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[LOGO]
PROSPECTUS
DECEMBER 29, 1995
[ ] WARBURG PINCUS CAPITAL APPRECIATION FUND
[ ] WARBURG PINCUS EMERGING GROWTH FUND
[ ] WARBURG PINCUS POST-VENTURE CAPITAL FUND
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Rule 497(c)
Securities Act File No. 33-12344
Investment Company Act File No. 811-5041
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
December 29, 1995
PROSPECTUS
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Three funds are described in this
Prospectus:
WARBURG PINCUS CAPITAL APPRECIATION FUND seeks long-term capital appreciation by
investing principally in equity securities of medium-sized domestic companies.
WARBURG PINCUS EMERGING GROWTH FUND seeks maximum capital appreciation by
investing in equity securities of small- to medium-sized domestic companies with
emerging or renewed growth potential.
WARBURG PINCUS POST-VENTURE CAPITAL FUND seeks long-term growth of capital by
investing primarily in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment strategy.
Because of the nature of the Post-Venture Capital Fund's investments and certain
strategies it may use, an investment in the Fund involves certain risks and may
not be appropriate for all investors.
NO LOAD CLASS OF COMMON SHARES
Each Fund offers two classes of shares. A class of Common Shares that is 'no
load' is offered by this Prospectus (i) directly from the Funds' distributor,
Counsellors Securities Inc., and (ii) through various brokerage firms including
Charles Schwab & Company, Inc. Mutual Fund OneSourceTM Program; Fidelity
Brokerage Services, Inc. FundsNetworkTM Program; Jack White & Company, Inc.; and
Waterhouse Securities, Inc. Common Shares of the Post-Venture Capital Fund are
subject to a 12b-1 fee of .25% per annum.
LOW MINIMUM INVESTMENT
The minimum initial investment in each Fund is $2,500 ($500 for an IRA or
Uniform Gifts to Minors Act account) and the minimum subsequent investment is
$100. Through the Automatic Monthly Investment Plan, subsequent investment
minimums may be as low as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about each
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Funds at (800) 257-5614. Information
regarding the status of shareholder accounts may be obtained by calling Warburg
Pincus Funds at (800) 888-6878. The Statements of Additional Information, as
amended or supplemented from time to time, bear the same date as this Prospectus
and are incorporated by reference in their entirety into this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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THE FUNDS' EXPENSES
Each of Warburg, Pincus Capital Appreciation Fund, Emerging Growth Fund and
Post-Venture Capital Fund (the 'Funds') currently offers two separate classes of
shares: Common Shares and Advisor Shares. For a description of Advisor Shares
see 'General Information.' Common Shares of the Post-Venture Capital Fund pay
the Fund's distributor a 12b-1 fee. See 'Management of the
Funds -- Distributor.'
<TABLE>
<CAPTION>
POST-
CAPITAL EMERGING VENTURE
APPRECIATION GROWTH CAPITAL
FUND FUND FUND
------------ -------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)... 0 0 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees............................................................... .70% .90% .92%
12b-1 Fees.................................................................... 0 0 .25%
Other Expenses................................................................ .42% .36% .48%
Total Fund Operating Expenses (after fee waivers)`D'.......................... 1.12% 1.26% 1.65%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year........................................................................ $ 11 $ 13 $ 17
3 years....................................................................... $ 36 $ 40 $ 52
5 years....................................................................... $ 62 $ 69 n.a.
10 years...................................................................... $136 $152 n.a.
</TABLE>
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`D' Management Fees, Other Expenses and Total Fund Operating Expenses for the
Capital Appreciation and Emerging Growth Funds are based on actual expenses
for the fiscal year ended October 31, 1995. Absent the anticipated waiver
of fees by the Post-Venture Capital Fund's investment adviser and co-
administrator, Management Fees would equal 1.25%, Other Expenses would
equal .75% and Total Fund Operating Expenses would equal 2.25%. Other
Expenses for the Post-Venture Capital Fund are based on annualized
estimates of expenses for the fiscal year ending October 31, 1996, net of
any fee waivers or expense reimbursements.The investment adviser and
co-administrator are under no obligation to continue these waivers.
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The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. Certain
broker-dealers and financial institutions also may charge their clients fees in
connection with investments in a Fund's Common Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, each Fund's
actual performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of the Post-Venture Capital Fund may pay more than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc. (the 'NASD').
FINANCIAL HIGHLIGHTS
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information regarding each Fund for the three fiscal years or
period ended October 31, 1995 has been derived from information audited by
Coopers & Lybrand L.L.P., independent auditors, whose report dated December 14,
1995 appears in the relevant Fund's Statement of Additional Information. For the
Capital Appreciation and Emerging Growth Funds, the information for the two
prior fiscal years has been audited by Ernst & Young LLP, whose report was
unqualified. Further information about the performance of the Funds is contained
in the Funds' annual report, dated October 31, 1995, copies of which may be
obtained without charge by calling Warburg Pincus Funds at (800) 257-5614.
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
FOR THE
PERIOD
AUGUST 17,
1987
(COMMENCEMENT
OF
OPERATIONS)
FOR THE YEAR ENDED OCTOBER 31, THROUGH
----------------------------------------------------------------------------------- OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ------ ------ ------ ------ ------ ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 14.29 $15.32 $13.30 $12.16 $ 9.78 $11.48 $ 9.47 $7.74 $ 10.00
----------- ------ ------ ------ ------ ------ ------ ----- ------
Income from Investment
Operations
Net Investment
Income............... .04 .04 .05 .04 .15 .20 .19 .17 .04
Net Gains (Loss) from
Securities (both
realized and
unrealized).......... 3.08 .17 2.78 1.21 2.41 (1.28) 2.15 1.70 (2.30)
----------- ------ ------ ------ ------ ------ ------ ----- ------
Total from Investment
Operations........... 3.12 .21 2.83 1.25 2.56 (1.08) 2.34 1.87 (2.26)
----------- ------ ------ ------ ------ ------ ------ ----- ------
Less Distributions
Dividends (from net
investment income)... (.04) (.05) (.05) (.06) (.18) (.21) (.19) (.14) .00
Distributions (from
capital gains)....... (.98) (1.19) (.76) (.05) .00 (.41) (.14) .00 .00
----------- ------ ------ ------ ------ ------ ------ ----- ------
Total Distributions.... (1.02) (1.24) (.81) (.11) (.18) (.62) (.33) (.14) .00
----------- ------ ------ ------ ------ ------ ------ ----- ------
Net Asset Value, End of
Period................. $ 16.39 $14.29 $15.32 $13.30 $12.16 $ 9.78 $11.48 $9.47 $ 7.74
----------- ------ ------ ------ ------ ------ ------ ----- ------
----------- ------ ------ ------ ------ ------ ------ ----- ------
Total Return............. 24.05% 1.65% 22.19% 10.40% 26.39% (10.11%) 25.42% 24.31% (71.26%)*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)................. $235,712 $159,346 $159,251 $117,900 $115,191 $76,537 $56,952 $29,351 $17,917
Ratios to Average Daily
Net Assets:
Operating expenses..... 1.12% 1.05% 1.01% 1.06% 1.08% 1.04% 1.10% 1.07% 1.00%*
Net investment
income............... .31% .26% .30% .41% 1.27% 2.07% 1.90% 2.00% 1.88%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements... .00% .01% .00% .01% .00% .01% .08% .91% .84%*
Portfolio Turnover
Rate................... 146.09% 51.87% 48.26% 55.83% 39.50% 37.10% 36.56% 33.16% 20.00%
</TABLE>
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* Annualized.
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EMERGING GROWTH FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 21, 1988
(COMMENCEMENT
OF OPERATIONS)
FOR THE YEAR ENDED OCTOBER 31, THROUGH
--------------------------------------------------------------------- OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989 1988
----------- ------ ------ ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 22.38 $23.74 $18.28 $16.97 $10.83 $13.58 $11.21 $10.00
----------- ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net Investment Income
(Loss)............... (.05) (.06) (.10) (.03) .05 .13 .16 .07
Net Gains (Loss) from
Securities (both
realized and
unrealized).......... 7.64 .06 5.93 1.71 6.16 (2.32) 2.51 1.18
----------- ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations........... 7.59 .00 5.83 1.68 6.21 (2.19) 2.67 1.25
----------- ------ ------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net
investment income)... .00 .00 .00 (.01) (.07) (.18) (.12) (.04)
Distributions (from
capital gains)....... .00 (1.36) (.37) (.36) .00 (.38) (.18) .00
----------- ------ ------ ------ ------ ------ ------ ------
Total Distributions.... .00 (1.36) (.37) (.37) (.07) (.56) (.30) (.04)
----------- ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 29.97 $22.38 $23.74 $18.28 $16.97 $10.83 $13.58 $11.21
----------- ------ ------ ------ ------ ------ ------ ------
----------- ------ ------ ------ ------ ------ ------ ------
Total Return............. 33.91% .16% 32.28% 9.87% 57.57% (16.90%) 24.20% 16.34%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)................. $487,537 $240,664 $165,525 $99,562 $42,061 $23,075 $26,685 $10,439
Ratios to Average Daily
Net Assets:
Operating expenses..... 1.26% 1.22% 1.23% 1.24% 1.25% 1.25% 1.25% 1.25%*
Net investment income
(loss)............... (.58%) (.58%) (.60%) (.25%) .32% 1.05% 1.38% 1.10%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements... .00% .04% .00% .08% .47% .42% .78% 3.36%*
Portfolio Turnover
Rate................... 84.82% 60.38% 68.35% 63.35% 97.69% 107.30% 100.18% 82.21%
</TABLE>
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* Annualized.
POST-VENTURE CAPITAL FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 29, 1995
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 1995
---------------------------
<S> <C>
Net Asset Value, Beginning of Period............................................................... $ 10.00
------
Income from Investment Operations
Net Investment Income............................................................................ .00
Net Gain on Securities (both realized and unrealized)............................................ .69
------
Total from Investment Operations................................................................. .69
------
Less Distributions
Dividends from net investment income............................................................. .00
Distributions from capital gains................................................................. .00
------
Total Distributions.............................................................................. .00
------
Net Asset Value, End of Period..................................................................... $ 10.69
------
------
Total Return....................................................................................... 6.90%`D'
Ratios/Supplemental Data
Net Assets, End of Period (000s)................................................................... $ 3,024
Ratios to Average Daily Net Assets:
Operating expenses............................................................................... 1.65%*
Net investment income............................................................................ .25%*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements.................................................................. 23.76%*
Portfolio Turnover Rate............................................................................ 16.90%*
</TABLE>
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`D' Non-annualized
* Annualized
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INVESTMENT OBJECTIVES AND POLICIES
Each Fund's objective is a fundamental policy and may not be amended
without first obtaining the approval of a majority of the outstanding shares of
that Fund. Any investment involves risk and, therefore, there can be no
assurance that any Fund will achieve its investment objective. See 'Portfolio
Investments' and 'Certain Investment Strategies' for descriptions of certain
types of investments the Funds may make.
CAPITAL APPRECIATION FUND
The Capital Appreciation Fund seeks long-term capital appreciation. The
Fund is a diversified management investment company that pursues its investment
objective by investing in a broadly diversified portfolio of equity securities
of domestic companies. The Fund will ordinarily invest substantially all of its
total assets -- but no less than 80% of its total assets -- in common stocks,
warrants and securities convertible into or exchangeable for common stocks.
Under current market conditions, the Fund intends to focus on securities of
medium-sized companies, consisting of companies having stock market
capitalizations of between $500 million and $4.5 billion. (Market capitalization
means the total market value of a company's outstanding common stock.) The
prices of securities of medium-sized companies, which are traded on exchanges or
in the over-the-counter market, tend to fluctuate in value more than the prices
of securities of large-sized companies.
Warburg, Pincus Counsellors, Inc., the Funds' investment adviser
('Warburg'), will attempt to identify sectors of the market and companies within
market sectors that it believes will outperform the overall market. Warburg also
seeks to identify themes or patterns it believes to be associated with high
growth potential firms, such as significant fundamental changes (including
senior management changes) or generation of a large free cash flow.
EMERGING GROWTH FUND
The Emerging Growth Fund seeks maximum capital appreciation. The Fund is a
non-diversified management investment company that pursues its investment
objective by investing in a portfolio of equity securities of domestic
companies. The Fund ordinarily will invest at least 65% of its total assets in
common stocks or warrants of emerging growth companies that represent attractive
opportunities for maximum capital appreciation. Emerging growth companies are
small- or medium-sized companies that have passed their start-up phase and that
show positive earnings and prospects of achieving significant profit and gain in
a relatively short period of time.
Although under current market conditions the Fund expects to invest in
companies having stock market capitalizations of up to approximately $500
million, the Fund may invest in emerging growth companies without regard to
their market capitalization. Emerging growth companies generally stand to
benefit from new products or services, technological developments or changes in
management and other factors and include smaller companies experiencing unusual
developments affecting their market value. These 'special situation companies'
include companies that are involved in the following: an acquisition or
consolidation; a reorganization; a recapitalization; a merger, liquidation, or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the company's stock; or a change in
corporate control.
POST-VENTURE CAPITAL FUND
The Post-Venture Capital Fund seeks long-term growth of capital. The Fund
is a diversified management investment company that pursues its investment
objective by investing primarily in equity securities of companies considered
by Warburg to be in their post-venture
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capital stage. The Fund is not designed to provide venture capital financing.
Rather, under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of 'post-venture capital companies.' A post-
venture capital company is a company that has received venture capital
financing either (a) during the early stages of the company's existence or the
early stages of the development of a new product or service, or (b) as part of
a restructuring or recapitalization of the company. The investment of venture
capital financing, distribution of such company's securities to venture
capital investors, or initial public offering ('IPO'), whichever is later, will
have been made within ten years prior to the Fund's purchase of the company's
securities.
Warburg believes that venture capital participation in a company's capital
structure can lead to revenue/earnings growth rates above those of older, public
companies such as those in the Dow Jones Industrial Average or the Fortune 500.
Venture capitalists finance start-up companies, companies in the early stages of
developing new products or services and companies undergoing a restructuring or
recapitalization, since these companies may not have access to conventional
forms of financing (such as bank loans or public issuances of stock). Venture
capitalists may hold substantial positions in companies that may have been
acquired at prices significantly below the initial public offering price. This
may create a potential adverse impact in the short-term on the market price of a
company's stock due to sales in the open market by a venture capitalist or
others who acquired the stock at lower prices prior to the company's IPO.
Warburg will consider the impact of such sales in selecting post-venture capital
investments. Venture capitalists may be individuals or funds organized by
venture capitalists which are typically offered only to large institutions, such
as pension funds and endowments, and certain accredited investors. Venture
capital participation in a company is often reduced when the company engages in
an IPO of its securities or when it is involved in a merger, tender offer or
acquisition.
Warburg has experience in researching smaller companies, companies in the
early stages of development and venture capital-financed companies. Its team of
analysts, led by Elizabeth Dater and Stephen Lurito, regularly monitors
portfolio companies whose securities are held by over 250 of the larger domestic
venture capital funds. Ms. Dater and Mr. Lurito have managed post-venture equity
securities in separate accounts for institutions since 1989 and currently manage
over $800 million of such assets for institutions. The Fund will invest in
securities of post-venture capital companies that are traded on a national
securities exchange or in an organized over-the-counter market. The Fund may
also hold non-publicly traded equity securities of companies in the venture and
post-venture stages of development, such as those of closely-held companies or
private placements of public companies. The portion of the Fund's assets
invested in these non-publicly traded securities will vary over time depending
on investment opportunities and other factors. The Fund's illiquid assets,
including illiquid non-publicly traded securities, may not exceed 15% of assets.
The Fund may also invest up to 35% of its assets in exchange-traded and
over-the-counter securities that do not meet the definition of post-venture
capital companies without regard to market capitalization. Up to 10% of the
Fund's assets may be invested in securities of issuers engaged at the time of
purchase in 'special situations,' such as a restructuring or recapitalization;
an acquisition, consolidation, merger or tender offer; a change in corporate
control or investment by a venture capitalist.
To attempt to reduce risk, the Fund will diversify its investments over a
broad range of issuers operating in a variety of industries. The
Fund may hold securities of companies of any size, and will not limit
capitalization of companies it selects to invest in. However, due to the nature
of the venture capital to post-venture
6
<PAGE>
cycle, the Fund anticipates that the average market capitalization of companies
in which it invests will be less than $1 billion at the time of investment.
Although the Fund will invest primarily in U.S. companies, up to 20% of the
Fund's assets may be invested in securities of issuers located in any foreign
country. Equity securities in which the Fund will invest are common stock,
preferred stock, warrants and securities convertible into or exchangeable for
common stock. The Fund may engage in a variety of strategies to reduce risk
or seek to enhance return, including engaging in short selling (see 'Certain
Investment Strategies').
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. Each Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) and, in
the case of the Capital Appreciation and Emerging Growth Funds, 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. Because the market value
of debt obligations can be expected to vary inversely to changes in prevailing
interest rates, investing in debt obligations may provide an opportunity for
capital appreciation when interest rates are expected to decline. The success of
such a strategy is dependent upon Warburg's ability to accurately forecast
changes in interest rates. The market value of debt obligations may also be
expected to vary depending upon, among other factors, the ability of the issuer
to repay principal and interest, any change in investment rating and general
economic conditions. A security will be deemed to be investment grade if it is
rated within the four highest grades by Moody's Investors Service, Inc.
('Moody's') or Standard & Poor's Ratings Group ('S&P') or, if unrated, is
determined to be of comparable quality by Warburg. Bonds rated in the fourth
highest grade may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. Subsequent to its purchase by a Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of such securities, although Warburg
will consider such event in its determination of whether the Fund should
continue to hold the securities.
When Warburg believes that a defensive posture is warranted, each Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) and medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loans and similar institutions) that are
high quality investments or, if unrated, deemed by Warburg to be high quality
investments; commercial paper rated no lower than A-2 by S&P or Prime-2 by
Moody's or the equivalent from another major rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Funds may invest in repurchase agreement
transactions with
7
<PAGE>
member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement, a
Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors or Board of Trustees (the 'governing Board' or
'Board'), monitors the creditworthiness of those bank and non-bank dealers with
which each Fund enters into repurchase agreements to evaluate this risk. A
repurchase agreement is considered to be a loan under the Investment Company Act
of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, each Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund, Warburg or the Funds'
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, a
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which a Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which a Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to each Fund's investments, see 'Portfolio
Investments' beginning at page 7 and 'Certain Investment Strategies' beginning
at page 10.
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of emerging growth
and small-sized companies may involve greater risks since these securities may
have limited marketability and, thus, may be more volatile. Because small-and
medium-sized companies normally have
8
<PAGE>
fewer shares outstanding than larger companies, it may be more difficult for
a Fund to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. In addition, small- and medium-sized
companies are typically subject to a greater degree of changes in earnings
and business prospects than are larger, more established companies. There is
typically less publicly available information concerning small- and medium-
sized companies than for larger, more established ones. Securities of issuers
in 'special situations' also may be more volatile, since the market value of
these securities may decline in value if the anticipated benefits do not
materialize. Companies in 'special situations' include, but are not limited
to, companies involved in an acquisition or consolidation; reorganization;
distribution of cash, securities or other assets; a tender or exchange offer, a
breakup or workout of a holding company; or litigation which, if resolved
favorably, would improve the value of the companies' securities. Although
investing in securities of emerging growth companies or 'special situations'
offers potential for above-average returns if the companies are successful, the
risk exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in a Fund
may involve a greater degree of risk than an investment in other mutual funds
that seek capital appreciation by investing in better-known, larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 Act ('Rule 144A Securities'). An
investment in Rule 144A Securities will be considered illiquid and therefore
subject to each Fund's limitation on the purchase of illiquid securities, unless
the Fund's governing Board determines on an ongoing basis that an adequate
trading market exists for the security. In addition to an adequate trading
market, the Boards will also consider factors such as trading activity,
availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Funds to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board of each Fund will carefully monitor
any investments by the Fund in Rule 144A Securities. The Boards may adopt
guidelines and delegate to Warburg the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although each Board will
retain ultimate responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
a Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. A Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Emerging Growth Fund is classified as a
non-diversified investment company under the 1940 Act, which means that the Fund
is not limited by the 1940 Act in the proportion of its assets that it may
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invest in the obligations of a single issuer. The Fund will, however, comply
with diversification requirements imposed by the Internal Revenue Code of 1986,
as amended (the 'Code'), for qualification as a regulated investment company. As
a non-diversified investment company, the Fund may invest a greater proportion
of its assets in the obligations of a small number of issuers and, as a result,
may be subject to greater risk with respect to portfolio securities. To the
extent that the Fund assumes large positions in the securities of a small number
of issuers, its return may fluctuate to a greater extent than that of a
diversified company as a result of changes in the financial condition or in the
market's assessment of the issuers.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
A 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 relevant Fund. A Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. It is not
possible to predict the Post-Venture Capital Fund's portfolio turnover rate.
However, it is anticipated that the Fund's annual turnover rate should not
exceed 100%. High portfolio turnover rates (100% or more) may result in dealer
mark ups or underwriting commissions as well as other transaction costs,
including correspondingly higher brokerage commissions. In addition, short-term
gains realized from portfolio turnover may be taxable to shareholders as
ordinary income. See 'Dividends, Distributions and Taxes -- Taxes' below and
'Investment Policies -- Portfolio Transactions' in each Fund's Statement of
Additional Information.
All orders for transactions in securities or options on behalf of a Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Funds' distributor ('Counsellors Securities'). A Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the governing Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, each
Fund is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed delivery, (ii) lending portfolio securities and (iii) in
the case of the Post-Venture Capital Fund, entering into reverse repurchase
agreements and dollar rolls. Detailed information concerning each Fund's
strategies and related risks is contained below and in the Fund's Statement of
Additional Information.
STRATEGIES AVAILABLE TO ALL FUNDS
FOREIGN SECURITIES. Each Fund may invest up to 20% of its total assets in the
securities of foreign issuers. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign
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countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. In addition, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Funds, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that would reduce the net yield
on such securities. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Investment in foreign securities
will also result in higher operating expenses due to the cost of converting
foreign currency into U.S. dollars, the payment of fixed brokerage commissions
on foreign exchanges, which generally are higher than commissions on U.S.
exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, each
Fund may, but is not required to, engage in a number of strategies involving
options, futures and forward currency contracts. These strategies, commonly
referred to as 'derivatives,' may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE A FUND'S INVESTMENT RISK. Transaction costs and any premiums associated
with these strategies, and any losses incurred, will affect a Fund's net asset
value and performance. Therefore, an investment in a Fund may involve a greater
risk than an investment in other mutual funds that do not utilize these
strategies. The Funds' use of these strategies may be limited by position and
exercise limits established by securities and commodities exchanges and the NASD
and by the Code.
Securities and Stock Index Options. Each Fund may write covered call and,
in the case of the Post-Venture Capital Fund, put options on up to 25% of the
net asset value of the stock and debt securities in its portfolio and will
realize fees (referred to as 'premiums') for granting the rights evidenced by
the options. The Capital Appreciation Fund and the Emerging Growth Fund may each
utilize up to 2% of its assets to purchase U.S. exchange-traded and over-the-
counter ('OTC') options; the Post-Venture Capital Fund may utilize up to 10% of
its assets to purchase options on stocks and debt securities that are traded on
U.S. and foreign exchanges, as well as OTC options. The purchaser of a put
option on a security has the right to compel the purchase by the writer of the
underlying security, while the purchaser of a call option has the right to
purchase the underlying security from the writer. In addition to purchasing and
writing options on securities, each Fund may also utilize up to 10% of its total
assets to purchase exchange-listed and OTC put and call options on stock
indexes, and may also write such options. A stock index measures the movement of
a certain group of stocks by assigning relative values to the common stocks
included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses
to the Fund, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the Fund
could realize on its investments or require the Fund to hold securities it would
otherwise sell.
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Futures Contracts and Related Options. Each Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Funds are limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Funds will conduct their currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events. The Capital Appreciation and Emerging
Growth Funds will only engage in currency exchange transactions for hedging
purposes.
Hedging Considerations. The Funds may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. A Fund will engage in hedging transactions only when deemed advisable by
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 a Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without
incurring substantial losses, if at all. The Fund is also subject to the risk of
a default by a counterparty to an off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect
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to options written by the Fund on securities and indexes; currency, interest
rate and stock index futures contracts and options on these futures contracts;
and forward currency contracts. The use of these strategies may require that
the Fund maintain cash or certain liquid high-grade debt obligations or other
assets that are acceptable as collateral to the appropriate regulatory authority
in a segregated account with its custodian or a designated sub-custodian to
the extent the Fund's obligations with respect to these strategies are not
otherwise 'covered' through ownership of the underlying security, financial
instrument or currency or by other portfolio positions or by other means
consistent with applicable regulatory policies. Segregated assets cannot be sold
or transferred unless equivalent assets are 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.
Strategy Available to the Post-Venture Capital Fund
SHORT SELLING. The Fund may from time to time sell securities short. A short
sale is a transaction in which the Fund sells borrowed securities in
anticipation of a decline in the market price of the securities. Possible losses
from short sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses from
purchases can equal only the total amount invested. The current market value of
the securities sold short will not exceed 10% of the Fund's assets.
When the Fund makes a short sale, the proceeds it receives from the sale
are retained by a broker until the Fund replaces the borrowed securities. To
deliver the securities to the buyer, the Fund must arrange through a broker to
borrow the securities and, in so doing, the Fund becomes obligated to replace
the securities borrowed at their market price at the time of replacement,
whatever that price may be. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
The Fund's obligation to replace the securities borrowed in connection with
a short sale will be secured by cash or U.S. government securities deposited as
collateral with the broker. In addition, the Fund will place in a segregated
account with its custodian or a qualified subcustodian an amount of cash or U.S.
government securities equal to the difference, if any, between (i) the market
value of the securities sold at the time they were sold short and (ii) any cash
or U.S. government securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the short sale).
