customer purchase and redemption orders to the Fund in accordance with their
agreements with clients or customers.
Common Shares are available through the Charles Schwab & Company, Inc. Mutual
Fund OneSource'tm' Program; Fidelity Brokerage Services, Inc. Funds-Network'tm'
Program; Jack White & Company, Inc.; and Waterhouse
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Securities, Inc. Generally, these programs do not require customers to pay a
transaction fee in connection with purchases. These and other organizations that
have entered into agreements with the Fund or its agent may enter confirmed
purchase orders on behalf of clients and customers, with payment to follow no
later than the Fund's pricing on the following business day. If payment is not
received by such time, the organization could be held liable for resulting fees
or losses.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay certain financial institutions,
broker-dealers and recordkeeping organizations ('Service Organizations') with
whom it enters into agreements up to .35% (the 'Service Fee') of the average
annual value of accounts maintained by such Service Organizations with the Fund.
A portion of the Service Fee may be borne by the Fund as a transfer agency fee.
In addition, a Service Organization may directly or indirectly pay a portion of
its Service Fee to the Fund's custodian or transfer agent for costs related to
accounts of the Service Organization's clients or customers. The Service Fee
payable to any one Service Organization is determined based upon a number of
factors, including the nature and quality of services provided, the operations
processing requirements of the relationship and the standardized fee schedule of
the Service Organization.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders
to authorize the Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account applications and include a voided, unsigned check from the bank
account to be debited. Only an account maintained at a domestic financial
institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information, or
contact Warburg Pincus Funds at (800) 927-2874 for information or to modify or
terminate the program. Investors should allow a period of up to 30 days in order
to implement an automatic investment program. The failure to provide complete
information could result in further delays.
HOW TO REDEEM AND EXCHANGE SHARES
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REDEMPTION OF SHARES. An investor in the Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Common Shares may either be redeemed by mail or by telephone. Investors
should realize that in using the telephone redemption and exchange option, you
may be giving up a measure of security that you may have if you were to redeem
or exchange your shares in writing. If an investor desires to
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redeem his shares by mail, a written request for redemption should be sent to
Warburg Pincus Funds at the address indicated above under 'How to Open an
Account.' An investor should be sure that the redemption request identifies the
Fund, the number of shares to be redeemed and the investor's account number. In
order to change the bank account or address designated to receive the redemption
proceeds, the investor must send a written request (with signature guarantee of
all investors listed on the account when such a change is made in conjunction
with a redemption request) to Warburg Pincus Funds. Each mail redemption request
must be signed by the registered owner(s) (or his legal representative(s))
exactly as the shares are registered. If an investor has applied for the
telephone redemption feature on his account application, he may redeem his
shares by calling Warburg Pincus Funds at (800) 927-2874 between 9:00 a.m. and
4:00 p.m. (Eastern time) on any business day. An investor making a telephone
withdrawal should state (i) the name of the Fund, (ii) the account number of the
Fund, (iii) the name of the investor(s) appearing on the Fund's records, (iv)
the amount to be withdrawn and (v) the name of the person requesting the
redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. The Fund does
not currently impose a service charge for effecting wire transfers but reserves
the right to do so in the future. During periods of significant economic or
market change, telephone redemptions may be difficult to implement. If an
investor is unable to contact Warburg Pincus Funds by telephone, an investor may
deliver the redemption request to Warburg Pincus Funds by mail at the address
shown above under 'How to Open an Account.' Although the Fund will redeem shares
purchased by check or through the Automatic Investment Program before the funds
or check clear, payments of the redemption proceeds will be delayed for five
days (for funds received through the Automatic Investment Program) or 10 days
(for check purchases). Investors should consider purchasing shares using a
certified or bank check or money order if they anticipate an immediate need for
redemption proceeds.
If a redemption order is received by the Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be mailed or wired to an investor on
the next business day following the date a redemption order is effected. If,
however, in the judgment of Warburg, immediate payment would adversely affect
the Fund, the Fund reserves the right to pay the redemption proceeds within
seven days after the redemption order is effected. Furthermore, the Fund may
suspend the right of redemption or postpone the date of payment
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upon redemption (as well as suspend or postpone the recordation of an exchange
of shares) for such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less than
$2,000 ($250 in the case of a retirement plan or UGMA account), the Fund
reserves the right to redeem the shares in that account at net asset value.
Prior to any redemption, the Fund will notify an investor in writing that this
account has a value of less than the minimum. The investor will then have 60
days to make an additional investment before a redemption will be processed by
the Fund.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither
the Fund nor its agents will be liable for following instructions communicated
by telephone that it reasonably believes to be genuine. Reasonable procedures
will be employed on behalf of the Fund to confirm that instructions communicated
by telephone are genuine. Such procedures include providing written confirmation
of telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. The Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of the Fund for
Common Shares of another Warburg Pincus Fund at their respective net asset
values. Exchanges may be effected by mail or by telephone in the manner
described under 'Redemption of Shares' above. If an exchange request is received
by Warburg Pincus Funds or their agent prior to 4:00 p.m. (Eastern time), the
exchange will be made at each fund's net asset value determined at the end of
that business day. Exchanges may be effected without a sales charge but must
satisfy the minimum dollar amount necessary for new purchases. Due to the costs
involved in effecting exchanges, the Fund reserves the right to refuse to honor
more than three exchange requests by a shareholder in any 30-day period. The
exchange
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privilege may be modified or terminated at any time upon 60 days' notice to
shareholders. Currently, exchanges may be made with the following funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
WARBURG PINCUS TAX FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of capital;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income and,
secondarily, capital appreciation by investing in a diversified portfolio of
fixed-income securities;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a portfolio
consisting of investment grade fixed-income securities of governmental and
corporate issuers denominated in various currencies, including U.S. dollars;
WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term growth
of capital and income and a reasonable current return;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing principally in equity securities of
medium-sized domestic companies;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking long-term
capital apprecation by investing primarily in equity securities of non-United
States issuers;
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets;
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WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term growth of
capital by investing primarily in equity securities of Japanese issuers; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the Japanese
over-the-counter market.
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of the Fund for Common Shares in another Warburg Pincus Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs the
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Common Shares of the Fund at net asset
value. The election to receive dividends in cash may be made on the account
application or, subsequently, by writing to Warburg Pincus Funds at the address
set forth under 'How to Open an Account' or by calling Warburg Pincus Funds at
(800) 927-2874.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. The Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.
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Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be a long-term capital gain or loss if he
has held his shares for more than one year and will be a short-term capital gain
or loss if he has held his shares for one year or less. However, any loss
realized upon the sale or redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
any amounts treated as distributions of long-term capital gain during such
six-month period with respect to such shares. Investors may be proportionately
liable for taxes on income and gains of the Fund, but investors not subject to
tax on their income will not be required to pay tax on amounts distributed to
them. The Fund's investment activities, including short sales of securities,
will not result in unrelated business taxable income to a tax-exempt investor. A
Fund's dividends, to the extent not derived from dividends attributable to
certain types of stock issued by U.S. domestic corporations, will not qualify
for the dividends received deduction for corporations.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
NET ASSET VALUE
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The Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Common Share of the Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Common Shares and then dividing the result by the
total number of outstanding Common Shares.
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Securities listed on a U.S. securities exchange (including securities traded
through the NASDAQ National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
PERFORMANCE
- --------------------------------------------------------------------------------
The Fund quotes the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, the Fund may advertise the average annual total return of its Common
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Common Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Common Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Common Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Fund's
Statement of Additional Information describes the method used to determine
24
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<PAGE>
the total return. Current total return figures may be obtained by calling
Warburg Pincus Funds at (800) 927-2874.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Russell 2000 Small Stock Index, the
T. Rowe Price New Horizons Fund Index and the S&P 500 Index, which are unmanaged
indexes of common stocks; or (iii) other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The Fund
may include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
The Wall Street Journal, Investor's Daily, Money, Inc., Institutional Investor,
Barron's, Fortune, Forbes, Business Week, Mutual Fund Magazine, Morningstar,
Inc. and Financial Times.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign stocks on a portfolio otherwise composed of domestic
securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, the Fund may from
time to time compare the expense ratio of its Common Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fund was incorporated on October 23, 1995 under the laws of
the State of Maryland under the name 'Warburg, Pincus Small Company Value Fund,
Inc.' The Fund's charter authorizes the Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Advisor Shares. Under the Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board may similarly classify or reclassify any
25
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<PAGE>
class of its shares into one or more series and, without shareholder approval,
may increase the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the
Advisor Shares, pursuant to a separate prospectus. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries. Shares of each class represent equal
pro rata interests in the Fund and accrue dividends and calculate net asset
value and performance quotations in the same manner. Because of the higher fees
paid by the Advisor Shares, the total return on such shares can be expected to
be lower than the total return on Common Shares. Investors may obtain
information concerning the Advisor Shares from their investment professional or
by calling Counsellors Securities at (800) 927-2874.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Fund may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). The Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by the Fund may be obtained
by calling Warburg Pincus Funds at (800) 927-2874.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUND IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
26
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund's Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objective and Policies....................................... 4
Portfolio Investments................................................... 4
Risk Factors and Special Considerations................................. 6
Portfolio Transactions and Turnover Rate................................ 8
Certain Investment Strategies........................................... 8
Investment Guidelines................................................... 12
Management of the Fund.................................................. 12
How to Open an Account.................................................. 15
How to Purchase Shares.................................................. 15
How to Redeem and Exchange Shares....................................... 18
Dividends, Distributions and Taxes...................................... 22
Net Asset Value......................................................... 23
Performance............................................................. 24
General Information..................................................... 25
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
WPSCV-1-0796
<PAGE>
<PAGE>
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 369-2728
July 2, 1996
PROSPECTUS
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:
WARBURG PINCUS SMALL COMPANY VALUE FUND seeks long-term capital appreciation by
investing primarily in a portfolio of equity securities of small capitalization
companies.
