<PAGE>
As filed with the U.S. Securities and Exchange Commission
on December 2, 1997
Securities Act File No. 333-39075
Investment Company Act File No. 811-08459
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [x]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ ]
Amendment No. 1 [x]
(Check appropriate box or boxes)
Warburg, Pincus Managed EAFE Countries Fund, Inc.
.......................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
........................................................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Managed EAFE(R) Countries Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
......................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price per Aggregate Amount of
Being Registered Registered Unit Offering Price Registration Fee
------------------------ ------------------------ --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Shares of common
stock, $.001 par value
per share Indefinite* Indefinite* Indefinite* $0
- ----------------------------------------------------------------
</TABLE>
* An indefinite number of shares of common stock of the Registrant is
being registered by this Registration Statement pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
WARBURG, PINCUS MANAGED EAFE(R) COUNTRIES FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C> <C>
1. Cover Page....................................... Cover Page
2. Synopsis......................................... The Fund's Expenses
3. Condensed Financial Information.................. Not Applicable
4. General Description of
Registrant....................................... Cover Page, Investment Objective
and Policies; Risk Factors and Special
Considerations; Certain Investment
Strategies; Investment Guidelines
5. Management of the Fund........................... Management of the Fund
6. Capital Stock and Other
Securities....................................... General Information
7. Purchase of Securities Being
Offered ......................................... How to Open an Account in the
Fund; How to Purchase Shares;
Management of the Fund; Net Asset Value
8. Redemption or Repurchase......................... How to Redeem and Exchange Shares.
9. Pending Legal Proceedings........................ Not applicable
10. Cover Page........................................ Cover Page
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B
Item No.
- --------
<S> <C> <C>
11. Table of Contents................................ Contents
12. General Information and History.................. Management of the Fund
13. Investment Objective
and Policies..................................... Investment Objective; Investment
Policies
14. Management of the Registrant..................... Management of the Fund
15. Control Persons and Principal
Holders of Securities............................ Management of the Fund;
Miscellaneous See Prospectus --
"Management of the Fund"
16. Investment Advisory and
Other Services .................................. Management of the Fund; See
Prospectus - "Management of the Fund"
17. Brokerage Allocation
and Other Practices.............................. Investment Policies --
Portfolio Transactions See Prospectus
-- "Portfolio Transactions and
Turnover Rate"
18. Capital Stock and Other
Securities ...................................... Management of the
Fund--Organization of the Fund; See
Prospectus-"General Information"
19. Purchase, Redemption and Pricing
of Securities Being Offered ..................... Additional Purchase and Redemption
Information; See Prospectus-"How to
Open an Account," "How to Purchase
Shares," "How to Redeem and
Exchange Shares," "Net Asset Value"
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
20. Tax Status....................................... Additional Information Concerning
Taxes; See Prospectus --"Dividend,
Distributions and Taxes"
21. Underwriters..................................... Investment Policies-- Portfolio
Transactions; See Prospectus--
"Management of the Fund"
22. Calculation of Performance Data.................. Determination of Performance
23. Financial Statements............................. Not Applicable
</TABLE>
Part C
Information required to be included in Part C is set forth after the appropriate
item, so numbered, in Part C to this Registration Statement.
3
<PAGE>
PROSPECTUS
December __, 1997
WARBURG PINCUS
MANAGED EAFE'r' COUNTRIES FUND
[Logo]
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 2, 1997
PROSPECTUS December __, 1997
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 MANAGED EAFE'r' COUNTRIES FUND seeks long-term capital
appreciation by investing in equity securities of issuers having their principal
business activities and interests in foreign countries included in the Morgan
Stanley Capital International EAFE'r' Index.
International investment entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
NO LOAD CLASS OF COMMON SHARES
________________________________________________________________________________
Common Shares that are 'no load' are 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.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus carefully and retain it for future reference. Additional information
about the Fund, has been filed with the Securities and Exchange Commission (the
'SEC') in a document entitled 'Statement of Additional Information' and is
available for reference, along with other related materials, on the SEC Internet
Web site (http://www.sec.gov). The Statement of Additional Information is also
available upon request and 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. Warburg
Pincus Funds maintain a Web site at www.warburg.com. The Statement of Additional
Information relating to the Fund, as amended or supplemented from time to time,
bears the same date as this Prospectus and is incorporated by reference in their
entirety into this Prospectus.
LOW MINIMUM INVESTMENT
________________________________________________________________________________
The minimum initial investment in the Fund is $2,500 ($500 for an IRA or Uniform
Transfers/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.'
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 THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
THE FUND'S EXPENSES
________________________________________________________________________________
Warburg Pincus Managed EAFE'r' Countries Fund (the 'Fund') is authorized to
offer two separate classes of shares: Common Shares and Advisor Shares. The
Fund currently offers only Common 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 Funds -- Distributor.'
<TABLE>
<S> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................................... 0
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after fee waivers)....................................... .30%`D'
12b-1 Fees................................................................ .25%`D'
Other Expenses (after expense reimbursements)............................. .40%`D'
---
Total Fund Operating Expenses (after fee waivers
and expense reimbursements)............................................. .95%`D'
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year.................................................................... $10
3 years................................................................... $30
</TABLE>
- --------------------------------------------------------------------------------
`D' The Fund's investment adviser and co-administrator have undertaken to limit
Total Fund Operating Expenses to the limit shown above through February 28,
1999. Absent the anticipated 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 5.90% and Total Fund Operating Expenses would equal
7.15%. Other Expenses for the Fund are based on annualized estimates of
expenses for the fiscal year ending October 31, 1998, 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 a Common Shareholder of the Fund. Certain broker-
dealers and financial institutions also may charge their clients fees in
connection with investments in the Fund's Common Shares, which fees are not
reflected in the table. 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 the Fund may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
________________________________________________________________________________
The Fund's investment objective is 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 pursues its investment objective by investing, under normal market
conditions, at least 65% of its total assets in common stocks, warrants and
securities convertible into or exchangeable for common stocks of companies,
wherever organized, having their principal business activities and interests in
countries ('EAFE Countries') represented, from time to time, in the Morgan
Stanley Capital International Europe, Australasia and Far East (EAFE'r') Index
(the 'EAFE Index')*. The EAFE Index currently includes the following 20 European
and Pacific Basin countries: Australia, Austria, Belgium, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland and United Kingdom. The
Fund currently intends to invest at least 90% of its assets in companies in EAFE
Index-included countries.
Determinations as to whether an issuer has its principal business activities
and interests in an EAFE Country will be made by Warburg Pincus Asset
Management, Inc. ('Warburg'), the Fund's investment adviser, based on publicly
available information and inquiries made to the issuers. In making such
determinations, Warburg will consider the following factors: (i) whether the
issuer's principal securities trading market is in an EAFE Country; (ii) whether
the issuer derives at least 50% of its revenues or earnings, either alone or on
a consolidated basis, from goods produced or sold, investments made or services
performed in an EAFE Country, or has at least 50% of its assets situated in one
or more EAFE Countries; or (iii) whether the issuer is organized under the laws
of, and has a principal office in, an EAFE Country.
The Fund is not an index fund and will not seek to match the performance or
country or industry weightings of the EAFE Index. The Fund will not invest in
U.S. companies except for temporary defensive purposes, in which case the Fund
may invest without limit in equity and debt securities of U.S. issuers and money
market obligations (described below).
The Fund will invest, under normal circumstances, in at least three countries
other than the United States. The Fund, which is a diversified investment
company, intends to hold securities of many corporations located
- ------------
*The Morgan Stanley EAFE'r' Index is the exclusive property of Morgan Stanley.
Morgan Stanley EAFE'r' Index is a service mark of Morgan Stanley, Dean Witter,
Discover & Co. and has been licensed for use by the Fund. Capital International
S.A., an international investment management company fully owned by The Capital
Group Companies, Inc. of Los Angeles, has full responsibility for the management
and maintenance of the Morgan Stanley EAFE'r' Index. Morgan Stanley has no
responsibility for, or influence over, the decisions of inclusion or deletion
within the Morgan Stanley EAFE'r' Index.
3
<PAGE>
in a number of foreign countries, although from time to time a significant
portion of the Fund's assets may be invested in a single country, such as Japan.
The Fund intends to invest principally in the securities of companies with
opportunities for growth within international economies and markets. Investments
may be made in equity securities of companies of any size, whether traded on or
off a national securities exchange.
ADDITIONAL INVESTMENTS
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
market conditions, up to 20% of its assets in domestic and foreign short-term
(one year or less remaining to maturity) money market obligations. Money market
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; commercial paper rated no lower than A-2 by
Standard & Poor's Ratings Services ('S&P') or Prime-2 by Moody's Investors
Service, Inc. ('Moody's') or the equivalent from another major rating service
or, if unrated, of an issuer having an outstanding, unsecured debt issue then
rated within the three highest rating categories; and repurchase agreements with
respect to the foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the 'Board'), monitors the creditworthiness of those
bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the Investment Company Act of 1940, as amended (the '1940 Act').
4
<PAGE>
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 or Warburg. 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. The obligations issued or guaranteed by the U.S.
government in which the Fund may invest include: direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association); instruments that are supported by the right of the issuer to
borrow from the U.S. Treasury (such as securities of Federal Home Loan Banks);
and instruments that are supported by the credit of the instrumentality (such as
Federal National Mortgage Association and Federal Home Loan Mortgage Corporation
bonds).
DEBT SECURITIES. The Fund may invest up to 35% of its assets in investment
grade debt securities (other than money market obligations) and preferred stocks
that are not convertible into common stock for the purpose of seeking capital
appreciation. The interest income to be derived may be considered as one factor
in selecting debt securities for investment by Warburg. The market value of debt
obligations may be expected to vary depending upon, among other factors,
interest rates, 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 or S&P or, if unrated, is determined to be of
comparable quality by Warburg. Securities 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. 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
5
<PAGE>
and in domestic and foreign money market obligations, incuding repurchase
agreements.
WARRANTS. The Fund may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
________________________________________________________________________________
Investing in securities is subject to the inherent risk of fluctuations in
prices. For certain additional risks relating to the Fund's investments, see
'Additional Investments' beginning at page 4 and 'Certain Investment Strategies'
beginning at page 8.
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.
Up to 5% of the Fund's net assets may be held in convertible securities rated
below investment grade.
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 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Board determines on an ongoing basis that an adequate trading market exists
for the security. In addition to an adequate trading market, the Board will 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
6
<PAGE>
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.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment. This leveraging
increases an investor's risk, however, in the event of a decline in the value of
the underlying security and can result in a complete loss of the amount invested
in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If
the market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
________________________________________________________________________________
The Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the Fund and will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with its investment objective and policies. In addition, to the
extent it is consistent with the Fund's investment objective, the Fund also may
engage in short-term trading. This investment approach and the use of certain of
the investment strategies described below may result in a high portfolio
turnover rate for the Fund. It is not possible to predict the portfolio turnover
rate for the Fund. However, the Fund's annual turnover rate should not exceed
75%. High portfolio turnover rates (100% or more) may result in dealer markups
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
7
<PAGE>
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
________________________________________________________________________________
In attempting to achieve its investment objective, the Fund may engage in one
or more of the strategies set forth below. Although there is no intention of
doing so during the coming year, the Fund is authorized to (i) lend portfolio
securities and (ii) enter into reverse repurchase agreements and dollar rolls.
Detailed information concerning the Fund's strategies and related risks is
contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in U.S. investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with ADRs,
European Depositary Receipts ('EDRs') and International Depositary Receipts
('IDRs'), instruments that evidence ownership in underlying securities issued by
a foreign corporation. ADRs, EDRs and IDRs may not necessarily be denominated in
the same currency as the securities whose ownership they represent. ADRs are
typically issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts)
8
<PAGE>
are issued in Europe, and IDRs (sometimes referred to as Global Depositary
Receipts) are issued outside the United States, each typically by non-U.S. banks
and trust companies.
JAPANESE INVESTMENTS. Because the Fund may from time to time have large
positions in Japanese securities, it may be subject to general economic and
political conditions in Japan.
Securities in Japan are denominated and quoted in 'yen.' Yen are fully
convertible and transferable based on floating exchange rates. In determining
the net asset value of shares of the Fund, assets or liabilities initially
expressed in terms of Japanese yen will be translated into U.S. dollars at the
current selling rate of Japanese yen against U.S. dollars. As a result, the
value of the Fund's assets as measured in U.S. dollars may be affected favorably
or unfavorably by fluctuations in the value of Japanese yen relative to the U.S.
dollar.
The decline in the Japanese securities markets since 1989 has contributed to
a weakness in the Japanese economy, and the impact of a further decline cannot
be ascertained. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios in comparison with those in the United States,
even after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses,
Japan has entered a difficult phase in its relations with its trading partners,
particularly with respect to the United States, with whom the trade imbalance is
the greatest.
Japan has a parliamentary form of government. In 1993, a coalition government
was formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leadership
in Japan. What, if any, effect the current political situation will have on
prospective regulatory reforms on the economy in Japan cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect the Fund's investments there.
For additional information, see 'Investment Policies -- Japanese Investments'
beginning at page 12 of the Statement of Additional Information.
STRATEGIC AND OTHER 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
9
<PAGE>
holdings, (ii) as a substitute for purchasing or selling portfolio securities or
(iii) except with respect to currency exchange transactions, 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 other
applicable regulatory authorities.
Securities and Stock Index Options. The Fund may write covered call options
and put options and purchase put and call options on securities and stock
indexes and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. Such options may be traded on an exchange or
may trade over-the-counter ('OTC'). 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 on a security has the right to purchase the
underlying security from the writer. A stock index measures the movement of a
certain group of stocks by assigning relative values to the 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 an interest rate sensitive security or, in
the case of index futures contracts, are settled in cash with reference to a
specified multiplier times the change in the specified interest rate or index.
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,
10
<PAGE>
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
foward 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. 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 and
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 and indexes; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts. The use of these strategies may require that the Fund maintain cash
or liquid securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise 'covered' through
11
<PAGE>
ownership of the underlying security or financial instrument 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,' may be entered into by the Fund to, for
example, lock in a sale price for a security the Fund does not wish to sell
immediately. 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. 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.
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 or
delayed-delivery basis. In these transactions, payment for and delivery of the
securities occur beyond the regular settlement dates, normally within 30-45 days
after the transaction. The payment obligation and the interest rate that will be
received in when-issued and delayed-delivery transactions are fixed at the time
the buyer enters into the commitment. Due to fluctuations in the value of
securities purchased 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-issued securities may include securities purchased on a 'when, as
and if issued' basis, under which the issuance of the security depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. The Fund is required to segregate assets
equal to the amount of its when-issued and delayed-delivery purchase
commitments.
INVESTMENT GUIDELINES
________________________________________________________________________________
The Fund may invest up to 15% 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; and (iii)
time deposits maturing in more than seven calendar days. The Fund may borrow
from banks for temporary or emergency purposes, such as meeting anticipated
redemption
12
<PAGE>
requests, provided that reverse repurchase agreements and any other borrowing by
the Fund may not exceed 30% of its total assets at the time of borrowing and may
pledge its assets to the same extent in connection with these borrowings.
Whenever borrowings (including reverse repurchase agreements) exceed 5% of the
value of the Fund's total assets, the Fund will not make any additional
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 Fund's Statement of Additional Information.