Until it replaces the borrowed securities, the Fund will maintain the segregated
account daily at a level so that (a) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will equal the current market value of the securities sold short and (b)
the amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short.
Short Sales Against the Box. The Fund may, in addition to engaging in short
sales as described above, enter into a short sale of securities such that when
the short position is open the Fund owns an equal amount of the securities sold
short or owns preferred stocks or debt securities, convertible or exchangeable
without payment of further consideration, into an equal number of securities
sold short. This kind of short sale, which is referred to as one 'against
the box,' will be entered into by the Fund for the purpose of receiving a
portion of the interest earned by the executing broker from the proceeds of the
sale. The proceeds of the sale will generally be held by the broker until the
settlement-
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date when the Fund delivers securities to close out its short position.
Although prior to delivery the Fund will have to pay an amount equal to any
dividends paid on the securities sold short, the Fund will receive the dividends
from the securities sold short or the dividends from the preferred stock or
interest from the debt securities convertible or exchangeable into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Fund will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or
convertible or exchangeable preferred stocks or debt securities in connection
with short sales against the box. The Fund will endeavor to offset transaction
costs associated with short sales against the box with the income from the
investment of the cash proceeds. Not more than 10% of the Fund's net assets
(taken at current value) may be held as collateral for short sales against the
box at any one time.
The extent to which the Fund may make short sales may be limited by Code
requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
INVESTMENT GUIDELINES
The Capital Appreciation Fund and the Emerging Growth Fund may each invest
up to 10% of its total assets, and the Post-Venture Capital 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; (iii) time deposits maturing
in more than seven calendar days; and (iv) certain Rule 144A Securities. In
addition, up to 5% of each Fund's total assets may be invested in the securities
of issuers which have been in continuous operation for less than three years,
and up to an additional 5% of its total assets may be invested in warrants. Each
Fund may borrow from banks for temporary or emergency purposes, such as meeting
anticipated redemption requests, provided that reverse repurchase agreements and
any other borrowing by the Fund may not exceed 10% of its total assets (30% in
the case of the Post-Venture Capital Fund), and may pledge up to 10% of its
assets in connection with borrowings (to the extent necessary to secure
permitted borrowings in the case of the Post-Venture Capital Fund). Whenever
borrowings (including reverse repurchase agreements) exceed 5% of the value of
the Fund's total assets, the Fund will not make any investments (including
roll-overs). Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the governing Board of each Fund, subject to the limitations
contained in the 1940 Act. A complete list of investment restrictions that each
Fund has adopted identifying additional restrictions that cannot be changed
without the approval of the majority of the Fund's outstanding shares is
contained in each Fund's Statement of Additional Information.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER. Each Fund employs Warburg as its investment adviser.
Warburg, subject to the control of each Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Funds in accordance with
each Fund's investment objective and stated investment policies. Warburg makes
investment decisions for each Fund and places orders to purchase or sell
securities on behalf of each such Fund. Warburg also employs a support staff
of management personnel to provide services to the
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Funds and furnishes each Fund with office space, furnishings and equipment.
For the services provided by Warburg, the Capital Appreciation Fund, the
Emerging Growth Fund and the Post-Venture Capital Fund pay Warburg a fee
calculated at an annual rate of .70%, .90% and 1.25%, respectively, of the
Fund's average daily net assets. Although in the case of the Emerging Growth
Fund and the Post-Venture Capital Fund this advisory fee is higher than that
paid by most other investment companies, including money market and fixed income
funds, Warburg believes that it is comparable to fees charged by other mutual
funds with similar policies and strategies. The advisory agreement between each
Fund and Warburg provides that Warburg will reimburse the Fund to the extent
certain expenses that are described in the Statement of Additional Information
exceed applicable state expense limitations. Warburg and each Fund's
co-administrators may voluntarily waive a portion of their fees from time to
time and temporarily limit the expenses to be paid by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of November 30,
1995, Warburg managed approximately $11.9 billion of assets, including
approximately $6.2 billion of assets of twenty-three investment companies or
portfolios. Incorporated in 1970, Warburg is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Warburg through
its ownership of a class of voting preferred stock of Warburg. Warburg G.P. has
no business other than being a holding company of Warburg and its subsidiaries.
Warburg's address is 466 Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. George U. Wyper and Susan L. Black have been co-portfolio
managers of the Capital Appreciation Fund since December 1994. Mr. Wyper is a
managing director of EMW, which he joined in August 1994, before which time he
was chief investment officer of White River Corporation and president of Hanover
Advisers, Inc. (1993-August 1994), chief investment officer of Fund American
Enterprises, Inc. (1990-1993) and the director of fixed income investments at
Fireman's Fund Insurance Company (1987-1990). Ms. Black is a managing director
of EMW and has been with Warburg since 1985.
The co-portfolio managers of the Emerging Growth Fund and the Post-Venture
Capital Fund are Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater has been
portfolio manager of the Emerging Growth Fund since its inception on January 21,
1988. She is a managing director of EMW and has been a portfolio manager of
Warburg since 1978. Mr. Lurito has been a portfolio manager of the Emerging
Growth Fund since 1990. He is a managing director of EMW and has been with
Warburg since 1987, before which time he was a research analyst at Sanford C.
Bernstein & Company, Inc. Robert S. Janis and Christopher M. Nawn are associate
portfolio managers and research analysts for the Post-Venture Capital Fund. Mr.
Janis has been with Warburg since October 1994, before which time he was a vice
president and senior research analyst at U.S. Trust Company of New York. Mr.
Nawn has been with Warburg since September 1994, before which time he was a
senior sector analyst and portfolio manager at the Dreyfus Corporation.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive
and administrative
15
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services, acting as liaison between the Funds and their various service
providers, furnishing corporate secretarial services, which include preparing
materials for meetings of the
governing Board, preparing proxy statements and annual, semiannual and quarterly
reports, assisting in other regulatory filings as necessary and monitoring and
developing compliance procedures for the Funds. As compensation, each Fund pays
Counsellors Service a fee calculated at an annual rate of .10% of the Fund's
average daily net assets.
Each Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation each Fund pays PFPC a
fee calculated at an annual rate of .10% of its average daily net assets,
subject to a minimum annual fee and exclusive of out-of-pocket expenses. PFPC
has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
assets of the Capital Appreciation Fund and the Emerging Growth Fund. PNC also
serves as custodian of the Post-Venture Capital Fund's U.S. assets, and State
Street Bank and Trust Company ('State Street') serves as custodian of the Fund's
non-U.S. assets. Like PFPC, PNC is a subsidiary of PNC Bank Corp. and its
principal business address is Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19101. State Street's principal business address is 225 Franklin
Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street acts as shareholder servicing agent, transfer agent
and dividend disbursing agent for the Funds. It has delegated to Boston
Financial Data Services, Inc., a 50% owned subsidiary ('BFDS'), responsibility
for most shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Funds. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Capital Appreciation or Emerging Growth Funds to Counsellors
Securities for distribution services. Counsellors Securities receives a fee at
an annual rate equal to .25% of the average daily net assets of the Post-Venture
Capital Fund's Common Shares for distribution services, pursuant to a
shareholder servicing and distribution plan (the '12b-1 Plan') adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (i) the sale of the Common Shares, (ii) ongoing servicing
and/or maintenance of the accounts of Common Shareholders of the Fund and (iii)
sub-transfer agency services, subaccounting services or administrative services
related to the sale of the Common Shares, all as set forth in the 12b-1 Plan.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
expenses actually incurred by Counsellors Securities and the payments may exceed
distribution expenses actually incurred. The Board of the Post-Venture Capital
Fund evaluates the appropriateness of the 12b-1 Plan on a continuing basis and
in doing so considers all relevant factors, including expenses borne by
Counsellors Securities and amounts received under the 12b-1 Plan.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Funds, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale
of significant amounts of Fund shares.
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DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to its Board. The Boards set broad
policies for each Fund and choose its officers. A list of the Directors/Trustees
and officers of each Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information of each Fund.
HOW TO OPEN AN ACCOUNT
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 257-5614. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg
Pincus Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information (i) about investing in the
Funds through a tax-deferred retirement plan, such as an Individual Retirement
Account ('IRA') or a Simplified Employee Pension IRA ('SEP-IRA'), or (ii) about
opening a Uniform Gifts to Minors Act or Uniform Transfers to Minors Act
('UGMA') account, an investor should telephone Warburg Pincus Funds at (800)
888-6878 or write to Warburg Pincus Funds at the address set forth above.
Investors should consult their own tax advisers about the establishment of
retirement plans and UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 888-6878.
HOW TO PURCHASE SHARES
Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check or
money order made payable to the Fund or Warburg Pincus Funds (in U.S. currency)
should be sent along with the completed account application to Warburg Pincus
Funds through its distributor, Counsellors Securities Inc., at the address set
forth above. Checks payable to the investor and endorsed to the order of the
Fund or Warburg Pincus Funds will not be accepted as payment and will be
returned to the sender. If payment is received in proper form before 4:00 p.m.
(Eastern time) on a day that the Fund calculates its net asset value (a
'business day'), the purchase will be made at the Fund's net asset value
calculated at the end of that day. If payment is received after 4:00 p.m., the
purchase will be effected at the Fund's net asset value determined for the next
business day after payment has been received. Checks or money orders that are
not in proper form or that are not accompanied or preceded by a complete account
application will be returned to the sender. Shares purchased by check or money
order are entitled to receive dividends and distributions beginning on the day
after payment has been received. Checks or money orders in payment for shares of
more than one Warburg Pincus Fund should be made payable to Warburg Pincus Funds
and should be accompanied by a breakdown of amounts to be invested in each fund.
If a check used for purchase does not clear, the Fund will cancel the purchase
and the investor may be liable for losses or fees incurred. For a description of
the manner of calculating the Fund's net asset value, see 'Net Asset Value'
below.
BY WIRE. Investors may also purchase Common Shares in a Fund by wiring funds
from their banks. Telephone orders by wire will not be accepted until a
completed account application
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in proper form has been received and an account number has been established.
Investors should place an order with the Fund prior to wiring funds by
telephoning (800) 888-6878. Federal funds may be wired to Counsellors
Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Insert Warburg Pincus Fund name(s) here]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received by the close of regular trading on the New
York Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment
by wire is received on the same day in proper form in accordance with
instructions set forth above, the shares will be priced according to the net
asset value of the Fund on that day and are entitled to dividends and
distributions beginning on that day. If payment by wire is received in proper
form by the close of the NYSE without a prior telephone order, the purchase will
be priced according to the net asset value of the Fund on that day and is
entitled to dividends and distributions beginning on that day. However, if a
wire in proper form that is not preceded by a telephone order is received after
the close of regular trading on the NYSE, the payment will be held uninvested
until the order is effected at the close of business on the next business day.
Payment for orders that are not accepted will be returned to the prospective
investor after prompt inquiry. If a telephone order is placed and payment by
wire is not received on the same day, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred.
The minimum initial investment in each Fund is $2,500 and the minimum
subsequent investment is $100, except that subsequent minimum investments can be
as low as $50 under the Automatic Monthly Investment Plan described in the next
section. For retirement plans and UGMA accounts, the minimum initial investment
is $500. The Fund reserves the right to change the initial and subsequent
investment minimum requirements at any time. In addition, the Fund may, in its
sole discretion, waive the initial and subsequent investment minimum
requirements with respect to investors who are employees of EMW or its
affiliates or persons with whom Warburg has entered into an investment advisory
agreement. Existing investors will be given 15 days' notice by mail of any
increase in investment minimum requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Funds
are not normally issued.
PURCHASES THROUGH INTERMEDIARIES. The Funds understand that some broker-dealers
(other than Counsellors Securities), financial institutions, securities dealers
and other industry professionals, including certain of the programs discussed
below, may impose certain conditions on their clients or customers that invest
in the Funds, which are in addition to or different than those described in this
Prospectus, and may charge their clients or customers direct fees. Certain
features of the Funds, such as the initial and subsequent investment minimums,
redemption fees and certain trading restrictions, may be modified or waived in
these programs, and administrative charges may be imposed for the services
rendered. Therefore, a client or customer should contact the organization
acting on his behalf concerning the fees (if any) charged in connection with
a purchase or redemption of Fund shares and should read this Prospectus in
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light of the terms governing his accounts with the organization. These
organizations will be responsible for promptly transmitting client or customer
purchase and redemption orders to the Funds in accordance with their agreements
with clients or customers.
Common Shares of each Fund are available through the Charles Schwab &
Company, Inc. Mutual Fund OneSourceTM Program; Fidelity Brokerage Services, Inc.
Funds-NetworkTM Program; Jack White & Company, Inc.; and Waterhouse Securities,
Inc. Generally, these programs do not require customers to pay a transaction fee
in connection with purchases. These and other organizations that have entered
into agreements with a Fund or its agent may enter confirmed purchase orders on
behalf of clients and customers, with payment to follow no later than the Funds'
pricing on the following business day. If payment is not received by such time,
the organization could be held liable for resulting fees or losses.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders to
authorize a Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account applications and include a voided, unsigned check from the bank
account to be debited. Only an account maintained at a domestic financial
institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information, or
contact Warburg Pincus Funds at (800) 888-6878 for information or to modify or
terminate the program. Investors should allow a period of up to 30 days in order
to implement an automatic investment program. The failure to provide complete
information could result in further delays.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on any
day that the Fund's net asset value is calculated (see 'Net Asset Value' below).
Common Shares of the Funds may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an investor desires to redeem
his shares by mail, a written request for redemption should be sent to Warburg
Pincus Funds at the address indicated above under 'How to Open an Account.' An
investor should be sure that the redemption request identifies the Fund, the
number of shares to be redeemed and the investor's account number. In order to
change the bank account or address designated to receive the redemption
proceeds, the investor must send a written request (with signature guarantee of
all investors listed on the account when such a change is made in conjunction
with a redemption request) to Warburg Pincus Funds. Each mail redemption request
must be signed by the registered owner(s) (or his legal representative(s))
exactly as the shares are registered. If an investor has applied for the
telephone redemption feature on his account application, he may redeem his
shares by calling Warburg Pincus Funds at (800) 888-6878 between 9:00 a.m. and
4:00 p.m. (Eastern time) on any business day. An investor making a telephone
withdrawal should state (i) the name of the Fund, (ii) the account number of the
Fund, (iii) the name of the investor(s) appearing on the Fund's records, (iv)
the amount to be withdrawn and (v) the name of the person requesting the
redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by
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check and mailed to the investor of record or be wired to the investor's bank as
indicated in the account application previously filled out by the investor.
No Fund currently imposes a service charge for effecting wire transfers but
each Fund reserves the right to do so in the future. During periods of
significant economic or market change, telephone redemptions may be difficult to
implement. If an investor is unable to contact Warburg Pincus Funds by
telephone, an investor may deliver the redemption request to Warburg Pincus
Funds by mail at the address shown above under 'How to Open an Account.'
Although each Fund will redeem shares purchased by check before the check
clears, payments of the redemption proceeds will be delayed until such check has
cleared, which may take up to 15 days from the purchase date. Investors
should consider purchasing shares using a certified or bank check or money
order if they anticipate an immediate need for redemption proceeds.
If a redemption order is received prior to the close of regular trading on
the NYSE, the redemption order will be effected at the net asset value per share
as determined on that day. If a redemption order is received after the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value as next determined. Except as noted above, redemption proceeds will
normally be mailed or wired to an investor on the next business day following
the date a redemption order is effected. If, however, in the judgment of
Warburg, immediate payment would adversely affect a Fund, each Fund reserves the
right to pay the redemption proceeds within seven days after the redemption
order is effected. Furthermore, each Fund may suspend the right of redemption or
postpone the date of payment upon redemption (as well as suspend or postpone the
recordation of an exchange of shares) for such periods as are permitted under
the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less
than $2,000 ($250 in the case of a retirement plan or UGMA account), each Fund
reserves the right to redeem the shares in that account at net asset value.
Prior to any redemption, the Fund will notify an investor in writing that this
account has a value of less than the minimum. The investor will then have 60
days to make an additional investment before a redemption will be processed by
the Fund.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone, investors
must have completed and returned to Warburg Pincus Funds an account application
containing a telephone election. Unless contrary instructions are elected, an
investor will be entitled to make exchanges by telephone. Neither a Fund nor its
agents will be liable for following instructions communicated by telephone that
it reasonably believes to be genuine. Reasonable procedures will be employed on
behalf of each Fund to confirm that instructions communicated by telephone are
genuine. Such procedures include providing written confirmation of telephone
transactions, tape recording telephone instructions and requiring specific
personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at
(800) 888-6878.
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EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for Common
Shares of another Fund or for Common Shares of another Warburg Pincus Fund at
their respective net asset values. Exchanges may be effected by mail or by
telephone in the manner described under 'Redemption of Shares' above. If an
exchange request is received by Warburg Pincus Funds prior to 4:00 p.m. (Eastern
time), the exchange will be made at each Fund's net asset value determined at
the end of that business day. Exchanges may be effected without a sales charge
but must satisfy the minimum dollar amount necessary for new purchases. Due to
the costs involved in effecting exchanges, each Fund reserves the right to
refuse to honor more than three exchange requests by a shareholder in any 30-day
period. The exchange privilege may be modified or terminated at any time upon 60
days' notice to shareholders. Currently, exchanges may be made among the Funds
and with the following other funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing
in short-term, high quality municipal obligations designed for New York
investors seeking income exempt from federal, New York State and New York
City income tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an
intermediate-term municipal bond fund designed for New York investors
seeking income exempt from federal, New York State and New York City
income tax;
WARBURG PINCUS TAX FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of capital;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an
intermediate-term bond fund investing in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income
and, secondarily, capital appreciation by investing in a diversified
portfolio of fixed-income securities;
WARBURG PINCUS 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 SMALL COMPANY VALUE FUND -- an equity fund seeking
long-term capital appreciation by investing primarily in equity securities
of small companies;
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;
WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term
growth of
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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 a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 257-5614.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. Each Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs a
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Common Shares of the relevant Fund at
net asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Funds at the
address set forth under 'How to Open an Account' or by calling Warburg Pincus
Funds at (800) 888-6878.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be a long-term capital gain or loss if he
has held his shares for more than one year and will be a short-term capital gain
or loss if he has held his shares for one year or less. However, any loss
realized upon the sale or redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
any amounts treated as distributions of long-term capital gain during such
six-month period with respect to such shares. Investors may be
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proportionately liable for taxes on income and gains of the Funds, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities, including short sales of
securities, will not result in unrelated business taxable income to a tax-exempt
investor. A Fund's dividends, to the extent not derived from dividends
attributable to certain types of stock issued by U.S. domestic corporations,
will not qualify for the dividends received deduction for corporations.
Special Tax Matters Relating to the Post-Venture Capital Fund. Certain
provisions of the Code may require that a gain recognized by the Fund upon the
closing of a short sale be treated as a short-term capital gain, and that a loss
recognized by the Fund upon the closing of a short sale be treated as a
long-term capital loss, regardless of the amount of time that the Fund held the
securities used to close the short sale. The Fund's use of short sales may also
affect the holding periods of certain securities held by the Fund if such
securities are 'substantially identical' to securities used by the Fund to close
the short sale. The Fund's short selling activities will not result in unrelated
business taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of a Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
NET ASSET VALUE
Each Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of each Fund generally changes each day.
The net asset value per Common Share of each Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Common Shares and then dividing the result by the
total number of outstanding Common Shares.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
PERFORMANCE
The Funds quote the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, each Fund may advertise the average
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annual total return of its Common Shares over various periods of time. These
total return figures show the average percentage change in value of an
investment in the Common Shares from the beginning of the measuring period
to the end of the measuring period. The figures reflect changes in the price of
the Common Shares assuming that any income dividends and/or capital gain
distributions made by the Fund during the period were reinvested in Common
Shares of the Fund. Total return will be shown for recent one-, five- and
ten-year periods, and may be shown for other periods as well (such as from
commencement of the Fund's operations or on a year-by-year, quarterly or
current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that each Fund seeks long-term appreciation and
that such return may not be representative of any Fund's return over a longer
market cycle. Each Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. Each Fund's
Statement of Additional Information describes the method used to determine the
total return. Current total return figures may be obtained by calling Warburg
Pincus Funds at (800) 257-5614.
In reports or other communications to investors or in advertising material,
a Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) in the case of the Capital Appreciation
Fund, with the Russell Midcap Index, the S&P Midcap 400 Index and the S&P 500
Index; in the case of the Emerging Growth Fund, with the Russell 2000 Small
Stock Index, the T. Rowe Price New Horizons Fund Index and the S&P 500 Index;
and in the case of the Post-Venture Capital Fund, with the Venture Capital 100
Index (compiled by Venture Capital Journal), the Russell 2000 Small Stock Index
and the S&P 500 Index; all of which are unmanaged indexes of common stocks; or
(iii) other appropriate indexes of investment securities or with data developed
by Warburg derived from such indexes. The Post-Venture Capital Fund may also
make comparisons using data and indexes compiled by the National Venture Capital
Association, VentureOne and Private Equity Analysts Newsletter and similar
organizations and publications. A Fund may include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as The Wall Street Journal,
Investor's Daily, Money, Inc., Institutional Investor, Barron's, Fortune,
Forbes, Business Week, Mutual Fund Magazine, Morningstar, Inc. and Financial
Times.
In reports or other communications to investors or in advertising, each
Fund may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a Fund and its
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portfolio managers may render periodic updates of Fund activity, which may
include a discussion of significant portfolio holdings and analysis of holdings
by industry, country, credit quality and other characteristics. The Post-
Venture Capital Fund may discuss characteristics of venture capital financed
companies and the benefits expected to be achieved from investing in these
companies. Each Fund may also discuss measures of risk, the continuum of risk
and return relating to different investments and the potential impact of foreign
stocks on a portfolio otherwise composed of domestic securities. Morningstar,
Inc. rates funds in broad categories based on risk/reward analyses over various
time periods. In addition, each Fund may from time to time compare the expense
ratio of its Common Shares to that of investment companies with similar
objectives and policies, based on data generated by Lipper Analytical Services,
Inc. or similar investment services that monitor mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Capital Appreciation Fund was organized on January 20, 1987
under the laws of The Commonwealth of Massachusetts and is a business entity
commonly known as 'Massachusetts business trust.' On February 26, 1992, the Fund
amended its Agreement and Declaration of Trust to change its name from
'Counsellors Capital Appreciation Fund' to 'Warburg, Pincus Capital Appreciation
Fund.' The Emerging Growth Fund was incorporated on November 12, 1987 under the
laws of the State of Maryland under the name 'Counsellors Emerging Growth Fund,
Inc.' On October 27, 1995 the Fund amended its charter to change its name to
'Warburg, Pincus Emerging Growth Fund, Inc.' The Post-Venture Capital Fund was
incorporated on July 12, 1995 under the laws of the State of Maryland under the
name 'Warburg, Pincus Post-Venture Capital Fund, Inc.'
The Capital Appreciation Fund's Agreement and Declaration of Trust
authorizes the Board to issue an unlimited number of full and fractional shares
of beneficial interest, $.001 par value per share, of which one billion shares
are designated Advisor Shares. The charter of each of the Emerging Growth Fund
and the Post-Venture Capital Fund authorizes the Board to issue three billion
full and fractional shares of capital stock, $.001 par value per share, of which
one billion shares are designated Advisor Shares. Under each Fund's charter
documents, the governing Board has the power to classify or reclassify any
unissued shares of the Fund into one or more additional classes by setting or
changing in any one or more respects their relative rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption. The Board of a Fund may similarly classify or
reclassify any class of its shares into one or more series and, without
shareholder approval, may increase the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. Each Fund offers a separate class of shares, the Advisor
Shares, pursuant to a separate prospectus. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries. Shares of each class represent equal pro
rata interests in the respective Fund and accrue dividends and calculate net
asset value and performance quotations in the same manner. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be
expected to be lower than the total return on Common Shares. Investors may
obtain information concerning the Advisor Shares from their investment
professional or by calling Counsellors Securities at (800) 888-6878.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full share
held and fractional votes for fractional shares held. Shareholders of a Fund
will vote in the aggregate except where
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otherwise required by law and except that each class will vote separately on
certain matters pertaining to its distribution and shareholder servicing
arrangements. There will normally be no meetings of investors for the purpose
of electing members of the governing Board unless and until such time as less
than a majority of the members holding office have been elected by investors.
Investors of record of no less than two-thirds of the outstanding shares of the
Capital Appreciation Fund may remove a Trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. Any Director of the Emerging Growth Fund or the Post-Venture Capital
Fund may be removed from office upon the vote of shareholders
holding at least a majority of the relevant Fund's outstanding
shares, at a meeting called for that purpose. A meeting will be called for the
purpose of voting on the removal of a Board member at the written request of
holders of 10% of the outstanding shares of a Fund. John L. Furth, a Director
and Trustee of the Funds, and Lionel I. Pincus, Chairman of the Board and Chief
Executive Officer of EMW, may be deemed to be controlling persons of each Fund
as of November 30, 1995 because they may be deemed to possess or share
investment power over shares owned by clients of Warburg and certain other
entities.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). Each Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
The prospectuses of the Funds are combined in this Prospectus. Each Fund
offers only its own shares, yet it is possible that a Fund might become liable
for a misstatement, inaccuracy or omission in this Prospectus with regard to
another Fund.