The Fund currently offers two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Fund,
as well as Advisor Shares of certain other Warburg Pincus-advised funds, are
sold under the name 'Warburg Pincus Advisor Funds.' Individual investors may
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of up to .75% per annum, which is the economic equivalent of
a sales charge. The Fund's Common Shares are available for purchase by
individuals directly and are offered by a separate prospectus.
NO MINIMUM INVESTMENT
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Advisor Funds at (800) 369-2728.
Information regarding the status of shareholder accounts may also be obtained by
calling Warburg Pincus Advisor Funds at the same number. The Statement of
Additional Information, as amended or supplemented from time to time, bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
THE FUND'S EXPENSES
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information.' Because of the higher fees paid by
Advisor Shares, the total return on such shares can be expected to be lower than
the total return on Common Shares.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).......................... 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees...................................................................................... 0
12b-1 Fees........................................................................................... .50%
Other Expenses....................................................................................... 1.51%
--------
Total Fund Operating Expenses (after fee waivers)*................................................... 2.01%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year............................................................................................... $20
3 years.............................................................................................. $63
</TABLE>
- ------------
* Absent waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees for the Fund would equal 1.00%, Other
Expenses would equal 4.39%, and Total Fund Operating Expenses would equal
5.89%. Other Expenses are based on annualized estimates of expenses for the
fiscal period ending October 31, 1996, net of any fee waivers or expense
reimbursements. The investment adviser and co-administrator are under no
obligation to continue these waivers.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the Fund. Institutions also
may charge their clients fees in connection with investments in the Advisor
Shares, which fees are not reflected in the table. The Example should not be
considered a representation of past or future expenses; actual Fund expenses may
be greater or less than those shown. Moreover, while the Example assumes a 5%
annual return, the Fund's actual performance will vary and may result in a
return greater or less than 5%. Long-term shareholders of Advisor Shares may pay
more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc. (the 'NASD').
2
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<PAGE>
FINANCIAL HIGHLIGHTS
(For an Advisor 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 the Fund is contained in
the Fund's semiannual 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 (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.
3
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INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks long-term capital appreciation. The Fund's objective is a
fundamental policy and may not be amended without first obtaining the approval
of a majority of the outstanding shares of the Fund. Any investment involves
risk and, therefore, there can be no assurance that the Fund will achieve its
investment objective. See 'Portfolio Investments' and 'Certain Investment
Strategies' for descriptions of certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues its
investment objective by investing primarily in a portfolio of equity securities
of small capitalization companies that Warburg, Pincus Counsellors, Inc., the
Fund's investment adviser ('Warburg'), considers to be relatively undervalued.
Current income is a secondary consideration in selecting portfolio investments.
Under normal market conditions the Fund will invest at least 65% of its total
assets in common stocks, preferred stocks, debt securities convertible into
common stocks, warrants and other rights of small companies (i.e., companies
having stock market capitalizations of $1 billion or less at the time of initial
purchase).
Warburg will determine whether a company is undervalued based on a variety
of measures, including price/earnings ratio, price/book ratio, price/cash flow
ratio, earnings growth and debt/capital ratio. Other relevant factors, including
a company's asset value, franchise value and quality of management, will also be
considered. The Fund will invest primarily in companies whose securities are
traded on U.S. stock exchanges or in the U.S. over-the-counter market, but may
invest up to 20% of its assets in foreign securities.
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. The Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) that are
not convertible into common stock for the purpose of seeking capital
appreciation. The interest income to be derived may be considered as one factor
in selecting debt securities for investment by Warburg. Because the market value
of debt obligations can be expected to vary inversely to changes in prevailing
interest rates, investing in debt obligations may provide an opportunity for
capital appreciation when interest rates are expected to decline. The success of
such a strategy is dependent upon Warburg's ability to accurately forecast
changes in interest rates. The market value of debt obligations may also be
expected to vary depending upon, among other factors, the ability of the issuer
to repay principal and interest, any change in investment rating and general
economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ('Moody's') or Standard &
Poor's Ratings Group ('S&P') or, if unrated, is determined to be of comparable
quality by Warburg. Bonds rated in the fourth highest grade may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. Subsequent to its purchase by
the Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require sale of such securities. Warburg will consider such event in its
determination of whether the Fund should continue to hold the securities.
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
circumstances, up to
4
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<PAGE>
20% of its total assets in domestic and foreign short-term (one year or less
remaining to maturity) and medium-term (five years or less remaining to
maturity) money market obligations and for temporary defensive purposes may
invest in these securities without limit. These instruments consist of
obligations issued or guaranteed by the U.S. government or a foreign government,
their agencies or instrumentalities; bank obligations (including certificates of
deposit, time deposits and bankers' acceptances of domestic or foreign banks,
domestic savings and loans and similar institutions) that are high quality
investments or, if unrated, deemed by Warburg to be high quality investments;
commercial paper rated no lower than A-2 by S&P or Prime-2 by Moody's or the
equivalent from another major rating service or, if unrated, of an issuer having
an outstanding, unsecured debt issue then rated within the three highest rating
categories; and repurchase agreements with respect to the foregoing.
Repurchase Agreements. The Fund may enter into repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the 'Board'), monitors the creditworthiness of those
bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the Investment Company Act of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, the Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher
5
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<PAGE>
yields than the underlying equity securities, but generally offer lower yields
than non-convertible securities of similar quality. The value of convertible
securities fluctuates in relation to changes in interest rates like bonds and,
in addition, fluctuates in relation to the underlying common stock. Subsequent
to purchase by the Fund, convertible securities may cease to be rated or a
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require sale of such securities, although Warburg will
consider such event in its determination of whether the Fund should continue to
hold the securities. The Fund does not currently intend during the coming year
to hold more than 5% of its net assets in convertible securities rated below
investment grade. RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, see 'Portfolio
Investments' beginning at page 3 and 'Certain Investment Strategies' beginning
at page 6.
SMALL COMPANIES. Investing in securities of small companies may involve greater
risks since these securities may have limited marketability and, thus, may be
more volatile. Because smaller companies normally have fewer shares outstanding
than larger companies, it may be more difficult for the Fund to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. In addition, small companies are typically subject to a greater degree
of changes in earnings and business prospects than are larger, more established
companies. There is typically less publicly available information concerning
smaller companies than for larger, more established ones. Therefore, an
investment in the Fund may involve a greater degree of risk than an investment
in other mutual funds that seek capital appreciation by investing in
better-known, larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 Act ('Rule 144A Securities'). An
investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Fund's governing Board determines on an ongoing basis that an adequate
trading market exists for the security. In addition to an adequate trading
market, the Board will also consider factors such as trading activity,
availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board will carefully monitor any
investments by the Fund in Rule 144A Securities. The Board may adopt guidelines
and delegate to Warburg the daily function of determining and monitoring the
liquidity of Rule 144A Securities, although the Board will retain ultimate
responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
the Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and
6
<PAGE>
<PAGE>
other investor protection requirements applicable to companies
whose securities are publicly traded. The Fund's investment in illiquid
securities is subject to the risk that should the Fund desire to sell any of
these securities when a ready buyer is not available at a price that is deemed
to be representative of their value, the value of the Fund's net assets could be
adversely affected.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Fund. The Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. It is not
possible to predict the Fund's portfolio turnover rate. However, it is
anticipated that the Fund's annual turnover rate should not exceed 100%. High
portfolio turnover rates (100% or more) may result in dealer mark ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See 'Dividends, Distributions and Taxes -- Taxes' below and 'Investment
Policies -- Portfolio Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Counsellors believes that the charge for the transaction does
not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery, (ii) lending portfolio securities and (iii) entering into
reverse repurchase agreements and dollar roll transactions. Detailed information
concerning the Fund's strategies and related risks is contained below and in the
Fund's Statement of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in the
securities of issuers located in any foreign country. There are certain risks
involved in investing in securities of companies and governments of foreign
nations which are in addition to the usual risks inherent in domestic
investments. These risks include those resulting from fluctuations in currency
exchange rates, revaluation of currencies, future adverse political and economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions, reduced availability of public
information concerning issuers, the lack of uniform accounting, auditing and
financial reporting standards and other regulatory practices and requirements
that are often generally less rigorous than those applied in the United States.
Moreover, securities of many foreign companies may be less liquid and their
prices more volatile than those of securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. In addition, with respect
to certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Fund, including the withholding of dividends.
Foreign securities may be subject to foreign government taxes that would reduce
the net yield on such securities. Moreover, individual foreign economies may
differ
7
<PAGE>
<PAGE>
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Investment in foreign
securities will also result in higher operating expenses due to the cost of
converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Fund may, but is not required to, engage in a number of strategies involving
options, futures and forward currency contracts. These strategies, commonly
referred to as 'derivatives,' may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE THE FUND'S INVESTMENT RISK. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Fund's net asset value and performance. Therefore, an investment in the Fund may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Fund's use of these strategies may be limited by
position and exercise limits established by securities and commodities exchanges
and the NASD and by the Internal Revenue Code of 1986, as amended (the 'Code').