MANAGEMENT OF THE FUND
________________________________________________________________________________
INVESTMENT ADVISER. The Fund employs Warburg as its investment adviser.
Warburg, subject to the control of the Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Fund in accordance with the
Fund's investment objective and stated investment policies. Warburg makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee
calculated at an annual rate of 1.00% of the Fund's average daily net assets.
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 October 31,
1997, Warburg managed approximately $20 billion of assets, including
approximately $11.6 billion of investment company assets. Incorporated in 1970,
Warburg is indirectly controlled by Warburg, Pincus & Co. ('WP&Co.'), which has
no business other than being a holding company of Warburg and its affiliates.
Lionel I. Pincus, the managing partner of WP&Co., may be deemed to control both
WP&Co. and Warburg. Warburg's address is 466 Lexington Avenue, New York, New
York 10017-3147.
PORTFOLIO MANAGERS. Richard H. King, P. Nicholas Edwards and Harold W.
Ehrlich have been Co-Portfolio Managers and Vincent J. McBride, Nancy Nierman
and J.H. Cullum Clark, CFA, have been Associate Portfolio Managers of the Fund
since its inception.
Mr. King, a Senior Managing Director of Warburg, has been with Warburg since
1989, before which time he was chief investment officer and a director at
Fiduciary Trust Company International S.A. in London. Mr. Edwards is a Managing
Director and has been with Warburg since August 1995, before
13
<PAGE>
which time he was a director at Jardine Fleming Investment Advisers, Tokyo. Mr.
Ehrlich is a Managing Director of Warburg and has been with Warburg since
February 1995, before which time he was a senior vice president, portfolio
manager and analyst at Templeton Investment Counsel Inc. Mr. McBride is a Senior
Vice President of Warburg and has been with Warburg since 1994. Prior to joining
Warburg, Mr. McBride was an international equity analyst at Smith Barney Inc.
from 1993 to 1994 and at General Electric Investment Corporation from 1992 to
1993. Ms. Nierman is a Vice President of Warburg and has been with Warburg since
April 1996, before which time she was an analyst with Fiduciary Trust Company
International. Mr. Clark, a Vice President of Warburg, has been with Warburg
since 1996, before which time he was an analyst and portfolio manager with Brown
Brothers Harriman from 1993 to 1996.
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 Fund's Board, preparing proxy statements
and annual and semiannual reports, assisting in the preparation of tax returns
and monitoring and developing compliance procedures for the Fund. As
compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of the Fund's average daily net assets.
The Fund employs PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of
PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Fund
pays PFPC a fee calculated at an annual rate of .12% of the Fund's first $250
million in average daily net assets, .10% of the next $250 million in average
daily net assets, .08% of the next $250 million in average daily net assets, and
.05% of average daily net assets over $750 million. PFPC has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
U.S. assets of the Fund and State Street Bank and Trust Company ('State Street')
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 1600 Market
Street, Philadelphia, Pennsylvania 19103. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. State Street has
14
<PAGE>
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
('BFDS'), responsibility for most shareholder servicing functions. BFDS's
principal business address is 2 Heritage Drive, North Quincy, Massachusetts
02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the 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 the Fund's Common Shares for distribution services, pursuant to a
shareholder servicing and distribution plan (the '12b-1 Plan') adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors
Securities under a 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (i) the sale of the Common Shares, (ii) ongoing servicing
and/or maintenance of the accounts of Common Shareholders of the Fund and (iii)
sub-transfer agency services, sub-accounting 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 of the Fund evaluates the
appropriateness of the 12b-1 Plan on a continuing basis and in doing so
considers all relevant factors, including expenses paid by Counsellors
Securities and amounts received under the 12b-1 Plan.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients 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. Incentives
may include oportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Fund. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. 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 the Fund's 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 the Fund's 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.
15
<PAGE>
HOW TO OPEN AN ACCOUNT
________________________________________________________________________________
In order to invest in the Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 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 UTMA/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 Transfers to Minors Act ('UTMA') account or Uniform
Gifts 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 UTMA or UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration and/or address, an investor should
telephone Warburg Pincus Funds at (800) 927-2874. Shareholders are responsible
for maintaining current account registration and addresses with the Fund. No
interest will be paid on amounts represented by uncashed distribution or
redemption checks.
HOW TO PURCHASE SHARES
________________________________________________________________________________
Common Shares of the Fund may be purchased either by mail or, with special
advance instructions, by wire.
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 below. For
retirement plans and UTMA/UGMA accounts, the minimum initial investment is $500.
The Fund reserves the right to change investment minimum requirements at any
time. The investment minimums may be waived for accounts in which employees of
Warburg or its affiliates have an interest or for investors maintaining advisory
accounts with Warburg or brokerage accounts with Counsellors Securities.
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 below. 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
16
<PAGE>
the interest of economy and convenience, physical certificates representing
shares in the Fund are not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check
or money order made payable to the Fund or Warburg Pincus Funds (in U.S.
currency) should be sent along with the completed account application to Warburg
Pincus Funds 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, Inc. (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 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 Managed EAFE'r' Countries 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
17
<PAGE>
dividends and distributions beginning on that day. If payment by wire is
received in proper form by the close of the NYSE without a prior telephone
order, the purchase will be priced according to the net asset value of the Fund
on that day and is entitled to dividends and distributions beginning on that
day. However, if a wire in proper form that is not preceded by a telephone order
is received after the close of regular trading on the NYSE, the payment will be
held uninvested until the order is effected at the close of business on the next
business day. Payment for orders that are not accepted will be returned to the
prospective investor after prompt inquiry. If a telephone order is placed and
payment by wire is not received on the same day, the Fund will cancel the
purchase and the investor may be liable for losses or fees incurred.
PURCHASES THROUGH INTERMEDIARIES. Common Shares of the Fund are available
through the Charles Schwab & Company, Inc. Mutual Fund OneSource`tm' Program;
Fidelity Brokerage Services, Inc. Funds Network`tm' Program; Jack White &
Company, Inc.; and Waterhouse Securities, Inc. Generally, these programs require
customers to pay either no or low transaction fees in connection with purchases
or redemptions. The Fund is also available through certain broker-dealers,
financial institutions and other industry professionals (including the brokerage
firms offering the programs described above, collectively, 'Service
Organizations'). Certain features of the Fund, such as the initial and
subsequent investment minimums, redemption fees and certain trading
restrictions, may be modified or waived by Service Organizations. Service
Organizations may impose transaction or administrative charges or other direct
fees, which charges or fees would not be imposed if Fund shares are purchased
directly from the Fund. Therefore, a client or customer should contact the
Service 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 Service
Organization. Service 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.
Service Organizations or, if applicable, their designees may enter confirmed
purchase or redemption 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 Service Organization could be held
liable for resulting fees or losses. The Fund will be deemed to have received a
purchase or redemption order when a Service Organization, or, if applicable, its
authorized designee, accepts the order. Orders received by the Fund in proper
form will be priced at the Fund's net asset value next computed after they are
accepted by the Service Organization or its authorized designee.
For administration, subaccounting, transfer agency and/or other services,
Warburg, Counsellors Securities or their affiliates may pay Service
Organizations and certain recordkeeping organizations with whom they have
18
<PAGE>
entered into agreements a fee of up to .35% (the 'Service Fee') of the average
annual value of accounts with the Fund maintained by such Service Organizations
or recordkeepers. A portion of the Service Fee may be borne by the Fund as a
transfer agency fee. In addition, a Service Organization or recordkeeper 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 its clients or customers. The
Service Fee payable to any one Service Organization or recordkeeper is
determined based upon a number of factors, including the nature and quality of
the services provided, the operations processing requirements of the
relationship and the standardized fee schedule of the Service Organization or
recordkeeper.
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.
GENERAL. The Fund reserves the right to reject any specific purchase order,
including certain purchases made by exchange (see 'How to Redeem and Exchange
Shares -- Exchange of Shares' below). Purchase orders may be refused if, in
Warburg's opinion, they are of a size that would disrupt the management of the
Fund. The Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective. In such event, however, it is anticipated
that existing shareholders would be permitted to continue to authorize
investment in the Fund and to reinvest any dividends or capital gains
distributions.
HOW TO REDEEM AND EXCHANGE SHARES
________________________________________________________________________________
REDEMPTION OF SHARES. An investor in the Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Common Shares of the Fund may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an
19
<PAGE>
investor desires to redeem his shares by mail, a written request for redemption
should be sent to Warburg Pincus Funds at the address indicated above under 'How
to Open an Account.' An investor should be sure that the redemption request
identifies the Fund, the number of shares to be redeemed and the investor's
account number. In order to change the bank account or address designated to
receive the redemption proceeds, the investor must send a written request (with
signature guarantee of all investors listed on the account when such a change is
made in conjunction with a redemption request) to Warburg Pincus Funds. Each
mail redemption request must be signed by the registered owner(s) (or his legal
representative(s)) exactly as the shares are registered. If an investor has
applied for the telephone redemption feature on his account application, he may
redeem his shares by calling Warburg Pincus Funds at (800) 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
currently does not impose a service charge for effecting wire transfers but the
Fund reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although the Fund will
redeem shares purchased by check or through the Automatic Investment Program
before the check or funds clear, payments of the redemption proceeds will be
delayed for up to five days (for funds received through the Automatic Investment
Program) or up to ten days (for check purchases) from the date of purchase.
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
20
<PAGE>
Fund may suspend the right of redemption or postpone the date of payment upon
redemption (as well as suspend or postpone the recordation of an exchange of
shares) for such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less than
$500, 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.
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 $1,000 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 the close of regular trading on
the NYSE, the exchange will be made at the Fund's net asset value determined at
the end of that business day. Exchanges will be effected without a sales charge
but must satisfy the minimum dollar amount necessary for new purchases.
Currently, exchanges may be made with the following other funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities;
21
<PAGE>
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 primarily in equity securities of domestic
companies;
WARBURG PINCUS STRATEGIC VALUE FUND -- an equity fund seeking capital
appreciation by investing in undervalued companies and market sectors;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences 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 GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing principally in equity securities of
U.S. and foreign issuers in their post-venture capital stage of development;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking long-term
capital appreciation 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;
22
<PAGE>
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.
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. Accounts under common ownership or control, including accounts
with the same taxpayer identification number, may be counted together for
purposes of the three exchange limit. The Fund reserves the right to refuse
exchange purchases by any person or group if, in Warburg's judgment, the Fund
would be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. Exchanges may also be restricted or refused if the Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges that coincides with a 'market
timing' strategy may be disruptive to the Fund. Although the Fund will attempt
to give prior notice whenever it is reasonably able to do so, it may impose
these restrictions at any time. The Fund reserves the right to terminate or
modify the exchange privilege at any time upon 30 days' notice to shareholders.
TELEPHONE TRANSACTIONS. In order to request exchanges and redemptions by
telephone, investors must have completed and returned to Warburg Pincus Funds an
account application containing a telephone election. The election to request
exchanges and redemptions by telephone may be made subsequently by writing to
Warburg Pincus Funds at the address set forth under 'How to Open an Account in
the Fund.' 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 designated
to give reasonable assurance 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.
23
<PAGE>
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 (which
includes amortization of market discounts) less amortization of market premiums
and applicable expenses. The Fund declares and pays its dividends from its net
investment income annually. The Fund declares distributions of its 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 Internal Revenue Code of 1986, as amended
(the 'Code'). 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. The Fund expects to pay such
dividends and to make such distributions as are necessary to avoid the
application of this tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be long-term capital gain or loss if he
has held his shares for more than one year and will be 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.
The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
24
<PAGE>
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposition
of assets on or after July 29, 1997 held for more than one year and up to 18
months at the time of disposition will be taxed as 'mid-term gain' at a maximum
rate of 28%. A rate of 18% instead of 20% will apply after December 31, 2000 for
assets held for more than 5 years. However, the 18% rate applies only to assets
acquired after December 31, 2000 unless the taxpayer elects to treat an asset
held prior to such date as sold for fair market value on January 1, 2001.
In the case of individuals whose ordinary income is taxed at a 15% rate, the
20% rate is reduced to 10% and the 10% rate for assets held for more than 5
years is reduced to 8%. The Fund will provide information relating to that
portion of a 'capital gain dividend' that may be treated by investors as
eligible for the reduced capital gains rate for capital assets held for more
than 18 months.
Investors may be proportionately liable for taxes on income and gains of the
Fund, but investors not subject to tax on their income will not be required to
pay tax on amounts distributed to them. The Fund's investment activities,
including short sales of securities, will not result in unrelated business
taxable income to a tax-exempt investor. The Fund will designate that portion of
the Fund's dividends that will qualify for the federal dividends received
deduction for corporations. The Fund's investments in foreign securities may
subject them to certain withholding and other taxes imposed by foreign countries
with respect to dividends, interest, capital gains and other income. It is not
expected that the payment of such taxes by the Fund will give rise to a direct
credit or deduction available to the Fund's shareholders.
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 that were paid (or that
were treated as having been paid) by the Fund during the Fund's prior taxable
year. Investors should consult their own tax advisers with specific reference to
their own tax situations, including their state and local tax liabilities.
NET ASSET VALUE
________________________________________________________________________________
The Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding
25
<PAGE>
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.
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. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Fund's 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 Fund's 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. 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). Performance quotations
of the Fund will include performance of a predecessor fund.
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
26
<PAGE>
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).
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 (i) with that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) with the EAFE Index, the Salomon Russell
Global Equity Index, the FT-Actuaries World Indices (jointly compiled by The
Financial Times, Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.) and the
S&P 500 Index; or (iii) with 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
Barron's, Business Week, Financial Times, Forbes, Fortune, Inc., Institutional
Investor, Investor's Business Daily, Money, Morningstar, Inc., Mutual Fund
Magazine, Smart Money and The Wall Street Journal. 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.
In reports or other communications to investors or in advertising, the Fund
may discuss relevant economic and market conditions affecting the Fund. In
addition, the Fund and its portfolio managers may render updates of Fund
investment activity, which may include, among other things, discussion or
quantitive statistical or comparative analysis of portfolio composition and
significant portfolio holdings including analyses of holdings by sector,
industry, country or geographic region, credit quality and other
characteristics. The Fund may also describe the general biography, work
experience and/or investment philosophy or style 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 objectives. The
Fund may also discuss measures of risk, including those based on statistical or
econometric analyses, 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.
GENERAL INFORMATION
________________________________________________________________________________
ORGANIZATION. The Fund was incorporated on October 24, 1997 under the laws of
the State of Maryland under the name 'Warburg, Pincus Managed
27
<PAGE>
EAFE Countries Fund, Inc.' On December __, 1997, the Fund and Warburg Pincus
Institutional Fund, Inc. (the 'Institutional Fund') entered into an Agreement
and Plan of Reorganization whereby the Fund agreed to acquire all of the assets
and liabilities of the Managed EAFE'r' Countries Portfolio of the Institutional
Fund (the 'Reorganization'). The Reorganization is expected to be completed on
or about December __, 1997.
The charter of the Fund authorizes its Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and two 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. Although it does not currently do so, the Fund offers
a separate class of shares, the Advisor Shares, pursuant to a separate
prospectus. Individual investors would only purchase Advisor Shares through
institutional shareholders of record, broker-dealers, financial institutions,
depository institutions, retirement plans and financial intermediaries. Shares
of each class would 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.
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 investments made through the Automatic Investment
Program). The Fund will also send to its investors a
28
<PAGE>
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, as
well as certain statistical characteristics of 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.