SHAREHOLDER SERVICING
Common Shares may be sold to or through institutions, including insurance
companies, financial institutions and broker-dealers, that will not be paid a
distribution fee by a Fund pursuant to Rule 12b-1 under the 1940 Act for
services to their clients or customers who may be deemed to be beneficial owners
of Common Shares. These institutions may be paid fees by a Fund, Counsellors
Securities, Counsellors Service or any of their affiliates for transfer agency,
administrative, accounting, shareholder liaison and/or other services provided
to their clients or customers that invest in the Funds' Common Shares.
Organizations that provide recordkeeping or other services to certain employee
benefit plans and qualified and other retirement plans that include a Fund as an
investment alternative and registered representatives (including retirement plan
consultants) that facilitate the administration and servicing of shareholder
accounts may also be paid a fee. Fees paid vary depending on the arrangements
and the amount of assets held by an institution's clients or customers and/or
the number of plan participants investing in a Fund. Warburg, Counsellors
Securities, Counsellors Service or any of their affiliates may, from time to
time, at their own expense, pay certain fund transfer agent fees and expenses
related to clients and customers of their institutions and organizations. In
addition, these institutions may use a portion of their compensation to
compensate a Fund's custodian or transfer agent for costs related to accounts of
their clients or customers.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUNDS'
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
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CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EACH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
THE FUNDS' EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVES AND POLICIES ....................................... 5
PORTFOLIO INVESTMENTS .................................................... 7
RISK FACTORS AND SPECIAL
CONSIDERATIONS ........................................................ 8
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE ................................................................. 10
CERTAIN INVESTMENT STRATEGIES ........................................... 10
INVESTMENT GUIDELINES ................................................... 14
MANAGEMENT OF THE FUNDS ................................................. 14
HOW TO OPEN AN ACCOUNT .................................................. 17
HOW TO PURCHASE SHARES .................................................. 17
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 22
NET ASSET VALUE ......................................................... 23
PERFORMANCE ............................................................. 23
GENERAL INFORMATION ..................................................... 25
SHAREHOLDER SERVICING ................................................... 26
WPDSF-1-1295
<PAGE>
[LOGO]
[ ] WARBURG PINCUS
CAPITAL APPRECIATION FUND
[ ] WARBURG PINCUS
EMERGING GROWTH FUND
[ ] WARBURG PINCUS
POST-VENTURE CAPITAL FUND
PROSPECTUS
DECEMBER 29, 1995
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as............... 'D'
<PAGE>
Rule 497(c)
Securities Act File No. 33-12344
Investment Company Act File No. 811-5041
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
December 29, 1995
PROSPECTUS
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:
WARBURG PINCUS CAPITAL APPRECIATION FUND seeks long-term capital appreciation by
investing principally in equity securities of medium-sized domestic companies.
The Fund currently offers two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Fund,
as well as Advisor Shares of certain other Warburg Pincus-advised funds, are
sold under the name 'Warburg Pincus Advisor Funds.' Individual investors may
purchase Advisor Shares only through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of up to .75% per annum, which is the economic equivalent of
a sales charge. The Fund's Common Shares are available for purchase by
individuals directly and are offered by a separate prospectus.
NO MINIMUM INVESTMENT
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Advisor Funds at (800) 888-6878.
Information regarding the status of shareholder accounts may also be obtained by
calling Warburg Pincus Advisor Funds at (800) 888-6878. The Statement of
Additional Information, as amended or supplemented from time to time, bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
THE FUND'S EXPENSES
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information.' Because of the higher fees paid by
Advisor Shares, the total return on such shares can be expected to be lower than
the total return on Common Shares.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).......................... 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees...................................................................................... .70%
12b-1 Fees........................................................................................... .75%*
Other Expenses....................................................................................... .42%
--------
Total Fund Operating Expenses........................................................................ 1.87%
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............................................................................................... $ 19
3 years.............................................................................................. $ 59
5 years.............................................................................................. $101
10 years............................................................................................. $219
</TABLE>
- ------------
* Current 12b-1 fees are .50% out of a maximum .75% authorized under the
Advisor Shares' Distribution Plan. At least a portion of these fees should be
considered by the investor to be the economic equivalent of a sales charge.
------------------------
The Expense Table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the Fund. Management Fees
and Other Expenses are based on actual expenses for the fiscal year ended
October 31, 1995. Actual Total Fund Operating Expenses for the fiscal year ended
October 31, 1995 were 1.62%. Institutions also may charge their clients fees in
connection with investments in the Advisor Shares, which fees are not reflected
in the table. The Example should not be considered a representation of past or
future expenses; actual Fund expenses may be greater or less than those shown.
Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%. Long-
term holders of Advisor Shares may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc. (the 'NASD').
2
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The information regarding the Fund for the three fiscal years ended October
31, 1995 has been derived from information audited by Coopers & Lybrand L.L.P.,
independent auditors, whose report dated December 14, 1995 appears in the Fund's
Statement of Additional Information. The information for the two prior fiscal
year/period ended October 31, 1992 has been audited by Ernst & Young
LLP, whose report was unqualified. Further information about the
performance of the Fund is contained in the annual report, dated October 31,
1995, copies of which may be obtained without charge by calling Warburg
Pincus Advisor Funds at (800) 888-6878.
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 4, 1991
(INITIAL
FOR THE YEAR ENDED OCTOBER 31, ISSUANCE)
------------------------------------------------ THROUGH
1995 1994 1993 1992 OCTOBER 31, 1991
------- ----------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 14.22 $ 15.28 $13.28 $ 12.16 $12.04
------- ----------- ---------- ----------- -------
Income from Investment Operations
Net Investment Income (Loss)................ .00 (.08) .00 (.01) .05
Net Gains (Loss) from Securities (both
realized and unrealized)................. 3.02 .23 2.76 1.20 .13
------- ----------- ---------- ----------- -------
Total from Investment Operations............ 3.02 .15 2.76 1.19 .18
------- ----------- ---------- ----------- -------
Less Distributions
Dividends (from net investment income)...... .00 (.02) .00 (.02) (.06)
Distributions (from capital gains).......... (.98) (1.19) (.76) (.05) .00
------- ----------- ---------- ----------- -------
Total Distributions......................... (.98) (1.21) (.76) (.07) (.06)
------- ----------- ---------- ----------- -------
Net Asset Value, End of Period................ $ 16.26 $ 14.22 $15.28 $ 13.28 $12.16
------- ----------- ---------- ----------- -------
------- ----------- ---------- ----------- -------
Total Return.................................. 23.41% 1.23% 21.64% 9.83% 2.66%*
Ratios/Supplemental Data
Net Assets, End of Period (000s).............. $11,594 $ 8,169 $10,437 $ 1,655 $ 443
Ratios to Average Daily Net Assets:
Operating expenses.......................... 1.62% 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss)................ (.18%) (.24%) (.25%) (.11%) .25%*
Decrease reflected in above operating
expense ratios due to waivers/
reimbursements........................... .00% .01% .00% .01% .01%*
Portfolio Turnover Rate....................... 146.09% 51.87% 48.26% 55.83% 39.50%
</TABLE>
- ------------
* Annualized.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks long-term capital appreciation. This objective is a
fundamental policy and may not be amended without first obtaining the approval
of a majority of the outstanding shares of the Fund. Any investment involves
risk and, therefore, there can be no assurance that the Fund will achieve its
investment objective. See 'Portfolio Investments' and 'Certain Investment
Strategies' for descriptions of certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues its
investment objective by investing in a broadly diversified portfolio of equity
securities of domestic companies. The Fund will ordinarily invest substantially
all of its total assets -- but no less than 80% of its total assets -- in common
stocks, warrants and securities convertible into or exchangeable for common
stocks. The Fund intends to focus on securities of medium-sized companies,
consisting of companies having stock market capitalizations of between $500
million and $4.5 billion. (Market capitalization means the total market value of
a company's outstanding common stocks.) Under normal market conditions, except
for temporary defensive purposes, the Fund will invest no less than 80% of its
assets in medium-sized companies, with the remainder invested in companies with
smaller or larger market capitalizations. The prices of securities of
medium-sized companies, which are traded on exchanges or in the over-the-counter
market, tend to fluctuate in value more than the prices of securities of
large-sized companies.
Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
('Warburg'), will attempt to identify sectors of the market and companies within
market sectors that it believes will outperform the overall market. Warburg also
seeks to identify themes or patterns it believes to be associated with high
growth potential firms, such as significant fundamental changes (including
senior management changes) or generation of a large free cash flow.
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. The Fund may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) 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.
Because the market value of debt obligations can be expected to vary inversely
to changes in prevailing interest rates, investing in debt obligations may
provide an opportunity for capital appreciation when interest rates are expected
to decline. The success of such a strategy is dependent upon Warburg's ability
to accurately forecast changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions. A security will be deemed to
be investment grade if it is rated within the four highest grades by Moody's
Investors Service, Inc. ('Moody's') or Standard & Poor's Ratings Group ('S&P')
or, if unrated, is determined to be of comparable quality by Warburg. Bonds
rated in the fourth highest grade may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.
4
<PAGE>
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
circumstances, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) or medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loans and similar institutions) that are
high quality investments or, if unrated, deemed by Warburg to be high quality
investments; commercial paper rated no lower than A-2 by S&P or Prime-2 by
Moody's or the equivalent from another major rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Trustees (the 'Board'), monitors the creditworthiness of those
bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the Investment Company Act of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, the Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
5
<PAGE>
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.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
Medium-sized companies are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
Because medium-sized companies normally have fewer shares outstanding than
larger companies, it may be more difficult for the Fund to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. There is typically less publicly available information concerning
medium-sized companies than for larger, more established ones. Therefore, an
investment in the Fund may involve a greater degree of risk than an investment
in other mutual funds that seek capital appreciation by investing in
better-known, larger companies. For certain additional risks relating to the
Fund's investments, see 'Portfolio Investments' beginning at page 4 and 'Certain
Investment Strategies' beginning at page 7.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 Act ('Rule 144A Securities'). An
investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the 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 be less
liquid than publicly traded securities. These securities may be less liquid than
publicly traded securities, and the Fund may take longer to liquidate these
positions than would be the case for publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the Fund.
In addition, companies whose securities are not publicly traded are not subject
to the disclosure and other investor protection requirements that would be
applicable if their securities were 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.
6
<PAGE>
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Fund. The Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. High portfolio
turnover rates (100% or more) may result in dealer mark ups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See 'Dividends,
Distributions and Taxes -- Taxes' below and 'Investment Policies -- Portfolio
Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery and (ii) lending portfolio securities. Detailed information
concerning the Fund's strategies and related risks is contained below and in the
Fund's Statement of Additional Information.
FOREIGN SECURITIES. The Fund may invest up to 20% of its total assets in the
securities of foreign issuers. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.
7
<PAGE>
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Fund may, but is not required to, engage in a number of strategies involving
options, futures and forward currency contracts. These strategies, commonly
referred to as 'derivatives,' may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate income to offset expenses or increase return. TRANSACTIONS THAT ARE
NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE THE FUND'S INVESTMENT RISK. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Fund's net asset value and performance. Therefore, an investment in the Fund may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Fund's use of these strategies may be limited by
position and exercise limits established by securities and commodities exchanges
and the NASD and by the Internal Revenue Code of 1986, as amended (the 'Code').
Securities and Stock Index Options. The Fund may write covered call options
on up to 25% of the net asset value of the stock and debt securities in its
portfolio and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options; the Fund may also utilize up to 2% of its
assets to purchase put and call options on stocks and debt securities that are
traded on U.S. exchanges, as well as over-the-counter ('OTC') options. The
purchaser of a put option on a security has the right to compel the purchase by
the writer of the underlying security, while the purchaser of a call option has
the right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, the Fund may also utilize up to
10% of its total assets to purchase exchange-listed and OTC put and call options
on stock indexes, and may also write such options. The Fund's transactions in
OTC stock index options will be for hedging purposes only. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures
8
<PAGE>
transactions, there is no overall limit on the percentage of Fund assets that
may be at risk with respect to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events. The Fund will only engage in currency
exchange transactions for hedging purposes.
Hedging Considerations. The Fund may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. The Fund will engage in hedging transactions only when deemed advisable
by Warburg, and successful use of hedging transactions will depend on Warburg's
ability to correctly predict movements in the hedge and the hedged position and
the correlation between them, which could prove to be inaccurate. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on securities and indexes; currency, interest rate
and stock index futures contracts and options on these futures contracts; and
forward currency contracts. The use of these strategies may require that the
Fund maintain cash or certain liquid high-grade debt obligations or other assets
that are acceptable as collateral to the appropriate regulatory authority in a
segregated account with its custodian or a designated sub-custodian to the
extent the Fund's obligations with respect to these strategies are not otherwise
'covered' through ownership of the underlying security, financial instrument or
currency or by other portfolio positions or by other means consistent with
applicable regulatory policies. Segregated assets cannot be sold or transferred
unless equivalent assets are 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.
9
<PAGE>
INVESTMENT GUIDELINES
The Fund may invest up to 10% of its total assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable, including (i) securities issued as part of a privately
negotiated transaction between an issuer and one or more purchasers; (ii)
repurchase agreements with maturities greater than seven days; (iii) time
deposits maturing in more than seven calendar days; and (iv) certain Rule 144A
Securities. In addition, up to 5% of the Fund's total assets may be invested in
the securities of issuers which have been in continuous operation for less than
three years and up to an additional 5% of its total assets may be invested in
warrants. The Fund may borrow from banks for temporary or emergency purposes,
such as meeting anticipated redemption requests, provided that borrowings by the
Fund may not exceed 10% of its total assets and may pledge up to 10% of its
assets in connection with borrowings. Whenever borrowings exceed 5% of the value
of the Fund's total assets, the Fund will not make any investments (including
roll-overs). Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the Board, subject to the limitations contained in the 1940
Act. A complete list of investment restrictions that the Fund has adopted
identifying additional restrictions that cannot be changed without the approval
of the majority of the Fund's outstanding shares is contained in the Statement
of Additional Information.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. The Fund employs Warburg as investment adviser to the Fund.
Warburg, subject to the control of the Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Fund in 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 .70% of the Fund's average daily net assets. The
advisory agreement between the Fund and Warburg provides that Warburg will
reimburse the Fund to the extent certain expenses that are described in the
Statement of Additional Information exceed applicable state expense limitations.
Warburg and the Fund's co-administrators may voluntarily waive a portion of
their fees from time to time and temporarily limit the expenses to be paid by
the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of November 30,
1995, Warburg managed approximately $11.9 billion of assets, including
approximately $6.2 billion of assets of twenty-three investment companies or
portfolios. Incorporated in 1970, Warburg is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Warburg through
its ownership of a class of voting preferred stock of Warburg. Warburg G.P. has
no business other than being a holding company of Warburg and its subsidiaries.
Warburg's address is 466 Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. George U. Wyper and Susan L. Black have been co-portfolio
managers of the Fund since December 1994. Mr. Wyper is a managing director of
EMW, which he joined in August 1994, before which time he was chief investment
officer of White River Corporation and president of Hanover Advisers, Inc.
(1993-August 1994), chief investment officer of Fund American Enterprises, Inc.
(1990-1993) and the
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<PAGE>
director of fixed income investments at Fireman's Fund Insurance Company
(1987-1990). Ms. Black is a managing director of EMW and has been with Warburg
since 1985, before which time she was a partner at Century Capital Associates.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in other regulatory filings
as necessary and monitoring and developing compliance procedures for the Fund.
As compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of its average daily net assets.
The Fund employs PFPC 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 to PFPC a fee calculated at an annual rate of .10% of the Fund's average
daily net assets, subject to a minimum annual fee and exclusive of out-of-pocket
expenses. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809.
CUSTODIAN. PNC Bank, National Association ('PNC') serves as custodian of the
assets of the Fund. Like PFPC, PNC is a subsidiary of PNC Bank Corp. and its
principal business address is Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19101.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Fund. It has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ('BFDS'), responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Fund to Counsellors Securities for distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
TRUSTEES AND OFFICERS. The officers of the Fund manage its day-to-day operations
and are directly responsible to the Board. The Board sets broad policies for the
Fund and chooses its officers. A list of the Trustees and officers of the Fund
and a brief statement of their present positions and principal occupations
during the past five years is set forth in the Statement of Additional
Information.
HOW TO PURCHASE SHARES
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the
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<PAGE>
future. References in this Prospectus to shareholders or investors also include
Institutions which may act as record holders of the Advisor Shares.
Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and
sending payment by wire. After telephoning (800) 888-6878 for instructions, an
Institution should then wire federal funds to Counsellors Securities Inc. using
the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Capital Appreciation
Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application
has been received in proper form, and an account number has been established. If
a telephone order is received by the close of regular trading on the New York
Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment by
wire is received on the same day in proper form in accordance with instructions
set forth above, the shares will be priced according to the net asset value of
the Fund on that day and are entitled to dividends and distributions beginning
on that day. If payment by wire is received in proper form by the close of the
NYSE without a prior telephone order, the purchase will be priced according to
the net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
accepted will be returned after prompt inquiry. Certain organizations or
Institutions that have entered into agreements with the Fund or its agent may
enter confirmed purchase orders on behalf of customers, with payment to follow
no later than three business days following the day the order is effected. If
payment is not received by such time, the organization could be held liable for
resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients or customers that
invest in the Fund, which are in addition to or different than those described
in this Prospectus, and may charge their clients or customers direct fees.
Certain features of the Fund, such as the initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived in these programs, and administrative charges may be imposed for the
services rendered. Therefore, a client or cus-
12
<PAGE>
tomer should contact the organization acting on his behalf concerning the fees
(if any) charged in connection with a purchase or redemption of Fund shares and
should read this Prospectus in light of the terms governing his account with the
organization.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that the
Fund's net asset value is calculated (see 'Net Asset Value' below). Requests for
the redemption (or exchange) of Advisor Shares are placed with an Institution by
its customers, which is then responsible for the prompt transmission of the
request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 888-6878 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
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 the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received prior to the close of regular trading on
the NYSE, the redemption order will be effected at the net asset value per share
as determined on that day. If a redemption order is received after the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value as next determined. Except as noted above, redemption proceeds will
normally be wired to an investor on the next business day following the date a
redemption order is effected. If, however, in the judgment of Warburg, immediate
payment would adversely affect the Fund, the Fund reserves the right to pay the
redemption proceeds within seven days after the redemption order is effected.
Furthermore, the Fund may suspend the right of redemption or postpone the date
of payment upon redemption (as well as suspend or postpone the recordation of an
exchange of shares) for such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds prior to 4:00 p.m. (Eastern time), the exchange will be
made at each fund's net asset value determined at the end of that business day.
Exchanges may be effected without a sales charge. The exchange privilege may be
modified or terminated at any time upon 60 days' notice to shareholders.
The exchange privilege is available to shareholders residing in any state
in which the Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of
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<PAGE>
shares, the exchange is treated for federal income tax purposes as a redemption.
Therefore, the investor may realize a taxable gain or loss in connection with
the exchange. Investors wishing to exchange Advisor Shares of the Fund for
shares in another Warburg Pincus Advisor Fund should review the prospectus of
the other fund prior to making an exchange. For further information regarding
the exchange privilege or to obtain a current prospectus for another Warburg
Pincus Advisor Fund, an investor should contact Warburg Pincus Advisor Funds at
(800) 888-6878.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs the
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the Fund at net
asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Advisor Funds
at the address set forth under 'How to Redeem and Exchange Shares' or by calling
Warburg Pincus Advisor Funds at (800) 888-6878.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to continue to qualify each year as a 'regulated
investment company' within the meaning of the Code. The Fund, if it qualifies as
a regulated investment company, will be subject to a 4% non-deductible excise
tax measured with respect to certain undistributed amounts of ordinary income
and capital gain. The Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains will be taxable
to investors as long-term capital gains, in each case regardless of how long
investors have held Advisor Shares or whether received in cash or reinvested in
additional Advisor Shares. As a general rule, an investor's gain or loss on a
sale or redemption of its Fund shares will be a long-term capital gain or loss
if it has held its shares for more than one year and will be a short-term
capital gain or loss if it has held its shares for one year or less. However,
any loss realized upon the sale or redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gain during
such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Fund, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities will not result in
unrelated business taxable income to a tax-exempt investor. The Fund's
dividends, to the extent not derived from dividends attributable to certain
types of stock issued by U.S. domestic corporations, will
14
<PAGE>
not qualify for the dividends received deduction for corporations.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.
NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
PERFORMANCE
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading Warburg Pincus Advisor Funds. From
time to time, the Fund may advertise average annual total return of Advisor
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as on a year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
15
<PAGE>
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling Warburg Pincus Advisor
Funds at (800) 888-6878.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) the Russell Midcap Index, the S&P Midcap
400 Index and the S&P 500 Index, each of which is an unmanaged index of common
stocks; or (iii) other appropriate indexes of investment securities or with data
developed by Warburg derived from such indexes. The Fund may also include
evaluations of the Fund published by nationally recognized ranking services and
by financial publications that are nationally recognized, such as The Wall
Street Journal, Investor's Daily, Money, Inc., Institutional Investor, Barron's,
Fortune, Forbes, Business Week, Mutual Fund Magazine, Morningstar, Inc. and
Financial Times.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render updates
of Fund activity, which may include a discussion of significant portfolio
holdings and analysis of holdings by industry, country, credit quality and other
characteristics. The Fund may also discuss measures of risk, the continuum of
risk and return relating to different investments and the potential impact of
foreign stocks on a portfolio otherwise composed of domestic securities.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various time periods. In addition, the Fund may from time to time compare
the expense ratio of Advisor Shares to that of investment companies with similar
objectives and policies, based on data generated by Lipper Analytical Services,
Inc. or similar investment services that monitor mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Fund was organized on January 20, 1987 under the laws of The
Commonwealth of Massachusetts as a Massachusetts business trust. On February 26,
1992, the Fund amended the Agreement and Declaration of Trust to change the name
of the Fund from 'Counsellors Capital Appreciation Fund' to 'Warburg, Pincus
Capital Appreciation Fund.' The Fund's Agreement and Declaration of Trust
authorizes the Board to issue an unlimited number of full and fractional shares
of beneficial interest, $.001 par value per share, of which one
16
<PAGE>
billion shares are designated Advisor Shares. Under the Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board may similarly classify or reclassify any class of its
shares into one or more series and, without shareholder approval, may increase
the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 888-6878.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Trustee of the Fund may be removed from office
upon the vote of no less than two-thirds of the outstanding shares, through a
declaration in writing or by vote cast in person or by proxy at a meeting called
for that purpose. A meeting will be called for the purpose of voting on the
removal of a Board member at the written request of holders of 10% of the
outstanding shares of the Fund. John L. Furth, a Trustee of the Fund, and Lionel
I. Pincus, Chairman of the Board and Chief Executive Officer of EMW, may be
deemed to be controlling persons of the Fund as of November 30, 1995 because
they may be deemed to possess or share investment power over shares owned by
clients of Warburg and certain other entities.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
its account, as well as a statement of its account after any transaction that
affects its share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Each Institution that is the record owner of Advisor Shares on behalf
of its customers will send a statement to those customers periodically showing
their indirect interest in Advisor Shares, as well as providing other
information about the Fund. See 'Shareholder Servicing.'
SHAREHOLDER SERVICING
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
'Service Organizations') will enter into agreements ('Agreements') with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may provide certain distribution, shareholder servicing,
administrative and/or accounting services for Customers. Distribution services
would
17
<PAGE>
be marketing or other services in connection with the promotion and sale of
Advisor Shares. Shareholder services that may be provided include responding to
Customer inquiries, providing information on Customer investments and providing
other shareholder liaison services. Administrative and accounting services
related to the sale of Advisor Shares may include (i) aggregating and processing
purchase and redemption requests from Customers and placing net purchase and
redemption orders with the Fund's transfer agent, (ii) processing dividend
payments from the Fund on behalf of Customers and (iii) providing sub-accounting
related to the sale of Advisor Shares beneficially owned by Customers or the
information to the Fund necessary for sub-accounting. The Board has approved a
Distribution Plan (the 'Plan') pursuant to Rule 12b-1 under the 1940 Act under
which each participating Service Organization will be paid, out of the assets of
the Fund (either directly by the Fund or by Counsellors Securities on behalf of
the Fund), a negotiated fee on an annual basis not to exceed .75% (up to a .25%
annual service fee and a .50% annual distribution fee) of the value of the
average daily net assets of its Customers invested in Advisor Shares. The
current 12b-1 fee is .50% per annum. The Board evaluates the appropriateness of
the Plan on a continuing basis and in doing so considers all relevant factors.