Securities and Stock Index Options. The Fund may write put and call options
on up to 25% of the net asset value of the stock and debt securities in its
portfolio and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options; the Fund may also utilize up to 10% of its
assets to purchase options on stocks and debt securities that are traded on U.S.
and foreign exchanges, as well as over-the-counter ('OTC') options. The
purchaser of a put option on a security has the right to compel the purchase by
the writer of the underlying security, while the purchaser of a call option has
the right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, the Fund may also utilize up to
10% of its total assets to purchase exchange-listed and OTC put and call options
on stock indexes, and may also write such options. A stock index measures the
movement of a certain group of stocks by assigning relative values to the common
stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the
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premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. The Fund may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. The Fund will engage in hedging transactions only when deemed advisable
by Warburg, and successful use of hedging transactions will depend on Warburg's
ability to correctly predict movements in the hedge and the hedged position and
the correlation between them, which could prove to be inaccurate. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on securities, indexes and currencies; currency,
interest rate and stock index futures contracts and options on these futures
contracts; and forward currency contracts. The use of these strategies may
require that the Fund maintain cash or certain liquid high-grade debt
obligations or other assets that are acceptable as collateral to the appropriate
regulatory authority in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise 'covered' through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated
assets cannot be sold or transferred unless equivalent assets are substituted in
their place or
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it is no longer necessary to segregate them. As a result, there is a possibility
that segregation of a large percentage of the Fund's assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
SHORT SALES AGAINST THE BOX. The Fund may enter into a short sale of
securities such that when the short position is open the Fund owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one 'against the box,' will be entered into by the Fund for the
purpose of receiving a portion of the interest earned by the executing broker
from the proceeds of the sale. The proceeds of the sale will generally be held
by the broker until the settlement date when the Fund delivers securities to
close out its short position. Although prior to delivery the Fund will have to
pay an amount equal to any dividends paid on the securities sold short, the Fund
will receive the dividends from the securities sold short or the dividends from
the preferred stock or interest from the debt securities convertible or
exchangeable into the securities sold short, plus a portion of the interest
earned from the proceeds of the short sale. The Fund will deposit, in a
segregated account with its custodian or a qualified subcustodian, the
securities sold short or convertible or exchangeable preferred stocks or debt
securities in connection with short sales against the box. The Fund will
endeavor to offset transaction costs associated with short sales against the box
with the income from the investment of the cash proceeds. Not more than 10% of
the Fund's net assets (taken at current value) may be held as collateral for
short sales against the box at any one time.
The extent to which the Fund may make short sales may be limited by Code
requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
INVESTMENT GUIDELINES
The Fund may invest up to 10% of its net assets in securities with
contractual or other restrictions on resale and other investments that are not
readily marketable, including (i) securities issued as part of a privately
negotiated transaction between an issuer and one or more purchasers; (ii)
repurchase agreements with maturities greater than seven days; (iii) time
deposits maturing in more than seven calendar days; and (iv) certain Rule 144A
Securities. In addition, up to 5% of the Fund's total assets may be invested in
the securities of issuers which have been in continuous operation for less than
three years, and up to an additional 5% of its total assets may be invested in
warrants. The Fund may borrow from banks for temporary or emergency purposes,
such as meeting anticipated redemption requests, provided that borrowings by the
Fund may not exceed 30% of its total assets, and may pledge its assets to the
extent necessary to secure permitted borrowings. Whenever borrowings exceed 5%
of the value of the Fund's net assets, the Fund will not make any investments
(including roll-overs). Except for the limitations on borrowing, the investment
guidelines set forth in this paragraph may be changed at any time without
shareholder consent by vote of the Board, subject to the limitations contained
in the 1940 Act. A complete list of investment restrictions that the Fund has
adopted identifying additional restrictions that cannot be changed without the
approval of the majority of the Fund's outstanding shares is contained in the
Statement of Additional Information.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. The Fund employs Warburg as investment adviser to the Fund.
Warburg, subject to the control of the Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Funds in accordance with
the Fund's investment objective and stated investment policies. Warburg makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
manage-
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ment personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee
calculated at an annual rate of 1.00% of the Fund's average daily net assets.
Although this advisory fee is higher than that paid by most other investment
companies, including money market and fixed income funds, Warburg believes that
it is comparable to fees charged by other mutual funds with similar policies and
strategies. The advisory agreement between the Fund and Warburg provides that
Warburg will reimburse the Fund to the extent certain expenses that are
described in the Statement of Additional Information exceed applicable state
expense limitations. Warburg and the Fund's co-administrators may voluntarily
waive a portion of their fees from time to time and temporarily limit the
expenses to be paid by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of May 30, 1996,
Warburg managed approximately $16.3 billion of assets, including
approximately $9.7 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership. E.M. Warburg, Pincus & Co.,
Inc. ('EMW') controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. George U. Wyper is the portfolio manager of the Fund. Mr.
Wyper is a managing director of EMW, which he joined in August 1994, before
which time he was chief investment officer of White River Corporation and
president of Hanover Advisors, Inc. (1993-August 1994), chief investment officer
of Fund American Enterprises, Inc. (1990-1993) and the director of fixed income
investments at Fireman's Fund Insurance Company (1987-1990). Kyle F. Frey is
associate portfolio manager and research analyst of the Fund. Mr. Frey has been
with Warburg since 1989, before which time he was with Goldman, Sachs & Co.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in other regulatory filings
as necessary and monitoring and developing compliance procedures for the Fund.
As compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of its average daily net assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation, the Fund pays to PFPC
a fee calculated at an annual rate of .10% of the Fund's average daily net
assets, subject to a minimum annual fee and exclusive of out-of-pocket expenses.
PFPC has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware
19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
Fund's U.S. assets, and Fiduciary Trust Company International ('Fiduciary')
serves as custodian of the Fund's non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets,
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Philadelphia, Pennsylvania 19101. Fiduciary's principal business address is Two
World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Fund. It has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ('BFDS'), responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive North
Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Advisor Shares to Counsellors Securities for distribution
services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE SHARES
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future. References in this Prospectus to
shareholders or investors also include Institutions which may act as record
holders of the Advisor Shares.
Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and
sending payment by wire. After telephoning (800) 369-2728 for instructions, an
Institution should then wire federal funds to Counsellors Securities Inc. using
the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Small Company Value
Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application
has been received in proper form, and an account number has been established. If
a telephone order is received by the close of regular trading on the New York
Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment by
wire is received on the same day in proper form in accordance with instructions
set forth above, the
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shares will be priced according to the net asset value of the Fund on that day
and are entitled to dividends and distributions beginning on that day. If
payment by wire is received in proper form by the close of the NYSE without a
prior telephone order, the purchase will be priced according to the net asset
value of the Fund on that day and is entitled to dividends and distributions
beginning on that day. However, if a wire in proper form that is not preceded by
a telephone order is received after the close of regular trading on the NYSE,
the payment will be held uninvested until the order is effected at the close of
business on the next business day. Payment for orders that are not accepted will
be returned after prompt inquiry. Certain organizations or Institutions that
have entered into agreements with the Fund or its agent may enter confirmed
purchase orders on behalf of customers, with payment to follow no later than
three business days following the day the order is effected. If payment is not
received by such time, the organization could be held liable for resulting fees
or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients or customers that
invest in the Fund, which are in addition to or different than those described
in this Prospectus, and may charge their clients or customers direct fees.
Certain features of the Fund, such as the initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived in these programs, and administrative charges may be imposed for the
services rendered. Therefore, a client or customer should contact the
organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his account with the organization.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay certain financial institutions,
broker-dealers and recordkeeping organizations ('Service Organizations') with
whom it enters into agreements up to .35% (the 'Service Fee') of the average
annual value of accounts maintained by such Service Organizations with the Fund.
A portion of the Service Fee may be borne by the Fund as a transfer agency fee.
In addition, a Service Organization may directly or indirectly pay a portion of
its Service Fee to the Fund's custodian or transfer agent for costs related to
accounts of the Service Organization's clients or customers. The Service Fee
payable to any one Service Organization is determined based upon a number of
factors, including the nature and quality of services provided, the operations
processing requirements of the relationship and the standardized fee schedule of
the Service Organization.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that the
Fund's net asset value is calculated (see 'Net Asset Value' below). Requests for
the redemption (or exchange) of Advisor Shares are placed with an Institution by
its customers, which is then responsible for the prompt transmission of the
request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 369-2728 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
day on which the Fund's net asset value is calculated. An investor making a
telephone withdrawal should state (i) the name of the Fund, (ii) the account
number of the Fund, (iii) the name of the investor(s) appearing
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on the Fund's records, (iv) the amount to be withdrawn and (v) the name of the
person requesting the redemption.
After receipt of the redemption request, the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received by the Fund or its agent prior to the
close of regular trading on the NYSE, the redemption order will be effected at
the net asset value per share as determined on that day. If a redemption order
is received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect the Fund, the
Fund reserves the right to pay the redemption proceeds within seven days after
the redemption order is effected. Furthermore, the Fund may suspend the right of
redemption or postpone the date of payment upon redemption (as well as suspend
or postpone the recordation of an exchange of shares) for such periods as are
permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds or their agent prior to 4:00 p.m. (Eastern time), the
exchange will be made at each fund's net asset value determined at the end of
that business day. Exchanges may be effected without a sales charge. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
The exchange privilege is available to shareholders residing in any state
in which the Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact Warburg
Pincus Advisor Funds at (800) 369-2728.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December.
Net investment income earned on weekends and when the NYSE is not open will be
computed as
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of the next business day. Unless an investor instructs the Fund to pay dividends
or distributions in cash, dividends and distributions will automatically be
reinvested in additional Advisor Shares of the relevant Fund at net asset value.