29
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund's Expenses..................................................... 2
Investment Objective and Policies....................................... 3
Risk Factors and Special Considerations................................. 6
Portfolio Transactions and Turnover Rate................................ 7
Certain Investment Strategies........................................... 8
Investment Guidelines................................................... 12
Management of the Fund.................................................. 13
How to Open an Account.................................................. 16
How to Purchase Shares.................................................. 16
How to Redeem and Exchange Shares....................................... 19
Dividends, Distributions and Taxes...................................... 24
Net Asset Value......................................................... 26
Performance............................................................. 26
General Information..................................................... 27
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
WWW.WARBURG.COM
COUNSELLORS SECURITIES INC., DISTRIBUTOR.
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as......`r'
The trademark symbol shall be expressed as.................`tm'
The dagger symbol shall be expressed as....................`D'
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>
Subject to completion, dated December 2, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR
TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS.
STATEMENT OF ADDITIONAL INFORMATION
December __, 1997
WARBURG PINCUS MANAGED EAFE[R] COUNTRIES FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) WARBURG
Contents
--------
Page
----
Investment Objective.................................................. 2
Investment Policies................................................... 2
Management of the Fund................................................ 30
Additional Purchase and Redemption Information........................ 37
Exchange Privilege.................................................... 38
Additional Information Concerning Taxes............................... 39
Determination of Performance.......................................... 44
Independent Accountants and Counsel................................... 46
Appendix - Description of Ratings..................................... A-1
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus for the Common Shares of Warburg Pincus Managed
EAFE[R] Countries Fund (the "Fund") dated December ___, 1997 as amended
or supplemented from time to time, and is incorporated by reference in its
entirety into that Prospectus. 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 Prospectus
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 be obtained by calling the Fund at (800)927-2874 or by
writing to the Fund, P.O. Box 9030, Boston, Massachusetts 02205-9030.
1
<PAGE>
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 Prospectus.
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
2
<PAGE>
purchase or temporarily borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear any market risk, since
the Fund will have the absolute right to receive from the issuer of the
underlying security an equal number of shares to replace the borrowed
securities, but the Fund may incur additional transaction costs or interest
expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which the Fund may write covered call options. For example, if the Fund writes
covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Warburg Pincus Asset Management, 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
3
<PAGE>
where the Fund has written an option, it will realize a profit if the cost of
the closing purchase transaction is less than the premium received upon writing
the original option and will incur a loss if the cost of the closing purchase
transaction exceeds the premium received upon writing the original option. The
Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security with respect to which it has written an option
from being called or put or, in the case of a call option, to unfreeze an
underlying security (thereby permitting its sale or the writing of a new option
on the security prior to the outstanding option's expiration). The obligation of
the Fund under an option it has written would be terminated by a closing
purchase transaction, but the Fund would not be deemed to own an option as a
result of the transaction. So long as the obligation of the Fund as the writer
of an option continues, the Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Fund to deliver
the underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Fund effects a closing purchase
transaction. The Fund can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the 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
4
<PAGE>
violation of these limits and it may impose certain other sanctions. These
limits may restrict the number of options the Fund will be able to purchase on a
particular security.
Stock Index Options. The Fund may purchase and write exchange-listed
and OTC put and call options on stock indexes. A stock index measures the
movement of a certain group of stocks by assigning relative values to the stocks
included in the index, fluctuating with changes in the market values of the
stocks included in the index. Some 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 securities 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
5
<PAGE>
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 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.
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. Securities indexes are capitalization weighted
indexes which reflect the market value of the securities listed on the indexes.
An 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
6
<PAGE>
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 index underlying the futures
contract fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as "marking-to-market." The Fund will
also incur brokerage costs in connection with entering into futures
transactions.
At any time prior to the expiration of a futures contract, the Fund
may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist at
any particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting the Fund to substantial losses. In such event, and in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such situations, if the fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances
the Fund may realize a loss on a futures contract or option that is not offset
by an increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect the Fund's
performance.
Options on Futures Contracts. The Fund may purchase and write put and
call options on foreign currency, interest rate and 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 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
7
<PAGE>
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the futures contract. The potential loss related to the purchase of an option
on futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Fund.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of the Fund that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Fund may incur costs in connection with conversion between various currencies.
Currency exchange transactions may be from any non-U.S. currency into U.S.
dollars or into other appropriate currencies. The Fund will conduct its currency
exchange transactions (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on such contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options.
Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
At or before the maturity of a forward contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and fully or partially offset its contractual obligation to deliver the
currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Fund retains the portfolio security and engages in
an offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
Currency Options. The Fund may purchase exchange-traded put and call
options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price 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.
8
<PAGE>
Position hedging is the sale of forward currency with respect to portfolio
security positions. The Fund may not position hedge to an extent greater than
the aggregate market value (at the time of entering into the hedge) of the
hedged securities.
A decline in the U.S. dollar value of a foreign currency in which the
Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of securities it holds, the Fund may purchase currency put options.
If the value of the currency does decline, the Fund will have the right to sell
the currency for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the U.S. dollar value of
a currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the Fund may purchase
call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange
rates. The benefit to the Fund derived from purchases of currency options, like
the benefit derived from other types of options, will be reduced by premiums and
other transaction costs. Because transactions in currency exchange are generally
conducted on a principal basis, no fees or commissions are generally involved.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Although currency hedges limit the risk
of loss due to a decline in the value of a hedged currency, at the same time,
they also limit any potential gain that might result should the value of the
currency increase. If a devaluation is generally anticipated, the Fund may not
be able to contract to sell a currency at a price above the devaluation level it
anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value of
the Fund's investments and a currency hedge may not be entirely successful in
mitigating changes in the value of the Fund's investments denominated in that
currency. A currency hedge, for example, should protect a Yen-denominated bond
against a decline in the Yen, but will not protect the Fund against a price
decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income to
offset expenses or increase return, the Fund may enter into these transactions
as hedges to reduce investment risk, generally by making an investment expected
to move in the opposite direction of a portfolio position. A hedge is designed
to offset a loss in a portfolio position with a gain in the hedged position; at
the same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedged position. As a result,
the use of options, futures 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.
9
<PAGE>
With respect to futures contracts, since the value of portfolio securities will
far exceed the value of the futures contracts sold by the Fund, an increase in
the value of the futures contracts could only mitigate, but not totally offset,
the decline in the value of the Fund's assets.
In hedging transactions based on an index, whether the Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Fund's portfolio varies from the
composition of the index. In an effort to compensate for imperfect correlation
of relative movements in the hedged position and the hedge, the Fund's hedge
positions may be in a greater or lesser dollar amount than the dollar amount of
the hedged position. Such "over hedging" or "under hedging" may adversely affect
the Fund's net investment results if market movements are not as anticipated
when the hedge is established. Stock index futures transactions may be subject
to additional correlation risks. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in a securities
index and movements in the price of 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 currencies, interest
rates 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 Prospectus, 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
securities.
10
<PAGE>
For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures or forward contract, the Fund could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.
Additional Information on Other Investment Practices
- ----------------------------------------------------
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below, which
are not typically associated with investing in U.S. issuers.
Foreign Currency Exchange. Since the Fund will be investing in
securities denominated in currencies other than the U.S. dollar, and since the
Fund may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Fund may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. A change in the value of a
foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the Fund'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 with respect to its foreign investments. 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
11
<PAGE>
techniques with the objective of protecting against loss through the fluctuation
of the value 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.
Information. The majority of the foreign securities held by the Fund
will not be registered with, nor the issuers thereof be subject to reporting
requirements of, the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Foreign companies are generally not subject to uniform financial reporting
standards, practices and requirements comparable to those applicable to U.S.
companies.
Political Instability. With respect to some foreign countries, there
is the possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Fund, political or social instability,
or domestic developments which could affect U.S. investments in those and
neighboring countries.
Delays. Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
of the Fund to market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on the Fund's liquidity,
the Fund will avoid investing in countries which are known to experience
settlement delays which may expose the Fund to unreasonable risk of loss.
Foreign Taxes and Increased Expenses. The operating expenses of the
Fund, to the extent it invests in foreign securities, can be expected to be
higher than that of an investment company investing exclusively in U.S.
securities, since the expenses of the Fund associated with foreign investing,
such as custodial costs, valuation costs and communication costs, as well as,
the rate of the investment advisory fees, though similar to such expenses of
some other funds investing internationally, are higher than those costs incurred
by other investment companies.
General. In general, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. The Fund may invest in
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such investments
as well.
Japanese Investments. From time to time depending on current market
conditions, the Fund may invest a significant portion of its assets in Japanese
securities. Like any investor in Japan, the Fund will be subject to general
economic and political conditions in the country. In addition to the
considerations discussed above, these include future political
12
<PAGE>
and economic developments, the possible imposition of, or changes in, exchange
controls or other Japanese governmental laws or restrictions applicable to such
investments, diplomatic developments, political or social unrest and natural
disasters.
THE INFORMATION SET FORTH IN THIS SECTION HAS BEEN EXTRACTED FROM
VARIOUS GOVERNMENTAL PUBLICATIONS AND OTHER SOURCES. THE FUND MAKES NO
REPRESENTATION AS TO THE ACCURACY OF THE INFORMATION, NOR HAS THE FUND ATTEMPTED
TO VERIFY IT. FURTHERMORE, NO REPRESENTATION IS MADE THAT ANY CORRELATION EXISTS
BETWEEN JAPAN OR ITS ECONOMY IN GENERAL AND THE PERFORMANCE OF THE FUND.
Domestic Politics. Japan has a parliamentary form of government. The
legislative power is vested in the Japanese Diet, which consists of a House of
Representatives and a House of Councillors. Members of the House of
Representatives are elected for terms of four years unless the House of
Representatives is dissolved prior to the expiration of their full elected
terms. Members of the House of Councillors are elected for terms of six years
with one-half of the membership being elected every three years. Various
political parties are represented in the Diet, including the conservative
Liberal Democratic Party ("LDP"), which until August 1993, had been in power
nationally since its formation in 1955. The LDP ceased to have a majority of the
House of Representatives in June 1993, when certain members of the House of
Representatives left the LDP and formed two new political parties. After an
election for the House of Representatives was held on July 18, 1993 and the LDP
failed to secure a majority, seven parties formed a coalition to control the
House of Representatives and chose Morihiro Hosokawa, the Representative of the
Japan New Party, to head their coalition. In April 1994, amid accusations of
financial improprieties, Prime Minister Hosokawa announced that he would resign.
Tsutomu Hata succeeded Mr. Hosokawa as prime minister and formed a new cabinet
as a minority coalition government. In June 1994, Mr. Hata yielded to political
pressure from opposition parties and resigned. He was succeeded by Social
Democratic Party leader Tomiichi Murayama, Japan's first Socialist prime
minister since 1948, who was chosen by a new and unstable alliance between
left-wing and conservative parties, including the LDP. On September 18, 1994,
187 opposition politicians founded a new party, the Reform Party, led by Ichiro
Ozawa, to oppose the government of Prime Minister Murayama in the next
elections. Political realignment has continued in 1995, as the Social Democrats
incurred significant losses in the July elections. In August 1995, the LDP
elected Ryutaro Hashimoto, the minister for international trade and industry, as
its new leader, and in January 1996, he became prime minister. Mr. Hashimoto
dissolved the Diet, and called a general election in October 1996, in which the
LDP failed to secure a majority. The LDP formed a new coalition with the Social
Democratic Party, but it will need to attract members from the main opposition
party to attain a working majority. The recently formed Democratic Party, which
calls for serious public sector reforms, is likely to have a strong influence on
the future course of political party developments. This continuing political
instability may hamper Japan's ability to establish and maintain effective
economic and fiscal policies, and recent and future political developments may
lead to changes in policy that might adversely affect the Fund's investments.
13
<PAGE>
Economic Background. Over the past 30 years, Japan has experienced
significant economic development. During the era of high economic growth in the
1960s and early 1970s the expansion was based on the development of heavy
industries such as steel and shipbuilding. In the 1970s Japan moved into
assembly industries which employ high levels of technology and consume
relatively low quantities of resources, and since then has become a major
producer of electrical and electronic products and automobiles. Moreover, since
the mid-1980s, Japan has become a major creditor nation. With the exception of
the periods associated with the oil crises of the 1970s, Japan has generally
experienced very low levels of inflation.
The accumulation of trade and current account surpluses in the 1980s
led to increased investment in financial assets and Japanese real estate,
resulting in a rapid escalation of prices and the infamous "bubble economy" of
the late 1980s. In the early 1990s, however, declining stock and land prices hit
Japanese banks especially hard. Falling land prices caused a rapid accumulation
of bad loans and because Japanese banks count a portion of their equity holdings
of other Japanese companies as part of their capital base, falling stock prices
adversely affected the financial health of these banks. Bank failures in 1995
and losses from unauthorized bond trading by Daiwa Bank, one of Japan's oldest
and most venerable banks, revealed serious flaws in the Japanese financial
system and a government regulatory regime that had protected that system from
the consequences of its actions. These serious difficulties continued through
the end of 1996. Extricating financial institutions from bad loans could impede
the pace of any recovery. There can be no assurance that any recovery will
continue and will not, in fact, be reversed.
Japan is largely dependent upon foreign economies for raw materials.
For instance, almost all of its oil is imported, the majority from the Middle
East. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970s. Oil prices have declined mainly due to a worldwide easing of demand for
crude oil. The stabilized price of oil contributed to Japan's sizable current
account surplus and stability of wholesale and consumer prices. However, the
recent increase in oil prices has put pressure on both the trade balance and
prices.
International trade is important to Japan's economy, as exports
provide the means to pay for many of the raw materials it must import. Japan's
trade surplus has increased dramatically in recent years, exceeding $100 billion
per year since 1991 and reaching a record high of $145 billion in 1994. Because
of the concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
resulting therefrom, Japan has entered a difficult phase in its relations with
its trading partners, particularly with respect to the United States, with whom
the trade imbalance is the greatest. In 1995, however, the trade surplus has
decreased due to a drop in exports. The reduced exports are due primarily to the
strength of the yen and the shift in production by major manufacturers to
foreign countries, particularly to other parts of Asia. In 1996, the overall
trade surplus declined by 32% from the previous year, although the monthly pace
of decline slowed in late 1996. The declining trade surplus has been accompanied
by
14
<PAGE>
changes in the composition of trade and trade partners. The proportion of
finished products has increased, while that of raw materials has decreased, and
trade with other Asian countries rose to comprise 44% and 37% of Japan's exports
and imports, respectively. The U.S. still constitutes Japan's largest trading
partner, accounting for 27% of Japan's exports and 23% of its imports. The trade
imbalance with the U.S. has caused friction in the past, and could adversely
affect Japan and the performance of the Fund.
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years
shown.
<TABLE>
<CAPTION>
CURRENT ACCOUNT
Trade
--------------------------------------------------------------------
Percentage Percentage
Change from Change from Trade Balance Current
Year Exports Preceding Year Imports Preceding Year Services Transfers Balance
---- ------- -------------- ------- -------------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(U.S. dollars in millions)
1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) 92,827 (4,932) (2,050) 85,845
1987 224,605 9.2 128,219 13.7 96,386 (5,702) (3,669) 87,015
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 63,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (3,949) (6,117) 131,448
1994 384,176 9.4 238,232 13.6 145,944 (9,296) (7,508) 129,140
1995 429,482 11.8 297,795 25.0 131,689 (13,154) (7,737) 110,798
1996 435,715 1.5 344,563 15.7 91,152 (67,760) (9,755) 71,806
</TABLE>
Source: Bank of Japan
15
<PAGE>
Economic Trends. The following table sets forth Japan's gross domestic
product for the years shown.