Warburg, Counsellors Securities, Counsellors Service or any of their
affiliates may, from time to time, at their own expense, provide compensation to
Service Organizations. To the extent they do so, such compensation does not
represent an additional expense to the Fund or its shareholders. In addition
Warburg, Counsellors Securities or any of their affiliates may, from time to
time, at their own expense, pay certain Fund transfer agent fees and expenses
related to accounts of Customers. A Service Organization may use a portion of
the fees paid pursuant to the Plan to compensate the Fund's custodian or
transfer agent for costs related to accounts of Customers.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
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<PAGE>
TABLE OF CONTENTS
THE FUND'S EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVE AND POLICIES ........................................ 4
PORTFOLIO INVESTMENTS .................................................... 4
RISK FACTORS AND SPECIAL
CONSIDERATIONS ........................................................ 6
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 7
CERTAIN INVESTMENT STRATEGIES ............................................ 7
INVESTMENT GUIDELINES ................................................... 10
MANAGEMENT OF THE FUND .................................................. 10
HOW TO PURCHASE SHARES .................................................. 11
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 13
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 14
NET ASSET VALUE ......................................................... 15
PERFORMANCE ............................................................. 15
GENERAL INFORMATION ..................................................... 16
SHAREHOLDER SERVICING ................................................... 17
[LOGO]
ADCAP-1-1295
[ ] WARBURG PINCUS
CAPITAL APPRECIATION FUND
PROSPECTUS
DECEMBER 29, 1995
<PAGE>1
Rule 497(c)
Securities Act File No. 33-12344
Investment Company Act File No. 811-5041
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995
WARBURG PINCUS CAPITAL APPRECIATION FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
Contents
Page
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 22
Additional Purchase and Redemption Information . . . . . . . . . . . . . 29
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Additional Information Concerning Taxes . . . . . . . . . . . . . . . . . 31
Determination of Performance . . . . . . . . . . . . . . . . . . . . . . 33
Auditors and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Appendix -- Description of Ratings . . . . . . . . . . . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P.,
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . A-3
This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg
Pincus Capital Appreciation Fund (the "Fund"), Warburg Pincus Emerging Growth
Fund and Warburg Pincus Post-Venture Capital Fund, and with the Prospectus for
the Advisor Shares of the Fund, each dated December 29, 1995, as amended or
supplemented from time to time, and is incorporated by reference in its
entirety into those Prospectuses. Because this Statement of Additional
Information is not itself a prospectus, no investment in shares of the Fund
should be made solely upon the information contained herein. Copies of the
Fund's Prospectuses and information regarding the Fund's current performance
may be obtained by calling the Fund at (800) 257-5614. Information regarding
the status of shareholder accounts may be obtained by calling the Fund at
(800) 888-6878 or by writing to the Fund, P.O. Box 9030, Boston, Massachusetts
02205-9030.
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INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital
appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objectives and policies in the Prospectuses.
Options, Futures and Currency Exchange Transactions
Securities Options. The Fund may write covered call options on
stock and debt securities and may purchase U.S. exchanged-traded and over-the
counter ("OTC") put and call options.
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 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.
In the case of options written by the Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery
in accordance with an exercise notice. In these instances, the Fund may
purchase or temporarily borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear any market risk, since
the Fund will have the absolute right to receive from the issuer of the
underlying security an equal number of shares to replace the borrowed
securities, but the Fund may incur additional transaction costs or interest
expenses in connection with any such purchase or borrowing.
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Additional risks exist with respect to certain of the securities for
which the Fund may write covered call options. For example, if the Fund
writes covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the
Fund will compensate for the decline in the value of the cover by purchasing
an appropriate additional amount of mortgage-backed securities.
Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
("Warburg"), expects that the price of the underlying security will remain
flat or decline moderately during the option period, (ii) at-the-money call
options when Warburg expects that the price of the underlying security will
remain flat or advance moderately during the option period and
(iii) out-of-the-money call options when Warburg expects that the premiums
received from writing the call option plus the appreciation in market price of
the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. To secure its
obligation to deliver the underlying security when it writes a call option,
the Fund will be required to deposit in escrow the underlying security or
other assets in accordance with the rules of the Options Clearing Corporation
(the "Clearing Corporation") and of the securities exchange on which the
option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Fund may realize a profit or loss
from the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. When the Fund has purchased an
option and engages in a closing sale transaction, whether the Fund realizes a
profit or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium the Fund initially paid for
the original option plus the related transaction costs. Similarly, in cases
where the Fund has written an option, it will realize a profit if the cost of
the closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. The 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
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would not be deemed to own an option as a result of the transaction. So long
as the obligation of the Fund as the writer of an option continues, the Fund
may be assigned an exercise notice by the broker-dealer through which the
option was sold, requiring the Fund to deliver the underlying security against
payment of the exercise price. This obligation terminates when the option
expires or the Fund effects a closing purchase transaction. The Fund can no
longer effect a closing purchase transaction with respect to an option once it
has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary
market may exist. A liquid secondary market in an option may cease to exist
for a variety of reasons. In the past, for example, higher than anticipated
trading activity or order flow or other unforeseen events have at times
rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions in particular options.
Moreover, the Fund's ability to terminate options positions established in the
over-the-counter market may be more limited than for exchange-traded options
and may also involve the risk that securities dealers participating in
over-the-counter transactions would fail to meet their obligations to the
Fund. The Fund, however, intends to purchase over-the-counter options only
from dealers whose debt securities, as determined by Warburg, are considered
to be investment grade. If, as a covered call option writer, the Fund is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. In either case, the Fund
would continue to be at market risk on the security and could face higher
transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group
of investors acting in concert (regardless of whether the options are written
on the same or different securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the Fund and other clients of Warburg and certain of its
affiliates may be considered to be such a group. A securities exchange may
order the liquidation of positions found to be in violation of these limits
and it may impose certain other sanctions. These limits may restrict the
number of options the Fund will be able to purchase on a particular security.
Stock Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on stock indexes. A stock index
measures the movement of a certain group of stocks by assigning relative
values to the common stocks included in the index, fluctuating with changes in
the market values of the stocks included in the index. Some stock index
options are based on a broad market index, such as the NYSE Composite
<PAGE>5
Index, or a narrower market index such as the Standard & Poor's 100. Indexes
may also be based on a particular industry or market segment.
Options on stock indexes are similar to options on stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the index and
the exercise price of the option times a specified multiple. The writer of
the option is obligated, in return for the premium received, to make delivery
of this amount. Stock index options may be offset by entering into closing
transactions as described above for securities options.
OTC Options. The Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Fund
were to purchase a dealer option, however, it would rely on the dealer from
whom it purchased the option to perform if the option were exercised. If the
dealer fails to honor the exercise of the option by the Fund, the Fund would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
dealer to which the Fund originally wrote the option. Although the Fund will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Fund, there can be no assurance that the Fund will be able to liquidate a
dealer option at a favorable price at any time prior to expiration. The
inability to enter into a closing transaction may result in material losses to
the Fund. Until the Fund, as a covered OTC call option writer, is able to
effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair the Fund's ability to
sell portfolio securities or, with respect to currency options, currencies at
a time when such sale might be advantageous. In the event of insolvency of
the other party, the Fund may be unable to liquidate a dealer option.
<PAGE>6
Futures Activities. The Fund may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes
including hedging against changes in the value of portfolio securities due to
anticipated changes in currency values, interest rates and/or market
conditions and increasing return.
The Fund will not enter into futures contracts and related options
for which the aggregate initial margin and premiums (discussed below) required
to establish positions other than those considered to be "bona fide hedging"
by the CFTC exceed 5% of the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may
be at risk with respect to futures activities. The ability of the Fund to
trade in futures contracts and options on futures contracts may be limited by
the requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company.
Futures Contracts. A foreign currency futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified non-U.S. currency at a specified price, date, time and
place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate sensitive financial instrument (debt security) at a specified
price, date, time and place. Stock indexes are capitalization weighted
indexes which reflect the market value of the stock listed on the indexes. A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract
and the price at which the agreement is made.
No consideration is paid or received by the Fund upon entering into
a futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or cash equivalents, such as U.S.
government securities or other liquid high-grade debt obligations, equal to
approximately 1% to 10% of the contract amount (this amount is subject to
change by the exchange on which the contract is traded, and brokers may charge
a higher amount). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from
the broker, will be made daily as the currency, financial instrument or stock
index underlying the futures contract fluctuates, making the long and short
positions in the futures
<PAGE>7
contract more or less valuable, a process known as "marking-to-market." The
Fund will also incur brokerage costs in connection with entering into futures
transactions.
At any time prior to the expiration of a futures contract, the Fund
may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions
in futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although
the Fund intends to enter into futures contracts only if there is an active
market for such contracts, there is no assurance that an active market will
exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at
an advantageous price and subjecting the Fund to substantial losses. In such
event, and in the event of adverse price movements, the Fund would be required
to make daily cash payments of variation margin. In such situations, if the
fund had insufficient cash, it might have to sell securities to meet daily
variation margin requirements at a time when it would be disadvantageous to do
so. In addition, if the transaction is entered into for hedging purposes, in
such circumstances the Fund may realize a loss on a futures contract or option
that is not offset by an increase in the value of the hedged position. Losses
incurred in futures transactions and the costs of these transactions will
affect the Fund's performance.
Options on Futures Contracts. The Fund may purchase and write put
and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives
the purchaser the right, in return for the premium paid, to assume a position
in a futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise
of an option, the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to
<PAGE>8
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. 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.
<PAGE>9
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, contracts and
currency exchange transactions for hedging purposes could limit any potential
gain from an increase in the value of the position hedged. In addition, the
movement in the portfolio position hedged may not be of the same magnitude as
movement in the hedge. With respect to futures contracts, since the value of
portfolio securities will far exceed the value of the futures contracts sold
by the Fund, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Fund's
assets.
<PAGE>10
In hedging transactions based on an index, whether the Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market
segment, rather than movements in the price of a particular stock. The risk
of imperfect correlation increases as the composition of the Fund's portfolio
varies from the composition of the index. In an effort to compensate for
imperfect correlation of relative movements in the hedged position and the
hedge, the Fund's hedge positions may be in a greater or lesser dollar amount
than the dollar amount of the hedged position. Such "over hedging" or "under
hedging" may adversely affect the Fund's net investment results if market
movements are not as anticipated when the hedge is established. Stock index
futures transactions may be subject to additional correlation risks. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which would distort the normal relationship between the stock
index and futures markets. Secondly, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of the possibility of price distortions in the futures market and the
imperfect correlation between movements in the stock index and movements in
the price of stock index futures, a correct forecast of general market trends
by Warburg still may not result in a successful hedging transaction.
The Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to correctly predict
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate.
This requires different skills and techniques than predicting changes in the
price of individual securities, and there can be no assurance that the use of
these strategies will be successful. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Losses incurred in hedging transactions and the costs of these transactions
will affect the Fund's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures. As described in the Prospectuses, the Fund will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Fund on securities and indexes; and currency, interest rate and index
futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Fund of cash or liquid
high-grade debt securities or other securities that are acceptable as
collateral to the appropriate regulatory authority.
For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to
<PAGE>11
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. 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. The Fund may not invest more than 20% of its
total assets in the securities of foreign issuers. Investors should recognize
that investing in foreign companies involves certain risks, including those
discussed below, which are not typically associated with investing in U.S.
issuers. Since the Fund may invest 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 i the value of a foreign currency relative to the
U.S. dollar will result in a corresponding change in the dollar value of the
Fund assets denominated in that foreign currency. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned,
gains and losses realized on the sale of securities and net investment income
and gains, if any, to be distributed to shareholders by the Fund. The rate of
exchange between the U.S. dollar and other currencies is determined by the
forces of supply and demand in the foreign exchange markets. Changes in the
exchange rate may result over time from the interaction of many factors
directly or indirectly affecting economic and political conditions in the
United States and a particular foreign country, including economic and
political developments in other countries. Of particular importance are rates
of inflation, interest rate levels, the balance of payments and the extent of
government surpluses or deficits in the United States and the particular
foreign country, all of which are in turn sensitive to the monetary, fiscal
and trade policies pursued by the governments of the United States and foreign
countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as
intervention by a country's central bank or imposition of regulatory controls
or taxes, to affect the exchange rates of their currencies. The Fund may use
hedging 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 Transactions"
above.
<PAGE>12
Many of the foreign securities held by the Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information
about the securities and about the foreign company or government issuing them
than is available about a domestic company or government entity. Foreign
companies are generally not subject to uniform financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
In addition, with respect to some foreign countries, there is the possibility
of expropriation or confiscatory taxation, limitations on the removal of funds
or other assets of the Fund, political or social instability, or domestic
developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments positions. The Fund may invest in securities of foreign
governments (or agencies or instrumentalities thereof), and many, if not all,
of the foregoing considerations apply to such investments as well.
Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the
trade and settlement dates of securities purchased or sold. Due to the
increased exposure of the Fund to market and foreign exchange fluctuations
brought about by such delays, and due to the corresponding negative impact on
Fund liquidity, the Fund will avoid investing in countries which are known to
experience settlement delays which may expose the Fund to unreasonable risk of
loss.
U.S. Government Securities. The Fund may invest in debt obligations
of varying maturities issued or guaranteed by the United States government,
its agencies or instrumentalities ("U.S. Government Securities"). Direct
obligations of the U.S. Treasury include a variety of securities that differ
in their interest rates, maturities and dates of issuance. U.S. Government
Securities also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. The Fund may also invest in
instruments that are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. government is not obligated by law to
provide support to an instrumentality it sponsors, the Fund will invest in
obligations issued by such an instrumentality only if Warburg determines that
the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Fund.
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
<PAGE>13
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 Trustees (the "Board"). These loans, if and when made, may
not exceed 20% of the Fund's total assets taken at value. The Fund will not
lend portfolio securities to affiliates of Warburg unless it has applied for
and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of credit or U.S.
Government Securities, which are maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Any gain
or loss in the market price of the securities loaned that might occur during
the term of the loan would be for the account of the Fund. From time to time,
the Fund may return a part of the interest earned from the investment of col-
lateral 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 the primary investment objective of the Fund,
income received could be used to pay the Fund's expenses and would increase an
investor's total return. The Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Fund must receive at
least 100% cash collateral or equivalent securities of the type discussed in
the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material
event adversely affecting the investment occurs, the Board must terminate the
loan and regain the right to vote the securities. Loan agreements involve
certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's ability to recover
the loaned securities or dispose of the collateral for the loan.
American, European and Continental Depositary Receipts. The assets
of the Fund may be invested in the securities of foreign issuers in the form
of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which
<PAGE>14
evidence ownership of underlying securities issued by a foreign corporation.
EDRs, which are sometimes referred to as Continental Depositary Receipts
("CDRs"), are receipts issued in Europe typically by non-U.S. banks and trust
companies that evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in U.S. securities
markets and EDRs and CDRs in bearer form are designed for use in European
securities markets.
Warrants. The Fund may invest up to 5% of net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase),
provided that not more than 2% of net assets may be invested in warrants not
listed on a recognized U.S. or foreign stock exchange, to the extent permitted
by applicable state securities laws. Because a warrant does not carry with it
the right to dividends or voting rights with respect to the securities which
it entitles a holder to purchase, and because it does not represent any rights
in the assets of the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Non-Publicly Traded and Illiquid Securities. The Fund may not
invest more than 10% of its total assets in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of
a readily available market, repurchase agreements which have a maturity of
longer than seven days and time deposits maturing in more than seven days.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject
to contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes.
<PAGE>15
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by
the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. Warburg anticipates that the market for certain restricted securities
such as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Fund's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board and its
delegates may consider, inter alia, the following factors: (i) the
unregistered nature of the security; (ii) the frequency of trades and quotes
for the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer
undertakings to make a market in the security and (v) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Borrowing. The Fund may borrow up to 10% 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 total 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 11 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 12 through 16
may be changed by a vote of the Board at any time.
<PAGE>16
The Fund may not:
1. 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.
2. Borrow money or issue senior securities except that the Fund may
(a) borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 10% of the value of the
Fund's total assets at the time of such borrowing and (b) enter into futures
contracts; or mortgage, pledge or hypothecate any assets except in connection
with any bank borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of the Fund's total assets at the
time of such borrowing. Whenever borrowings described in (a) exceed 5% of the
value of the Fund's total assets, the Fund will not make any additional
investments (including roll-overs). For purposes of this restriction, (a) the
deposit of assets in escrow in connection with the purchase of securities on a
when-issued or delayed-delivery basis and (b) collateral arrangements with
respect to initial or variation margin for futures contracts will not be
deemed to be pledges of the Fund's assets.
3. 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.
4. Make loans, except that the Fund may purchase or hold publicly
distributed fixed-income securities, lend portfolio securities and enter into
repurchase agreements.
5. Underwrite any issue of securities except to the extent that the
investment in restricted securities and the purchase of fixed-income
securities directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be
underwriting.
6. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest
in (a) fixed-income securities secured by real estate, mortgages or interests
therein, (b) securities of companies that invest in or sponsor oil, gas or
mineral exploration or development programs and (c) futures contracts and
related options.
7. Make short sales of securities or maintain a short position.
8. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may (a) purchase put and call
options on securities, (b) write
<PAGE>17
covered call options on securities, (c) purchase and write put and call
options on stock indices and (d) enter into options on futures contracts.
9. 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.
10. Purchase more than 10% of the voting securities of any one
issuer, more than 10% of the securities of any class of any one issuer or more
than 10% of the outstanding debt securities of any one issuer; provided that
this limitation shall not apply to investments in U.S. government securities.
11. 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 futures contracts or related
options will not be deemed to be a purchase of securities on margin.
12. Invest more than 10% of the value of the Fund's total 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, (a) repurchase agreements with
maturities greater than seven days and (b) time deposits maturing in more than
seven calendar days shall be considered illiquid securities.
13. Purchase any security if as a result the Fund would then have
more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.
14. Purchase or retain securities of any company if, to the
knowledge of the Fund, any of the Fund's officers or Trustees or any officer
or director of Warburg individually owns more than 1/2 of 1% of the
outstanding securities of such company and together they own beneficially more
than 5% of the securities.
15. Invest in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed
5% of the value of the Fund's net assets of which not more than 2% of the
Fund's net assets may be invested in warrants not listed on a recognized U.S.
or foreign stock exchange to the extent permitted by applicable state
securities laws.
16. Invest in oil, gas or mineral leases.
The aggregate of all Rule 144A Securities, non-publicly traded and
illiquid securities and securities of companies (including predecessors) that
have been in continuous operation for less than three years is limited to 15%
of total assets. These and other non-
<PAGE>18
fundamental investment limitations are currently required by one or more
states in which shares of the Fund are sold. These may be more restrictive
than the limitations set forth above. Should the Fund determine that any such
commitment is no longer in the best interest of the Fund and its shareholders,
the Fund will revoke the commitment by terminating the sale of Fund shares in
the state involved. In addition, the relevant state may change or eliminate
its policy regarding such investment limitations.
If a percentage restriction (other than the percentage limitation
set forth in No. 2 above) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in
the values of portfolio securities or in the amount of the Fund's assets will
not constitute a violation of such restriction.
Portfolio Valuation
The Prospectuses discuss the time at which the net asset value of
the Fund is determined for purposes of sales and redemptions. The following
is a description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the NASDAQ National market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence
of sales, at the mean between the bid and asked quotations. If there are no
such quotations, the value of the securities will be taken to be the highest
bid quotation on the exchange or market. Options or futures contracts will be
valued similarly. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. 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. 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 "Price Service") which may use a matrix, formula or
other objective method that takes into consideration market indexes, matrices,
yield curves and other specific adjustments. The procedures of Pricing
Services are reviewed periodically by the officers of the Fund under the
general supervision and responsibility of the Board, which may replace a
Pricing Service at any time. Securities, options and futures contracts for
which market quotations are not available and certain other assets of the Fund
will be valued at their fair value as determined in good faith pursuant to
consistently applied procedures established by
<PAGE>19
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 (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
foreign portfolio securities used in such calculation. Events affecting the
values of portfolio securities that occur between the time their prices are
determined and the close of regular trading on the NYSE will not be reflected
in the Fund's calculation of net asset value unless the Board or its delegates
deems that the particular event would materially affect net asset value, in
which case an adjustment may be made. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values
at the prevailing rate as quoted by a Pricing Service. If such quotations are
not available, the rate of exchange will be determined in good faith pursuant
to consistently applied procedures established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are
usually principal transactions without brokerage commissions effected directly
with the issuer or with an underwriter acting as principal. Other purchases
and sales may be effected on a securities exchange or over-the-counter,
depending on where it appears that the best price or execution will be
obtained. The purchase price paid by the Fund to underwriters of newly issued
securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or
mark-down. Transactions on U.S. stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On
exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the
price of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. Government Securities are generally purchased
from underwriters or dealers, although certain newly issued U.S. Government
Securities may be purchased directly from the U.S. Treasury or from the
issuing agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions.
<PAGE>20
In evaluating prices and executions, Warburg will consider the factors it
deems relevant, which may include the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
a broker or dealer and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. Warburg may, in its
discretion, effect transactions in portfolio securities with dealers who
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Fund and/or other
accounts over which Warburg exercises investment discretion. Warburg may
place portfolio transactions with a broker or dealer with whom it has
negotiated a commission that is in excess of the commission another broker or
dealer would have charged for effecting the transaction if Warburg determines
in good faith that such amount of commission was reasonable in relation to the
value of such brokerage and research services provided by such broker or
dealer viewed in terms of either that particular transaction or of the overall
responsibilities of Warburg. Research and other services received may be
useful to Warburg in serving both the Fund and its other clients and,
conversely, research or other services obtained by the placement of business
of other clients may be useful to Warburg in carrying out its obligations to
the Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities
or purchasers or sellers of securities; furnishing seminars, information,
analyses and reports concerning issuers, industries, securities, trading
markets and methods, legislative developments, changes in accounting
practices, economic factors and trends and portfolio strategy; access to
research analysts, corporate management personnel, industry experts,
economists and government officials; comparative performance evaluation and
technical measurement services and quotation services; and products and other
services (such as third party publications, reports and analyses, and computer
and electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
For the fiscal year ended October 31, 1995, $166,633 of total brokerage
commissions was paid to brokers and dealers who provided such research and
other services on portfolio transactions of $569,703,344. Research received
from brokers or dealers is supplemental to Warburg's own research program.
The fees to Warburg under its advisory agreements with the Fund are not
reduced by reason of its receiving any brokerage and research services.
During the fiscal years ended October 31, 1993, October 31, 1994 and
October 31, 1995, the Fund paid an aggregate of approximately $210,697,
$243,640 and $750,209 respectively, in commissions to broker-dealers for
execution of portfolio transactions. The increase in commission payments and
the increased portfolio turnover in the 1994 and 1995 fiscal years was
attributable to the increased size of the Fund and, in 1995, to changes in
portfolio holdings of new portfolio management during the fiscal year.
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
<PAGE>21
are averaged as to price and available investments allocated as to amount, in
a manner which Warburg believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
sold for the Fund. To the extent permitted by law, Warburg may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for such other investment clients in order to obtain best execution.
Any portfolio transaction for the Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors
Securities"), if, in Warburg's judgment, the use of Counsellors Securities is
likely to result in price and execution at least as favorable as those of
other qualified brokers, and if, in the transaction, Counsellors Securities
charges the Fund a commission rate consistent with those charged by Counsel-
lors Securities to comparable unaffiliated customers in similar transactions.
All transactions with affiliated brokers will comply with Rule 17e-1 under the
1940 Act. No portfolio transactions have been executed through Counsellors
Securities since the commencement of the Fund's operations.
In no instance will portfolio securities be purchased from or sold
to Warburg or Counsellors Securities or any affiliated person of such
companies. In addition, the Fund will not give preference to any institutions
with whom the Fund enters into distribution or shareholder servicing
agreements concerning the provision of distribution services or support
services. See the Prospectuses, "Shareholder Servicing."
Transactions for the Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Fund will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting
as principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
The Fund may participate, if and when practicable, in bidding for
the purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when
Warburg, in its sole discretion, believes such practice to be otherwise in the
Fund's interest.
Portfolio Turnover
The Fund does not intend to seek profits through short-term trading,
but the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Fund's portfolio turnover rate
is calculated by dividing the lesser of
<PAGE>22
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.
MANAGEMENT OF THE FUND
Officers and Board of Trustees
The names (and ages) of the Fund's Trustees and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard N. Cooper (61)....... Trustee
Room 7E47OHB National Intelligence Counsel;
Central Intelligence Agency Professor at Harvard University;
930 Dolly Madison Blvd. Director or Trustee of Circuit City
McClain, Virginia 22107 Stores, Inc. (retail electronics and
appliances) and Phoenix Home Life
Insurance Co.
Donald J. Donahue (71)....... Trustee
99 Indian Field Road Chairman of Magma Copper Company
Greenwich, Connecticut 06830 since January 1987; Director or Trustee of GEV
Corporation and Signet Star Reinsurance
Company; Chairman and Director of NAC Holdings
from September 1990-June 1993.
Jack W. Fritz (68)........... Trustee
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).
<PAGE>23
John L. Furth* (65).......... Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of E.M. Warburg,
New York, New York 10017-3147 Pincus & Co., Inc. ("EMW"); Associated
with EMW since 1970; Director and officer of
other investment companies advised by Warburg.
Thomas A. Melfe (63)......... Trustee
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton & Irvine; Director of
Municipal Fund for New York Investors, Inc.
Alexander B. Trowbridge (66).. Trustee
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc.
Suite 700 (business consulting) from January 1990-
Washington, DC 20036 January 1994; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), P.H.H. Corporation
(fleet auto management; housing and plant
relocation service), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), SunResorts International Ltd.
(hotel and real estate management), Harris
Corp. (electronics and communications
equipment), The Gillette Co. (personal care
products) and Sun Company Inc. (petroleum
refining and marketing).
George U. Wyper (40)......... Co-President and Co-Portfolio
466 Lexington Avenue Manager of the Fund
New York, NY 10017-3147 Managing Director of Warburg; Associated with
Warburg since 1994; Chief Investment Officer
of White River Corporation from 1993-1994;
President and Chief Executive Officer of
Hanover Advisors from 1993-1994; Chief
Investment Officer of Fund American
Enterprises from 1990-1993; Director of Fixed
Income Investments of Fireman's Fund Insurance
Company from 1987-1990.
- --------------------------
* Indicates a Trustee who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>24
Susan L. Black (56).......... Co-President and Co-Portfolio Manager of the
466 Lexington Avenue Fund
New York, New York 10017-3147 Managing Director of EMW; Associated with EMW
since 1985.
Arnold M. Reichman (47)...... Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary
New York, New York 10017-3147 of EMW; Associated with EMW since 1984; Senior
Vice President, Secretary and Chief Operating
Officer of Counsellors Securities; Officer of
other investment companies advised by Warburg.