The election to receive dividends in cash may be made on the account application
or, subsequently, by writing to Warburg Pincus Advisor Funds at the address set
forth under 'How to Redeem and Exchange Shares' or by calling Warburg Pincus
Advisor Funds at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to continue to qualify each year as a 'regulated
investment company' within the meaning of the Code. The Fund, if it qualifies as
a regulated investment company, will be subject to a 4% non-deductible excise
tax measured with respect to certain undistributed amounts of ordinary income
and capital gain. The Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains will be taxable
to investors as long-term capital gains, in each case regardless of how long
investors have held Advisor Shares or whether received in cash or reinvested in
additional Advisor Shares. As a general rule, an investor's gain or loss on a
sale or redemption of its Fund shares will be a long-term capital gain or loss
if it has held its shares for more than one year and will be a short-term
capital gain or loss if it has held its shares for one year or less. However,
any loss realized upon the sale or redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gain during
such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Fund, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities will not result in
unrelated business taxable income to a tax-exempt investor. The Fund's
dividends, to the extent not derived from dividends attributable to certain
types of stock issued by U.S. domestic corporations, will not qualify for the
dividends received deduction for corporations.
Certain provisions of the Code may require that a gain recognized by the
Fund upon the closing of a short sale be treated as a short-term capital gain,
and that a loss recognized by the Fund upon the closing of a short sale be
treated as a long-term capital loss, regardless of the amount of time that the
Fund held the securities used to close the short sale. The Fund's use of short
sales may also affect the holding periods of certain securities held by the Fund
if such securities are 'substantially identical' to securities used by the Fund
to close the short sale. The Fund's short selling activities will not result in
unrelated business taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.
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NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
PERFORMANCE
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading Warburg Pincus Advisor Funds. From
time to time, the Fund may advertise the average annual total return of Advisor
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as on a year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling Warburg Pincus Advisor
Funds at (800) 369-2728.
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In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Russell 2000 Small Stock Index, the
T. Rowe Price New Horizons Fund Index and the S&P 500 Index, which are unmanaged
indexes; or (iii) other appropriate indexes of investment securities or with
data developed by Warburg derived from such indexes. The Fund may also include
evaluations of the Fund published by nationally recognized ranking services and
by financial publications that are nationally recognized, such as The Wall
Street Journal, Investor's Daily, Money, Inc., Institutional Investor, Barron's,
Fortune, Forbes, Business Week, Mutual Fund Magazine, Morningstar, Inc. and
Financial Times.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign stocks on a portfolio otherwise composed of domestic
securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, the Fund may from
time to time compare the expense ratio of Advisor Shares to that of investment
companies with similar objectives and policies, based on data generated by
Lipper Analytical Services, Inc. or similar investment services that monitor
mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Fund was incorporated on October 23, 1995 under the laws of
the State of Maryland under the name 'Warburg, Pincus Small Company Value Fund,
Inc.' The Fund's charter authorizes the Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Advisor Shares. Under the Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board may similarly classify or reclassify any class of its
shares into one or more series and, without shareholder approval, may increase
the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 369-2728.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that
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each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any member of the Board may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
its account, as well as a statement of its account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). The Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by the Fund may be obtained
by calling Warburg Pincus Advisor Funds at (800) 369-2728. Each Institution that
is the record owner of Advisor Shares on behalf of its customers will send a
statement to those customers periodically showing their indirect interest in
Advisor Shares, as well as providing other information about the Fund. See
'Shareholder Servicing.'
SHAREHOLDER SERVICING
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
'Service Organizations') will enter into agreements ('Agreements') with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may provide certain distribution, shareholder servicing,
administrative and/or accounting services for Customers. Distribution services
would be marketing or other services in connection with the promotion and sale
of Advisor Shares. Shareholder services that may be provided include responding
to Customer inquiries, providing information on Customer investments and
providing other shareholder liaison services. Administrative and accounting
services related to the sale of Advisor Shares may include (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the Fund's transfer agent, (ii) processing
dividend payments from the Fund on behalf of Customers and (iii) providing
sub-accounting related to the sale of Advisor Shares beneficially owned by
Customers or the information to the Fund necessary for sub-accounting. The Board
has approved a Distribution Plan (the 'Plan') pursuant to Rule 12b-1 under the
1940 Act under which each participating Service Organization will be paid, out
of the assets of the Fund (either directly by the Fund or by Counsellors
Securities on behalf of the Fund), a negotiated fee on an annual basis not to
exceed .75% (up to .25% annual service fee and a .50% annual distribution fee)
of the value of the average daily net assets of its Customers invested in
Advisor Shares, The current 12b-1 fee is .50% per annum. The Board evaluates the
appropriateness of the Plan on a continuing basis and in doing so considers all
relevant factors.
To offset start-up costs and expenses associated with certain qualified
retirement plans making Advisor Shares available to plan participants,
Counsellors Securities pays CIGNA Financial Advisors, Inc. a registered
broker-dealer which is the broker of record for Connecticut General Life
Insurance Company, a one-time fee of .25% of the average aggregate account
balances of plan participants during the first year of implementation.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OF THE ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
THE FUND'S EXPENSES .......................................................... 2
FINANCIAL HIGHLIGHTS ......................................................... 3
INVESTMENT OBJECTIVE AND POLICIES ............................................ 4
PORTFOLIO INVESTMENTS ........................................................ 4
RISK FACTORS AND SPECIAL
CONSIDERATIONS ............................................................ 6
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE ...................................................................... 7
CERTAIN INVESTMENT STRATEGIES ................................................ 7
INVESTMENT GUIDELINES ....................................................... 10
MANAGEMENT OF THE FUND ...................................................... 10
HOW TO PURCHASE SHARES ...................................................... 12
HOW TO REDEEM AND EXCHANGE
SHARES ................................................................... 13
DIVIDENDS, DISTRIBUTIONS AND TAXES .......................................... 14
NET ASSET VALUE ............................................................. 16
PERFORMANCE ................................................................. 16
GENERAL INFORMATION ......................................................... 17
SHAREHOLDER SERVICING ....................................................... 18
ADSCV-1-0796
[LOGO]
[ ] WARBURG PINCUS
SMALL COMPANY VALUE FUND
PROSPECTUS
JULY 2, 1996
<PAGE>
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STATEMENT OF ADDITIONAL INFORMATION
July 2 1996
WARBURG PINCUS SMALL COMPANY VALUE FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) WARBURG
Contents
<TABLE>
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Page
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<S> <C>
Investment Objective..............................................................................................2
Investment Policies...............................................................................................2
Management Of The Fund...........................................................................................25
Additional Purchase And Redemption Information...................................................................32
Exchange Privilege...............................................................................................32
Additional Information Concerning Taxes..........................................................................33
Determination Of Performance.....................................................................................36
Independent Accountants and Counsel..............................................................................37
Miscellaneous....................................................................................................37
Financial Statements.............................................................................................37
Appendix Description Of Ratings.................................................................................A-1
</TABLE>
This Statement of Additional Information is meant to be read
in conjunction with the Prospectus for the Common Shares of Warburg Pincus Small
Company Value Fund (the "Fund") and with the Prospectus for the Advisor Shares
of the Fund, each dated July 2, 1996, 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.
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INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital
appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of the
Fund's investment objective and policies in the Prospectuses.
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 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
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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-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 Options Clearing Corporation (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
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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 Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
the Fund's ability to terminate options positions established in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in
over-the-counter transactions would fail to meet their obligations to the Fund.
The Fund, however, intends to purchase over-the-counter options only from
dealers whose debt securities, as determined by Warburg, are considered to be
investment grade. If, as a covered call option writer, the Fund is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise. In either case, the Fund would continue to be
at market risk on the security and could face higher transaction costs,
including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that the
Fund and other clients of Warburg and certain of its affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options the Fund will
be able to purchase on a particular security.
Stock Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on stock indexes. A stock index
measures the movement of a certain group
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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.
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 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,
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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 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
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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.
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.
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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 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
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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 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
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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 Securities and Exchange Commission (the "SEC")
with respect to coverage of forward currency contracts; options written by the
Fund on currencies, securities and indexes; and currency, interest rate and
index futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Fund of cash or liquid
high-grade debt securities or other securities that are acceptable as collateral
to the appropriate regulatory authority.
For example, a call option written by the Fund on securities
may require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put 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.
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Additional Information on Other Investment Practices
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.
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
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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 such securities to some extent. Whether investor perceptions will continue
to have a negative effect on the price of such securities is uncertain.
Securities of Other Investment Companies. The Fund may invest
in securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Fund's total assets and (iii)
when added to all other investment company securities held by the Fund, do not
exceed 10% of the value of the Fund's total assets.
Lending of Portfolio Securities. The Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 20% of the Fund's total assets taken at value. The Fund will not lend
portfolio securities to affiliates of Warburg unless it has applied for and
received specific authority to do so from the SEC. Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S. government securities,
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund. From time to time, the Fund may return a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral
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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.