<TABLE>
<CAPTION>
GROSS DOMESTIC PRODUCT (GDP)
1996* 1995 1994 1993 1992 1991 1990 1989
----- ---- ---- ---- ---- ---- ---- ----
(yen in billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumption Expenditures
Private...........Y298,786 Y289,045 Y277,676.8 Y270,919.4 Y264,824.1 Y255,084.2 Y243,628.1 Y228,483.2
Government..........49,106 46,824 46,108.0 44,666.4 43,257.9 41,232.0 38,806.6 36,274.8
Capital Formation
(incl.inventories)
Private.............. N/A 70,758 93,111.4 99,180.1 108,727.6 116,638.0 110,871.9 100,130.8
Government........... N/A 41,461 42,227.3 40,295.8 35,110.1 30,062.3 28,182.6 25,724.5
Exports of Goods and
Services............. 48,773 45,408 44,449.2 44,243.8 47,409.4 46,809.7 45,919.9 42,351.8
Imports of Goods and
Services............. 46,127 38,227 34,424.0 33,333.1 36,183.8 38,529.3 42,871.8 36,768.1
GDP (Expenditures)...499,667 480,693 469,148.7 465,972.4 463,145.3 451,296.9 24,537.2 396,197.0
Change in GDP from
Preceding Year
Nominal terms........ 3.9% 0.3% 0.7% 0.6% 2.6% 6.3% 7.2% 6.7%
Real Terms........... N/A 0.9% 0.5% -0.2% 1.1% 4.3% 4.8% 4.7%
</TABLE>
Source: Economic Planning Agency, Japan
__________________
* Average of the first, second and third quarters of 1996.
The following tables set forth certain economic indicators in Japan
for the years shown.
UNEMPLOYMENT
Labor Productivity
Year Number Unemployed Percent Unemployed Index (Manufacturing)
(in millions) (Base Year: 1990)
1985...... 1.56 2.6 75.6
1986...... 1.67 2.8 77.0
1987...... 1.73 2.8 81.4
1988...... 1.55 2.5 90.8
1989...... 1.42 2.3 96.2
1990...... 1.34 2.1 100.0
1991...... 1.36 2.1 102.5
1992...... 1.42 2.2 97.0
1993...... 1.66 2.5 95.4
1994...... 1.92 2.9 98.3
1995...... 2.10 3.2 103.0
1996...... 2.25 3.4 107.4*
Source: Japan Productivity Center; Bureau of Statistics Management and
Coordination Agency
__________________
* Average of the first, second and third quarters of 1996.
16
<PAGE>
WHOLESALE PRICE INDEX
(Base Year: 1990)
All Change from
Year Commodities Preceding Year
- ---- ----------- --------------
1985 110.4 (1.1)%
1986 100.3 (9.1)
1987 96.5 (3.8)
1988 95.6 (0.9)
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 (2.1)
1995 92.2 (0.9)
1996 92.8 0.7
Source: Bank of Japan
CONSUMER PRICE INDEX
Change from
Year General Preceding Year
- ---- ------- --------------
(Base Year: 1990)
1985 93.5 2.0%
1986 94.1 0.6
1987 94.2 0.1
1988 94.9 0.7
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
(Base Year: 1995)
1992 98.2 1.8
1993 99.4 1.2
1994 100.1 0.7
1995 100.0 (0.1)
1996 100.1 0.1
Source: Bureau of Statistics Management and Coordination Agency
Currency Fluctuation. Investments by the Fund in Japanese securities
will be denominated in yen and most income received by the Fund from such
investments will be in yen. However, the Fund's net asset value will be
reported, and distributions will be made, in U.S. dollars. Therefore, a decline
in the value of the yen relative to the U.S. dollar could
17
<PAGE>
have an adverse effect on the value of the Fund's Japanese investments. The
following table presents the average exchange rates of Japanese yen for U.S.
dollars for the years shown:
CURRENCY EXCHANGE RATES
Year Yen Per U.S. Dollar
---- -------------------
1985 Y238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.62
1993 111.18
1994 102.22
1995 94.07
1996 108.78
Source: Nikkei (Calendar Year, Closing Average, Inter-Bank Rates in Tokyo,
Spot)
On November 28, 1997, the rate of exchange was 127.82 Japanese yen per
U.S. dollar.
Geological Factors. The islands of Japan lie in the western Pacific
Ocean, off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity. The
risks of such phenomena, and the damage resulting therefrom, continue to exist.
On January 17, 1995, the Great Hanshin Earthquake killed over 5,000 people and
severely damaged the port of Kobe, Japan's largest container port. The
government has announced a $5.9 billion plan to repair the port and estimates
damage to the region at approximately $120 billion. However, the long-term
economic effects of the earthquake on the Japanese economy as a whole, and on
the Fund's investments, cannot be predicted.
Securities Markets. There are eight stock exchanges in Japan. Of
these, the Tokyo Stock Exchange is by far the largest, followed by the Osaka
Stock Exchange and the Nagoya Stock Exchange. These exchanges divide the market
for domestic stocks into two sections, with newly listed companies and smaller
companies assigned to the Second Section and larger companies assigned to the
First Section.
As of the end of 1996, there were 1,293 domestic companies listed on
the Tokyo Stock Exchange, first section, and 473 listed on the second section.
The following table sets forth the trading volume and value of
Japanese stocks on each of the eight Japanese stock exchanges for the years
shown.
18
<PAGE>
<TABLE>
<CAPTION>
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
All Exchanges Tokyo Osaka Nagoya
------------- ----- ----- ------
Year Volume Value Volume Value Volume Value Volume Value
---- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989........ 256,296 Y386,395 222,599 Y332,617 25,096 Y41,679 7,263 Y10,395
1990........ 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991........ 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992........ 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993........ 101,172 106,123 86,935 86,889 10,440 14,635 2,780 3,459
1994........ 105,936 114,622 84,514 87,356 14,904 19,349 4,720 5,780
1995........ 120,149 115,840 92,034 83,564 21,094 24,719 5,060 5,462
1996........ 126,496 136,170 100,170 101,893 20,783 27,280 4,104 5,391
<CAPTION>
Kyoto Hiroshima Fukuoka Niigata Sapporo
----- --------- ------- ------- -------
Volume Value Volume Value Volume Value Volume Value Volume Value
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989..... 331 Y443 190 Y235 268 Y330 398 Y475 151 Y221
1990..... 416 770 169 261 203 405 245 334 195 286
1991..... 220 300 125 149 122 174 181 208 113 123
1992..... 225 322 110 136 139 129 163 178 149 129
1993..... 223 340 185 178 229 225 207 226 174 170
1994..... 447 562 256 312 578 669 250 299 267 296
1995..... 641 873 286 306 404 396 295 212 336 308
1996..... 358 600 257 250 300 297 231 196 290 263
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
The following table sets forth the stock trading value of Japanese
stocks on the Tokyo Stock Exchange for the years shown.
<TABLE>
<CAPTION>
TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
Year Total Daily Average High Low Turnover Ratio
---- ----- ------------- ---- --- --------------
(yen in millions)
<S> <C> <C> <C> <C> <C>
1985....................... Y 78,711,048 Y 276,179 Y 727,316 Y 110,512 44.7%
1986....................... 159,836,218 572,890 1,682,060 115,244 67.2
1987....................... 250,736,971 915,098 2,382,114 221,230 80.6
1988....................... 285,521,260 1,045,865 2,768,810 192,704 70.2
1989....................... 332,616,597 1,335,810 2,796,946 392,347 61.1
1990....................... 186,666,820 758,808 1,464,920 218,205 37.7
1991....................... 110,897,491 450,803 1,531,064 151,565 29.3
1992....................... 60,110,391 243,362 686,737 97,616 18.0
1993....................... 86,889,072 353,208 1,422,760 61,747 28.3
1994....................... 87,355,567 353,666 1,114,216 123,904 25.6
1995....................... 83,563,906 335,598 1,337,999 81,884 23.1
1996....................... 101,892,634 412,521 1,362,586 154,643 28.9
</TABLE>
19
<PAGE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a
composite index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. TOPIX reflects the change in the aggregate market value of the
common stocks as compared to the aggregate market value of those stocks as of
the close on January 4, 1968.
The following table sets forth the high, low and year-end TOPIX for
the years shown.
TOPIX (Tokyo Stock Price Index)
(Jan. 4, 1968=100)
Year Year-end High Low
---- -------- ---- ---
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
1995 1,577.70 1,585.87 1,193.16
1996 1,470.94 1,551.76 1,448.45
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
As this index reflects, share prices of companies traded on Japanese
stock exchanges reached historical peaks (which were later referred to as the
"bubble") in 1989 and 1990. Afterwards stock prices decreased significantly,
reaching their lowest levels in the second half of 1992. There can be no
assurance that additional market corrections will not occur.
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, General Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association, Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board and Student Loan Marketing
Association. The Fund may also invest in instruments that are
20
<PAGE>
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. The Fund may invest in convertible
securities rated investment grade and it is not required to dispose of
securities downgraded below investment grade subsequent to acquisition by the
Fund. While the market values of medium- and lower-rated securities and unrated
securities of comparable quality tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities, the market values of
certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
The market for medium- and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
The Fund may have difficulty disposing of certain of these securities
because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, the Fund anticipates that
these securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market for these
securities does exist, it generally is not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market, as well as
adverse publicity and investor perception with respect to these securities, may
have an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund and calculating its
net asset value.
The market value of securities in medium- and lower-rated categories
is more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the Fund's
net asset value. The Fund will rely on the judgment, analysis and experience of
Warburg in evaluating the creditworthiness of an issuer. In this evaluation,
Warburg will take into consideration, among other things, the issuer's
21
<PAGE>
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"). The Fund will not lend portfolio
securities to Warburg or its affiliates unless it has applied for and received
specific authority to do so from the SEC. Loans of portfolio securities will be
collateralized by cash, letters of credit or U.S. Government Securities, which
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Fund. From time to time, the Fund may return a part of the
interest earned from the investment of collateral received for securities loaned
to the borrower and/or a third party that is unaffiliated with the Fund and that
is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned
in short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Fund, income received
could be used to pay the Fund's expenses and would increase an investor's total
return. The Fund will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Fund must receive at least 100% cash collateral
or equivalent securities of the type discussed in the preceding paragraph from
the borrower; (ii) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral; (iii)
the Fund must be able to terminate the loan at any time; (iv) the Fund must
receive reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting the
22
<PAGE>
investment occurs, the Board must terminate the loan and regain the right to
vote the securities. Loan agreements involve certain risks in the event of
default or insolvency of the other party including possible delays or
restrictions upon the Fund's ability to recover the loaned securities or dispose
of the collateral for the loan.
When-Issued Securities and Delayed-Delivery Transactions. The Fund may
utilize up to 20% of its total assets to purchase securities on a "when-issued"
basis or purchase or sell securities for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated price and yield).
When-issued transactions normally settle within 30-45 days. The Fund will enter
into a when-issued transaction for the purpose of acquiring portfolio securities
and not for the purpose of leverage, but may sell the securities before the
settlement date if Warburg deems it advantageous to do so. The payment
obligation and the interest rate that will be received on when-issued securities
are fixed at the time the buyer enters into the commitment. Due to fluctuations
in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the yields obtained on such securities may be higher 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 or liquid securities equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that the Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in when-issued or delayed-delivery transactions, it relies on
the other party to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
Short Sales "Against the Box." In a short sale, the Fund sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
The Fund may engage in a short sale if at the time of the short sale the Fund
owns or has the right to obtain without additional cost an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the box." If the Fund engages in a short sale, the collateral for the
short position will be maintained by the Fund's custodian or qualified
sub-custodian. While the short sale is open, the Fund will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Fund's long position. Not
more than 10% of the Fund's net assets (taken at current value) may be held as
collateral for such short sales at any one time.
23
<PAGE>
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). 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.
Depositary Receipts. The assets of the Fund may be invested in the
securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). 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, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are receipts issued outside the United States.
EDRs, CDRs, IDRs and GDRs are typically issued 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 (CDRs) and IDRs (GDRs) in bearer form are designed for use in
European securities markets and non-U.S. securities markets, respectively.
Convertible Securities. Convertible securities in which the Fund may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. Like bonds, the value of convertible securities fluctuates in
relation to changes in interest rates and, in addition, also fluctuates in
relation to the underlying common stock.
Warrants. The Fund may purchase warrants issued by domestic and
foreign companies to purchase newly created equity securities consisting of
common and preferred stock. The equity security underlying a warrant is
authorized at the time the warrant is issued or is issued together with the
warrant.
Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future
24
<PAGE>
price of the underlying security, or any combination thereof. Warrants generally
pay no dividends and confer no voting or other rights other than to purchase the
underlying security.
Non-Publicly Traded and Illiquid Securities. The Fund may not invest
more than 15% 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, time deposits maturing in more than seven days and repurchase
agreements which have a maturity of longer than seven days. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not 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. 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 without borrowing. 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.
Warburg will monitor the liquidity of restricted securities in the
Fund under the supervision of the Board. In reaching liquidity decisions,
Warburg may consider, inter alia,
25
<PAGE>
the following factors: (i) the unregistered nature of the security; (ii) the
frequency of trades and quotes for the security; (iii) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security and (v)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Borrowing. The Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Fund's net assets.
Although the principal of such borrowings will be fixed, the Fund's assets may
change in value during the time the borrowing is outstanding. The Fund expects
that some of its borrowings may be made on a secured basis. In such situations,
either the custodian will segregate the pledged assets for the benefit of the
lender or arrangements will be made with a suitable subcustodian, which may
include the lender.
Other Investment Limitations
The investment limitations numbered 1 through 9 may not be
changed without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares. Investment limitations 10 through 14 may be
changed by a vote of the Board at any time.
The Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
26
<PAGE>
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.
7. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
8. Invest in commodities, except that the Fund may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, purchase and sell currencies on a forward commitment or
delayed-delivery basis and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's
investment limitations.
10. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with 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.
27
<PAGE>
12. Invest more than 15% of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
14. Make short sales of securities or maintain a short
position, except that the Fund may maintain short positions in forward currency
contracts, options and futures contracts and make short sales "against the box."