Eugene L. Podsiadlo (38)..... Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with
New York, New York 10017-3147 EMW since 1991; Vice President of Citibank,
N.A. from 1987-1991; Officer of Counsellors
Securities and other investment companies
advised by Warburg.
Stephen Distler (42)......... Vice President and
466 Lexington Avenue Chief Financial Officer
New York, New York 10017-3147 Assistant Secretary of EMW; Associated with
EMW since 1984; Treasurer of Counsellors
Securities; Vice President, Treasurer and
Chief Accounting Officer or Vice President and
Chief Financial Officer of other investment
companies advised by Warburg.
Eugene P. Grace (44)......... Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April
1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General
Counsel and Secretary, Home Unity Savings Bank
from 1991-1992; Vice President and Chief
Compliance Officer of Counsellors Securities;
Vice President and Secretary of other
investment companies advised by Warburg.
Howard Conroy (41)........... Vice President, Treasurer
466 Lexington Avenue and Chief Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992; Associated
with Martin Geller, C.P.A. from 1990-1992;
Vice President, Finance with Gabelli/Rosenthal
& Partners, L.P. until 1990; Vice President,
Treasurer and Chief Accounting Officer of
other investment companies advised by
Warburg.
<PAGE>25
Karen Amato (32)............. Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987;
New York, New York 10017-3147 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 trustee of the Fund. Each Trustee who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $1,000, and $250 for each meeting of the
Board attended by him for his services as Trustee and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
Trustees' Compensation
(for the fiscal year ended October 31, 1995)
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Trustee Fund Managed by Warburg*
--------------- ------------------ -------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $2,000 $41,083
Donald J. Donahue $2,250 $43,833
Jack W. Fritz $1,750 $35,333
Thomas A. Melfe $2,250 $43,583
Alexander B. Trowbridge $2,250 $43,833
</TABLE>
- -----------------
* Each Trustee serves as a Director or Trustee of 15 other investment
companies advised by Warburg.
** Mr. Furth is considered to be an interested person of the Fund and
Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receives no compensation from the Fund or any other
investment company managed by Warburg.
As of November 30, 1995, Trustees and officers of the Fund as a group
owned of record 58,537 of the Fund's outstanding Common Shares. As of the
same date, Mr. Furth may be deemed to have beneficially owned 81.72% of the
Fund's outstanding Common Shares, including shares owned by clients for which
Warburg has investment discretion. Mr.
<PAGE>26
Furth disclaims ownership of these shares and does not intend to exercise
voting rights with respect to these shares. No Trustee or officer owned of
record any Advisor Shares.
Mr. George U. Wyper is co-president and co-portfolio manager of the
Fund. From 1987 until 1990 Mr. Wyper was the director of fixed income
investments at Fireman's Fund Insurance Company, and from 1990 until 1993 he
was chief investment officer of Fund American Enterprises, Inc. Mr. Wyper was
chief investment officer of White River Corporation and president of Hanover
Advisers, Inc. from 1993 until he joined Warburg in August 1994 as a managing
director of EMW. Mr. Wyper earned a B.S. degree in economics from the Wharton
School of Business of the University of Pennsylvania and a Masters of
Management from Yale University.
Ms. Susan L. Black is co-president and co-portfolio manager of the Fund
and is currently a managing director of EMW as well as the director of
research and a senior portfolio manager of the Institutional Growth Equity
product. From 1961 until 1973, Ms. Black was employed by Argus Research,
first as a securities analyst, then as Director of Research. From 1973 until
1977 and from 1978 until 1979 Ms. Black was a Vice President of Research at
Drexel Burnham Lambert. From 1977 until 1978 Ms. Black was a Vice President
of Research at Donaldson, Lufkin & Jenrette. From 1979 until 1985 Ms. Black
was a partner at Century Capital Associates. Ms. Black joined EMW in 1985.
Ms. Black received a B.A. degree from Mount Holyoke College.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund, Counsellors Funds
Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators to
the Fund pursuant to separate written agreements (the "Advisory Agreement,"
the "Counsellors Service Co-Administration Agreement" and the "PFPC Co-
Administration Agreement," respectively). The services provided by, and the
fees payable by the Fund to, Warburg under the Advisory Agreement, Counsellors
Service under the Counsellors Service Co-Administration Agreement and PFPC
under the PFPC Co-Administration Agreement are described in the Prospectuses.
See the Prospectuses, "Management of the Fund." 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. Prior to March 1, 1994, PFPC
served as administrator to the fund and Counsellors Service served as
administrative services agent to the Fund pursuant to separate written
agreements.
Warburg agrees that if, in any fiscal year, the expenses borne by the
Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Fund are registered or
qualified for sale to the public, it will reimburse the Fund to the extent
required by such regulations. Unless otherwise required by law, such
reimbursement would be accrued and paid on a monthly basis. At the date of
this Statement of Additional Information, the most restrictive annual expense
limitation applicable to the Fund is 2.5% of the first $30 million of the
average net assets of the Fund, 2% of the next
<PAGE>27
$70 million of the average net assets of the Fund and 1.5% of the remaining
average net assets of the Fund.
During the fiscal year ended October 31, 1993, Warburg earned
$1,004,938 under the Advisory Agreement. During the fiscal year ended October
31, 1994, Warburg voluntarily waived $11,179 of the $1,172,857 in investment
advisory fees earned under the Advisory Agreement. During the fiscal year
ended October 31, 1995, Warburg earned $1,367,729 under the Advisory
Agreement. During the fiscal years ended October 31, 1993, October 31, 1994
and October 31, 1995, PFPC earned $143,562, $167,551 and $195,390,
respectively, in administration or co-administration fees. During the fiscal
years ended October 31, 1993, October 31, 1994 and October 31, 1995,
Counsellors Service earned $77,440, $133,255 and $195,390, respectively, in
administrative services fees or co-administration fees.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC") is custodian of the Fund's
assets pursuant to a custodian agreement (the "Custodian Agreement"). Under
the Custodian Agreement, PNC (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 on account of the Fund's portfolio securities and (v) makes
periodic reports to the Board concerning the Fund's custodial arrangements.
PNC is authorized to select one or more banks or trust companies and
securities depositories to serve as sub-custodian on behalf of the Fund. PNC
is an indirect wholly owned subsidiary of PNC Bank Corp. and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101.
State Street Bank and Trust Company ("State Street") serves as the
shareholder servicing, transfer and dividend disbursing agent of the Fund
pursuant to a Transfer Agency and Service Agreement, under which State Street
(i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to record owners of Fund shares, including reports
to shareholders, dividend and distribution notices and proxy material for its
meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts and (iv) makes periodic reports to the Board
concerning the transfer agent's operations with respect to the Fund. The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110. State Street has delegated to Boston Financial Data
Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, Boston, Massachusetts 02171.
Organization of the Fund
The Fund's Agreement and Declaration of Trust authorizes the Board to
issue three billion full and fractional shares of common stock, $.001 par
value per share ("Common
<PAGE>28
Shares"), of which one billion shares are designated Common Stock-Series 1 and
one billion shares are designated Common Stock-Series 2 (the "Advisor
Shares"). Only Common Shares and Advisor Shares have been issued by the Fund.
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can elect all Trustees. Shares are transferable
but have no preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
The Fund has entered into a distribution agreement with an institution
(the "Service Organization") pursuant to which support services are provided
to the holders of Advisor Shares in consideration of the Fund's payment, out
of the assets attributable to the Advisor Shares, of .50%, on an annualized
basis (a .25% annual service fee and a .25% annual distribution fee), of the
average daily net assets of the Advisor Shares held of record. See the
Advisor Shares Prospectus, "Shareholder Servicing." The Fund's Advisor Shares
paid the Service Organization $45,989 in fees for the year ending October 31,
1995. See the Advisor Prospectus, "Shareholder Servicing."
The Fund may, in the future, enter into agreements ("Agreements") with
institutions ("Institutions") to perform certain distribution, shareholder
servicing, administrative and or accounting services for their 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 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 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.
<PAGE>29
The Distribution Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Board, including
a majority of the Trustees who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the
Distribution Plan ("Independent Trustees"). Any material amendment of the
Distribution Plan would require the approval of the Board in the manner
described above. The Distribution Plan may not be amended to increase
materially the amount to be spent under it without shareholder approval of the
Advisor Shares. The Distribution Plan may be terminated at any time, without
penalty, by vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of the Advisor Shares of the
Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund. Information on how
to purchase and redeem Fund shares and how such shares are priced is included
in the Prospectuses under "Net Asset Value."
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Fund may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other investment instruments which
may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or
other property, a shareholder would incur transaction costs in disposing of
the redemption proceeds. The Fund intends to comply with Rule 18f-1
promulgated under the 1940 Act with respect to redemptions in kind.
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
<PAGE>30
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 can be
made by holders of Common Shares currently are the Common Shares of Warburg
Pincus Cash Reserve Fund, Warburg Pincus New York Tax Exempt Fund, Warburg
Pincus New York Intermediate Municipal Fund, Warburg Pincus Tax Free Fund,
Warburg Pincus Intermediate Maturity Government Fund, Warburg Pincus Fixed
Income Fund, Warburg Pincus Short-Term Tax-Advantaged Bond Fund, Warburg
Pincus Global Fixed Income Fund, Warburg Pincus Balanced Fund, Warburg Pincus
Growth & Income Fund, Warburg Pincus Small Company Value Fund, Warburg Pincus
Emerging Growth Fund, Warburg Pincus Post-Venture Capital Fund, Warburg Pincus
International Equity Fund, Warburg Pincus Emerging Markets Fund, Warburg
Pincus Japan Growth Fund and Warburg Pincus Japan OTC Fund. Common Share-
holders of the Fund may exchange all or part of their shares for Common Shares
of these or other mutual funds organized by Warburg in the future on the basis
of their relative net asset values per share at the time of exchange.
Exchanges of Advisor Shares may currently be made with Advisor Shares of
Warburg Pincus Balanced Fund, Warburg Pincus Emerging Growth Fund, Warburg
Pincus Emerging Markets Fund, Warburg Pincus Growth & Income Fund, Warburg
Pincus International Equity Fund, Warburg Pincus Japan Growth Fund, Warburg
Pincus Japan OTC Fund and Warburg Pincus Post-Venture Capital Fund at their
relative net asset values at time of the exchange.
The exchange privilege enables shareholders to acquire shares in a fund
with a different investment objective when they believe that a shift between
funds is an appropriate investment decision. This privilege is available to
shareholders residing in any state in which the Common Shares or Advisor
Shares being acquired, as relevant, may legally be sold. Prior to any
exchange, the investor should obtain and review a copy of the current
prospectus of the relevant class of each fund into which an exchange is being
considered. Shareholders may obtain a prospectus of the relevant class of the
fund into which they are contemplating an exchange from Counsellors
Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same
day, at a price as described above, in shares of the relevant class of the
fund being acquired. Warburg reserves the right to reject more than three
exchange requests by a shareholder in any 30-day period. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
shareholders.
<PAGE>31
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally affecting
the Fund and its shareholders is intended to be only a summary and is not
intended as a substitute for careful tax planning by prospective shareholders.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
The Fund has qualified and intends to continue to qualify each year as
a "regulated investment company" under Subchapter M of the Code. If it
qualifies as a regulated investment company, the Fund will pay no federal
income taxes on its taxable net investment income (that is, taxable income
other than net realized capital gains) and its net realized capital gains that
are distributed to shareholders. To qualify under Subchapter M, the Fund
must, among other things: (i) distribute to its shareholders at least 90% of
its taxable net investment income (for this purpose consisting of taxable net
investment income and net realized short-term capital gains); (ii) derive at
least 90% of its gross income from dividends, interest, payments with respect
to loans of securities, gains from the sale or other disposition of
securities, or other income (including, but not limited to, gains from
options, futures, and forward contracts) derived with respect to the Fund's
business of investing in securities; (iii) derive less than 30% of its annual
gross income from the sale or other disposition of securities, options,
futures or forward contracts held for less than three months; and
(iv) diversify its holdings so that, at the end of each fiscal quarter of the
Fund (a) at least 50% of the market value of the Fund's assets is represented
by cash, U.S. Government Securities and other securities, with those other
securities limited, with respect to any one issuer, to an amount no greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of the issuer, and (b) not more than 25% of the
market value of the Fund's assets is invested in the securities of any one
issuer (other than U.S. Government Securities or securities of other regulated
investment companies) or of two or more issuers that the Fund controls and
that are determined to be in the same or similar trades or businesses or
related trades or businesses. In meeting these requirements, the Fund may be
restricted in the selling of securities held by the Fund for less than three
months and in the utilization of certain of the investment techniques
described above and in the Fund's Prospectuses. As a regulated investment
company, the Fund will be subject to a 4% non-deductible excise tax measured
with respect to certain undistributed amounts of ordinary income and capital
gain required to be but not distributed under a prescribed formula. The
formula requires payment to shareholders during a calendar year of
distributions representing at least 98% of the Fund's taxable ordinary income
for the calendar year and at least 98% of the excess of its capital gains over
capital losses realized during the one-year period ending October 31 during
such year, together with any undistributed, untaxed amounts of ordinary income
and capital gains from the previous calendar year. The Fund expects to pay
the dividends and make the distributions necessary to avoid the application of
this excise tax.
The Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character
<PAGE>32
of gains and losses recognized by the Fund (i.e., may affect whether gains or
losses are ordinary or capital), accelerate recognition of income to the Fund,
defer Fund losses and cause the Fund to be subject to hyperinflationary
currency rules. These rules could therefore affect the character, amount and
timing of distributions to shareholders. These provisions also (i) will
require the Fund to mark-to-market certain types of its positions (i.e., treat
them as if they were closed out) and (ii) may cause the Fund to recognize
income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes. The Fund will monitor its transactions,
will make the appropriate tax elections and will make the appropriate entries
in its books and records when it acquires any foreign currency, forward
contract, option, futures contract or hedged investment so that (a) neither
the Fund nor its shareholders will be treated as receiving a materially
greater amount of capital gains or distributions than actually realized or
received, (b) the Fund will be able to use substantially all of its losses for
the fiscal years in which the losses actually occur and (c) the Fund will
continue to qualify as a regulated investment company.
A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should
have a cost basis in the shares received equal to that amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares purchased
at that time may reflect the amount of the forthcoming distribution, those who
purchase just prior to a distribution will receive a distribution that will
nevertheless be taxable to them. Upon the sale or exchange of shares, a
shareholder will realize a taxable gain or loss depending upon the amount
realized and the basis in the shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands, and, as described in the Prospectuses, will be long-term or short-term
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvestment of
dividends and capital gains distributions in the Fund, within a period of 61
days beginning 30 days before and ending 30 days after the disposition of the
shares. In such a case, the basis of the shares acquired will be increased to
reflect the disallowed loss.
Each shareholder will receive an annual statement as to the federal
income tax status of his dividends and distributions from the Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable
year regarding the federal income tax status of certain dividends and
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to "backup withholding," the
<PAGE>33
shareholder may be subject to a 31% "backup withholding" tax with respect to
(i) taxable dividends and distributions and (ii) the proceeds of any sales or
repurchases of shares of the Fund. An individual's taxpayer identification
number is his social security number. Corporate shareholders and other
shareholders specified in the Code are or may be exempt from backup
withholding. The backup withholding tax is not an additional tax and may be
credited against a taxpayer's federal income tax liability. Dividends and
distributions also may be subject to state and local taxes depending on each
shareholder's particular situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities classified
under the Code as "passive foreign investment companies" ("PFICs"), the Fund
may be subject to federal income tax on a portion of an "excess distribution"
or gain from the disposition of the shares, even though the income may have to
be distributed as a taxable dividend by the Fund to its shareholders. In
addition, gain on the disposition of shares in a PFIC generally is treated as
ordinary income even though the shares are capital assets in the hands of the
Fund. Certain interest charges may be imposed on either the Fund or its
shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross income its
share of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did
not make the election. In addition, information required to make such an
election may not be available to the Fund.
On April 1, 1992 proposed regulations of the Internal Revenue Service
(the "IRS") were published providing a mark-to-market election for regulated
investment companies. The IRS subsequently issued a notice indicating that
final regulations will provide that regulated investment companies may elect
the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of the Fund is unclear. If the Fund is not able to make the
foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if it were sold for fair market value). Such an election could result in
acceleration of income to the Fund.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. With respect to the Fund's Common Shares, the
Fund's average annual total return for the one-year period ended October 31,
1995 was 24.05%, the average annual total return for the five-year period
ended October 31, 1995 was 16.53% and the average annual total
<PAGE>34
return for the period commenced August 12, 1987 (commencement of operations)
and ended October 31, 1995 was 10.86% (10.71% without waivers). These figures
are calculated by finding the average annual compounded rates of return for
the one-, five- and ten- (or such shorter period as the relevant class of
shares has been offered) year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
P (1 + T)[*GRAPHIC OMITTED-SEE FOOTNOTE BELOW] = ERV. For purposes of this
formula, "P" is a hypothetical investment of $1,000; "T" is average annual
total return; "n" is number of years; and "ERV" is the ending redeemable value
of a hypothetical $1,000 payment made at the beginning of the one-, five- or
ten-year periods (or fractional portion thereof). Total return or "T" is
computed by finding the average annual change in the value of an initial $1,000
investment over the period and assumes that all dividends and distributions are
reinvested during the period. The Advisor Shares average annual total return
for the one-year period ended October 31, 1995 was 23.41% and the average annual
total return for the period commenced April 4, 1991 (initial issuance) and ended
October 31, 1995 was 12.20%.
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or
more other mutual funds with similar investment objectives. The Fund may
advertise average annual calendar year-to-date and calendar quarter returns,
which are calculated according to the formula set forth in the preceding
paragraph, except that the relevant measuring period would be the number of
months that have elapsed in the current calendar year or most recent three
months, as the case may be. Investors should note that this performance may
not be representative of the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of the Fund's portfolio and
operating expenses allocable to it. As described above, total return is based
on historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, the Fund's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for
a stated period of time. Any fees charged by Institutions or other
institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's total return, and
such fees, if charged, will reduce the actual return received by customers on
their investments.
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal offices
at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent auditors for the Fund. The financial statements for the fiscal
years ended October 31, 1994 and October 31, 1995 that appear in this
Statement of Additional Information have been audited by Coopers & Lybrand,
whose report thereon appears elsewhere herein and have been included
- -----------------------
* - The expression (1 + T) is being raised to the nth power.
<PAGE>35
herein in reliance upon the report of such firm of independent auditors given
upon their authority as experts in accounting and auditing.
The financial statements for the periods beginning with commencement of
the Fund through October 31, 1992 have been audited by Ernst & Young LLP
("Ernst & Young"), independent auditors, as set forth in their report and have
been included in reliance on such report and upon the authority of such firm
as experts in accounting and auditing. Ernst & Young's address is 787 7th
Avenue, New York, New York 10019.
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of November 30, 1995, the name, address and percentage of ownership
of each person (other than Mr. Furth, see "Management of the Fund") that owns
of record 5% or more of the Fund's outstanding shares were as follows:
Common Shares
Northern Trust Company ("Northern Trust"), FBO Mattel Corp., P.O. Box
2956, Chicago, IL 60690 -- 9.34%. The Fund believes that Northern Trust is
not the beneficial owner of shares of record held by it. Mr. Lionel I.
Pincus, Chairman of the Board and Chief Executive Officer of EMW, may be
deemed to have beneficially owned 81.72% of the Common Shares outstanding,
including shares owned by clients for which Warburg has investment discretion
and by companies that EMW may be deemed to control. Mr. Pincus disclaims
ownership of these shares and does not intend to exercise voting rights with
respect to these shares.
Advisor Shares
Connecticut General Life Ins. Co. on behalf of its separate accounts
55E 55F 55G c/o Melissa Spencer, M110, Cigna Corp., P.O. Box 2975, Hartford,
CT 06104-2975 -- 100%.
FINANCIAL STATEMENTS
The Fund's audited financial statements for the fiscal year ended
October 31, 1995 follow the Report of Independent Auditors.
<PAGE>A-1
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Group ("S&P")
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are 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.
To provide more detailed indications of credit quality, the ratings
from "AA" to "BBB" may be modified by the addition of a plus or minus sign to
show relative standing within this major rating category.
<PAGE>A-2
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
December 8, 1995
Dear Shareholder:
The objective of Warburg Pincus Capital Appreciation Fund (the 'Fund') is
long-term capital appreciation. The Fund invests primarily in a diversified
selection of medium-size domestic companies deemed to have above-average
earnings growth prospects or where significant fundamental changes are taking
place that augur well for improved earnings.
The Fund rose 24.05% for the 12 months ended October 31, 1995, vs. a gain
of 26.36% in the S&P 500 Index, an increase of 23.98% in the Lipper Growth Fund
Index and an advance of 21.24% in the S&P MidCap 400 Index.
The Fund's performance during the period was driven by the broad market's
strength and by particularly solid gains across our most heavily weighted
areas -- technology, financial services, health care and global
media/entertainment. The performance of the technology sector, in particular, as
a whole was extremely strong over the past 12 months, and a number of our
holdings within the category generated exceptional returns. We remain bullish on
technology issues, and believe that the stocks held in the portfolio have
above-average prospects.
Financial stocks represent a significant portion of the portfolio, and
these also contributed positively to the Fund's performance during the fiscal
year. These issues have benefited from a favorable interest-rate environment and
a sweeping trend toward consolidation within the industry, particularly the
banking sector. We expect consolidation to continue within the banking industry,
and hold a number of excellent banks that may stand to gain from this trend,
either as acquirers or as takeover targets.
Healthcare is another area of emphasis in the Fund. Within the sector, we
have chosen to concentrate most heavily on drug and pharmaceutical companies,
which have been among the market's better performers in 1995. These companies
have taken major steps toward increasing their profitability in recent years,
through both consolidation and work-force reductions, and hence have thrived
despite difficulty in raising prices domestically. We believe that the specific
names held in the portfolio have outstanding potential. They are at the
forefront of new-product development and are well-positioned to capitalize on
the growing overseas demand for healthcare-related products. This demand should
be particularly strong in emerging nations, which stand to devote increasing
amounts of resources toward maintaining and improving the health of their
citizens as their economies develop.
We are similarly positive on the prospects of our media and entertainment
holdings, which include Walt Disney, a company we consider to be the premier
entertainment business in the world. Disney's proposed union with Capital
Cities/ABC highlights the rapid growth in consolidation within the entertainment
industry. This trend has been favorably received by the stock market, and a
number of companies in the portfolio have seen their share prices pushed sharply
higher as a result.
Looking ahead, we remain positive on the market's prospects. Data on
inflation suggest that bond yields will remain low and possibly fall further,
boosting equity valuations. At the same time, corporate profits should remain
strong, even in the face of a slowdown in revenue growth, underpinned by the
cost-cutting and productivity-enhancing efforts corporate America has made over
the past several years. We believe that the Fund is well-positioned to take
advantage of these twin forces.
<TABLE>
<S> <C>
George U. Wyper Susan L. Black
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
2
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS CAPITAL
APPRECIATION FUND SINCE INCEPTION AS OF OCTOBER 31, 1995
The graph below illustrates the hypothethical investment of $10,000 in
Common Shares of Warburg Pincus Capital Appreciation Fund (the 'Fund') from
August 17, 1987 (inception) to October 31, 1995, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the S&P 500* for the
same time period.
[GRAPH]
<TABLE>
<CAPTION>
FUND
------
<S> <C>
1 Year Total Return (9/30/94-9/30/95)...................................... 25.23%
5 Year Average Annual Total Return (9/30/90-9/30/95)....................... 15.84%
Average Annual Total Return Since Inception (8/17/87-9/30/95).............. 10.95%
</TABLE>
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost.
- ------------
* The S&P 500 is an unmanaged index, composed of approximately 500 common
stocks, most of which are listed on the New York Stock Exchange, and has no
defined investment objective.
3
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Boards of Directors, Trustees and Shareholders of
Warburg Pincus Equity Funds:
We have audited the accompanying statements of net assets of the Warburg Pincus
Capital Appreciation Fund, Warburg Pincus Emerging Growth Fund and Warburg
Pincus International Equity Fund and the accompanying statements of assets and
liabilities including the schedules of investments of Warburg Pincus Japan OTC
Fund, Warburg Pincus Emerging Markets Fund and Warburg Pincus Post-Venture
Capital Fund (all Funds collectively referred to as the 'Warburg Pincus Equity
Funds') as of October 31, 1995, and the related statements of operations for the
year (or period) then ended, and the statements of changes in net assets for
each of the two years (or period) and the financial highlights for each of the
three years (or period) in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of the
Warburg Pincus Equity Funds for each of the two years in the period ended
October 31, 1992, were audited by other auditors, whose report dated December
15, 1992, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Warburg Pincus Equity Funds as of October 31, 1995, and the results of
their operations for the year (or period) then ended, and the changes in their
net assets for each of the two years (or period) and the financial highlights
for each of the three years (or period) in the period then ended, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
December 14, 1995
67
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS
October 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ---------
<S> <C> <C>
COMMON STOCK (95.5%)
BASIC INDUSTRIES
Aerospace & Defense (2.4%)
Loral Corp. 120,000 $ 3,555,000
Sundstrand Corp. 40,000 2,450,000
----------
6,005,000
----------
Agriculture (0.8%)
First Mississippi Corp. 100,000 2,050,000
----------
Chemicals (3.4%)
Avery Dennison Corp. 90,000 4,027,500
Hercules, Inc. 80,000 4,270,000
----------
8,297,500
----------
Conglomerates (2.0%)
Thermo Electron Corp. + 104,400 4,802,400
----------
CAPITAL GOODS
Capital Equipment (2.0%)
American Standard Companies + 116,000 3,103,000
Federal-Mogul Corp. 105,000 1,876,875
----------
4,979,875
----------
Computers (5.1%)
Checkfree Corp. + 15,000 316,875
Compaq Computer Corp. + 50,000 2,787,500
Informix Corp. + 42,500 1,237,812
Logic Works, Inc. 5,000 76,250
Parametric Technology Corp. + 70,000 4,681,250
Synopsys, Inc. + 96,200 3,607,500
----------
12,707,187
----------
Distribution (5.3%)
Alco Standard Corp. + 60,000 5,310,000
Anixter International Corp. + 160,000 3,060,000
Rykoff-Sexton, Inc. 205,900 4,632,750
----------
13,002,750
----------
Electronics (6.7%)
Cabletron Systems, Inc. + 60,000 4,717,500
Linear Technology Corp. 160,200 7,008,750
Pixtech, Inc. + 25,500 251,812
Xilinx, Inc. + 100,200 4,609,200
----------
16,587,262
----------
CONSUMER
Business Services (5.7%)
Equifax, Inc. 126,900 4,949,100
First Data Corp. 60,000 3,967,500
Manpower, Inc. + 70,000 1,898,750
Olsten Corp. 80,000 3,080,000
</TABLE>
See Accompanying Notes to Financial Statements.