Foreign Investments. The Fund may invest up to 20% of its
total assets in the securities of foreign issuers. Investors should recognize
that investing in foreign companies involves certain risks, including those
discussed below, which are not typically associated with investing in U.S.
issuers. A change in the value of a foreign currency relative to the U.S. dollar
will result in a corresponding change in the dollar value of the Fund's assets
denominated in that foreign currency. Changes in foreign currency exchange rates
may also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and gains, if any,
to be distributed to shareholders by the Fund. The rate of exchange between the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. Changes in the exchange rate may result
over time from the interaction of many factors directly or indirectly affecting
economic and political conditions in the United States and a particular foreign
country, including economic and political developments in other countries. Of
particular importance are rates of inflation, interest rate levels, the balance
of payments and the extent of government surpluses or deficits in the United
States and the particular foreign country, all of which are in turn sensitive to
the monetary, fiscal and trade policies pursued by the governments of the United
States and foreign countries important to international trade and finance.
Governmental intervention may also play a significant role. National governments
rarely voluntarily allow their currencies to float freely in response to
economic forces. Sovereign governments use a variety of techniques, such as
intervention by a country's central bank or imposition of regulatory controls or
taxes, to affect the exchange rates of their currencies. The Fund may use
hedging techniques with the objective of protecting against loss through the
fluctuation of the values of foreign currencies against the U.S. dollar,
particularly the forward market in foreign exchange, currency options and
currency futures. See "Currency Transactions" and "Futures Activities" above.
Many of the foreign securities held by the Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information about
the securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign
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companies are generally not subject to uniform financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies. In
addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or domestic
developments which could affect U.S. investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency, and balance of payments
positions. The Fund may invest in securities of foreign governments (or agencies
or instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
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.
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 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.
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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 transaction costs
associated with short sales against the box, but the Fund will endeavor to
offset these costs with the income from the investment of the cash proceeds of
short sales.
Securities of Smaller Companies. The Fund's investments in
small companies involve 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 smaller
companies may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile.
American, European and Continental Depositary Receipts. The
assets of the Fund may be invested in the securities of foreign issuers in the
form of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in
Europe typically by non-U.S. banks and trust companies that evidence ownership
of either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs and CDRs in bearer form are
designed for use in European securities markets.
Warrants. The Fund may invest up to 5% of net assets in
warrants (valued at the lower of cost or market) (other than warrants acquired
by the Fund as part of a unit or attached to securities at the time of
purchase). Because a warrant does not carry with it the right to dividends or
voting rights with respect to the securities which it entitles a holder to
purchase, and because it
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does not represent any rights in the assets of the issuer, warrants may be
considered more speculative than certain other types of investments. Also, the
value of a warrant does not necessarily change with the value of the underlying
securities and a warrant ceases to have value if it is not exercised prior to
its expiration date.
Non-Publicly Traded and Illiquid Securities. The Fund may not
invest more than 10% of its net assets in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market, repurchase agreements which have a maturity of longer
than seven days and time deposits maturing in more than seven days. Securities
that have legal or contractual restrictions on resale but have a readily
available market are not considered illiquid for purposes of this limitation.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A Securities. Rule 144A under the Securities Act
adopted by the SEC allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. Warburg anticipates that the market for certain restricted securities
such as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of 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
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determines that the Rule 144A Securities are liquid. In reaching liquidity
decisions, the Board and 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 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
17
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<PAGE>
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 10 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 11 through 17 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.
3. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
government securities and except that up to 25% of the value of the Fund's total
assets may be invested without regard to this 5% limitation.
4. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
5. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
18
<PAGE>
<PAGE>
7. 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."
8. 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.
9. Invest in commodities, except that the Fund may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, purchase and sell currencies on a forward commitment or
delayed-delivery basis and enter into stand-by commitments.
10. Issue any senior security except as permitted in the
Fund's investment limitations.
11. 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.
12. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the purchase of securities on a
forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
13. 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.
14. 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.
15. 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.
16. 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.
19
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<PAGE>
17. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
The aggregate of options on securities, indexes and currencies
purchased by the Fund is limited to 10% of the Fund's assets. This and certain
other non-fundamental investment limitations are currently required by one or
more states in which shares of the Fund are sold. These may be more restrictive
than the limitations set forth above. Should the Fund determine that any such
commitment is no longer in the best interest of the Fund and its shareholders,
the Fund will revoke the commitment by terminating the sale of Fund shares in
the state involved. In addition, the relevant state may change or eliminate its
policy regarding such investment limitations.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 above) is adhered to at the time of an investment,
a later increase or decrease in the percentage of assets resulting from a change
in the values of portfolio securities or in the amount of the Fund's assets will
not constitute a violation of such restriction.
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. The valuation of short sales of securities, which are not traded
on a national exchange, will be at the mean of bid and asked prices. Amortized
cost involves valuing a portfolio instrument at its initial cost and thereafter
assuming a constant amortization to maturity of an discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. Short-term obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Board. The amortized cost method of valuation may also be used with respect to
other debt obligations with 60 days or less remaining to maturity. In
determining the market value of portfolio investments, the Fund may employ
outside organizations (a "Pricing Service") which may use a matrix, formula or
other objective method that takes into consideration market indexes, matrices,
yield curves and other specific adjustments. The procedures of Pricing Services
are reviewed periodically by the officers of the Fund under the general
supervision and responsibility of the Board, which may replace a Pricing Service
at any time. Securities, options and futures contracts for which market
quotations are not available and certain other assets of the Fund will be valued
at their fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. In addition, the Board or its delegates may
value a security at fair value
20
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<PAGE>
if it determines that such security's value determined by the methodology set
forth above does not reflect its fair value.
Trading in securities in certain foreign countries is
completed at various times prior to the close of business on each business day
in New York (i.e., a day on which the NYSE is open for trading). In addition,
securities trading in a particular country or countries may not take place on
all business days in New York. Furthermore, trading takes place in various
foreign markets on days which are not business days in New York and days on
which the Fund's net asset value is not calculated. As a result, calculation of
the Fund's net asset value may not take place contemporaneously with the
determination of the prices of certain portfolio securities used in such
calculation. 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 rate as quoted by a Pricing
Service. If such quotations are not available, the rate of exchange will be
determined in good faith pursuant to consistently applied procedures established
by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Fund 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
21
<PAGE>
<PAGE>
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, $41,985 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.
Investment decisions for the Fund concerning specific
portfolio securities are made independently from those for other clients advised
by Warburg. Such other investment clients may invest in the same securities as
the Fund. When purchases or sales of the same security are made at substantially
the same time on behalf of such other clients, transactions are averaged as to
price and available investments allocated as to amount, in a manner which
Warburg believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or sold for the Fund.
To the extent permitted by law, Warburg may aggregate the securities to be sold
or purchased for the Fund with those to be sold or purchased for such other
investment clients in order to obtain best execution.
Any portfolio transaction for the Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("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.
22
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<PAGE>
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, believes such practice to be otherwise in the Fund's
interest.
Portfolio Turnover
The Fund does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. The Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could result in high
portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. The Fund's investment in special
situation companies could result in high portfolio turnover. To the extent that
its portfolio is traded for the short-term, the Fund will be engaged essentially
in trading activities based on short-term considerations affecting the value of
an issuer's stock instead of long-term investments based on fundamental
valuation of securities. Because of this policy, portfolio securities may be
sold without regard to the length of time for which they have been held.
Consequently, the annual portfolio turnover rate of the Fund may be higher than
mutual funds having a similar objective that do not invest in special situation
companies.
23
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<PAGE>
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;
1737 Cambridge Street Professor at Harvard University;
Cambridge, Massachusetts 02138 Director or Trustee of Circuit
City Stores, Inc. (retail electronics and appliances) and
Phoenix Home Life Insurance Co.
Donald J. Donahue (71)...................... Director
99 Indian Field Road Chairman of Magma Copper Company
Greenwich, Connecticut 06830 since January 1987; Director or Trustee of GEV Corporation
and Signet Star Reinsurance Company; Chairman and Director
of NAC Holdings from September 1990-June 1993.
Jack W. Fritz (69).......................... Director
P.O. Box 483 Private investor; Consultant and
Wilson, Wyoming 83014 Director of Fritz Broadcasting, Inc. and
Fritz Communications (developers and operators of radio
stations); Director of Advo, Inc. (direct mail
advertising).
John L. Furth* (65)......................... Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of E.M. Warburg, 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 &
New York, New York 10112 Irvine; Director of Municipal Fund for New York Investors,
Inc.
</TABLE>
- ----------------------
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
24
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Alexander B. Trowbridge (66)................ Director
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc. (business
Suite 700 consulting) from January 1990-January 1994; President of
Washington, DC 20036 the National Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual Life Insurance
Co., ICOS Corporation (biopharmaceuticals), P.H.H.
Corporation (fleet auto management; housing and plant
relocation service), WMX Technologies Inc. (solid and
hazardous waste collection and disposal), The Rouse
Company (real estate development), SunResorts
International Ltd. (hotel and real estate management),
Harris Corp. (electronics and communications equipment),
The Gillette Co. (personal care products) and Sun Company
Inc. (petroleum refining and marketing).
Arnold M. Reichman* (48).................... Director and Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary of EMW;
New York, New York 10017-3147 Associated with EMW since 1984; Senior Vice President,
Secretary and Chief Operating Officer of Counsellors
Securities; Officer of other investment companies advised
by Warburg.
Eugene L. Podsiadlo (39).................... Senior Vice President
466 Lexington Avenue Managing Director of EMW;
New York, New York 10017-3147 Associated with EMW since 1991; Vice President of
Citibank, N.A. from 1987-1991; Senior Vice President of
Counsellors Securities and officer of other investment
companies advised by Warburg.
Stephen Distler (42)........................ Vice President and Chief Financial Officer
466 Lexington Avenue Managing Director, Controller and Assistant Secretary of
New York, New York 10017-3147 EMW; Associated with EMW since 1984; Treasurer of
Counsellors Securities; Treasurer and Chief Accounting
Officer or Vice President and Chief Financial Officer of other
investment companies advised by Warburg.