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 Prospectus discusses the time at which the net asset value of the
Fund is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the Nasdaq National Market System) or 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.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to other debt obligations with 60 days or less remaining to
maturity. In determining the market value of portfolio investments, the Fund may
employ outside organizations (a "Pricing Service") which may use a matrix,
formula or other objective method that takes into consideration market indexes,
matrices, yield curves and other specific adjustments. The procedures of Pricing
Services are reviewed periodically by the officers of the Fund under the general
supervision and responsibility of the Board, which may replace a Pricing Service
at any time. Securities, options and futures contracts for which market
quotations are not available and certain other assets of the Fund will be valued
at their fair value as determined in good faith
28
<PAGE>
pursuant to consistently applied procedures established by the Board. In
addition, the Board or its delegates may value a security at fair value if it
determines that such security's value determined by the methodology set forth
above does not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange, Inc. (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, in
which case an adjustment may be made by the Board or its delegates. 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
29
<PAGE>
may include the breadth of the market in the security, the price of the
security, the financial condition and execution capability of a broker or dealer
and the reasonableness of the commission, if any, for the specific transaction
and on a continuing basis. Warburg may, in its discretion, effect transactions
in portfolio securities with dealers who provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Fund and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction or
of the overall responsibilities of Warburg. Research and other services received
may be useful to Warburg in serving both the Fund and its other clients and,
conversely, research or other services obtained by the placement of business of
other clients may be useful to Warburg in carrying out its obligations to the
Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services; and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Warburg in carrying out its responsibilities. 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
30
<PAGE>
the Fund a commission rate consistent with those charged by Counsellors
Securities to comparable unaffiliated customers in similar transactions. All
transactions with affiliated brokers will comply with Rule 17e-1 under the 1940
Act.
In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities or any affiliated person of such companies.
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. 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.
MANAGEMENT OF THE FUND
Officers and Board of Directors
- -------------------------------
31
<PAGE>
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard N. Cooper (63) Director
Harvard University Professor at Harvard University;
1737 Cambridge Street National Intelligence Council from June
Cambridge, MA 02138 1995 until January 1997; Director or
Trustee of CircuitCity Stores, Inc.
(retail electronics and appliances) and
Phoenix Home Mutual Life Insurance
Company.
Donald J. Donahue (73) Director
27 Signal Road Chairman of Magma Copper Company from
Stamford, Connecticut 06902 December 1987 until December 1995;
Chairman and Director of NAC Holdings
from September 1990-June 1993; Director
of Pioneer Companies, Inc. (chlor-alkali
chemicals) and predecessor companies
since 1990 and Vice Chairman since
December 1995.
Jack W. Fritz (70) Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations); Director
of Advo, Inc. (direct mail advertising).
John L. Furth* (66) Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970;
Director of Counsellors Securities;
Chairman of the Board and officer of
other investment companies advised by
Warburg.
Thomas A. Melfe (65) Director
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton &
Irvine; Chairman of the Board
of Municipal Fund for New York
Investors, Inc.
______________________
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
32
<PAGE>
Alexander B. Trowbridge (67) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990-
November 1996; President of the National
Association of Manufacturers from
1980-1990; Director or Trustee of New
England Mutual Life Insurance Co., ICOS
Corporation (biopharmaceuticals), WMX
Technologies Inc. (solid and hazardous
waste collection and disposal), The
Rouse Company (real estate development),
Harris Corp. (electronics and
communications equipment), The Gillette
Co. (personal care products) and Sun
Company Inc. (petroleum refining and
marketing).
Arnold M. Reichman* (49) Director
466 Lexington Avenue Senior Managing Director, Chief
New York, New York 10017-3147 Operating Officer and Assistant
Secretary of Warburg; Associated with
Warburg since 1984; Director, Secretary
and Chief Operating Officer of
Counsellors Securities; Director and
officer of other investment companies
advised by Warburg.
Eugene L. Podsiadlo (40) President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1991; Vice President
of Citibank, N.A. from 1987-1991; Senior
Vice President of Counsellors Securities
and President of other investment
companies advised by Warburg.
Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director, Controller and
New York, New York 10017-3147 Assistant Secretary of Warburg;
Associated with Warburg since 1984;
Treasurer of Counsellors Securities;
Vice President of other investment
companies advised by Warburg.
______________________
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
33
<PAGE>
Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April
New York, New York 10017-3147 1994; Attorney-at-law from September
1989-April 1994; life insurance agent,
New York Life Insurance Company from
1993-1994; General Counsel and
Secretary, Home Unity Savings Bank from
1991-1992; Vice President, Chief
Compliance Officer and Assistant
Secretary of Counsellors Securities;
Vice President and Secretary of other
investment companies advised by Warburg.
Howard Conroy (43) Vice President and Chief Financial
466 Lexington Avenue Officer Associated with Warburg since
New York, New York 10017-3147 1992; Associated with Martin Geller,
C.P.A. from 1990-1992; Vice President,
Finance with Gabelli/Rosenthal &
Partners, L.P. until 1990; Vice
President and Chief Financial Officer of
other investment companies advised by
Warburg.
Daniel S. Madden, CPA (31) Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial
Management, Inc. from September 1994 to
October 1996; Associated with BEA
Associates from April 1993 to September
1994; Associated with Ernst & Young LLP
from 1990 to 1993; Treasurer and Chief
Accounting Officer of other investment
companies advised by Warburg.
Janna Manes, Esq. (30) Assistant Secretary
466 Lexington Avenue Associated with Warburg since March
New York, New York 10017-3147 1996; Associated with the law firm of
Willkie Farr & Gallagher from 1993-1996;
Assistant Secretary of other investment
companies advised by Warburg.
No employee of Warburg or PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund for
acting as an officer or Director of the Fund. Each Director who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and $250 for each meeting of the
Board attended by him for his services as Director and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
Directors' Compensation
- -----------------------
34
<PAGE>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund[+] Managed by Warburg*
- ---------------- ----------------- ------------------------
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $46,000
Donald J. Donahue $1,500 $46,000
Jack W. Fritz $1,500 $46,000
Thomas A. Melfe $1,500 $46,000
Alexander B. Trowbridge $1,500 $46,000
[+] Amounts shown are estimates of payments to be made in the fiscal year
ending October 31, 1998 pursuant to existing arrangements.
* Each Director also serves as a Director or Trustee of 24 other
investment companies advised by Warburg.
** Mr. Furth and Mr. 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 December ___, 1997 Directors or officers of the Fund as a
group owned less than 1% of the outstanding shares of the Fund.
Portfolio Managers
- ------------------
Mr. Richard H. King, Co-Portfolio Manager of the Fund, earned a B.A.
degree from Durham University in England. Mr. King is also Portfolio Manager of
Warburg Pincus International Equity Fund, and the International Equity and
Emerging Markets Portfolios of Warburg Pincus Trust and Warburg Pincus
Institutional Fund, Inc. and a Co-Portfolio Manager of Warburg Pincus Emerging
Markets Fund and Warburg Pincus Japan OTC Fund. From 1968 to 1982, he worked at
Carr Sons & Company (Overseas), a leading international brokerage firm. He
resided in the Far East as an investment analyst from 1970 to 1977, became
director, and later relocated to the U.S. where he became founder and president
of W.I. Carr (America), based in New York. From 1982 to 1984 Mr. King was a
director in charge of the Far East equity investments at N.M. Rothschild
International Asset Management, a London merchant bank. In 1984 Mr. King became
chief investment officer and director for all international investment strategy
with Fiduciary Trust Company International S.A., in London. He managed an EAFE
mutual fund (FTIT) 1985-1986 which grew from $3 million to over $100 million
during this two-year period.
Mr. P. Nicholas Edwards, Co-Portfolio Manager of the Fund, is also
Portfolio Manager of Warburg Pincus Japan Growth Fund and Co-Portfolio Manager
and Research
35
<PAGE>
Analyst of Warburg Pincus International Equity Fund and Associate Portfolio
Manager and Research Analyst of the International Equity Portfolios of Warburg
Pincus Trust and Warburg Pincus Institutional Fund, Inc. Prior to joining
Warburg in August 1995, Mr. Edwards was a director at Jardine Fleming Investment
Advisers, Tokyo. He was a vice president of Robert Fleming Inc. in New York City
from 1988 to 1991. Mr. Edwards earned M.A. degrees from Oxford University and
Hiroshima University in Japan.
Mr. Harold W. Ehrlich, Co-Portfolio Manager of the Fund, is also an
Associate Portfolio Manager and Research Analyst of the International Equity and
Emerging Markets Portfolios of Warburg Pincus Institutional Fund, Inc. and
Warburg Pincus Trust and Warburg Pincus International Equity Fund, Warburg
Pincus Emerging Markets Fund. Prior to joining Warburg, Mr. Ehrlich was a senior
vice president, portfolio manager and analyst at Templeton Investment Counsel
Inc. from 1987 to 1995. He was a research analyst and assistant portfolio
manager at Fundamental Management Corporation from 1985 to 1986 and a research
analyst at First Equity Corporation of Florida from 1983 to 1985. Mr. Ehrlich
earned a B.S.B.A. degree from University of Florida and earned his Chartered
Financial Analyst designation in 1990.
Mr. Vincent J. McBride, Associate Portfolio Manager of the Fund, is
also Co-Portfolio Manager of the Emerging Markets Portfolios of Warburg Pincus
Institutional Fund, Inc. and Warburg Pincus Trust and Associate Portfolio
Manager and Research Analyst of the International Equity Portfolios of Warburg
Pincus Institutional Fund, Inc. and Warburg Pincus Trust and is Co-Portfolio
Manager of Warburg Pincus Emerging Markets Fund. Prior to joining Warburg in
1994, Mr. McBride was an international equity analyst at Smith Barney Inc. from
1993 to 1994 and at General Electric Investment Corporation from 1992 to 1993.
He was also a portfolio manager/analyst at United Jersey Bank from 1989 to 1992
and a portfolio manager at First Fidelity Bank from 1987 to 1989. Mr. McBride
earned a B.S. degree from the University of Delaware and an M.B.A. degree from
Rutgers University.
Ms. Nancy Nierman, Associate Portfolio Manager of the Fund, is a Vice
President of Warburg and is also Co-Manager of the International Equity Sector
of Warburg Pincus Balanced Fund. She has been with Warburg since April 1996,
before which time she was an analyst with Fiduciary Trust Company International.
Mr. J.H. Cullum Clark, CFA, Associate Portfolio Manager of the Fund,
is a Vice President of Warburg and is a Senior Analyst for the International
Group at Warburg. Prior to joining Warburg, Mr. Clark was an analyst and
portfolio manager at Brown Brothers Harriman from 1993 to 1996 and a research
assistant at the U.S. Senate Select Committee on Intelligence from 1992 to 1993.
Mr. Clark received an A.M. degree from Harvard University and a B.A. degree from
Yale University. Mr. Clark also studied at the Stanford Inter-University Center
for Japanese Language Studies in 1990.
Investment Adviser and Co-Administrators
- ----------------------------------------
Warburg serves as investment adviser to the Fund pursuant to a written
agreement (the "Advisory Agreement"). Counsellors Funds Service, Inc.
("Counsellors
36
<PAGE>
Service") and PFPC both serve as co-administrators to the Fund pursuant to
separate written agreements (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 Prospectus. 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.
Custodians and Transfer Agent
- -----------------------------
PNC Bank, National Association ("PNC") and State Street serve as
custodians of the Fund's U.S. and non-U.S. assets, respectively, pursuant to
separate custodian agreements (the "Custodian Agreements"). Under the Custodian
Agreements, PNC and State Street each (i) maintains a separate account or
accounts in the name of the Fund, (ii) holds and transfers portfolio securities
on account of the Fund, (iii) makes receipts and disbursements of money on
behalf of the Fund, (iv) collects and receives all income and other payments and
distributions for the account of the Fund's portfolio securities held by it and
(v) makes periodic reports to the Board concerning the Fund's custodial
arrangements. PNC may delegate its duties under its Custodian Agreement with the
Fund to a wholly owned direct or indirect subsidiary of PNC or PNC Bank Corp.
upon notice to the Fund and upon the satisfaction of certain other conditions.
With the approval of the Board, State Street is authorized to select one or more
foreign banking institutions and foreign securities depositories to serve as
sub-custodian on behalf of the Fund. PNC is an indirect, wholly owned subsidiary
of PNC Bank Corp. and its principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103. The principal business address of State Street
is 225 Franklin Street, Boston, Massachusetts 02110.
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.
BFDS's principal business address is 2 Heritage Drive, Boston, Massachusetts
02171.
Organization of the Fund
- ------------------------
The Fund was incorporated on October 24, 1997 under the laws of the
State of Maryland under the name Warburg, Pincus Managed EAFE Countries Fund,
Inc. The Fund's charter authorizes the Board to issue three billion full and
fractional shares of common
37
<PAGE>
stock, $.001 par value per share, of which one billion shares are designated
"Common Shares" and two billion shares are designated "Advisor Shares."
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
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, "Services") including, without limitation,
(a) payments reflecting an allocation of overhead and other office expenses of
Counsellors Securities related to providing Services; (b) payments made to, and
reimbursement of expenses of, persons who provide support services in connection
with the distribution of the Common Shares including, but not limited to, office
space and equipment, telephone facilities, answering routine inquiries regarding
the Fund, and providing any other Shareholder Services; (c) payments made to
compensate selected dealers or other authorized persons for providing any
Services; (d) costs relating to the formulation and implementation of marketing
and promotional activities for the Common Shares, including, but not limited to,
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, and related travel and entertainment expenses; (e) costs of
printing and distributing prospectuses, statements of additional information and
reports of the Fund to prospective shareholders of the Fund; and (f) costs
involved in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities that the Fund may, from time to time, deem
advisable. Pursuant to the 12b-1 Plan, Counsellors Securities provides the Board
with periodic reports of amounts expended under the 12b-1 Plan and the purpose
for which the expenditures were made.
Advisor Shares. The Fund may, in the future, enter into agreements
("Agreements") with institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and financial
intermediaries ("Institutions") to provide certain distribution, shareholder
servicing, administrative and/or accounting services for their clients or
customers (or participants in the case of retirement plans) ("Customers") who
are beneficial owners of Advisor Shares. 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
38
<PAGE>
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 manner described above. The Distribution Plan or the 12b-1 Plan may not be
amended to increase materially the amount to be spent thereunder without
shareholder approval of the Advisor Shares or the Common Shares, as the case may
be. Neither the Distribution Plan nor the 12b-1 Plan may be terminated at any
time, without penalty, by vote of a majority of the Independent Directors or by
a vote of a majority of the outstanding voting securities of the Advisor Shares
or the Common Shares, as the case may be.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund. Information on how to
purchase and redeem Fund shares and how such shares are priced is included in
the Prospectus 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
39
<PAGE>
recordation of an exchange of its shares upon the occurrence of any of the
foregoing conditions.)
If the Board determines that conditions exist which make payment of redemption
proceeds wholly in cash unwise or undesirable, the Fund may make payment wholly
or partly in securities or other investment instruments which may not constitute
securities as such term is defined in the applicable securities laws. If a
redemption is paid wholly or partly in securities or other property, a
shareholder would incur transaction costs in disposing of the redemption
proceeds. The Fund will comply with Rule 18f-1 promulgated under the 1940 Act
with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan (the
"Plan") is available to shareholders who wish to receive specific amounts of
cash periodically. Withdrawals may be made under the Plan by redeeming as many
shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued withdrawal
payments may reduce the shareholder's investment and ultimately exhaust it.
Withdrawal payments should not be considered as income from investment in the
Fund. All dividends and distributions on shares in the Plan are automatically
reinvested at net asset value in additional shares of the Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Warburg is
available to investors in the Fund. The funds into which exchanges of Common
Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares in a
fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. This privilege is available
to shareholders residing in any state in which the Common Shares or Advisor
Shares being acquired, as relevant, may legally be sold. Prior to any exchange,
the investor should obtain and review a copy of the current prospectus of the
relevant class of each fund into which an exchange is being considered.
Shareholders may 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 30 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
40
<PAGE>
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in the Fund. Each prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state, local and foreign tax
consequences of investing in the Fund. The summary is based on the laws in
effect on the date of this Statement of Additional Information, which are
subject to change.