13
- ------------------------------------------------------------------------------
<PAGE>
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ---------
<S> <C> <C>
COMMON STOCK (CONT'D)
Union Corp. 10,000 $ 161,250
----------
14,056,600
----------
Consumer Non-Durables (7.8%)
Luxottica Group SPA Sponsored ADR 20,000 975,000
Nine West Group, Inc. + 83,500 3,715,750
Reebok International, Ltd. 140,000 4,760,000
Scott Paper Co. 186,600 9,936,450
----------
19,387,200
----------
Food, Beverage & Tobacco (0.8%)
Whitman Corp. 100,000 2,125,000
----------
Healthcare (10.2%)
Becton Dickinson & Co. 45,000 2,925,000
Caremark International, Inc. 169,900 3,504,187
Health Management Associates, Inc. Class A + 180,000 3,870,000
Mallinckrodt Group, Inc. 100,000 3,475,000
McKesson Corp. 75,000 3,581,250
Pacificare Health Systems, Inc. Class B + 45,000 3,273,750
St. Jude Medical, Inc. 83,000 4,419,750
----------
25,048,937
----------
Leisure & Entertainment (1.7%)
Disney (Walt) Co. 73,500 4,235,438
----------
Retail (2.0%)
CUC International, Inc. + 142,500 4,934,063
----------
Energy and Related
Energy (1.6%)
Ensco International, Inc. + 100,000 1,687,500
Union Pacific Resources Group 100,000 2,275,000
----------
3,962,500
----------
Oil Services (0.4%)
Input/Output, Inc. 28,300 1,057,712
----------
Finance
Banks & Savings & Loans (14.7%)
California Federal Bank 100,000 1,475,000
Citicorp 140,000 9,082,500
Compass Bancshares, Inc. 109,600 3,397,600
CoreStates Financial Corp. 100,000 3,637,500
Greenpoint Financial Corp. 124,800 3,369,600
Long Island Bancorp, Inc. 50,000 1,143,750
Mercantile Bancorp 75,000 3,300,000
TCF Financial Corp. 22,600 1,327,750
UJB Financial Corp. 100,000 3,187,500
Wells Fargo & Co. 30,000 6,303,750
----------
36,224,950
----------
</TABLE>
See Accompanying Notes to Financial Statements.
14
- ------------------------------------------------------------------------------
<PAGE>
<PAGE>
- ------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ---------
<S> <C> <C>
COMMON STOCK (CONT'D)
Financial Services (7.7%)
ALLmerica Financial Corp. 40,900 $1,027,612
Federal Home Loan Mortgage Corp. 40,000 2,770,000
Household International, Inc. 55,000 3,093,750
Leucadia National Corp. 80,700 4,448,588
Prudential Reinsurance Holdings 100,200 2,041,575
Transport Holdings Class A 30,550 1,199,088
Travelers Group, Inc. 87,700 4,428,850
-----------
19,009,463
-----------
MEDIA
Communications & Media (7.3%)
Evergreen Media Corp. Class A + 49,000 1,335,250
Gannett, Inc. 50,000 2,718,750
Gaylord Entertainment Co., Class A 100,000 2,575,000
Infinity Broadcast Corp. + 91,800 2,983,500
News Corp. Ltd. ADR 35,000 695,625
Telecommunications Inc., Liberty Media Group A 90,000 2,216,250
Viacom, Inc. Class B + 110,000 5,500,000
-----------
18,024,375
-----------
Publishing (2.1%)
Harcourt General Inc. 75,000 2,971,875
Wiley, (John) & Sons, Inc. Class A 73,600 2,189,600
-----------
5,161,475
-----------
Telecommunications & Equipment (5.8%)
Picturetel Corp. + 85,000 5,610,000
Qualcomm Inc. + 70,000 2,695,000
Tel-Save Holdings, Inc. + 25,000 346,875
Tellabs, Inc. + 85,000 2,890,000
Vodafone Group PLC ADR 70,700 2,889,863
-----------
14,431,738
-----------
TOTAL COMMON STOCK (Cost $193,683,742) 236,091,425
-----------
PREFERRED STOCK (0.3%)
Communications & Media
News Corp. ADR (Cost $990,500) 50,000 912,500
----------
Par
---------
SHORT-TERM INVESTMENTS (4.2%)
Repurchase agreement with State Street Bank & Trust Co. dated
10/31/95 at 5.83%
to be repurchased at $10,355,677 on 11/01/95. (Collateralized by
$10,445,000 U.S.
Treasury Note at 6.875%, due 10/31/96, with a market value of
$10,575,563.) (Cost $10,354,000) $10,354,000 10,354,000
------------
TOTAL INVESTMENTS AT VALUE (100.0%) (Cost $205,028,242*) 247,357,925
LIABILITIES IN EXCESS OF OTHER ASSETS (52,060)
------------
NET ASSETS (100.0%) (applicable to 14,382,203 Common Shares and
712,812 Advisor Shares) $247,305,865
------------
------------
NET ASSET VALUE, offering and redemption price per Common Share
($235,712,242[div]14,382,203) $16.39
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($11,593,623[div]712,812) $16.26
------
------
</TABLE>
+ Non-income producing security.
* Cost for Federal income tax purposes is $205,163,763.
See Accompanying Notes to Financial Statements.
15
- ------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth International Equity
Fund Fund Fund
-------------------- --------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,107,232 $ 772,834 $ 40,091,101
Interest 684,526 2,112,707 7,110,116
Foreign taxes withheld (2,423) 0 (5,031,072)
-------------------- --------------- --------------------
Total investment income 2,789,335 2,885,541 42,170,145
-------------------- --------------- --------------------
EXPENSES:
Investment advisory 1,367,729 3,824,061 20,225,631
Administrative services 390,780 849,790 3,408,846
Audit 27,208 27,469 69,286
Custodian/Sub-custodian 63,554 145,277 1,753,400
Directors/Trustees 10,500 10,500 11,500
Distribution/Shareholder servicing 45,989 531,359 1,274,343
Insurance 10,104 14,770 58,340
Legal 90,851 76,677 102,549
Organizational 0 0 0
Printing 27,954 41,914 172,129
Registration 62,918 159,555 428,595
Transfer agent 92,488 149,133 1,538,272
Miscellaneous 35,776 37,625 380,319
-------------------- --------------- --------------------
2,225,851 5,868,130 29,423,210
Less: fees waived and expenses reimbursed 0 0 0
-------------------- --------------- --------------------
Total expenses 2,225,851 5,868,130 29,423,210
-------------------- --------------- --------------------
Net investment income (loss) 563,484 (2,982,589) 12,746,935
-------------------- --------------- --------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
AND FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 31,649,453 49,113,782 (34,444,203)
Net realized gain (loss) from foreign currency
related items 0 0 16,792,905
Net change in unrealized appreciation (depreciation)
from investments and foreign currency related items 12,386,702 84,670,426 (4,675,049)
-------------------- --------------- --------------------
Net realized and unrealized gain (loss) from
investments and foreign currency related
items 44,036,155 133,784,208 (22,326,347)
-------------------- --------------- --------------------
Net increase (decrease) in net assets
resulting from operations $ 44,599,639 $ 130,801,619 $ (9,579,412)
-------------------- --------------- --------------------
-------------------- --------------- --------------------
</TABLE>
40
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture Capital
Fund Fund (1) Fund (2)
-------------- ---------------- --------------------
<S> <C> <C>
$ 221,577 $ 33,788 $ 0
412,522 22,711 2,675
(33,237) (3,250) 0
-------------- ---------------- -----------
600,862 53,249 2,675
-------------- ---------------- -----------
599,720 29,641 1,756
138,679 5,217 280
25,700 16,000 9,000
60,612 45,701 5,771
11,290 14,625 1,250
119,941 5,926 351
2,761 855 0
96,359 54,987 5,000
42,449 37,432 1,932
2,579 14,765 1,000
115,649 26,664 6,000
100,690 28,656 2,833
10,620 6,070 500
-------------- ---------------- -----------
1,327,049 286,539 35,673
(652,386) (262,824) (33,354)
-------------- ---------------- -----------
674,663 23,715 2,319
-------------- ---------------- -----------
(73,801) 29,534 356
-------------- ---------------- -----------
(4,629,196) 102,219 (26,884)
7,895,010 (4,992) 0
(195,368) (9,058) 164,441
-------------- ---------------- -----------
3,070,446 88,169 137,557
-------------- ---------------- -----------
$2,996,645 $117,703 $137,913
-------------- ---------------- -----------
-------------- ---------------- -----------
(1) For the period December 30, 1994 (Commencement of Operations) through October 31, 1995.
(2) For the period September 29, 1995 (Commencement of Operations) through October 31, 1995.
</TABLE>
See Accompanying Notes to Financial Statements.
41
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth
Fund Fund
----------------------------------- -----------------------------------
For the Year Ended October 31, For the Year Ended October 31,
1995 1994 1995 1994
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 563,484 $ 384,246 $ (2,982,589) $ (1,678,646)
Net realized gain (loss) from
security transactions 31,649,453 11,173,174 49,113,782 (5,721,525)
Net realized gain (loss) from foreign
currency related items 0 0 0 0
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency related items 12,386,702 (9,106,613) 84,670,426 10,930,919
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets resulting from
operations 44,599,639 2,450,807 130,801,619 3,530,748
--------------- ---------------- --------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (563,484) (419,337) 0 0
Advisor Shares 0 (27,724) 0 0
Distributions in excess of net
investment income:
Common Shares 0 0 0 0
Distributions from capital gains:
Common Shares (10,419,627) (12,899,141) 0 (10,576,150)
Advisor Shares (575,892) (852,608) 0 (1,639,316)
--------------- ---------------- --------------- ----------------
Net decrease from distributions (11,559,003) (14,198,810) 0 (12,215,466)
--------------- ---------------- --------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 88,963,455 45,617,531 335,569,078 180,813,270
Reinvested dividends 11,246,752 13,809,167 0 12,758,387
Net asset value of shares redeemed (53,459,471) (49,851,500) (116,280,844) (71,767,717)
--------------- ---------------- --------------- ----------------
Net increase in net assets from
capital share transactions 46,750,736 9,575,198 219,288,234 121,803,940
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets 79,791,372 (2,172,805) 350,089,853 113,119,222
NET ASSETS:
Beginning of period 167,514,493 169,687,298 304,672,758 191,553,536
--------------- ---------------- --------------- ----------------
End of period $ 247,305,865 $167,514,493 $ 654,762,611 $304,672,758
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
42
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture
Warburg Pincus Fund Fund Capital Fund
International Equity --------------------------------------- ------------------- -------------------
Fund For the Period For the Period For the Period
----------------------------------- September 30, 1994 December 30, 1994 September 29, 1995
For the (Commencement of (Commencement of (Commencement of
For the Year Ended October 31, Year Ended Operations) through Operations) through Operations) through
1995 1994 October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1995
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 12,746,935 $ 1,310,933 $ (73,801) $ 5,115 $ 29,534 $ 356
(34,444,203 ) 48,091,665 (4,629,196) 0 102,219 (26,884)
16,792,905 (2,772,944) 7,895,010 (294,437) (4,992) 0
(4,675,049 ) 82,484,415 (195,368) (35,099) (9,058) 164,441
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(9,579,412 ) 129,114,069 2,996,645 (324,421) 117,703 137,913
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(11,671,023 ) (1,764,380) 0 0 (14,321) 0
(629,473 ) (218,961) 0 0 (3) 0
0 (223,659) 0 0 0 0
(42,332,078 ) (1,047,367) 0 0 0 0
(5,756,403 ) (129,979) 0 0 0 0
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(60,388,977 ) (3,384,346) 0 0 (14,324) 0
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
1,383,361,959 1,430,739,923 200,565,875 20,287,158 7,753,908 2,792,403
54,872,977 2,950,772 0 0 13,802 0
(715,598,203 ) (249,050,078) (44,871,674) (185,101) (1,191,160) (4,887)
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
722,636,733 1,184,640,617 155,694,201 20,102,057 6,576,550 2,787,516
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
652,668,344 1,310,370,340 158,690,846 19,777,636 6,679,929 2,925,429
1,733,275,503 422,905,163 19,878,636 101,000 101,000 100,000
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
$2,385,943,847 $1,733,275,503 $178,569,482 $19,878,636 $ 6,780,929 $ 3,025,429
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
</TABLE>
See Accompanying Notes to Financial Statements.
43
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout Each Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.29 $15.32 $13.30 $12.16 $ 9.78
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .04 .04 .05 .04 .15
Net Gain on Securities (both
realized and unrealized) 3.08 .17 2.78 1.21 2.41
------ ------ ------ ------ ------
Total from Investment Operations 3.12 .21 2.83 1.25 2.56
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.04) (.05) (.05) (.06) (.18)
Distributions from Capital Gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ ------
Total Distributions (1.02) (1.24) (.81) (.11) (.18)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $16.39 $14.29 $15.32 $13.30 $12.16
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 24.05% 1.65% 22.19% 10.40% 26.39%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $235,712 $159,346 $159,251 $117,900 $115,191
Ratios to average daily net assets:
Operating expenses 1.12% 1.05% 1.01% 1.06% 1.08%
Net investment income .31% .26% .30% .41% 1.27%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .00%
Portfolio Turnover Rate 146.09% 51.87% 48.26% 55.83% 39.50%
</TABLE>
See Accompanying Notes to Financial Statements.
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.06
Long-term capital gain .96
</TABLE>
Ordinary income dividends qualifying for the dividends received deduction
available to corporate shareholders was 100.00%.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
44
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund'), Warburg Pincus
International Equity Fund (the 'International Equity Fund') and Warburg Pincus
Post-Venture Capital Fund (the 'Post-Venture Capital Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund'), Warburg Pincus Japan OTC Fund
(the 'Japan OTC Fund') and Warburg Pincus Emerging Markets Fund (the 'Emerging
Markets Fund', together with the Capital Appreciation Fund, the International
Equity Fund, the Post-Venture Capital Fund, the Emerging Growth Fund and the
Japan OTC Fund, the 'Funds') which are registered under the 1940 Act as non-
diversified, open-end management investment companies.
Investment objectives for each Fund are as follows: the Capital
Appreciation Fund, the International Equity Fund and the Japan OTC Fund seek
long-term capital appreciation; the Emerging Growth Fund seeks maximum capital
appreciation; the Emerging Markets Fund seeks growth of capital; the
Post-Venture Capital Fund seeks long-term growth of capital.
Each Fund offers two classes of shares, one class being referred to as
Common Shares and one class being referred to as Advisor Shares. Common and
Advisor Shares in each Fund represent an equal pro rata interest in such Fund,
except that they bear different expenses which reflect the difference in the
range of services provided to them. Common Shares for the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund bear expenses paid
pursuant to a shareholder servicing and distribution plan adopted by each Fund
at an annual rate not to exceed .25% of the average daily net asset value of
each Fund's outstanding Common Shares. Advisor Shares for each Fund bear
expenses paid pursuant to a distribution plan adopted by each Fund at an annual
rate not to exceed .75% of the average daily net asset value of each Fund's
outstanding Advisor Shares. The Common and the Advisor Shares are currently
bearing expenses of .25% and .50% of average daily net assets, respectively.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported bid price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's governing Board. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are
50
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
reported in the results of operations for the current period. The Funds do not
isolate that portion of gains and losses on investments in equity securities
which are due to changes in the foreign exchange rate from that which are due to
changes in market prices of equity securities. The Funds isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses, principally distribution,
transfer agent and printing) and realized/unrealized gains/losses are allocated
proportionately to each class of shares based upon the relative net asset value
of outstanding shares. The cost of investments sold is determined by use of the
specific identification method for both financial reporting and income tax
purposes.
Dividends from net investment income are declared and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared and
paid annually. However, to the extent that a net realized capital gain can be
reduced by a capital loss carryover, such gain will not be distributed. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
Certain amounts in the Financial Highlights have been reclassified to
conform with current year presentation.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Japan OTC Fund, the Emerging Markets Fund and the
Post-Venture Capital Fund in connection with their organization have been
deferred and are being amortized over a period of five years from the date each
Fund commenced its operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives the
following fees based on each Fund's average daily net assets:
51
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- --------------------------------- ----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
Emerging Markets 1.25% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
</TABLE>
For the period or year ended October 31, 1995, investment advisory fees,
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ------------------------------------------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 1,367,729 $ 0 $ 1,367,729 $ 0
Emerging Growth 3,824,061 0 3,824,061 0
International Equity 20,225,631 0 20,225,631 0
Japan OTC 599,720 (599,720) 0 (25,920)
Emerging Markets 29,641 (29,641) 0 (230,338)
Post-Venture Capital 1,756 (1,756) 0 (31,458)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Warburg pays SPARX USA a fee at an annual rate of .625% of the average daily net
assets of the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to
SPARX USA for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Fund's average daily net assets. For the period or year
ended October 31, 1995, administrative services fees earned by CFSI were as
follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 195,390
Emerging Growth 424,895
International Equity 2,022,563
Japan OTC 47,978
Emerging Markets 2,372
Post-Venture Capital 140
</TABLE>
For its administrative services, PFPC currently receives a fee calculated
at an annual rate of .10% of the average daily net assets of the Capital
Appreciation Fund, the Emerging Growth Fund and the Post-Venture Capital Fund.
For the International Equity Fund, the Japan OTC Fund and the Emerging Markets
Fund, PFPC currently receives a fee calculated at an annual rate of .12% on each
Fund's first $250 million in average daily net assets, .10% on the next $250
million in average daily net assets, .08%
52
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
on the next $250 million in average daily net assets, and .05% of the average
daily net assets over $750 million.
For the period or year ended October 31, 1995, administrative service fees
earned and waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- ----------------------------------------- --------------------- -------- -------------------------
<S> <C> <C> <C>
Capital Appreciation $ 195,390 $ 0 $ 195,390
Emerging Growth 424,895 0 424,895
International Equity 1,386,283 0 1,386,283
Japan OTC 90,701 (26,746) 63,955
Emerging Markets 2,845 (2,845) 0
Post-Venture Capital 140 (140) 0
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund, the Emerging Growth Fund or the International Equity
Fund to CSI for distribution services. For its shareholder servicing and
distribution services, CSI currently receives a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares for the Japan OTC
Fund, the Emerging Markets Fund and the Post-Venture Capital Fund pursuant to a
shareholder servicing and distribution plan adopted by each Fund. For the period
or year ended October 31, 1995, distribution fees earned by CSI were as follows:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Japan OTC $119,941
Emerging Markets 5,926
Post-Venture Capital 351
</TABLE>
3. INVESTMENTS IN SECURITIES
For the period or year ended October 31, 1995, purchases and sales of
investment securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------------------------------------- -------------- ------------
<S> <C> <C>
Capital Appreciation $ 299,741,274 $269,962,070
Emerging Growth 532,722,466 336,581,792
International Equity 1,457,609,458 735,613,078
Japan OTC 189,768,420 36,507,703
Emerging Markets 7,181,659 1,297,140
Post-Venture Capital 2,714,501 222,270
</TABLE>
53
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 45,397,319 $ (3,203,157) $ 42,194,162
Emerging Growth 144,909,782 (9,681,675) 135,228,107
International Equity 260,125,513 (171,560,066) 88,565,447
Japan OTC 6,205,079 (7,100,852) (895,773)
Emerging Markets 341,944 (352,944) (11,000)
Post-Venture Capital 233,929 (69,488) 164,441
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund, the Japan OTC Fund, the Emerging Markets
Fund and the Post-Venture Capital Fund may enter into forward currency contracts
for the purchase or sale of a specific foreign currency at a fixed price on a
future date. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. The Funds will enter into forward contracts primarily for hedging
purposes. The forward currency contracts are adjusted by the daily exchange rate
of the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
54
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the International Equity Fund and the Japan OTC Fund had
the following open forward foreign currency contracts:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French Francs 11/15/95 260,000,000 $ 52,170,074 $ 53,253,590 $ (1,083,516)
French Francs 11/16/95 122,216,250 25,050,833 25,032,515 18,318
German Marks 11/16/95 110,000,000 78,272,317 78,263,963 8,354
German Marks 05/17/96 78,928,380 55,400,000 56,652,584 (1,252,584)
Japanese Yen 03/21/96 5,547,240,000 57,000,000 55,475,507 1,524,493
Japanese Yen 03/21/96 4,764,377,500 47,298,496 47,646,443 (347,947)
Japanese Yen 03/21/96 4,764,377,500 47,276,203 47,646,443 (370,240)
Japanese Yen 03/21/96 1,385,445,000 13,761,286 13,855,226 (93,940)
Japanese Yen 05/13/96 8,731,990,000 109,000,000 88,008,212 20,991,788
Japanese Yen 05/16/96 9,247,700,000 110,000,000 93,246,752 16,753,248
Japanese Yen 05/16/96 4,586,012,000 55,400,000 46,241,847 9,158,153
Japanese Yen 09/18/96 4,660,000,000 50,000,000 47,860,895 2,139,105
------------ ------------ ----------------
$700,629,209 $653,183,977 $ 47,445,232
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
FORWARD CURRENCY EXPIRATION TO BE CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE PURCHASED AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
German Marks 11/16/95 34,500,000 $ 25,050,828 $ 24,546,425 $ (504,403)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JAPAN OTC FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 11/30/95 12,567,400,000 $124,000,000 $123,536,813 $ 463,187
Japanese Yen 11/30/95 2,027,000,000 20,000,000 19,925,293 74,707
Japanese Yen 11/30/95 1,520,250,000 15,000,000 14,943,969 56,031
------------ ------------ ----------------
$159,000,000 $158,406,075 $ 593,925
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
55
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
5. EQUITY SWAP TRANSACTIONS
The International Equity Fund (the 'Fund') entered into a Taiwanese equity
swap agreement (which represents approximately .005% of the Fund's net assets at
October 31, 1995) dated August 11, 1995, where the Fund receives a quarterly
payment, representing the total return (defined as market appreciation and
dividend income) on a basket of three Taiwanese common stocks ('Common Stocks').
In return, the Fund pays quarterly the Libor rate (London Interbank Offered
Rate), plus 1.25% per annum (7.125% on October 31, 1995) on the initial stock
purchase amount ('Notional amount') of $12,000,000. The Notional amount is
marked to market on each quarterly reset date. In the event that the Common
Stocks decline in value, the Fund will be required to pay quarterly, the amount
of any depreciation in value from the notional amount. The equity swap agreement
will terminate on August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At October 31, 1995, the
Fund has recorded an unrealized gain of $502,018 and interest payable of
$192,375 on the equity swap transaction.
56
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
The Capital Appreciation Fund is authorized to issue three billion of full
and fractional shares of beneficial interest, $.001 par value per share, of
which one billion shares are classified as Series 2 Shares (the Advisor Shares).
The Emerging Growth Fund, the International Equity Fund, the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund are each authorized to
issue three billion full and fractional shares of capital stock, $.001 par value
per share, of which one billion shares of each Fund are designated as Series 2
Shares (the Advisor Shares).