</TABLE>
- ----------------------
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
25
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Eugene P. Grace (44)........................ Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994; Attorney-at-law from
New York, New York 10017-3147 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)..........................
466 Lexington Avenue Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992;
Associated with Martin Geller, C.P.A. from 1990-1992; Vice
President, Finance with Gabelli/Rosenthal & Partners, L.P.
until 1990; Vice President, Treasurer and Chief Accounting
Officer of other investment companies advised by Warburg.
Janna Manes (28)............................ Assistant Secretary
466 Lexington Avenue Associated with EMW since 1996; Associated with the law New
New York 10017-3147 York, 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.
26
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<PAGE>
Directors' Compensation
<TABLE>
<CAPTION>
Total Total Compensation from all
Compensation from Investment Companies Managed by
Name of Director Fund+ 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 and officers of the Fund as a
group did not own outstanding shares of the Fund.
Mr. George U. Wyper is co-president and co-portfolio manager
of the Fund. From 1987 until 1990 Mr. Wyper was the director of fixed income
investments at Fireman's Fund Insurance Company, and from 1990 until 1993 he was
chief investment officer of Fund American Enterprises, Inc. Mr. Wyper was chief
investment officer of White River Corporation and president of Hanover Advisers,
Inc. from 1993 until he joined Warburg in August 1994 as a managing director of
EMW. Mr. Wyper earned a B.S. degree in economics from the Wharton School of
Business of the University of Pennsylvania and a Masters of Management from Yale
University.
Mr. Kyle F. Frey is associate portfolio manager and research
analyst of the Fund. Mr. Frey is also a research analyst and assistant portfolio
manager for small-cap growth equity and distribution management products. Prior
to joining Warburg in 1989, Mr. Frey was with Goldman, Sachs & Co. in the
institutional sales division. Mr. Frey earned a B.S. degree from the University
of New Hampshire and an M.B.A. from New York University.
27
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<PAGE>
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund, Counsellors
Funds Service, Inc. ("Counsellors Service") serves as a co-administrator to the
Fund and PFPC serves as a co-administrator to the Fund pursuant to separate
written agreements (the "Advisory Agreement," the "Counsellors Service
Co-Administration Agreement" and the "PFPC Co-Administration Agreement,"
respectively). The services provided by, and the fees payable by the Fund to,
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, 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
$28,606 in investment advisory fees with respect to the Fund. Warburg
voluntarily waived $28,606 of such fees and reimbursed $32,335 in expenses.
Counsellors Service earned $2,861 in co-administration fees with respect to the
Fund.
Custodians 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.
28
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<PAGE>
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 and (iv) makes periodic reports to the Board concerning
the transfer agent's operations with respect to the Fund. State Street has
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
("BFDS"), responsibility for most shareholder servicing functions. The principal
business address of State Street is 225 Franklin Street, Boston, Massachusetts
02110. 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,
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and related travel and entertainment expenses; (e) costs of printing and
distributing prospectuses, statements of additional information and reports of
the Fund to prospective shareholders of the Fund; and (f) costs involved in
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Fund may, from time to time, deem advisable.
Pursuant to the 12b-1 Plan, Counsellors Securities provides
the Board with periodic reports of amounts expended under the 12b-1 Plan and the
purpose for which the expenditures were made.
Advisor Shares. The Fund may, in the future, enter into
agreements ("agreements") with institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries ("Institutions") to provide certain
distribution, shareholder servicing, administrative and 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 purposes for which such expenditures were made.
An Institution with which the Fund has entered into an
Agreement with respect to its Advisor Shares may charge a Customer one or more
of the following types of fees, as agreed upon by the Institution and 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
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Directors or by a vote of a majority of the outstanding voting securities of the
relevant class of shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per
share net asset value of the relevant class of shares of the Fund. Information
on how to purchase and redeem Fund shares and how such shares are priced is
included in the Prospectuses under "Net Asset Value."
Under the 1940 Act, the Fund may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair valuation
of portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Fund may also suspend or postpone the recordation of
an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, the Fund
may make payment wholly or partly in securities or other investment instruments
which may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. The Fund will to comply with Rule 18f-1 promulgated under
the 1940 Act with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal
plan (the "Plan") is available to shareholders who wish to receive specific
amounts of cash periodically. Withdrawals may be made under the Plan by
redeeming as many shares of the Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in the Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by
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
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exchange, the investor should obtain and review a copy of the current prospectus
of the relevant class of each fund into which an exchange is being considered.
Shareholders may obtain a prospectus of the relevant class of the fund into
which they are contemplating an exchange from Counsellors Securities.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are redeemed at the
then-current net asset value of the relevant class and the proceeds are invested
on the same day, at a price as described above, in shares of the relevant class
of the fund being acquired. Warburg reserves the right to reject more than three
exchange requests by a shareholder in any 30-day period. The exchange privilege
may be modified or terminated at any time upon 60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
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
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and at least 98% of the excess of its capital gains over capital losses realized
during the one-year period ending October 31 during such year, together with any
undistributed, untaxed amounts of ordinary income and capital gains from the
previous calendar year. The Fund expects to pay the dividends and make the
distributions necessary to avoid the application of this excise tax.
The Fund's transactions, if any, in foreign currencies,
forward contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Fund, defer Fund losses and
cause the Fund to be subject to hyperinflationary currency rules. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (i) will require the Fund to mark-to-market
certain types of its positions (i.e., treat them as if they were closed out) and
(ii) may cause the Fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment so
that (a) neither the Fund nor its shareholders will be treated as receiving a
materially greater amount of capital gains or distributions than actually
realized or received, (b) the Fund will be able to use substantially all of its
losses for the fiscal years in which the losses actually occur and (c) the Fund
will continue to qualify as a regulated investment company.
A shareholder of the Fund receiving dividends or distributions
in additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should have
a cost basis in the shares received equal to that amount.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution that
will nevertheless be taxable to them. Upon the sale or exchange of shares, a
shareholder will realize a taxable gain or loss depending upon the amount
realized and the basis in the shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands, and, as described in the Prospectuses, will be long-term or short-term
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvestment of
dividends and capital gains distributions in the Fund, within a period of 61
days beginning 30 days before and ending 30 days after the disposition of the
shares. In such a case, the basis of the shares acquired will be increased to
reflect the disallowed loss.
Each shareholder will receive an annual statement as to the
federal income tax status of his dividends and distributions from the Fund for
the prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable year
regarding the federal income tax status of certain dividends and distributions
that
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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 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.
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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 26.20% (25.90% without
waivers), and the average annual total return for the same period was 98.39%
(96.98% 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 26.20% (24.60% without waivers), and
the Fund's average annual total return for the same period was 98.37% (91.06%
without waivers). Investors should note that this performance may not be
representative of the Fund's total return in longer marked 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.
In addition, reference may be made in advertising a class of
Fund shares to opinions of Wall Street economists and analysts regarding
economic cycles and their effects historically on the performance of small
companies, both as a class and relative to other
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investments. The Fund may also discuss its beta, or volatility relative to the
market, and make reference to its relative performance in various market cycles
in the United States.
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 Small Company Value 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 25, 1996, the name, address and percentage of
ownership of persons that own of record 5% or more of the Fund's outstanding
shares were as follows: Paine Webber, 1285 Avenue of the Americas, Floor 14, New
York, New York 10019-6040 -- 5.7% and The Bank of New York, 200 Park Avenue, New
York, New York 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 82.16% of Fund
shares outstanding, including shares owned by clients for which Warburg has
investment discretions 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 Statements 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.
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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.
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BB, B, CCC, CC and C - 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.
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.
A-2
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The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect
to the bonds rated "Aa" through "B." The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect to
principal or interest.
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.
A-3
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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.
A-4
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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.
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WARBURG PINCUS SMALL COMPANY VALUE FUND
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: June 21, 1996
Warburg Pincus Small Company Value Fund (the 'Fund') seeks long-term capital
appreciation by investing primarily in a portfolio of equity securities of
small-capitalization companies that are considered to be relatively undervalued.
For the four months ended April 30, 1996 (the Fund's inception date was
December 29, 1995), the Fund gained 26.20% vs. a gain of 10.72% in the Russell
2000 Index. It is often the case that a fund outperforms to this extent because
a single sector within it flourishes in a given period. Through April 30 of this
year, however, no one industry sector stood out as a leader. Rather, many
individual stocks within the various sectors did well.
The Fund focuses on buying the stocks of companies that have market
capitalizations (the value of all outstanding stock) below $1 billion. Because
the companies are small, their stocks are not widely followed by Wall Street
analysts. Investors, for the most part, are therefore unaware of these
small-capitalization companies. This kind of company thus remains undervalued,
its share price ill-matched to its actual worth. We consider adding a stock the
the Fund when our research reveals that it has met our criteria of being
undervalued and having promising prospects. Any subsequent increase in
analytical coverage of that stock is usually beneficial to the Fund, as it will
likely pique investor interest.
Through April of this year the average capitalization of the stocks we bought
for the Fund was about $180 million, well below our established ceiling. This
meant that many of these securities, orbiting even farther off analysts' radar
screens than somewhat higher-cap stocks might, captured the attention of even
fewer investors -- and were especially undervalued. The Fund benefited during
the period as the potential of these stocks became increasingly recognized in
the marketplace.