41
<PAGE>
The Fund and Its Investments
- ----------------------------
The Fund and Its Investments. The Fund intends to continue to qualify
to be treated as a regulated investment company each taxable year under the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund
must, among other things: (a) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities,
loans and gains from the sale or other disposition of stock or securities or
foreign currencies, or other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each quarter of the Fund's taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash,
securities of other regulated investment companies, United States government
securities and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the Fund's assets and not
greater than 10% of the outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its assets is invested in the securities
(other than United States government securities or securities of other regulated
investment companies) of any one issuer or any two or more issuers that the Fund
controls and are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The Fund expects that all of its
foreign currency gains will be directly related to its principal business of
investing in stocks and securities.
As a regulated investment company, the Fund will not be subject to
United States federal income tax on its net investment income (i.e., income
other than its net realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that it distributes to its
shareholders, provided that an amount equal to at least 90% of the sum of its
investment company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital
42
<PAGE>
losses (including any capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and its net tax-exempt income for the
taxable year is distributed, but will be subject to tax at regular corporate
rates on any taxable income or gains that it does not distribute. Furthermore,
the Fund will be subject to a United States corporate income tax with respect to
such distributed amounts in any year that it fails to qualify as a regulated
investment company or fails to meet this distribution requirement. Any dividend
declared by the Fund in October, November or December of any calendar year and
payable to shareholders of record on a specified date in such a month shall be
deemed to have been received by each shareholder on December 31 of such calendar
year and to have been paid by the Fund not later than such December 31, provided
that such dividend is actually paid by the Fund during January of the following
calendar year.
The Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. The Board of
Directors of the Fund will determine annually whether to distribute any net
realized long-term capital gains in excess of net realized short-term capital
losses (including any capital loss carryovers). The Fund currently expects to
distribute any excess annually to its shareholders. However, if the Fund retains
for investment an amount equal to all or a portion of its net long-term capital
gains in excess of its net short-term capital losses and capital loss
carryovers, it will be subject to a corporate tax (currently at a rate of 35%)
on the amount retained. In that event, the Fund will designate such retained
amounts as undistributed capital gains in a notice to its shareholders who (a)
will be required to include in income for United Stares federal income tax
purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their proportionate shares
of the 35% tax paid by the Fund on the undistributed amount against their United
States federal income tax liabilities, if any, and to claim refunds to the
extent their credits exceed their liabilities, if any, and (c) will be entitled
to increase their tax basis, for United States federal income tax purposes, in
their shares by an amount equal to 65% of the amount of undistributed capital
gains included in the shareholder's income. Organizations or persons not subject
to federal income tax on such capital gains will be entitled to a refund of
their pro rata share of such taxes paid by the Fund upon filing appropriate
returns or claims for refund with the Internal Revenue Service (the "IRS"). Even
if the Fund makes such an election, it is possible that it may incur an excise
tax as a result of not having distributed net capital gains.
The Code imposes a 4% nondeductible excise tax on the Fund to the
extent the Fund does not distribute by the end of any calendar year at least 98%
of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by the Fund that is subject to corporate income tax will be
considered to have been distributed by year-end. In addition, the minimum
amounts that must be distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or overdistribution, as
the case may be, from the previous year. The Fund anticipates that it will pay
such dividends and will make such distributions as are necessary in order to
avoid the application of this tax.
43
<PAGE>
With regard to the Fund's investments in foreign securities, exchange
control regulations may restrict repatriations of investment income and capital
or the proceeds of securities sales by foreign investors such as the Fund and
may limit the Fund's ability to pay sufficient dividends and to make sufficient
distributions to satisfy the 90% and excise tax distribution requirements.
If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated investment
company. In addition, if the Fund failed to qualify as a regulated investment
company for a period greater than one taxable year, the Fund may be required to
recognize any net built-in gains (the excess of the aggregate gains, including
items of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in a
subsequent year.
The Fund's short sales against the box, if any, and transactions in
foreign currencies, forward contracts, options and futures contracts (including
options and futures 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 realized by the Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) 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 in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
Passive Foreign Investment Companies. If the Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United States federal income tax on
a portion of any "excess distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable dividend by the Fund to
its shareholders. Additional charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from such distributions or gains.
Any tax paid by the Fund as a result of its ownership of shares in a PFIC will
not give rise to any deduction or
44
<PAGE>
credit to the Fund or any shareholder. If the Fund were to invest in a PFIC and
elected to treat the PFIC as a "qualified electing fund" under the Code, in lieu
of the foregoing requirements, the Fund might be required to include in income
each year a portion of the ordinary earnings and net capital gains of the
qualified election fund, even if not distributed to the Fund, and such amounts
would be subject to the 90% and excise tax distribution requirements described
above. In order to make this election, the Fund would be required to obtain
certain annual information from the passive foreign investment companies in
which it invests, which may be difficult or not possible to obtain. On October
9, 1997, the Ways and Means Committee of the U.S. Congress approved technical
corrections legislation that would treat PFICs as pass-through entities for
purposes of applying the 20% vote to the portion of a PFIC long-term gain
attributable to assets held more than 18 months.
Recently, legislation was enacted that provides a mark-to-market
election for regulated investment companies effective for taxable years
beginning after December 31, 1997. This election would result in the Fund being
treated as if it had sold and repurchased all of the PFIC stock at the end of
each year. In this case, the Fund would report gains as ordinary income and
would deduct losses as ordinary losses to the extent of previously recognized
gains. The election, once made, would be effective for all subsequent taxable
years of the Fund, unless revoked with the consent of the IRS. By making the
election, the Fund could potentially ameliorate the adverse tax consequences
with respect to its ownership of shares in a PFIC, but in any particular year
may be required to recognize income in excess of the distributions it receives
from PFICs and its proceeds from dispositions of PFIC company stock. The Fund
may have to distribute this "phantom" income and gain to satisfy its
distribution requirement and to avoid imposition of the 4% excise tax. The fund
will make the appropriate tax elections, if possible, and take any additional
steps that are necessary to mitigate the effect of these rules.
Dividends and Distributions. Dividends of net investment income and
distributions of net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that the Fund designates
as capital gains dividends are taxable as long-term capital gains, whether paid
in cash or in shares and regardless of how long a shareholder has held shares of
the Fund. Dividends and distributions paid by the Fund (except for the portion
thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Fund) will not qualify for the deduction for dividends received
by corporations. Distributions in excess of the Fund's current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free
return of capital, to the extent of a shareholder's basis in his shares of the
Fund, and as a capital gain thereafter (if the shareholder holds his shares of
the Fund as capital assets).
Shareholders receiving dividends or distributions in the form of
additional shares should be treated for United States federal income tax
45
<PAGE>
purposes as receiving a distribution in the amount equal to the amount of money
that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.
If the Fund is the holder of record of any stock on the record date
for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the difference between
the amount realized and his basis in his 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 will be long-term capital gain or loss if the shares
are held for more than one year and short-term capital gain or loss if the
shares are held for one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in the Fund, within a 61-day period beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss. Any loss realized by
a shareholder on the sale of the Fund share held by the shareholder for six
months or less will be treated for United States federal income tax purposes as
a long-term capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the shareholder with
respect to such share.
Backup Withholding. The Fund may be required to withhold, for United
States federal income tax purposes, 31% of the dividends and 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 IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
United States federal income tax liabilities.
46
<PAGE>
Notices. Shareholders will be notified annually by the Fund as to the
United States federal income tax status of the dividends, distributions and
deemed distributions attributable to undistributed capital gains (discussed
above in "The Fund and Its Investments") made by the Fund to its shareholders.
Furthermore, shareholders will also receive, if appropriate, various written
notices after the close of the Fund's taxable year regarding the United States
federal income tax status of certain dividends, distributions and deemed
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding taxable year.
Other Taxation
- --------------
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES AFFECTING
THE FUND AND ITS 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.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. Average annual total return is calculated by
finding the average annual compounded rates of return for the one-, five- and
ten- (or such shorter period as the relevant class of shares has been offered)
year periods that would equate the initial amount invested to the ending
redeemable value according to the following formula: P (1 + T)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.
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.
- --------------------------
* - As used here, "n" is an exponent.
47
<PAGE>
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.
Warburg believes that a diversified portfolio of international equity
securities, when combined with a similarly diversified portfolio of domestic
equity securities, tends to have a lower volatility than a portfolio composed
entirely of domestic securities. Furthermore, international equities have been
shown to reduce volatility in single asset portfolios regardless of whether the
investments are in all domestic equities or all domestic fixed-income
instruments, and research indicates that volatility can be significantly
decreased when international equities are added.
To illustrate this point, the performance of international equity
securities, as measured by the Morgan Stanley Capital International Europe,
Australasia and Far East (EAFE[R]) Index (the "EAFE Index"), has equaled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S & P 500 Index") in 14 of the last 25
years. The following table compares annual total returns of the EAFE Index and
the S & P 500 Index for the calendar years shown.
EAFE Index vs. S&P 500 Index
1972-1996
Annual Total Return[t]
Year EAFE Index S&P 500 Index
---- ---------- -------------
1972* 33.28 15.63
1973* -16.82 -17.37
1974* -25.60 -29.72
1975* 31.21 31.55
1976 -.36 19.15
1977* 14.61 -11.50
1978* 28.91 1.06
1979 1.82 12.31
1980 19.01 25.77
1981* -4.85 -9.73
1982 -4.63 14.76
1983* 20.91 17.27
1984* 5.02 1.40
48
<PAGE>
EAFE Index vs. S&P 500 Index
1972-1996
Annual Total Return[+]
Year EAFE Index S&P 500 Index
---- ---------- -------------
1985* 52.97 26.33
1986* 66.80 14.62
1987* 23.18 2.03
1988* 26.66 12.40
1989 9.22 27.25
1990 -24.71 -6.56
1991 10.19 26.31
1992 -13.89 4.46
1993* 30.49 7.06
1994* 6.24 -1.54
1995 9.42 20.26
1996 4.40 34.11
_________________________
+ Without reinvestment of dividends.
* The EAFE Index has outperformed the S&P 500 Index 14 out of the last
25 years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets
The quoted performance information shown above is not intended to
indicate the future performance of the Fund. Advertising or supplemental sales
literature relating to the Fund may describe the percentage decline from
all-time high levels for certain foreign stock markets. It may also describe how
the Fund differs from the EAFE Index in composition.
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.
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.
* * * *
The Fund is not sponsored, endorsed, sold or promoted by Morgan
Stanley. Morgan Stanley makes no representation or warranty, express or implied,
to the owners of the Fund or any member of the public regarding the advisability
of investing in securities generally or in the Fund particularly or the ability
of the Morgan Stanley EAFE'r' Index to track general stock market performance.
Morgan Stanley is the licensor of certain trademarks, service marks and trade
names of Morgan Stanley and of the Morgan Stanley EAFE'r' Index. Morgan Stanley
has no obligation to take the needs of the issuer of the Fund or the owners of
the Fund into consideration in determining, composing or calculating the Morgan
Stanley EAFE'r' Index. Morgan Stanley is not responsible for and has not
participated in the
49
<PAGE>
determination of the timing of, prices at, or quantities of the Fund to be
issued or in the determination or calculation of the equation by which the Fund
is redeemable for cash. Morgan Stanley has no obligation or liability to owners
of the Fund in connection with the administration, marketing or trading of the
Fund.
MORGAN STANLEY MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE EAFE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL MORGAN STANLEY HAVE ANY LIABILITY FOR
ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES
(INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
50
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
- ------------------------
Commercial paper rated A-1 by Standard & Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
- ----------------------
The following summarizes the ratings used by S&P for corporate bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Although it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in higher
rated categories.
BB, B, 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
<PAGE>
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.
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
A-2
<PAGE>
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.
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-3
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Financial Statements:
Not Applicable
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Articles of Incorporation.*
2 By-Laws.*
3 Not applicable.
4 Forms of Stock Certificates.
5(a) Investment Advisory Agreement.**
6(a) Form of Distribution Agreement.**
7 Not applicable.
8(a) Form of Custodian Agreement with PNC Bank,
National Association.**
(b) Form of Custodian Contract with State
Street Bank and Trust Company.**
9(a) Form of Transfer Agency Agreement.**
(b)(1) Form of Co-Administration Agreement with
Counsellors Funds Service, Inc.**
(b)(2) Form of Co-Administration Agreement with
Counsellors Funds Service, Inc.**
(c) Forms of Services Agreements.**
10(a) Opinion and Consent of Willkie Farr &
Gallagher, counsel to the Fund.
(b) Opinion of Venable, Baetjer and Howard,
LLP, Maryland counsel to the Fund.
11 Not applicable.
C-1
<PAGE>
12 Not applicable.
13(a) Purchase Agreement.
14 Not applicable.
15(a) Form of Shareholder Servicing and
Distribution Plan.**
(b) Form of Distribution Plan.**
(c) Forms of Services Plans.**
(d) Rule 18f-3 Plan.**
(e) Form of License Agreement with Morgan
Stanley.
16 Not applicable.
17 Not applicable.
- -----------------
* Incorporated by reference to the Fund's Registration Statement on Form
N-1A filed with the SEC on October 30, 1997 (Securities Act File No.
333-39075, Investment Company Act File No.811-08459).
** Incorporated by reference to the Fund's Registration Statement on Form
N-14 filed with the SEC on November 5, 1997 (Securities Act File No.
333-39611).
Item 25. Persons Controlled by or Under Common Control
with Registrant
Not applicable.
Item 26. Number of Holders of Securities
It is anticipated that none of Registrant's shares of common
stock, par value $.001 per share, will be outstanding on the date Registrant's
Registration Statement becomes effective.
Item 27. Indemnification
Registrant, officers and directors or trustees of Warburg
Pincus Asset Management, Inc. ("Warburg"), of Counsellors Securities Inc.
("Counsellors Securities") and of Registrant are covered by insurance policies
indemnifying them for liability incurred in connection with the operation of
Registrant. Discussion of this coverage is incorporated by reference to Item 27
of Part C of the Registration Statement of Warburg, Pincus Post-Venture Capital
Fund, Inc., filed on June 21, 1995.
Item 28. Business and Other Connections of Investment Adviser
C-2
<PAGE>
Warburg, a wholly owned subsidiary of Warburg, Pincus Asset
Management Holdings, Inc., acts as investment adviser to the Registrant. Warburg
renders investment advice to a wide variety of individual and institutional
clients. The list required by this Item 28 of officers and directors of Warburg,
together with information as to their other business, profession, vocation or
employment of a substantial nature during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by Warburg (SEC File No.
801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for The RBB
Fund, Inc., Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation
Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund;
Warburg Pincus Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg
Pincus Global Fixed Income Fund; Warburg Pincus Global Post-Venture Capital
Fund; Warburg Pincus Growth & Income Fund; Warburg Pincus Health Sciences Fund;
Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus Japan
Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus Managed EAFE(R)
Countries Fund; Warburg Pincus New York Intermediate Municipal Fund; Warburg
Pincus New York Tax Exempt Fund; Warburg Pincus Post-Venture Capital Fund;
Warburg, Pincus Small Company Growth Fund; Warburg Pincus Small Company Value
Fund; Warburg Pincus Strategic Value Fund; Warburg Pincus Trust; and Warburg
Pincus Trust II.