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
Common Shares Advisor Shares
----------------------------- ---------------------------
For the Year Ended October 31,
-------------------------------------------------------------
1995 1994 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Shares sold 6,020,619 2,958,494 201,782 290,193
Shares issued to
shareholders on
reinvestment of
dividends 850,478 920,210 46,554 61,526
Shares redeemed (3,638,974) (3,126,497) (110,027) (460,020)
------------ ------------ ----------- -----------
Net increase
(decrease) in
shares outstanding 3,232,123 752,207 138,309 (108,301)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Proceeds from sale
of shares $ 85,992,655 $ 41,570,590 $ 2,970,800 $ 4,046,941
Reinvested dividends 10,670,876 12,945,690 575,876 863,477
Net asset value of
shares redeemed (51,907,650) (43,449,501) (1,551,821) (6,401,999)
------------ ------------ ----------- -----------
Net increase
(decrease) from
capital share
transactions $ 44,755,881 $ 11,066,779 $ 1,994,855 $(1,491,581)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
<CAPTION>
EMERGING GROWTH FUND
Common Shares Advisor Shares
----------------------------- ----------------------------
For the Year Ended October 31,
--------------------------------------------------------------
1995 1994 1995 1994
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 9,808,362 6,133,751 3,172,686 2,233,737
Shares issued to
shareholders on
reinvestment of
dividends 0 506,720 0 80,473
Shares redeemed (4,294,179) (2,859,413) (383,922) (517,898)
------------ ------------ ----------- ------------
Net increase
(decrease) in
shares outstanding 5,514,183 3,781,058 2,788,764 1,796,312
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Proceeds from sale
of shares $256,886,928 $132,922,995 $78,682,150 $ 47,890,275
Reinvested dividends 0 11,015,146 0 1,743,241
Net asset value of
shares redeemed (106,777,032) (61,126,667) (9,503,812) (10,641,050)
------------ ------------ ----------- ------------
Net increase
(decrease) from
capital share
transactions $150,109,896 $ 82,811,474 $69,178,338 $ 38,992,466
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
57
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND EMERGING MARKETS FUND
Common Shares Advisor Shares
Common Shares Advisor Shares ------------- --------------
-------------------------------- ---------------------------- For the Period
For the Year Ended October 31, December 30, 1994
---------------------------------------------------------------- (Commencement of Operations)
1995 1994 1995 1994 through October 31, 1995
-------------- -------------- ------------ ------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 68,096,606 64,218,907 7,225,150 7,956,088 694,008 22
Shares issued to
shareholders on
reinvestment of
dividends 2,623,005 147,031 346,377 6,879 1,267 0
Shares redeemed (38,317,625) (11,861,720) (770,753) (795,406) (104,480) 0
-------------- -------------- ------------ ------------ ------------- -----
Net increase (decrease)
in shares outstanding 32,401,986 52,504,218 6,800,774 7,167,561 590,795 22
-------------- -------------- ------------ ------------ ------------- -----
-------------- -------------- ------------ ------------ ------------- -----
Proceeds from sale of
shares $1,251,776,887 $1,275,306,263 $131,585,072 $155,433,660 $ 7,753,651 $257
Reinvested dividends 48,487,109 2,820,903 6,385,868 129,869 13,802 0
Net asset value of shares
redeemed (701,310,424) (233,614,600) (14,287,779) (15,435,478) (1,191,160) 0
-------------- -------------- ------------ ------------ ------------- -----
Net increase (decrease)
from capital share
transactions $ 598,953,572 $1,044,512,566 $123,683,161 $140,128,051 $ 6,576,293 $257
-------------- -------------- ------------ ------------ ------------- -----
-------------- -------------- ------------ ------------ ------------- -----
</TABLE>
7. NET ASSETS
Net Assets at October 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL EMERGING
APPRECIATION FUND GROWTH FUND
----------------- ------------
<S> <C> <C>
Capital contributed, net $ 173,327,827 $479,035,241
Accumulated net investment income (loss) 0 0
Accumulated net realized gain (loss) from security transactions 31,648,355 40,302,640
Net unrealized appreciation (depreciation) from investments and
foreign currency related items 42,329,683 135,424,730
----------------- ------------
Net assets $ 247,305,865 $654,762,611
----------------- ------------
----------------- ------------
</TABLE>
58
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN OTC FUND
Common Shares Advisor Shares
------------------------------------- -------------------------------------
For the Period For the Period POST-VENTURE CAPITAL FUND
September 30, September 30, Common Shares Advisor Shares
1994 1994 ------------- --------------
(Commencement (Commencement
For the Period
For the of Operations) For the of Operations) September 29, 1995
Year Ended through Year Ended through (Commencement of Operations)
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994 through October 31, 1995
---------------- ---------------- ---------------- ---------------- --------------------------------
<S> <C> <C> <C> <C> <C>
22,809,795 2,025,697 0 15 273,510 19
0 0 0 0 0 0
(5,180,432) (18,605) 0 0 (473) 0
---------------- ---------------- --- ----- ------------- -----
17,629,363 2,007,092 0 15 273,037 19
---------------- ---------------- --- ----- ------------- -----
---------------- ---------------- --- ----- ------------- -----
$200,565,875 $ 20,287,008 $0 $150 $ 2,792,203 $200
0 0 0 0 0 0
(44,871,674) (185,101) 0 0 (4,887) 0
---------------- ---------------- --- ----- ------------- -----
$155,694,201 $ 20,101,907 $0 $150 $ 2,787,316 $200
---------------- ---------------- --- ----- ------------- -----
---------------- ---------------- --- ----- ------------- -----
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING POST-VENTURE
EQUITY FUND MARKETS FUND JAPAN OTC FUND CAPITAL FUND
-------------- ------------ -------------- ------------
<S> <C> <C> <C>
$2,271,007,433 $6,677,550 $175,619,527 $2,887,516
19,124,669 10,218 7,821,209 356
(40,671,086) 102,219 (4,640,787) (26,884)
136,482,831 (9,058) (230,467) 164,441
-------------- ------------ -------------- ------------
$2,385,943,847 $6,780,929 $178,569,482 $3,025,429
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
</TABLE>
59
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
8. CAPITAL LOSS CARRYOVER
At October 31, 1995, the International Equity Fund, the Japan OTC Fund and
the Post-Venture Capital Fund had capital loss carryovers of $40,671,086,
$4,629,196 and $26,884, respectively, expiring in 2003 to offset possible future
capital gains of each Fund.
9. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Advisor Shares,
representing equal prorata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for an Advisor Share of each Fund are as
follows:
<TABLE>
<CAPTION>
Capital Appreciation Fund
----------------------------------------------------------------
Advisor Shares
----------------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.22 $15.28 $13.28 $12.16 $12.04
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .00 (.08) .00 (.01) .05
Net Gain on Securities (both realized and
unrealized) 3.02 .23 2.76 1.20 .13
------ ------ ------ ------ -------
Total from Investment Operations 3.02 .15 2.76 1.19 .18
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income .00 (.02) .00 (.02) (.06)
Distributions from Capital Gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ -------
Total Distributions (.98) (1.21) (.76) (.07) (.06)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $16.26 $14.22 $15.28 $13.28 $12.16
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return 23.41% 1.23% 21.64% 9.83% 2.66%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $11,594 $8,169 $10,437 $1,655 $443
Ratios to average daily net assets:
Operating expenses 1.62% 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss) (.18%) (.24%) (.25%) (.11%) .25%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .01%*
Portfolio Turnover Rate 146.09% 51.87% 48.26% 55.83% 39.50%
* Annualized
</TABLE>
60
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.02
Long-term capital gain .96
</TABLE>
Ordinary income dividends qualifying for the dividends received deduction
available to corporate shareholders was 100.00%.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
61
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Growth Fund
--------------------------------------------------------
Advisor Shares
--------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $22.05 $23.51 $18.19 $16.99 $15.18
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Loss (.09) (.08) (.08) (.06) .00
Net Gain (Loss) on Securities (both
realized and unrealized) 7.42 (.02) 5.77 1.62 1.82
------ ------ ------ ------ -------
Total from Investment Operations 7.33 (.10) 5.69 1.56 1.82
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income .00 .00 .00 .00 (.01)
Distributions from Capital Gains .00 (1.36) (.37) (.36) .00
------ ------ ------ ------ -------
Total Distributions .00 (1.36) (.37) (.36) (.01)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $29.38 $22.05 $23.51 $18.19 $16.99
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return 33.24% (.29%) 31.67% 9.02% 23.43%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $167,225 $64,009 $26,029 $5,398 $275
Ratios to average daily net assets:
Operating expenses 1.76% 1.72% 1.73% 1.74% 1.74%*
Net investment loss (1.08%) (1.08%) (1.09%) (.87%) (.49%)*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements .00% .04% .00% .06% .42%*
Portfolio Turnover Rate 84.82% 60.38% 68.35% 63.38% 97.69%
* Annualized
</TABLE>
62
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
--------------------------------------------------------
Advisor Shares
--------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.38 $16.91 $12.20 $13.66 $13.14
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .03 .16 (.01) .13 .00
Net Gain (Loss) on Securities and
Foreign Currency Related Items
(both realized and unrealized) (.67) 3.35 4.86 (1.32) .58
------ ------ ------ ------ -------
Total from Investment Operations (.64) 3.51 4.85 (1.19) .58
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income (.05) .00 (.01) (.12) (.06)
Distributions from Capital Gains (.53) (.04) (.13) (.15) .00
------ ------ ------ ------ -------
Total Distributions (.58) (.04) (.14) (.27) (.06)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $19.16 $20.38 $16.91 $12.20 $13.66
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return (3.04%) 20.77% 40.06% (8.86%) 7.85%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $317,736 $199,404 $44,244 $1,472 $153
Ratios to average daily net assets:
Operating expenses 1.89% 1.94% 2.00% 2.00% 2.23%*
Net investment income (loss) .20% (.29%) (.36%) .54% .30%*
Decrease reflected in above operating expense ratios due to
waivers/reimbursements .00% .00% .00% .07% .17%*
Portfolio Turnover Rate 39.24% 17.02% 22.60% 53.29% 54.95%
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.38
Long-term capital gain .20
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
63
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Japan OTC Fund
----------------------------------------
Advisor Shares
----------------------------------------
For the Period
September 30, 1994
For the (Commencement of
Year Ended Operations) through
October 31, 1995 October 31, 1994
---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.85 $10.00
------ -------
Income from Investment Operations:
Net Investment Income (Loss) (.02) .00
Net Loss on Securities and Foreign Currency Related Items (both
realized and unrealized) (.75) (.15)
------ -------
Total from Investment Operations (.77) (.15)
------ -------
Less Distributions:
Dividends from Net Investment Income .00 .00
Distributions from Capital Gains .00 .00
------ -------
Total Distributions .00 .00
------ -------
NET ASSET VALUE, END OF PERIOD $ 9.08 $ 9.85
------ -------
------ -------
Total Return (7.82%) (15.84%)*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1 $1
Ratios to average daily net assets:
Operating expenses 1.31% 1.18%*
Net investment income (loss) (.19%) .12%*
Decrease reflected in above operating expense ratios due to
waivers/reimbursements 1.83% 4.74%*
Portfolio Turnover Rate 82.98% .00%
* Annualized
</TABLE>
64
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Markets Fund
---------------------
Advisor Shares
---------------------
December 30, 1994
(Commencement of
Operations) through
October 31, 1995
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .14
Net Gain on Securities and Foreign Currency Related Items (both realized and unrealized) 1.19
-------
Total from Investment Operations 1.33
-------
Less Distributions:
Dividends from Net Investment Income (.03)
Distributions from Capital Gains .00
-------
Total Distributions (.03)
-------
NET ASSET VALUE, END OF PERIOD $ 11.30
-------
-------
Total Return 16.05%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 1.22%*
Net investment income 1.76%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 16.36%*
Portfolio Turnover Rate 69.12%*
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.03
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
65
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-Venture Capital Fund
-------------------------
Advisor Shares
-------------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
-------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities .68
-------
Total from Investment Operations .68
-------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
-------
Total Distributions .00
-------
NET ASSET VALUE, END OF PERIOD $ 10.68
-------
-------
Total Return 6.80%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 2.15%*
Net investment income .09%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 9.25%*
Portfolio Turnover Rate 16.90%*
* Annualized
+ Non annualized
</TABLE>
66
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND -- ADVISOR SHARES
- --------------------------------------------------------------------------------
December 8, 1995
Dear Shareholder:
The objective of the Advisor Shares of Warburg Pincus Capital Appreciation
Fund (the 'Fund') is long-term capital appreciation. The Fund invests primarily
in a diversified selection of medium-size domestic companies deemed to have
above-average earnings growth prospects or where significant fundamental changes
are taking place that augur well for improved earnings.
The Fund rose 23.41% for the 12 months ended October 31, 1995, vs. a gain
of 26.36% in the S&P 500 Index, an increase of 23.98% in the Lipper Growth Fund
Index, and an advance of 21.24% in the S&P MidCap 400 Index.
The Fund's performance during the period was driven by the broad market's
strength and by particularly solid gains across our most heavily weighted
areas -- technology, financial services, health care and global
media/entertainment. The performance of the technology sector, in particular, as
a whole was extremely strong over the past 12 months, and a number of our
holdings within the category generated exceptional returns. We remain bullish on
technology issues, and believe that the stocks held in the portfolio have
above-average prospects.
Financial stocks represent a significant portion of the portfolio, and
these also contributed positively to the Fund's performance during the fiscal
year. These issues have benefited from a favorable interest-rate environment and
a sweeping trend toward consolidation within the industry, particularly the
banking sector. We expect consolidation to continue within the banking industry,
and hold a number of excellent banks that may stand to gain from this trend,
either as acquirers or as takeover targets.
Healthcare is another area of emphasis in the Fund. Within the sector, we
have chosen to concentrate most heavily on drug and pharmaceutical companies,
which have been among the market's better performers in 1995. These companies
have taken major steps toward increasing their profitability in recent years,
through both consolidation and work-force reductions, and hence have thrived
despite difficulty in raising prices domestically. We believe that the specific
names held in the portfolio have outstanding potential. They are at the
forefront of new-product development and are well-positioned to capitalize on
the growing overseas demand for healthcare-related products. This demand should
be particularly strong in emerging nations, which stand to devote increasing
amounts of resources toward maintaining and improving the health of their
citizens as their economies develop.
We are similarly positive on the prospects of our media and entertainment
holdings, which include Walt Disney, a company we consider to be the premier
entertainment business in the world. Disney's proposed union with Capital
Cities/ABC highlights the rapid growth in consolidation within the entertainment
industry. This trend has been favorably received by the stock market, and a
number of companies in the portfolio have seen their share prices pushed sharply
higher as a result.
Looking ahead, we remain positive on the market's prospects. Data on
inflation suggest that bond yields will remain low and possibly fall further,
boosting equity valuations. At the same time, corporate profits should remain
strong, even in the face of a slowdown in revenue growth, underpinned by the
cost-cutting and productivity-enhancing efforts corporate America has made over
the past several years. We believe that the Fund is well-positioned to take
advantage of these twin forces.
<TABLE>
<S> <C>
George U. Wyper Susan L. Black
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND -- ADVISOR SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ADVISOR SHARES OF WARBURG PINCUS CAPITAL
APPRECIATION FUND
SINCE INCEPTION AS OF OCTOBER 31, 1995
The graph below illustrates the hypothetical investment of $10,000 in
Advisor Shares of Warburg Pincus Capital Appreciation Fund (the 'Fund') from
April 4, 1991 (inception) to October 31, 1995, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the S&P 500* for the
same time period.
[ INSERT GRAPHIC HERE ]
<TABLE>
<CAPTION>
FUND
-----
<S> <C>
1 Year Total Return (9/30/94-9/30/95)................................................. 24.67%
Average Annual Total Return Since Inception (4/04/91-9/30/95)......................... 12.40%
</TABLE>
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost.
- ------------
* The S&P 500 is an unmanaged index, composed of approximately 500 common
stocks, most of which are listed in the New York Stock Exchange, and has no
defined investment objective.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (95.5%)
BASIC INDUSTRIES
Aerospace & Defense (2.4%)
Loral Corp. 120,000 $ 3,555,000
Sundstrand Corp. 40,000 2,450,000
------------
6,005,000
------------
Agriculture (0.8%)
First Mississippi Corp. 100,000 2,050,000
------------
Chemicals (3.4%)
Avery Dennison Corp. 90,000 4,027,500
Hercules, Inc. 80,000 4,270,000
------------
8,297,500
------------
Conglomerates (2.0%)
Thermo Electron Corp. + 104,400 4,802,400
------------
CAPITAL GOODS
Capital Equipment (2.0%)
American Standard Companies + 116,000 3,103,000
Federal-Mogul Corp. 105,000 1,876,875
------------
4,979,875
------------
Computers (5.1%)
Checkfree Corp. + 15,000 316,875
Compaq Computer Corp. + 50,000 2,787,500
Informix Corp. + 42,500 1,237,812
Logic Works, Inc. 5,000 76,250
Parametric Technology Corp. + 70,000 4,681,250
Synopsys, Inc. + 96,200 3,607,500
------------
12,707,187
------------
Distribution (5.3%)
Alco Standard Corp. + 60,000 5,310,000
Anixter International Corp. + 160,000 3,060,000
Rykoff-Sexton, Inc. 205,900 4,632,750
------------
13,002,750
------------
Electronics (6.7%)
Cabletron Systems, Inc. + 60,000 4,717,500
Linear Technology Corp. 160,200 7,008,750
Pixtech, Inc. + 25,500 251,812
Xilinx, Inc. + 100,200 4,609,200
------------
16,587,262
------------
CONSUMER
Business Services (5.7%)
Equifax, Inc. 126,900 4,949,100
First Data Corp. 60,000 3,967,500
Manpower, Inc. + 70,000 1,898,750
Olsten Corp. 80,000 3,080,000
</TABLE>
See Accompanying Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Union Corp. 10,000 $ 161,250
------------
14,056,600
------------
Consumer Non-Durables (7.8%)
Luxottica Group SPA Sponsored ADR 20,000 975,000
Nine West Group, Inc. + 83,500 3,715,750
Reebok International, Ltd. 140,000 4,760,000
Scott Paper Co. 186,600 9,936,450
------------
19,387,200
------------
Food, Beverage & Tobacco (0.8%)
Whitman Corp. 100,000 2,125,000
------------
Healthcare (10.2%)
Becton Dickinson & Co. 45,000 2,925,000
Caremark International, Inc. 169,900 3,504,187
Health Management Associates, Inc. Class A + 180,000 3,870,000
Mallinckrodt Group, Inc. 100,000 3,475,000
McKesson Corp. 75,000 3,581,250
Pacificare Health Systems, Inc. Class B + 45,000 3,273,750
St. Jude Medical, Inc. 83,000 4,419,750
------------
25,048,937
------------
Leisure & Entertainment (1.7%)
Disney (Walt) Co. 73,500 4,235,438
------------
Retail (2.0%)
CUC International, Inc. + 142,500 4,934,063
------------
Energy and Related
Energy (1.6%)
Ensco International, Inc. + 100,000 1,687,500
Union Pacific Resources Group 100,000 2,275,000
------------
3,962,500
------------
Oil Services (0.4%)
Input/Output, Inc. 28,300 1,057,712
------------
FINANCE
Banks & Savings & Loans (14.7%)
California Federal Bank 100,000 1,475,000
Citicorp 140,000 9,082,500
Compass Bancshares, Inc. 109,600 3,397,600
CoreStates Financial Corp. 100,000 3,637,500
Greenpoint Financial Corp. 124,800 3,369,600
Long Island Bancorp, Inc. 50,000 1,143,750
Mercantile Bancorp 75,000 3,300,000
TCF Financial Corp. 22,600 1,327,750
UJB Financial Corp. 100,000 3,187,500
Wells Fargo & Co. 30,000 6,303,750
------------
36,224,950
------------
See Accompanying Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
STATEMENT OF NET ASSETS (CONT'D)
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Financial Services (7.7%)
ALLmerica Financial Corp. 40,900 $ 1,027,612
Federal Home Loan Mortgage Corp. 40,000 2,770,000
Household International, Inc. 55,000 3,093,750
Leucadia National Corp. 80,700 4,448,588
Prudential Reinsurance Holdings 100,200 2,041,575
Transport Holdings Class A 30,550 1,199,088
Travelers Group, Inc. 87,700 4,428,850
------------
19,009,463
------------
MEDIA
Communications & Media (7.3%)
Evergreen Media Corp. Class A + 49,000 1,335,250
Gannett, Inc. 50,000 2,718,750
Gaylord Entertainment Co., Class A 100,000 2,575,000
Infinity Broadcast Corp. + 91,800 2,983,500
News Corp. Ltd. ADR 35,000 695,625
Telecommunications Inc., Liberty Media Group A 90,000 2,216,250
Viacom, Inc. Class B + 110,000 5,500,000
------------
18,024,375
------------
Publishing (2.1%)
Harcourt General Inc. 75,000 2,971,875
Wiley, (John) & Sons, Inc. Class A 73,600 2,189,600
------------
5,161,475
------------
Telecommunications & Equipment (5.8%)
Picturetel Corp. + 85,000 5,610,000
Qualcomm Inc. + 70,000 2,695,000
Tel-Save Holdings, Inc. + 25,000 346,875
Tellabs, Inc. + 85,000 2,890,000
Vodafone Group PLC ADR 70,700 2,889,863
------------
14,431,738
------------
TOTAL COMMON STOCK (Cost $193,683,742) 236,091,425
------------
PREFERRED STOCK (0.3%)
Communications & Media
News Corp. ADR (Cost $990,500) 50,000 912,500
------------
PAR
---------
SHORT-TERM INVESTMENTS (4.2%)
Repurchase agreement with State Street Bank & Trust Co. dated
10/31/95 at 5.83%
to be repurchased at $10,355,677 on 11/01/95. (Collateralized by
$10,445,000 U.S.
Treasury Note at 6.875%, due 10/31/96, with a market value of
$10,575,563.) (Cost $10,354,000) $10,354,000 10,354,000
-----------
TOTAL INVESTMENTS AT VALUE (100.0%) (Cost $205,028,242*) 247,357,925
LIABILITIES IN EXCESS OF OTHER ASSETS (52,060)
-----------
NET ASSETS (100.0%) (applicable to 14,382,203 Common Shares and
712,812 Advisor Shares) $247,305,865
------------
------------
NET ASSET VALUE, offering and redemption price per Common Share
($235,712,242[div]14,382,203) $16.39
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($11,593,623[div]712,812) $16.26
------
------
</TABLE>
+ Non-income producing security.
* Cost for Federal income tax purposes is $205,163,763.
See Accompanying Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth International Equity
Fund Fund Fund
-------------------- --------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,107,232 $ 772,834 $ 40,091,101
Interest 684,526 2,112,707 7,110,116
Foreign taxes withheld (2,423) 0 (5,031,072)
-------------------- --------------- --------------------
Total investment income 2,789,335 2,885,541 42,170,145
-------------------- --------------- --------------------
EXPENSES:
Investment advisory 1,367,729 3,824,061 20,225,631
Administrative services 390,780 849,790 3,408,846
Audit 27,208 27,469 69,286
Custodian/Sub-custodian 63,554 145,277 1,753,400
Directors/Trustees 10,500 10,500 11,500
Distribution/Shareholder servicing 45,989 531,389 1,274,343
Insurance 10,104 14,770 58,340
Legal 90,851 76,677 102,549
Organizational 0 0 0
Printing 27,954 41,914 172,129
Registration 62,918 159,555 428,595
Transfer agent 92,488 149,133 1,538,272
Miscellaneous 35,776 37,625 380,319
-------------------- --------------- --------------------
2,225,851 5,868,130 29,423,210
Less: fees waived and expenses reimbursed 0 0 0
-------------------- --------------- --------------------
Total expenses 2,225,851 5,868,130 29,423,210
-------------------- --------------- --------------------
Net investment income (loss) 563,484 (2,982,589) 12,746,935
-------------------- --------------- --------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
AND FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 31,649,453 49,113,782 (34,444,203)
Net realized gain (loss) from foreign currency
related items 0 0 16,792,905
Net change in unrealized appreciation (depreciation)
from investments and foreign currency related items 12,386,702 84,670,426 (4,675,049)
-------------------- --------------- --------------------
Net realized and unrealized gain (loss) from
investments and foreign currency related
items 44,036,155 133,784,208 (22,326,347)
-------------------- --------------- --------------------
Net increase (decrease) in net assets
resulting from operations $ 44,599,639 $ 130,801,619 $ (9,579,412)
-------------------- --------------- --------------------
-------------------- --------------- --------------------
</TABLE>
40
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture Capital
Fund Fund (1) Fund (2)
-------------- ---------------- --------------------
<S> <C> <C> <C>
$ 221,577 $ 33,788 $ 0
412,522 22,711 2,675
(33,237) (3,250) 0
-------------- ---------------- -----------
600,862 53,249 2,675
-------------- ---------------- -----------
599,720 29,641 1,756
138,679 5,217 280
25,700 16,000 9,000
60,612 45,701 5,771
11,290 14,625 1,250
119,941 5,926 351
2,761 855 0
96,359 54,987 5,000
42,449 37,432 1,932
2,579 14,765 1,000
115,649 26,664 6,000
100,690 28,656 2,833
10,620 6,070 500
-------------- ---------------- -----------
1,327,049 286,539 35,673
(652,386) (262,824) (33,354)
-------------- ---------------- -----------
674,663 23,715 2,319
-------------- ---------------- -----------
(73,801) 29,534 356
-------------- ---------------- -----------
(4,629,196) 102,219 (26,884)
7,895,010 (4,992) 0
(195,368) (9,058) 164,441
-------------- ---------------- -----------
3,070,446 88,169 137,557
-------------- ---------------- -----------
$2,996,645 $117,703 $137,913
-------------- ---------------- -----------
-------------- ---------------- -----------
</TABLE>
(1) For the period December 30, 1994 (Commencement of Operations) through
October 31, 1995.
(2) For the period September 29, 1995 (Commencement of Operations) through
October 31, 1995.
See Accompanying Notes to Financial Statements.