The Fund has performed well to date. This brief period of performance is no
guarantee of how the Fund may perform in the future. Despite a thorough analysis
of a company and its addition to our portfolio, ultimately, other investors must
also recognize the stock's intrinsic value and then invest in it. We are
inclined to invest early, recognizing that we must be prepared to give our
investments time to perform. By the same token, should a stock attain our target
price, even if it does so more swiftly than expected, we likely will sell it.
Such is the value discipline.
<TABLE>
<S> <C>
George U. Wyper Kyle F. Frey
Portfolio Manager Associate Portfolio Manager
</TABLE>
12
<PAGE>
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCK (92.7%)
Aerospace & Defense (1.8%)
Tracor, Inc. `D' 24,300 $ 458,663
-----------
Banks & Savings & Loans (5.1%)
Citizens Bancorp 7,300 217,175
Cullen Frost Bankers, Inc. 6,300 310,275
Great Financial Corp. 9,000 246,375
Quaker City Bancorp Inc. `D' 35,350 510,366
-----------
1,284,191
-----------
Building & Building Materials (1.1%)
Continental Homes Holding Corp. 12,250 280,219
-----------
Capital Equipment (5.5%)
Allied Products Corp. 9,500 250,562
Applied Power, Inc. Class A 3,200 100,400
Astec Industries, Inc. `D' 48,100 487,013
Avondale Industries, Inc. `D' 28,600 546,975
-----------
1,384,950
-----------
Chemicals (1.5%)
Foamex International, Inc. `D' 31,300 387,338
-----------
Computers (2.6%)
Cylink Corp. `D' 4,000 73,000
Evans & Sutherland Computer Corp. `D' 11,800 318,600
Forte Software, Inc. `D' 3,000 185,250
Raptor Systems, Inc. `D' 2,500 82,500
-----------
659,350
-----------
Conglomerates (2.0%)
Oglebay Norton Co. 12,400 511,500
-----------
Consumer Non-Durables (10.3%)
Central Garden & Pet Co. `D' 65,700 698,062
Donnkenny, Inc. `D' 3,100 61,613
Samsonite Corp. `D' 51,300 949,050
Standex International Corp. 21,500 580,500
Westpoint Stevens, Inc. `D' 15,500 325,500
-----------
2,614,725
-----------
Consumer Services (1.9%)
York Group, Inc. `D' 25,600 470,400
-----------
Electronics (2.0%)
Larson Davis, Inc. `D' 82,800 517,500
-----------
Energy (6.0%)
Forest Oil Corp. `D' 40,900 493,356
Panaco, Inc. `D' 141,600 601,800
Texas Merdian Resources Corp. `D' 41,950 440,475
-----------
1,535,631
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
49
<PAGE>
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Environmental Services (0.4%)
Layne Christensen Inc. `D' 8,200 $ 94,300
-----------
Financial Services (11.7%)
Aames Financial Corp. 4,350 191,944
Liberty Financial Companies, Inc. 20,700 688,275
National Western Life Insurance Co. Class A `D' 6,800 455,600
Security-Connecticut Corp. 4,000 105,000
Transport Holdings, Inc. Class A `D' 14,750 626,875
Triad Guaranty, Inc. `D' 13,500 442,125
White River Corp. `D' 11,600 452,400
-----------
2,962,219
-----------
Food, Beverages & Tobacco (0.8%)
Suiza Foods Corp. `D' 15,000 213,750
-----------
Healthcare (4.6%)
CardioThoracic Systems, Inc. `D' 8,000 189,000
Hanger Orthopedic Group, Inc. `D' 107,100 455,175
Hooper Holmes, Inc. 56,100 532,950
-----------
1,177,125
-----------
Industrial Mfg. & Processing (0.9%)
Seda Special Packaging Corp. `D' 11,600 239,250
-----------
Leisure & Entertainment (3.5%)
Penske Motorsports, Inc. `D' 2,000 60,500
SCP Pool Corp. `D' 49,000 820,750
-----------
881,250
-----------
Lodging & Restaurants (4.5%)
IHOP Corp. `D' 19,050 542,925
Quantum Restaurant Group Inc. `D' 39,500 597,437
-----------
1,140,362
-----------
Metals & Mining (5.4%)
Commonwealth Aluminum Corp. 28,500 445,312
TVI Pacific, Inc. `D' 26,000 44,884
Universal Stainless & Alloy Products Inc. `D' 58,800 646,800
Zemex Corp. `D' 25,300 237,187
-----------
1,374,183
-----------
Oil Services (1.8%)
Belco Oil & Gas Corp. `D' 15,800 456,225
-----------
Real Estate (3.9%)
Home Properties of New York, Inc. 26,100 528,525
Jameson Inns, Inc. 48,400 471,900
-----------
1,000,425
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
50
<PAGE>
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Retail (7.3%)
Carr Gottstein Foods Co. `D' 75,650 $ 387,706
Cole National Corp. Class A `D' 28,750 470,781
Cost Plus, Inc. `D' 5,000 118,750
Mossimo, Inc. `D' 5,000 190,000
Rhodes, Inc. `D' 39,300 442,125
Wet Seal, Inc. Class A `D' 16,600 246,925
-----------
1,856,287
-----------
Telecommunications & Equipment (0.5%)
Xylan Corp. `D' 2,000 128,125
-----------
Transportation (7.6%)
Hub Group, Inc. Class A `D' 22,900 532,425
Landstar Systems, Inc. `D' 24,850 683,375
Mark VII, Inc. `D' 5,500 110,344
MTL, Inc. `D' 37,300 620,112
-----------
1,946,256
-----------
TOTAL COMMON STOCK (Cost $21,220,988) 23,574,224
SHORT-TERM INVESTMENTS (16.2%) PAR
---------
Repurchase agreement with State Street Bank & Trust Co.,
dated 04/30/96 at 5.24% to be repurchased at $4,118,599 on
5/01/96. (Collateralized by $4,155,000 U.S. Treasury Note at
6.00%, due 08/31/97, with a market value of $4,201,744.)
(Cost $4,118,000) $4,118,000 4,118,000
-----------
TOTAL INVESTMENTS AT VALUE (108.9%) (Cost $25,338,988*) 27,692,224
LIABILITIES IN EXCESS OF OTHER ASSETS (8.9%) (2,256,635)
-----------
NET ASSETS (100.0%) (applicable to 2,015,295 Common Shares and
120 Advisor Shares) $25,435,589
-----------
-----------
NET ASSET VALUE, offering and redemption price per Common Share
($25,434,075[div]2,015,295) $12.62
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($1,514[div]120) $12.62
------
------
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-income producing security.
* Also cost for Federal income tax purposes.
See Accompanying Notes to Financial Statements.
51
<PAGE>
<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>
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>
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE 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 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.
See Accompanying Notes to Financial Statements.
64
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
65
<PAGE>
<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
<PAGE>
<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 SMALL COMPANY VALUE FUND -- ADVISOR SHARES
- --------------------------------------------------------------------------------
June 21, 1996
Dear Shareholder:
The objective of the Advisor Shares of Warburg Pincus Small Company Value
Fund (the 'Fund') is long-term capital appreciation. The Fund invests primarily
in a portfolio of equity securities of small-capitalization companies that are
considered to be relatively undervalued.
For the four months ended April 30, 1996 (the Fund's inception date was
December 29, 1995), the Fund gained 26.20% vs. a gain of 10.72% in the Russell
2000 Index. It is often the case that a fund outperforms to this extent because
a single sector within it flourishes in a given period. Through April 30 of this
year, however, no one industry sector stood out as a leader. Rather, many
individual stocks within the various sectors did well.
The Fund focuses on buying the stocks of companies that have market
capitalizations (the value of all outstanding stock) below $1 billion. Because
the companies are small, their stocks are not widely followed by Wall Street
analysts. Investors, for the most part, are therefore unaware of these small-
capitalization companies. This kind of company thus remains undervalued, its
share price ill-matched to its actual worth. We consider adding a stock to the
Fund when our research reveals that it has met our criteria of being undervalued
and having promising prospects. Any subsequent increase in analytical coverage
of that stock is usually beneficial to the Fund, as it will likely pique
investor interest.
Through April of this year the average capitalization of the stocks we bought
for the Fund was about $180 million, well below our established ceiling. This
meant that many of these securities, orbiting even farther off analysts' radar
screens than somewhat higher-cap stocks might, captured the attention of even
fewer investors -- and were especially undervalued. The Fund benefited during
the period as the potential of these stocks became increasingly recognized in
the marketplace.
The Fund has performed well to date. This brief period of performance is no
guarantee of how the Fund may perform in the future. Despite a thorough analysis
of a company and its addition to our portfolio, ultimately, other investors must
also recognize the stock's intrinsic value and then invest in it. We are
inclined to invest early, recognizing that we must be prepared to give our
investments time to perform. By the same token, should a stock attain our target
price, even if it does so more swiftly than expected, we likely will sell it.
Such is the value discipline.