(b) For information relating to each director, officer or
partner of Counsellors Securities, reference is made to Form BD (SEC File No.
8-32482) filed by Counsellors Securities under the Securities Exchange Act of
1934.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Managed EAFE(R)
Countries Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, By-Laws and
minute books)
(2) Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
C-3
<PAGE>
New York, New York 10017-3147
(records relating to its functions as investment
adviser)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as
co-administrator)
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
co-administrator)
(5) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as custodian,
transfer agent and dividend disbursing agent)
(6) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer
agent and dividend disbursing agent)
(7) PNC Bank, National Association
1600 Broad Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
(8) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
Item 31. Management Services
Not applicable.
Item 32. Undertakings.
(a) Registrant hereby undertakes not to offer its shares to the public,
except in connection with the reorganization of the Managed EAFE(R) Countries
Portfolio, a series of Warburg, Pincus Institutional Fund, Inc., until
Registrant files a post-effective amendment including financial statements.
C-4
<PAGE>
(b) Registrant hereby undertakes to call a meeting of its shareholders
for the purpose of voting upon the question of removal of a director or
directors of Registrant when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares. Registrant undertakes further, in
connection with the meeting, to comply with the provisions of Section 16(c) of
the 1940 Act relating to communications with the shareholders of certain
common-law trusts.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report to shareholders
for the relevant class of shares, upon request and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York, on the 2nd day of December, 1997.
WARBURG, PINCUS MANAGED EAFE(R)
COUNTRIES FUND, INC.
By:/s/Eugene L. Podsiadlo
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed below by the following persons in the capacities
and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/John L. Furth Chairman of the December 2, 1997
John L. Furth Board of Directors
/s/Howard Conroy Vice President December 2, 1997
Howard Conroy and Chief Financial Officer
/s/Daniel S. Madden Treasurer and December 2, 1997
Daniel S. Madden Chief Accounting Officer
/s/Richard N. Cooper Director December 2, 1997
Richard N. Cooper
/s/Donald J. Donahue Director December 2, 1997
Donald J. Donahue
/s/Jack W. Fritz Director December 2, 1997
Jack W. Fritz
/s/Thomas A. Melfe Director December 2, 1997
Thomas A. Melfe
/s/Arnold M. Reichman Director December 2, 1997
Arnold M. Reichman
/s/Alexander B. Trowbridge Director December 2, 1997
Alexander B. Trowbridge
</TABLE>
C-6
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
4 Forms of Stock Certificates.
10(a) Opinion and Consent of Willkie Farr &
Gallagher, counsel to the Fund.
(b) Opinion of Venable, Baetjer and Howard,
LLP, Maryland counsel to the Fund.
13(a) Purchase Agreement.
(d) Form of License Agreement with
Morgan Stanley.
<PAGE>1
NUMBER SHARES
_________ -----------
Incorporated under the laws of the State of Maryland
WARBURG, PINCUS MANAGED EAFE COUNTRIES FUND, INC.
Common Stock
The Corporation is Authorized to Issue One Billion Shares Par Value $.001,
Designated Common Shares
THIS CERTIFIES that is the owner of
fully paid and non-assessable Shares of the above Corporation transferable
only on the books of the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
- ----------------------------- ------------------------------
Assistant Secretary President
<PAGE>2
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
<TABLE>
<CAPTION>
<S> <C>
TEN COM as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT as tenants by the entireties (Minor)
JT TEN as joint tenants with right of survivorship and not under Uniform Gifts to Minors Act (State)
as tenants in common
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns
and transfers unto ____________________________________________________
__________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________ Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints ________________________________________________________________
_____________________________________________ Attorney to transfer the said
shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, _____________________
In presence of
NOTICE: The signature to the assignment must correspond with the
name as written on the face of the certificate in every particular
without alteration or enlargement, or any change whatsoever.
<PAGE>1
NUMBER SHARES
_________ ---------
Incorporated under the laws of the State of Maryland
WARBURG, PINCUS MANAGED EAFE COUNTRIES FUND, INC.
Common Stock
The Corporation is Authorized to Issue Two Billion Shares Par Value $.001,
Designated Advisor Shares
THIS CERTIFIES that is the owner of
fully paid and non-assessable Shares of the above Corporation transferable
only on the books of the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated_____________________
- ----------------------------- ------------------------------
Assistant Secretary President
<PAGE>2
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a
full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each
class which the Corporation is authorized to issue and, if the Corporation is
authorized to issue any preferred or special class in series, of the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the list.
<TABLE>
<CAPTION>
<S> <C>
TEN COM as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT as tenants by the entireties (Minor)
JT TEN as joint tenants with right of survivorship and not under Uniform Gifts to Minors Act (State)
as tenants in common
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns
and transfers unto ____________________________________________________
__________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________ Shares
represented by the within Certificate, and hereby irrevocably constitutes and
appoints ________________________________________________________________
_____________________________________________ Attorney to transfer the said
shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, _____________________
In presence of
NOTICE: The signature to the assignment must correspond with the
name as written on the face of the certificate in every particular
without alteration or enlargement, or any change whatsoever.
<PAGE>
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
December 2, 1997
Warburg, Pincus Managed EAFE(R) Countries Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Managed EAFE(R) Countries Fund, Inc.
(the "Fund"), a corporation organized under the laws of the State of Maryland,
in connection with the preparation of a registration statement on Form N-1A
covering the offer and sale of an indefinite number of shares of Common Stock of
the Fund (the "Common Stock"), one billion of which are designated "Common
Shares", par value $.001 per share.
We have examined copies of the Charter and By-Laws of the Fund, the Fund's
prospectus and statement of additional information (the "Statement of Additional
Information") included in its Registration Statement on Form N-1A, Securities
Act File No. 333-39075 and Investment Company Act File No. 811-08459 (the
"Registration Statement"), all resolutions adopted by the Fund's Board of
Directors (the "Board") at its initial meeting held on October 28, 1997,
consents of the Board and other records, documents and papers that we have
deemed necessary for the purpose of this opinion. We have also examined such
other statutes and authorities as we have deemed necessary to form a basis for
the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
<PAGE>
Warburg, Pincus Managed EAFE(R) Countries Fund, Inc.
December 2, 1997
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Fund is duly organized and validly existing as a
corporation in good standing under the laws of the State of
Maryland.
2. The one presently issued and outstanding share of Common
Stock, which is designated a Common Share, of the Fund has
been validly and legally issued and is fully paid and
nonassessable.
3. The Common Shares of the Fund to be offered for sale pursuant
to the Registration Statement are, to the extent of the number
of shares authorized to be issued by the Fund in its Charter,
duly authorized and, when sold, issued and paid for as
contemplated by the Registration Statement, will have been
validly and legally issued and will be fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Statement of Additional
Information and to the filing of this opinion as an exhibit to any application
made by or on behalf of the Fund or any distributor or dealer in connection with
the registration or qualification of the Fund or the Common Shares under the
securities laws of any state or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions. As to matters involving
the application of the laws of the State of Maryland, we have relied on the
opinion of Messrs. Venable, Baetjer and Howard, LLP.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
VENABLE, BAETJER AND HOWARD, LLP
1800 MERCANTILE BANK AND TRUST BUILDING
TWO HOPKINS PLAZA
BALTIMORE, MD 21201
December 2, 1997
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Re: Warburg, Pincus Managed EAFE Countries, Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Warburg, Pincus
Managed EAFE Countries Fund, Inc., a Maryland corporation (the "Acquiring
Fund"), in connection with the proposed acquisition by the Acquiring Fund of all
or substantially all the assets and liabilities of the Managed EAFE Countries
Portfolio (the "Acquired Fund"), a portfolio of Warburg, Pincus International
Fund, Inc. (the "Warburg, Pincus Institutional Fund"), a Maryland corporation,
in exchange for Common Shares of the Acquiring Fund (collectively, the "Common
Shares"), pursuant to an Agreement and Plan of Reorganization to be executed by
the Acquiring Fund and by the Warburg, Pincus Institutional Fund on behalf of
the Acquired Fund.
As special Maryland counsel for the Fund, we are familiar with
its Charter and Bylaws. We have examined its Registration Statement on Form
N-1A, Securities Act File No. 333-39075 and Investment Company Act File No.
811-08459, including the prospectus and statement of additional information
contained therein, substantially in the form in which it is to become effective
(the "Registration Statement"). We have further examined and relied upon a
certificate of the Maryland State Department of Assessments and Taxation to the
effect that the
<PAGE>
Willkie Farr & Gallagher
December 2, 1997
Page 2
Fund is duly incorporated and existing under the laws of the State of Maryland
and is in good standing and duly authorized to transact business in the State of
Maryland.
We have also examined and relied upon such corporate records
of the Fund and other documents and certificates with respect to factual matters
as we have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all signatures on
documents submitted to us, the authenticity of all documents submitted to us as
originals, and the conformity with originals of all documents submitted to us as
copies.
Based upon the foregoing and subject to the limitations set
forth below, we are of the opinion that:
1. The Acquiring Fund is a corporation duly organized and
validly existing and in good standing under the laws of the State of Maryland.
2. The Common Shares of the Acquiring Fund to be offered for
sale pursuant to the Registration Statement are, to the extent of the number of
Common Shares authorized to be issued by the Acquiring Fund in its Charter, duly
authorized and, when sold, issued and paid for as contemplated by the
Registration Statement, will have been validly and legally issued and will be
fully paid and non-assessable.
This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as due organization and the
authorization and issuance of stock. It does not extend to the securities or
"blue sky" laws of Maryland, to federal securities or to other laws.
You may rely upon our foregoing opinion in rendering your
opinion to the Fund that is to be filed as an exhibit to the Registration
Statement. We consent to the filing of this opinion as an exhibit to the
Registration Statement. This opinion may not be relied upon by any other person
or used for any other purpose without our prior written consent.
Very truly yours,
Venable, Baetjer and Howard, LLP
<PAGE>
PURCHASE AGREEMENT
Warburg, Pincus Managed EAFE(R) Countries Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland, and
Warburg Pincus Asset Management, Inc. ("Warburg") hereby agree as follows:
1. The Fund offers Warburg and Warburg hereby purchases one
share of common stock of the Fund, which shall be designated a Common Share,
having a par value $.001 per share (the "Share"), at a price of $10.00 per Share
(the "Initial Share"). Warburg hereby acknowledges receipt of a certificate
representing the Initial Share and the Fund hereby acknowledges receipt from
Warburg of $10.00 in full payment for the Initial Share.
2. Warburg represents and warrants to the Fund that the
Initial Share is being acquired for investment purposes and not for the purpose
of distributing it.
3. Warburg agrees that if any holder of the Initial Share
redeems such Share in the Fund before five years after the date upon which the
Fund commences its investment activities, the redemption proceeds will be
reduced by the amount of unamortized organizational expenses, in the same
proportion as the Initial Share being redeemed bears to the Initial Share
outstanding at the time of redemption. The parties hereby acknowledge that any
Shares acquired by Warburg other than the Initial Share have not
<PAGE>
been acquired to fulfill the requirements of Section 14 of the Investment
Company Act of 1940, as amended, and, if redeemed, their redemption proceeds
will not be subject to reduction based on the unamortized organizational
expenses of the Fund.
The parties to this letter agreement agree that the legend
attached hereto as Appendix A shall constitute part of the original agreement
and shall have the full force and effect and be binding upon the parties as if
it were originally included therein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 5th day of November, 1997.
WARBURG, PINCUS MANAGED EAFE(R)
COUNTRIES FUND, INC.
By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President & Secretary
ATTEST:
/s/ Maryann Maglia
WARBURG PINCUS ASSET MANAGEMENT, INC.
By: /s/ Eugene L. Podsiadlo
Name: Eugene L. Podsiadlo
Title:
ATTEST:
/s/ Stuart J. Cohen
<PAGE>
APPENDIX A
Warburg, Pincus Managed EAFE(R) Countries Fund, Inc. (the
"Fund") is not sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan
Stanley makes no representation or warranty, express or implied, to the owners
of the Fund or any member of the public regarding the advisability of investing
in securities generally or in the Fund particularly or the ability of the Morgan
Stanley EAFE Index to track general stock market performance. Morgan Stanley is
the licensor of certain trademarks, service marks and trade names of Morgan
Stanley and of the Morgan Stanley EAFE Index. Morgan Stanley has no obligation
to take the needs of the issuer of the Fund or the owners of the Fund into
consideration in determining, composing or calculating the Morgan Stanley EAFE
Index. Morgan Stanley is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the Fund to be
issued or in the determination or calculation of the equation by which the Fund
is redeemable for cash. Morgan Stanley has no obligation or liability to owners
of the Fund in connection with the administration, marketing or trading of the
Fund.
MORGAN STANLEY MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
HEREBY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO THE EAFE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MORGAN STANLEY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
<PAGE>
CONFIDENTIAL
MORGAN STANLEY
LICENSE AGREEMENT
AGREEMENT, dated as of _____________ ____, 19__, by and between MORGAN
STANLEY & CO. INCORPORATED ("Morgan Stanley"), a Delaware corporation, having an
office at 1585 Broadway, New York, New York 10036, and Warburg, Pincus Managed
EAFE[R] Countries Fund, Inc. ("Licensee"), a Maryland corporation, having an
office at 466 Lexington Avenue, New York, New York 10017.
WHEREAS, Morgan Stanley is an international investment banking and
brokerage firm which owns rights in and to certain stock indexes and the
proprietary data contained therein, among which is the Morgan Stanley Europe,
Australasia, Far East (EAFE)[R] Index (such index and data contained therein
are hereinafter referred to as the "Index");
WHEREAS, Morgan Stanley uses in commerce and owns trade name, trademark
and service mark rights to the designations "Morgan Stanley" and "Morgan Stanley
EAFE[R] Index" (such rights are hereinafter individually and collectively
referred to as the "Marks");
WHEREAS, Licensee wishes to use the Index as the description of the
product described in Exhibit A, annexed hereto and made a part hereof (the
"Product"), to be issued and traded as shares in a registered investment
company;
WHEREAS, Licensee wishes to use the Index and Marks in connection with
describing, trading, marketing and promotion of the Product as a registered
investment company and in connection with making disclosure about the Product
under applicable laws, rules and regulations in order to indicate that Morgan
Stanley is the source of the Index; and
WHEREAS, Licensee wishes to obtain Morgan Stanley's authorization to
use the Index and refer to the Index and the Marks in connection with the
Product pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of License
<PAGE>
Subject to the terms and conditions of this Agreement, Morgan Stanley
grants to Licensee a non-transferable, non-exclusive, license (i) to use the
Index as the description of the Product (in accord with the restrictions, if
any, set forth in Exhibit A), and (ii) to use and refer to the Index and the
Marks in connection with the describing, trading, marketing and promotion of the
Product (in accord with the restrictions, if any, set forth in Exhibit A) and in
connection with making such disclosure about the Product as Licensee deems
necessary or desirable under any applicable laws, rules or regulations in order
to indicate the source of the Index. The license granted in this Agreement may
be exercised by Licensee through its agents provided Licensee causes all such
agents to abide by the terms and conditions of this Agreement.
2. Term
The term of the license granted hereunder shall commence on the date
that the post-effective amendment of the Licensee's registration statement on
Form N-1A is declared effective by the Securities and Exchange Commission and
shall continue for as long as the Licensee is in operation, unless earlier
terminated by the parties in accordance with paragraph 4 of this Agreement.
Licensee shall promptly notify Morgan Stanley upon such amendment's
effectiveness.
3. Licensee Fees
Beginning September 18, 1998, Licensee shall pay to Morgan Stanley a
license fee of $4,000 per year with respect to unlimited use of the Index and
the Marks for the Product.
4. Termination
(a) At any time during the term of this Agreement, either party may
give the other party ninety (90) days' prior written notice of termination if
the terminating party believes in good faith that material damage or harm is
occurring to the reputation or goodwill of the terminating party by reason of
its continued performance hereunder, and such notice shall be effective on the
date of such termination unless the other party shall correct the condition
causing such damage or harm within the notice period. In the event of
termination under this paragraph 4(a), no refund of any portion of the license
fees will be made.
(b) In the case of breach of any of the material terms and conditions
of this Agreement by either party, excluding breach as described in 4(a), the
other party may terminate this Agreement by giving ninety (90) days' prior
written notice of its intent to terminate, and such notice shall be effective on
the date of such
2
<PAGE>
termination unless the breaching party shall correct such breach within the
notice period. In the event of termination under this paragraph 4(b) by Morgan
Stanley, no refund of any of the license fees will be made. In the event of
termination under this paragraph 4(b) by Licensee, Licensee shall be entitled to
a pro rata refund of the license fees.
(c) Morgan Stanley shall have the right, in its sole discretion, to
cease compilation and publication of the Index and, in the event that the Index
is discontinued, either party shall have the right to terminate this Agreement
if Morgan Stanley does not offer a replacement or substitute index acceptable to
Licensee. In the event that Morgan Stanley intends to discontinue the Index,
Morgan Stanley shall give Licensee at least one hundred eighty (180) days'
written prior notice to such discontinuance, which notice shall specify whether
a replacement or substitute index will be available. Licensee shall have the
option hereunder within sixty (60) days after receiving such written notice from
Morgan Stanley to notify Morgan Stanley in writing of its intent to use the
replacement or substitute index under the terms of this Agreement. In the event
that the Index is discontinued and Licensee does not exercise such option or
that at least one substitute or replacement index is not made available,
Licensee shall be entitled to a pro rata refund of the license fee.
(d) Licensee may terminate this Agreement upon written notice to Morgan
Stanley if (i) Licensee is informed of the final adoption of any legislation or
regulation that materially impairs Licensee's ability to describe, market or
promote the Product; (ii) any material litigation or regulatory proceeding
regarding the Product is threatened or commences; or (iii) Licensee ceases to
use or refer to the Index or the Marks in connection with the Product. In the
event of termination under subsections (i) or (ii) hereof, Licensee shall be
entitled to a pro rata refund of the license fee.
(e) Morgan Stanley may terminate this Agreement upon written notice to
Licensee if (i) Morgan Stanley is informed of the final adoption of any
legislation or regulation that materially impairs Morgan Stanley's ability to
license and provide the Index under this Agreement; or (ii) any material
litigation or regulatory proceeding regarding the Product relating to the use of
the Index or the Marks is threatened or commenced. In the event that Morgan
Stanley terminates this Agreement, Licensee shall be entitled to a pro rata
refund of the license fee.
5. Rights Upon Termination
3
<PAGE>
Upon termination of this Agreement, Licensee shall cease to use the
Index and cease referring to the Index and the Marks with the Product.
6. Product Promotion
(a) Licensee shall use its best efforts to protect the goodwill and
reputation of Morgan Stanley in connection with its use of the Index and the
Marks under this Agreement. Licensee shall submit to Morgan Stanley for its
preview and approval all written advertisements, brochures, and promotional and
information material ("Informational Materials") relating to or referring to
Morgan Stanley, the Index, the Marks or the Product. Morgan Stanley's approval
shall be confined solely to the use of or description of Morgan Stanley, the
Marks, and the Index and shall not be unreasonably withheld or delayed by Morgan
Stanley. All Informational Materials shall be submitted to Morgan Stanley ten
(10) days prior to any dissemination by Licensee of such materials. If no
response from Morgan Stanley is received by Licensee within such ten (10) day
period, the Informational Materials submitted shall be deemed to be approved by
Morgan Stanley. Licensee shall not be required to submit to Morgan Stanley any
Informational Materials that are substantially similar in substance, as
determined in Licensee's reasonable discretion, to information materials
previously reviewed and approved by Morgan Stanley.
(b) Morgan Stanley is not obligated to engage in any marketing or
promotional activities in connection with the Product or in making any
representation or statement to investors or prospective investors in connection
with the promotion by Licensee of the Product.
(c) Licensee acknowledges and agrees that Morgan Stanley, in granting
the permission contained in this Agreement, does not express or imply any
approval of the Product or of Licensee and Licensee further agrees not to make
any statement which expresses or implies that Morgan Stanley approves, endorses
and consents to the promotion, marketing, and arrangement by Licensee of the
Product or that Morgan Stanley makes any judgment or expresses any opinion in
respect of the Licensee.
7. Protection Of Value By Licensee
(a) Licensee shall cooperate reasonably with Morgan Stanley in the
maintenance of all Morgan Stanley common law and statutory rights in the Index
and the Marks, including copyrights and other proprietary rights, and shall, at
Morgan Stanley's expense, take such acts and execute such instruments as are
reasonably necessary and appropriate to such purposes, including the use by
4
<PAGE>
the Licensee of the following notice when referring to the Index or the Marks in
any advertisement, offering circular, prospectus, brochure, or promotional or
informational material relating to the Product:
The Morgan Stanley EAFE[R] Index is the exclusive property of Morgan
Stanley. Morgan Stanley EAFE[R] Index is a service mark of Morgan
Stanley, Dean Witter, Discover & Co. and has been licensed for use by
Warburg, Pincus Managed EAFE[R] Countries Fund, Inc. Capital
International S.A., an international investment management company
fully owned by The Capital Group Companies, Inc. of Los Angeles, has
full responsibility for the management and maintenance of the Morgan
Stanley EAFE[R] Index. Morgan Stanley has no responsibility for, or
influence over, the decisions of inclusion or deletion within the
Morgan Stanley EAFE[R] Index.
or such similar language as may be approved in advance by Morgan Stanley.
(b) Licensee shall not refer to the names of the Index in any manner
which might cause confusion as to Morgan Stanley's responsibility for preparing
and disseminating the Index or as to the identity of Licensee and its
relationship to the Product.
8. Proprietary Rights
(a) Licensee acknowledges that the Index is selected, arranged and
prepared by Morgan Stanley through the application of methods and standards of
judgment used and developed through the expenditure of considerable work, time
and money by Morgan Stanley. Licensee also acknowledges that the Index and the
Marks are the exclusive property of Morgan Stanley.
(b) Morgan Stanley reserves all rights with respect to the Index and
the Marks except those expressly licensed to Licensee hereunder.
(c) Each party shall treat as confidential and shall not disclose or
transmit to any third party any confidential and proprietary information of the
other party, including the terms of this Agreement, provided that the
documentation or other written materials containing such information are
designated as "Confidential" or "Proprietary" by the providing party and such
information is not available generally to the public or otherwise available to
the receiving party from a source other than the providing party.
Notwithstanding the foregoing, if requested or required (by interrogatories,
requests for information or
5
<PAGE>
documents, subpoena, or other process) either party may reveal such information
if such information to be disclosed is (i) approved in writing by the other
party for disclosure or (ii) required by law (in the opinion of counsel),
regulatory agency or court order to be disclosed by a party, provided prior
written notice of such required disclosure is given to the other party. Except
with respect to disclosure made pursuant to (i) and (ii) in the immediately
preceding sentence, each party shall treat as confidential the terms of this
Agreement. The provisions of this paragraph shall survive any termination of
this Agreement for five (5) years from disclosure by either party to the other
party of the last such confidential and proprietary information.
9. Warranties; Disclaimers
(a) Morgan Stanley represents and warrants that Morgan Stanley is the
owner of rights granted to Licensee herein and that use of the Index and the
Marks as provided herein shall not infringe any trademark, copyright, other
proprietary right, or contractual right of any person not a party to this
Agreement.
(b) Licensee agrees expressly to be bound itself by and furthermore to
include all of the following disclaimers and limitations in any contract(s)
relating to the Product, including, without limitation, agreements with
subscribers to the Product, and upon request to furnish a copy (copies) thereof
to Morgan Stanley:
Warburg, Pincus Managed EAFE(R) Countries Fund (the
"Fund") is not sponsored, endorsed, sold or promoted by Morgan
Stanley. Morgan Stanley makes no representation or warranty,
express or implied, to the owners of the Fund or any member of
the public regarding the advisability of investing in
securities generally or in the Fund particularly or the
ability of the Morgan Stanley EAFE(R) Index to track general
stock market performance. Morgan Stanley is the licensor of
certain trademarks, service marks and trade names of Morgan
Stanley and of the Morgan Stanley EAFE(R) Index. Morgan
Stanley has no obligation to take the needs of the issuer of
the Fund or the owners of the Fund into consideration in
determining, composing or calculating the Morgan Stanley
EAFE(R) Index. Morgan Stanley is not responsible for and has
not participated in the determination of the timing of, prices
at, or quantities of the Fund to be issued or in the
determination or calculation of the equation by which the Fund
is redeemable for cash. Morgan Stanley has no obligation or
liability to owners of the Fund in
6
<PAGE>
connection with the administration, marketing or trading of
the Fund.
MORGAN STANLEY MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MORGAN STANLEY HAVE ANY LIABILITY
FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR
ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
(c) Each party represents and warrants to the other that it has the
authority to enter into this Agreement according to its terms and that its
performance does not violate any laws, regulations or agreements applicable to
it.
(d) Licensee represents and warrants to Morgan Stanley that the Product
shall not violate any applicable laws, including but not limited to banking,
commodities and securities laws.
(e) Neither party shall have any liability for lost profits or
consequential damages arising out of this Agreement.
(f) The provisions of this Section 9 shall survive any termination of
this Agreement.
10. Indemnification
(a) Licensee shall indemnify and hold harmless Morgan Stanley, its
parent, subsidiaries, affiliates, and their officers, directors, employees and
agents against any and all judgments, damages, costs or losses of any kind
(including reasonable attorneys' and experts' fees) as a result of claims or
actions brought by third parties against Morgan Stanley which arise from all
acts, representations or omissions of Licensee under this Agreement or are in
any manner related to the Product; provided, however, that (a) Morgan Stanley
notifies Licensee promptly of any such claim or action, and (b) such judgments,
damages, costs or losses are not attributable to any negligent act or omission
by Morgan Stanley, its parent, affiliates, subsidiaries or any of their
employees or agents. Licensee shall bear all expenses in connection with the
defense and/or settlement of any such claim or action. Morgan Stanley shall have
the right, at its own expense, to participate in the defense of any claim or
action against which it is indemnified hereunder; provided, however, it shall
have no right to control the defense, consent to judgment, or agree to settle
any such claim or action, without the written consent of Licensee. Licensee, in
the
7
<PAGE>
defense of any such claim, except with the written consent of Morgan Stanley,
shall not consent to entry of any judgment or enter into any settlement which
(a) does not include, as an unconditional term, the grant by the claimant to
Morgan Stanley of a release of all liabilities in respect of such claims or (b)
otherwise adversely affects the rights of Morgan Stanley. This provision shall
survive the termination of this Agreement.
(b) Morgan Stanley agrees to indemnify and hold harmless Licensee and
its directors, officers, employees, and agents against any and all judgments,
damages, costs or losses of any kind (including reasonable attorneys' and
experts' fees) as a result of claims or actions brought by third parties against
Licensee arising out of any claim that Morgan Stanley does not possess all
rights necessary to make the Index and the Marks available to Licensee. Morgan
Stanley shall bear all expenses in connection with the defense and/or settlement
or any such claim or action. Licensee shall have the right, at its own expense,
to participate in the defense of any claim or action against which it is
indemnified hereunder; provided, however, it shall have no right to control the
defense, consent to judgment, or agree to settle any such claim or action,
without the written consent of Morgan Stanley. Morgan Stanley, in the defense of
any such claim, except with the written consent of Licensee, shall not consent
to entry of any judgment or enter into any settlement which (a) does not
include, as an unconditional term, the grant by the claimant to Licensee of a
release of all liabilities in respect of such claims or (b) otherwise adversely
affects the rights of Licensee. This provision shall survive the termination of
this Agreement.
11. Force Majeure
Neither Morgan Stanley nor Licensee shall bear responsibility or
liability for any losses arising out of any delay in or interruptions of their
respective performance of their obligations under this Agreement due to any act
of God, act of governmental authority, act of the public enemy or due to war,
riot, fire, flood, civil commotion, insurrection, labor difficulty (including,
without limitation, any strike, or other work stoppage or slowdown), severe or
adverse weather conditions or other cause beyond the reasonable control of the
party so affected, provided that such party had exercised due diligence as the
circumstances reasonably required.
12. Other Matters
(a) This Agreement is solely and exclusively between the parties as now
constituted and, unless otherwise provided, shall not be assigned or transferred
by either party, without prior
8
<PAGE>
written consent of the other party, and any attempt to so assign or transfer
this Agreement without such written consent shall be null and void.
Notwithstanding the foregoing, this Agreement may be assigned without such
consent to Morgan Stanley's parent or any subsidiary or affiliate of Morgan
Stanley.
(b) This Agreement constitutes the entire agreement of the parties
hereto with respect to its subject matter and may be amended or modified only by
a writing signed by duly authorized officers of both parties. This Agreement
supersedes all previous Agreements between the parties with respect to the
subject matter of this Agreement. There are no oral or written collateral
representations, agreements, or understandings except as provided herein.
(c) No breach, default, or threatened breach of this Agreement by
either party shall relieve the other party of its obligations or liabilities
under this Agreement with respect to the protection of the property or
proprietary nature of any property which is the subject of this Agreement.
(d) All notices and other communications under this Agreement shall be
(i) in writing, (ii) delivered by hand or by registered or certified mail,
return receipt requested, to the addresses set forth below or such addresses as
either party shall specify by a written notice to the other and (iii) deemed
given upon receipt.
9
<PAGE>
Notice to Morgan Stanley: Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attn: Henry Fernandez
and
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attn: General Counsel
Notice to Licensee: Warburg, Pincus Managed EAFE(R)
Countries Fund, Inc.
c/o Warburg Pincus Asset
Management, Inc.
466 Lexington Avenue
New York, NY 10017
Attn: Brady Lipp
and
Warburg, Pincus Managed EAFE(R) Countries
Fund, Inc.
c/o Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
New York, NY 10017
Attn: Eugene Grace
(e) This Agreement shall be interpreted, construed and enforced in
accordance with the laws of the State of New York without regard to its conflict
of laws principles.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first set forth above.
MORGAN STANLEY & CO. WARBURG, PINCUS MANAGED EAFE(R)
INCORPORATED COUNTRIES FUND, INC.
By: By:
Title: Title:
Name: Name:
{Printed} {Printed}
Date: Date:
10
<PAGE>
EXHIBIT A
Description of Product
Warburg, Pincus Managed EAFE(R) Countries Fund, Inc. (the "Fund") is a
Maryland corporation and an open-end registered investment company. The Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers, which are located in the foreign countries included in the Morgan
Stanley Capital International EAFE(R) Index (the "EAFE(R) Index"). The Fund is
not an index fund and will not seek to match the performance or country or
industry weightings of the EAFE(R) Index.