<TABLE>
<S> <C>
George U. Wyper Kyle F. Frey
Portfolio Manager Associate Portfolio Manager
</TABLE>
9
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCK (92.7%)
Aerospace & Defense (1.8%)
Tracor, Inc. `D' 24,300 $ 458,663
-----------
Banks & Savings & Loans (5.1%)
Citizens Bancorp 7,300 217,175
Cullen Frost Bankers, Inc. 6,300 310,275
Great Financial Corp. 9,000 246,375
Quaker City Bancorp Inc. `D' 35,350 510,366
-----------
1,284,191
-----------
Building & Building Materials (1.1%)
Continental Homes Holding Corp. 12,250 280,219
-----------
Capital Equipment (5.5%)
Allied Products Corp. 9,500 250,562
Applied Power, Inc. Class A 3,200 100,400
Astec Industries, Inc. `D' 48,100 487,013
Avondale Industries, Inc. `D' 28,600 546,975
-----------
1,384,950
-----------
Chemicals (1.5%)
Foamex International, Inc. `D' 31,300 387,338
-----------
Computers (2.6%)
Cylink Corp. `D' 4,000 73,000
Evans & Sutherland Computer Corp. `D' 11,800 318,600
Forte Software, Inc. `D' 3,000 185,250
Raptor Systems, Inc. `D' 2,500 82,500
-----------
659,350
-----------
Conglomerates (2.0%)
Oglebay Norton Co. 12,400 511,500
-----------
Consumer Non-Durables (10.3%)
Central Garden & Pet Co. `D' 65,700 698,062
Donnkenny, Inc. `D' 3,100 61,613
Samsonite Corp. `D' 51,300 949,050
Standex International Corp. 21,500 580,500
Westpoint Stevens, Inc. `D' 15,500 325,500
-----------
2,614,725
-----------
Consumer Services (1.9%)
York Group, Inc. `D' 25,600 470,400
-----------
Electronics (2.0%)
Larson Davis, Inc. `D' 82,800 517,500
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
45
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Energy (6.0%)
Forest Oil Corp. `D' 40,900 $ 493,356
Panaco, Inc. `D' 141,600 601,800
Texas Merdian Resources Corp. `D' 41,950 440,475
-----------
1,535,631
-----------
Environmental Services (0.4%)
Layne Christensen Inc. `D' 8,200 94,300
-----------
Financial Services (11.7%)
Aames Financial Corp. 4,350 191,944
Liberty Financial Companies, Inc. 20,700 688,275
National Western Life Insurance Co. Class A `D' 6,800 455,600
Security-Connecticut Corp. 4,000 105,000
Transport Holdings, Inc. Class A `D' 14,750 626,875
Triad Guaranty, Inc. `D' 13,500 442,125
White River Corp. `D' 11,600 452,400
-----------
2,962,219
-----------
Food, Beverages & Tobacco (0.8%)
Suiza Foods Corp. `D' 15,000 213,750
-----------
Healthcare (4.6%)
CardioThoracic Systems, Inc. `D' 8,000 189,000
Hanger Orthopedic Group, Inc. `D' 107,100 455,175
Hooper Holmes, Inc. 56,100 532,950
-----------
1,177,125
-----------
Industrial Mfg. & Processing (0.9%)
Seda Special Packaging Corp. `D' 11,600 239,250
-----------
Leisure & Entertainment (3.5%)
Penske Motorsports, Inc. `D' 2,000 60,500
SCP Pool Corp. `D' 49,000 820,750
-----------
881,250
-----------
Lodging & Restaurants (4.5%)
IHOP Corp. `D' 19,050 542,925
Quantum Restaurant Group Inc. `D' 39,500 597,437
-----------
1,140,362
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
46
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Metals & Mining (5.4%)
Commonwealth Aluminum Corp. 28,500 $ 445,312
TVI Pacific, Inc. `D' 26,000 44,884
Universal Stainless & Alloy Products Inc. `D' 58,800 646,800
Zemex Corp. `D' 25,300 237,187
-----------
1,374,183
-----------
Oil Services (1.8%)
Belco Oil & Gas Corp. `D' 15,800 456,225
-----------
Real Estate (3.9%)
Home Properties of New York, Inc. 26,100 528,525
Jameson Inns, Inc. 48,400 471,900
-----------
1,000,425
-----------
Retail (7.3%)
Carr Gottstein Foods Co. `D' 75,650 387,706
Cole National Corp. Class A `D' 28,750 470,781
Cost Plus, Inc. `D' 5,000 118,750
Mossimo, Inc. `D' 5,000 190,000
Rhodes, Inc. `D' 39,300 442,125
Wet Seal, Inc. Class A `D' 16,600 246,925
-----------
1,856,287
-----------
Telecommunications & Equipment (0.5%)
Xylan Corp. `D' 2,000 128,125
-----------
Transportation (7.6%)
Hub Group, Inc. Class A `D' 22,900 532,425
Landstar Systems, Inc. `D' 24,850 683,375
Mark VII, Inc. `D' 5,500 110,344
MTL, Inc. `D' 37,300 620,112
-----------
1,946,256
-----------
TOTAL COMMON STOCK (Cost $21,220,988) 23,574,224
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
47
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE FUND
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL COMMON STOCK (CONT'D)
SHORT-TERM INVESTMENTS (16.2%) PAR VALUE
--------- -----------
<S> <C> <C>
Repurchase agreement with State Street Bank & Trust Co.,
dated 04/30/96 at 5.24% to be repurchased at $4,118,599 on 5/01/96.
(Collateralized by $4,155,000 U.S. Treasury Note at 6.00%,
due 08/31/97, with a market value of $4,201,744.) (Cost $4,118,000) $4,118,000 4,118,000
-----------
TOTAL INVESTMENTS AT VALUE (108.9%) (Cost $25,338,988*) 27,692,224
LIABILITIES IN EXCESS OF OTHER ASSETS (8.9%) (2,256,635)
-----------
NET ASSETS (100.0%) (applicable to 2,015,295 Common Shares and
120 Advisor Shares) $25,435,589
-----------
-----------
NET ASSET VALUE, offering and redemption price per Common Share
($25,434,075[div]2,015,295) $12.62
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($1,514[div]120) $12.62
------
------
</TABLE>
`D' Non-income producing security.
* Also cost for Federal income tax purposes.
See Accompanying Notes to Financial Statements.
48
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<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
49
- --------------------------------------------------------------------------------
<PAGE>
<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
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<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
- --------------------------------------------------------------------------------
<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
- --------------------------------------------------------------------------------
<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>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS SMALL COMPANY VALUE 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 (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.
See Accompanying Notes to Financial Statements.
62
- --------------------------------------------------------------------------------
<PAGE>
<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
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<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>
<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
- --------------------------------------------------------------------------------
<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
- --------------------------------------------------------------------------------
<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]
<PAGE>
<PAGE>
[STATEMENT OF ASSETS AND LIABILITIES TO COME]
<PAGE>
<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>
<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>
<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>
<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>
<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
<PAGE>
<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 -- 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>
<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>
<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
- --------------------------------------------------------------------------------
<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>
<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>
<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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[THIS PAGE INTENTIONALLY LEFT BLANK]
71
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<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
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<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
- --------------------------------------------------------------------------------
<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
- --------------------------------------------------------------------------------
<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]
<PAGE>
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of December 5, 1995
<TABLE>
<S> <C>
Assets:
Cash $100,000
Deferred Organizational Costs 55,000
Deferred Offering Costs 47,055
-------
Total Assets 202,055
-------
Liabilities:
Accrued Organizational Costs 55,000
Accrued Offering Costs 47,055
-------
Total Liabilities 102,055
-------
Net Assets $100,000
=======
Net Asset Value, Redemption and
Offering Price Per Share (three billion
shares authorized, consisting of 2
billion Common Shares and 1 billion
Advisor Shares - $.001 per share)
applicable to 9,900 Common Shares
and 100 Advisor Shares outstanding. $10.00
=====
</TABLE>
The accompanying notes are an integral part of this financial
statement.
<PAGE>
<PAGE>
WARBURG PINCUS SMALL COMPANY VALUE FUND, INC.
Notes to Financial Statement
December 5, 1995
1. Organization:
Warburg Pincus Small Company Value Fund, Inc. (the "Fund") was incorporated on
October 23, 1995 under the laws of the State of Maryland. The Fund is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund's charter authorizes its Board of Directors to
issue three billion full and fractional shares of capital stock, $.001 par value
per share, of which one billion shares are designated Advisor Shares. Common
Shares bear fees of .25% of average daily net asset value pursuant to a 12b-1
distribution plan. Advisor Shares bear fees not to exceed .75% of average daily
net asset value pursuant to a 12b-1 distribution plan. The assets of each class
are segregated, and a shareholder's interest is limited to the class in which
shares are held. The Fund has not commenced operations except those related to
organizational matters and the sale of 9,900 Common Shares and 100 Advisor
Shares (the "Initial Shares") to Warburg Pincus Counsellors, Inc., the Fund's
investment advisor (the "Adviser"), on December 5, 1995.
2. Organizational Costs, Offering Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Fund and are being amortized
over sixty months commencing with operations. Offering costs have been
capitalized by the Fund and are being amortized over a period of one year. In
the event any of the Initial Shares of the Fund are redeemed by any holder
thereof during the period that the Fund is amortizing its organizational costs,
the redemption proceeds payable to the holder thereof by the Fund will be
reduced by unamortized organizational costs in the same ratio as the number of
Initial Shares outstanding at the time of redemption.
Certain officers and a director of the Fund are also officers and a director of
the Advisor. These officers and director are paid no fees by the Fund for
serving as an officer or director of the Fund.
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Warburg, Pincus Small Company Value Fund, Inc.
We have audited the accompanying Statement of Assets and Liabilities of Warburg,
Pincus Small Company Value Fund, Inc. (the "Fund") as of December 5, 1995. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Small Company
Value Fund, Inc. as of December 5, 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 8, 1995
STATEMENT OF DIFFERENCES
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The dagger symbol shall be expressed as .....................`D'
The division sign shall be expressed as ......................[div]
The trademark symbol shall be expressed as................... 'TM'
Mathematical powers normally expressed as superscript shall be preceded by 'pp'