41
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth
Fund Fund
----------------------------------- -----------------------------------
For the Year Ended October 31, For the Year Ended October 31,
1995 1994 1995 1994
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 563,484 $ 384,246 $ (2,982,589) $ (1,678,646)
Net realized gain (loss) from
security transactions 31,649,453 11,173,174 49,113,782 (5,721,525)
Net realized gain (loss) from foreign
currency related items 0 0 0 0
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency related items 12,386,702 (9,106,613) 84,670,426 10,930,919
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets resulting from
operations 44,599,639 2,450,807 130,801,619 3,530,748
--------------- ---------------- --------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (563,484) (419,337) 0 0
Advisor Shares 0 (27,724) 0 0
Distributions in excess of net
investment income:
Common Shares 0 0 0 0
Distributions from capital gains:
Common Shares (10,419,627) (12,899,141) 0 (10,576,150)
Advisor Shares (575,892) (852,608) 0 (1,639,316)
--------------- ---------------- --------------- ----------------
Net decrease from distributions (11,559,003) (14,198,810) 0 (12,215,466)
--------------- ---------------- --------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 88,963,455 45,617,531 335,569,078 180,813,270
Reinvested dividends 11,246,752 13,809,167 0 12,758,387
Net asset value of shares redeemed (53,459,471) (49,851,500) (116,280,844) (71,767,717)
--------------- ---------------- --------------- ----------------
Net increase in net assets from
capital share transactions 46,750,736 9,575,198 219,288,234 121,803,940
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets 79,791,372 (2,172,805) 350,089,853 113,119,222
NET ASSETS:
Beginning of period 167,514,493 169,687,298 304,672,758 191,553,536
--------------- ---------------- --------------- ----------------
End of period $ 247,305,865 $167,514,493 $ 654,762,611 $304,672,758
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
42
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets
Warburg Pincus Fund Fund
International Equity --------------------------------------- -------------------
Fund For the Period For the Period
----------------------------------- September 30, 1994 December 30, 1994
For the (Commencement of (Commencement of
For the Year Ended October 31, Year Ended Operations) through Operations) through
1995 1994 October 31, 1995 October 31, 1994 October 31, 1995
--------------- ---------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 12,746,935 $ 1,310,933 $ (73,801) $ 5,115 $ 29,534
(34,444,203 ) 48,091,665 (4,629,196) 0 102,219
16,792,905 (2,772,944) 7,895,010 (294,437) (4,992)
(4,675,049 ) 82,484,415 (195,368) (35,099) (9,058)
--------------- ---------------- ---------------- ------------------- -------------------
(9,579,412 ) 129,114,069 2,996,645 (324,421) 117,703
--------------- ---------------- ---------------- ------------------- -------------------
(11,671,023 ) (1,764,380) 0 0 (14,321)
(629,473 ) (218,961) 0 0 (3)
0 (223,659) 0 0 0
(42,332,078 ) (1,047,367) 0 0 0
(5,756,403 ) (129,979) 0 0 0
--------------- ---------------- ---------------- ------------------- -------------------
(60,388,977 ) (3,384,346) 0 0 (14,324)
--------------- ---------------- ---------------- ------------------- -------------------
1,383,361,959 1,430,739,923 200,565,875 20,287,158 7,753,908
54,872,977 2,950,772 0 0 13,802
(715,598,203 ) (249,050,078) (44,871,674) (185,101) (1,191,160)
--------------- ---------------- ---------------- ------------------- -------------------
722,636,733 1,184,640,617 155,694,201 20,102,057 6,576,550
--------------- ---------------- ---------------- ------------------- -------------------
652,668,344 1,310,370,340 158,690,846 19,777,636 6,679,929
1,733,275,503 422,905,163 19,878,636 101,000 101,000
--------------- ---------------- ---------------- ------------------- -------------------
$2,385,943,847 $1,733,275,503 $178,569,482 $19,878,636 $ 6,780,929
--------------- ---------------- ---------------- ------------------- -------------------
--------------- ---------------- ---------------- ------------------- -------------------
<CAPTION>
Warburg Pincus
Post-Venture
Capital Fund
-------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
-------------------
<S> <C>
$ 356
(26,884)
0
164,441
-------------------
137,913
-------------------
0
0
0
0
0
-------------------
0
-------------------
2,792,403
0
(4,887)
-------------------
2,787,516
-------------------
2,925,429
100,000
-------------------
$ 3,025,429
-------------------
-------------------
</TABLE>
See Accompanying Notes to Financial Statements.
43
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 4, 1991
For the Year Ended October 31, (Initial Issuance)
------------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.22 $15.28 $13.28 $12.16 $12.04
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .00 (.08) .00 (.01) .05
Net Gain on Securities (both realized and
unrealized) 3.02 .23 2.76 1.20 .13
------ ------ ------ ------ -------
Total from Investment Operations 3.02 .15 2.76 1.19 .18
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income .00 (.02) .00 (.02) (.06)
Distributions from Capital Gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ -------
Total Distributions (.98) (1.21) (.76) (.07) (.06)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $16.26 $14.22 $15.28 $13.28 $12.16
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return 23.41% 1.23% 21.64% 9.83% 2.66%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $11,594 $8,169 $10,437 $1,655 $443
Ratios to average daily net assets:
Operating expenses 1.62% 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss) (.18%) (.24%) (.25%) (.11%) .25%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .01%*
Portfolio Turnover Rate 146.09% 51.87% 48.26% 55.83% 39.50%
* Annualized
</TABLE>
See Accompanying Notes to Financial Statements.
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.02
Long-term capital gain .96
</TABLE>
Ordinary income dividends qualifying for the dividends received deduction
available to corporate shareholders was 100.00%.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
44
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund'), Warburg Pincus
International Equity Fund (the 'International Equity Fund') and Warburg Pincus
Post-Venture Capital Fund (the 'Post-Venture Capital Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund'), Warburg Pincus Japan OTC Fund
(the 'Japan OTC Fund') and Warburg Pincus Emerging Markets Fund (the 'Emerging
Markets Fund', together with the Capital Appreciation Fund, the International
Equity Fund, the Post-Venture Capital Fund, the Emerging Growth Fund and the
Japan OTC Fund, the 'Funds') which are registered under the 1940 Act as non-
diversified, open-end management investment companies.
Investment objectives for each Fund are as follows: the Capital
Appreciation Fund, the International Equity Fund and the Japan OTC Fund seek
long-term capital appreciation; the Emerging Growth Fund seeks maximum capital
appreciation; the Emerging Markets Fund seeks growth of capital; the
Post-Venture Capital Fund seeks long-term growth of capital.
Each Fund offers two classes of shares, one class being referred to as
Common Shares and one class being referred to as Advisor Shares. Common and
Advisor Shares in each Fund represent an equal pro rata interest in such Fund,
except that they bear different expenses which reflect the difference in the
range of services provided to them. Common Shares for the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund bear expenses paid
pursuant to a shareholder servicing and distribution plan adopted by each Fund
at an annual rate not to exceed .25% of the average daily net asset value of
each Fund's outstanding Common Shares. Advisor Shares for each Fund bear
expenses paid pursuant to a distribution plan adopted by each Fund at an annual
rate not to exceed .75% of the average daily net asset value of each Fund's
outstanding Advisor Shares. The Common and the Advisor Shares are currently
bearing expenses of .25% and .50% of average daily net assets, respectively.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported bid price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's governing Board. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are
50
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
reported in the results of operations for the current period. The Funds do not
isolate that portion of gains and losses on investments in equity securities
which are due to changes in the foreign exchange rate from that which are due to
changes in market prices of equity securities. The Funds isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses, principally distribution,
transfer agent and printing) and realized/unrealized gains/losses are allocated
proportionately to each class of shares based upon the relative net asset value
of outstanding shares. The cost of investments sold is determined by use of the
specific identification method for both financial reporting and income tax
purposes.
Dividends from net investment income are declared and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared and
paid annually. However, to the extent that a net realized capital gain can be
reduced by a capital loss carryover, such gain will not be distributed. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
Certain amounts in the Financial Highlights have been reclassified to
conform with current year presentation.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Japan OTC Fund, the Emerging Markets Fund and the
Post-Venture Capital Fund in connection with their organization have been
deferred and are being amortized over a period of five years from the date each
Fund commenced its operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives the
following fees based on each Fund's average daily net assets:
51
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- --------------------------------- ----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
Emerging Markets 1.25% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
</TABLE>
For the period or year ended October 31, 1995, investment advisory fees,
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ------------------------------------------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 1,367,729 $ 0 $ 1,367,729 $ 0
Emerging Growth 3,824,061 0 3,824,061 0
International Equity 20,225,631 0 20,225,631 0
Japan OTC 599,720 (599,720) 0 (25,920)
Emerging Markets 29,641 (29,641) 0 (230,338)
Post-Venture Capital 1,756 (1,756) 0 (31,458)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Warburg pays SPARX USA a fee at an annual rate of .625% of the average daily net
assets of the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to
SPARX USA for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Fund's average daily net assets. For the period or year
ended October 31, 1995, administrative services fees earned by CFSI were as
follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 195,390
Emerging Growth 424,895
International Equity 2,022,563
Japan OTC 47,978
Emerging Markets 2,372
Post-Venture Capital 140
</TABLE>
For its administrative services, PFPC currently receives a fee calculated
at an annual rate of .10% of the average daily net assets of the Capital
Appreciation Fund, the Emerging Growth Fund and the Post-Venture Capital Fund.
For the International Equity Fund, the Japan OTC Fund and the Emerging Markets
Fund, PFPC currently receives a fee calculated at an annual rate of .12% on each
Fund's first $250 million in average daily net assets, .10% on the next $250
million in average daily net assets, .08%
52
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
on the next $250 million in average daily net assets, and .05% of the average
daily net assets over $750 million.
For the period or year ended October 31, 1995, administrative service fees
earned and waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- ----------------------------------------- --------------------- -------- -------------------------
<S> <C> <C> <C>
Capital Appreciation $ 195,390 $ 0 $ 195,390
Emerging Growth 424,895 0 424,895
International Equity 1,386,283 0 1,386,283
Japan OTC 90,701 (26,746) 63,955
Emerging Markets 2,845 (2,845) 0
Post-Venture Capital 140 (140) 0
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund, the Emerging Growth Fund or the International Equity
Fund to CSI for distribution services. For its shareholder servicing and
distribution services, CSI currently receives a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares for the Japan OTC
Fund, the Emerging Markets Fund and the Post-Venture Capital Fund pursuant to a
shareholder servicing and distribution plan adopted by each Fund. For the period
or year ended October 31, 1995, distribution fees earned by CSI were as follows:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Japan OTC $119,941
Emerging Markets 5,926
Post-Venture Capital 351
</TABLE>
3. INVESTMENTS IN SECURITIES
For the period or year ended October 31, 1995, purchases and sales of
investment securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------------------------------------- -------------- ------------
<S> <C> <C>
Capital Appreciation $ 299,741,274 $269,962,070
Emerging Growth 532,722,466 336,581,792
International Equity 1,457,609,458 735,613,078
Japan OTC 189,768,420 36,507,703
Emerging Markets 7,181,659 1,297,140
Post-Venture Capital 2,714,501 222,270
</TABLE>
53
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 45,397,319 $ (3,203,157) $ 42,194,162
Emerging Growth 144,909,782 (9,681,675) 135,228,107
International Equity 260,125,513 (171,560,066) 88,565,447
Japan OTC 6,205,079 (7,100,852) (895,773)
Emerging Markets 341,944 (352,944) (11,000)
Post-Venture Capital 233,929 (69,488) 164,441
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund, the Japan OTC Fund, the Emerging Markets
Fund and the Post-Venture Capital Fund may enter into forward currency contracts
for the purchase or sale of a specific foreign currency at a fixed price on a
future date. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. The Funds will enter into forward contracts primarily for hedging
purposes. The forward currency contracts are adjusted by the daily exchange rate
of the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
54
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the International Equity Fund and the Japan OTC Fund had
the following open forward foreign currency contracts:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French Francs 11/15/95 260,000,000 $ 52,170,074 $ 53,253,590 $ (1,083,516)
French Francs 11/16/95 122,216,250 25,050,833 25,032,515 18,318
German Marks 11/16/95 110,000,000 78,272,317 78,263,963 8,354
German Marks 05/17/96 78,928,380 55,400,000 56,652,584 (1,252,584)
Japanese Yen 03/21/96 5,547,240,000 57,000,000 55,475,507 1,524,493
Japanese Yen 03/21/96 4,764,377,500 47,298,496 47,646,443 (347,947)
Japanese Yen 03/21/96 4,764,377,500 47,276,203 47,646,443 (370,240)
Japanese Yen 03/21/96 1,385,445,000 13,761,286 13,855,226 (93,940)
Japanese Yen 05/13/96 8,731,990,000 109,000,000 88,008,212 20,991,788
Japanese Yen 05/16/96 9,247,700,000 110,000,000 93,246,752 16,753,248
Japanese Yen 05/16/96 4,586,012,000 55,400,000 46,241,847 9,158,153
Japanese Yen 09/18/96 4,660,000,000 50,000,000 47,860,895 2,139,105
------------ ------------ ----------------
$700,629,209 $653,183,977 $ 47,445,232
------------ ------------ ----------------
------------ ------------ ----------------
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
FORWARD CURRENCY EXPIRATION TO BE CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE PURCHASED AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
German Marks 11/16/95 34,500,000 $ 25,050,828 $ 24,546,425 $ (504,403)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JAPAN OTC FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 11/30/95 12,567,400,000 $124,000,000 $123,536,813 $ 463,187
Japanese Yen 11/30/95 2,027,000,000 20,000,000 19,925,293 74,707
Japanese Yen 11/30/95 1,520,250,000 15,000,000 14,943,969 56,031
------------ ------------ ----------------
$159,000,000 $158,406,075 $ 593,925
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
55
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
5. EQUITY SWAP TRANSACTIONS
The International Equity Fund (the 'Fund') entered into a Taiwanese equity
swap agreement (which represents approximately .005% of the Fund's net assets at
October 31, 1995) dated August 11, 1995, where the Fund receives a quarterly
payment, representing the total return (defined as market appreciation and
dividend income) on a basket of three Taiwanese common stocks ('Common Stocks').
In return, the Fund pays quarterly the Libor rate (London Interbank Offered
Rate), plus 1.25% per annum (7.125% on October 31, 1995) on the initial stock
purchase amount ('Notional amount') of $12,000,000. The Notional amount is
marked to market on each quarterly reset date. In the event that the Common
Stocks decline in value, the Fund will be required to pay quarterly, the amount
of any depreciation in value from the notional amount. The equity swap agreement
will terminate on August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At October 31, 1995, the
Fund has recorded an unrealized gain of $502,018 and interest payable of
$192,375 on the equity swap transaction.
56
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
The Capital Appreciation Fund is authorized to issue three billion of full
and fractional shares of beneficial interest, $.001 par value per share, of
which one billion shares are classified as Series 2 Shares (the Advisor Shares).
The Emerging Growth Fund, the International Equity Fund, the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund are each authorized to
issue three billion full and fractional shares of capital stock, $.001 par value
per share, of which one billion shares of each Fund are designated as Series 2
Shares (the Advisor Shares).
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
Common Shares Advisor Shares Common Shares Advisor Shares
----------------------------- --------------------------- ------------------------------ --------------
For the Year Ended October 31, For the Year Ended October 31,
------------------------------------------------------------- ----------------------------------------------
1995 1994 1995 1994 1995 1994 1995
------------ ------------ ----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 6,020,619 2,958,494 201,782 290,193 9,808,362 6,133,751 3,172,686
Shares issued to
shareholders on
reinvestment of
dividends 850,478 920,210 46,554 61,526 0 506,720 0
Shares redeemed (3,638,974) (3,126,497) (110,027) (460,020) (4,294,179) (2,859,413) (383,922)
------------ ------------ ----------- ----------- ------------- ------------ -----------
Net increase
(decrease) in
shares
outstanding 3,232,123 752,207 138,309 (108,301) 5,514,183 3,781,058 2,788,764
------------ ------------ ----------- ----------- ------------- ------------ -----------
------------ ------------ ----------- ----------- ------------- ------------ -----------
Proceeds from sale
of shares $ 85,992,655 $ 41,570,590 $ 2,970,800 $ 4,046,941 $ 256,886,928 $132,922,995 $78,682,150
Reinvested
dividends 10,670,876 12,945,690 575,876 863,477 0 11,015,146 0
Net asset value of
shares redeemed (51,907,650) (43,449,501) (1,551,821) (6,401,999) (106,777,032) (61,126,667) (9,503,812)
------------ ------------ ----------- ----------- ------------- ------------ -----------
Net increase
(decrease) from
capital share
transactions $ 44,755,881 $ 11,066,779 $ 1,994,855 $(1,491,581) $ 150,109,896 $ 82,811,474 $69,178,338
------------ ------------ ----------- ----------- ------------- ------------ -----------
------------ ------------ ----------- ----------- ------------- ------------ -----------
<CAPTION>
1994
------------
<S> <C>
Shares sold 2,233,737
Shares issued to
shareholders on
reinvestment of
dividends 80,473
Shares redeemed (517,898)
------------
Net increase
(decrease) in
shares
outstanding 1,796,312
------------
------------
Proceeds from sale
of shares $ 47,890,275
Reinvested
dividends 1,743,241
Net asset value of
shares redeemed (10,641,050)
------------
Net increase
(decrease) from
capital share
transactions $ 38,992,466
------------
------------
</TABLE>
57
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONT'D)
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
INTERNATIONAL EQUITY FUND Common Shares Advisor Shares
Common Shares Advisor Shares --------------- -----------------
-------------------------------- ---------------------------- For the Period
For the Year Ended October 31, December 30, 1994
---------------------------------------------------------------- (Commencement of Operations)
1995 1994 1995 1994 through October 31, 1995
-------------- -------------- ------------ ------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 68,096,606 64,218,907 7,225,150 7,956,088 694,008 22
Shares issued to
shareholders on
reinvestment of
dividends 2,623,005 147,031 346,377 6,879 1,267 0
Shares redeemed (38,317,625) (11,861,720) (770,753) (795,406) (104,480) 0
-------------- -------------- ------------ ------------ --------------- -----
Net increase
(decrease) in
shares outstanding 32,401,986 52,504,218 6,800,774 7,167,561 590,795 22
-------------- -------------- ------------ ------------ --------------- -----
-------------- -------------- ------------ ------------ --------------- -----
Proceeds from sale of
shares $1,251,776,887 $1,275,306,263 $131,585,072 $155,433,660 $ 7,753,651 $ 257
Reinvested dividends 48,487,109 2,820,903 6,385,868 129,869 13,802 0
Net asset value of
shares redeemed (701,310,424) (233,614,600) (14,287,779) (15,435,478) (1,191,160) 0
-------------- -------------- ------------ ------------ --------------- -----
Net increase
(decrease) from
capital share
transactions $ 598,953,572 $1,044,512,566 $123,683,161 $140,128,051 $ 6,576,293 $ 257
-------------- -------------- ------------ ------------ --------------- -----
-------------- -------------- ------------ ------------ --------------- -----
</TABLE>
7. NET ASSETS
Net Assets at October 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL EMERGING
APPRECIATION FUND GROWTH FUND
----------------- ------------
<S> <C> <C>
Capital contributed, net $ 173,327,827 $479,035,241
Accumulated net investment income (loss) 0 0
Accumulated net realized gain (loss) from security transactions 31,648,355 40,302,640
Net unrealized appreciation (depreciation) from investments and
foreign currency related items 42,329,683 135,424,730
----------------- ------------
Net assets $ 247,305,865 $654,762,611
----------------- ------------
----------------- ------------
</TABLE>
58
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN OTC FUND
Common Shares Advisor Shares
------------------------------------- -------------------------------------
For the Period For the Period POST-VENTURE CAPITAL FUND
September 30, September 30, Common Shares
1994 1994 ------------------
(Commencement of (Commencement of For the Period
For the Operations) For the Operations) September 29, 1995
Year Ended through Year Ended through (Commencement of Operations)
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994 through October 31, 1995
---------------- ---------------- ---------------- ---------------- --------------------------
<S> <C> <C> <C> <C> <C>
22,809,795 2,025,697 0 15 273,510
0 0 0 0 0
(5,180,432) (18,605) 0 0 (473)
--
---------------- ---------------- ----- ------------------
17,629,363 2,007,092 0 15 273,037
--
--
---------------- ---------------- ----- ------------------
---------------- ---------------- ----- ------------------
$200,565,875 $ 20,287,008 $0 $150 $2,792,203
0 0 0 0 0
(44,871,674) (185,101) 0 0 (4,887)
--
---------------- ---------------- ----- ------------------
$155,694,201 $ 20,101,907 $0 $150 $2,787,316
--
--
---------------- ---------------- ----- ------------------
---------------- ---------------- ----- ------------------
<CAPTION>
Advisor Shares
---------------------
<S> <C>
19
0
0
-----
19
-----
-----
$ 200
0
0
-----
$ 200
-----
-----
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING POST-VENTURE
EQUITY FUND MARKETS FUND JAPAN OTC FUND CAPITAL FUND
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
$2,271,007,433 $6,677,550 $175,619,527 $2,887,516
19,124,669 10,218 7,821,209 356
(40,671,086 ) 102,219 (4,640,787) (26,884)
136,482,831 (9,058) (230,467) 164,441
-------------- ------------ -------------- ------------
$2,385,943,847 $6,780,929 $178,569,482 $3,025,429
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
</TABLE>
59
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
8. CAPITAL LOSS CARRYOVER
At October 31, 1995, the International Equity Fund, the Japan OTC Fund and
the Post-Venture Capital Fund had capital loss carryovers of $40,671,086,
$4,629,196 and $26,884, respectively, expiring in 2003 to offset possible future
capital gains of each Fund.
9. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Common Shares,
representing equal prorata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for a Common Share of each Fund are as
follows:
<TABLE>
<CAPTION>
Capital Appreciation Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.29 $15.32 $13.30 $12.16 $ 9.78
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .04 .04 .05 .04 .15
Net Gain on Securities (both
realized and unrealized) 3.08 .17 2.78 1.21 2.41
------ ------ ------ ------ ------
Total from Investment Operations 3.12 .21 2.83 1.25 2.56
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.04) (.05) (.05) (.06) (.18)
Distributions from Capital Gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ ------
Total Distributions (1.02) (1.24) (.81) (.11) (.18)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $16.39 $14.29 $15.32 $13.30 $12.16
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 24.05% 1.65% 22.19% 10.40% 26.39%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $235,712 $159,346 $159,251 $117,900 $115,191
Ratios to average daily net assets:
Operating expenses 1.12% 1.05% 1.01% 1.06% 1.08%
Net investment income .31% .26% .30% .41% 1.27%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .00%
Portfolio Turnover Rate 146.09% 51.87% 48.26% 55.83% 39.50%
</TABLE>
60
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.06
Long-term capital gain .96
</TABLE>
Ordinary income dividends qualifying for the dividends received deduction
available to corporate shareholders was 100.00%.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
61
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Growth Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $22.38 $23.74 $18.28 $16.97 $10.83
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income (Loss) (.05) (.06) (.10) (.03) .05
Net Gain on Securities (both
realized and unrealized) 7.64 .06 5.93 1.71 6.16
------ ------ ------ ------ ------
Total from Investment Operations 7.59 .00 5.83 1.68 6.21
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income .00 .00 .00 (.01) (.07)
Distributions from Capital Gains .00 (1.36) (.37) (.36) .00
------ ------ ------ ------ ------
Total Distributions .00 (1.36) (.37) (.37) (.07)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $29.97 $22.38 $23.74 $18.28 $16.97
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 33.91% .16% 32.28% 9.87% 57.57%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $487,537 $240,664 $165,525 $99,562 $42,061
Ratios to average daily net assets:
Operating expenses 1.26% 1.22% 1.23% 1.24% 1.25%
Net investment income (loss) (.58%) (.58%) (.60%) (.25%) .32%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .04% .00% .08% .47%
Portfolio Turnover Rate 84.82% 60.38% 68.35% 63.35% 97.69%
</TABLE>
62
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $20.51 $17.00 $12.22 $13.66 $11.81
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .12 .09 .09 .15 .19
Net Gain (Loss) on Securities and
Foreign Currency Related Items (both
realized and unrealized) (.67) 3.51 4.84 (1.28) 2.03
------ ------ ------ ------ ------
Total from Investment Operations (.55) 3.60 4.93 (1.13) 2.22
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.13) (.04) (.02) (.16) (.33)
Distributions in Excess of
Net Investment Income .00 (.01) .00 .00 .00
Distributions from Capital Gains (.53) (.04) (.13) (.15) (.04)
------ ------ ------ ------ ------
Total Distributions (.66) (.09) (.15) (.31) (.37)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $19.30 $20.51 $17.00 $12.22 $13.66
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return (2.55%) 21.22% 40.68% (8.44%) 19.42%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $2,068,207 $1,533,872 $378,661 $101,763 $72,553
Ratios to average daily net assets:
Operating expenses 1.39% 1.44% 1.48% 1.49% 1.50%
Net investment income .69% .19% .38% .88% 1.19%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .00% .00% .07% .17%
Portfolio Turnover Rate 39.24% 17.02% 22.60% 53.29% 54.95%
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.46
Long-term capital gain .20
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
63
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Japan OTC Fund
---------------------------------------------------------
Common Shares
---------------------------------------------------------
For the Period
September 30, 1994
(Commencement of
For the Year Ended Operations) through
October 31, 1995 October 31, 1994
--------------------------- --------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 10.00
----------- ----------
Income from Investment Operations:
Net Investment Income .00 .00
Net Loss on Securities and Foreign Currency
Related Items (both realized and unrealized) (.76) (.15)
----------- ----------
Total from Investment Operations (.76) (.15)
----------- ----------
Less Distributions:
Dividends from Net Investment Income .00 .00
Distributions from Capital Gains .00 .00
----------- ----------
Total Distributions .00 .00
----------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.09 $ 9.85
----------- ----------
----------- ----------
Total Return (7.72%) (15.84%)*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 178,568 $ 19,878
Ratios to average daily net assets:
Operating expenses 1.41% 1.00%*
Net investment income (loss) (.15%) .49%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 1.35% 4.96%*
Portfolio Turnover Rate 82.98% .00%
* Annualized
</TABLE>
64
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Markets Fund
---------------------------
Common Shares
---------------------------
For the Period
December 30, 1994
(Commencement of
Operations) through
October 31, 1995
---------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .08
Net Gain on Securities and Foreign Currency Related Items (both
realized and unrealized) 1.25
-------
Total from Investment Operations 1.33
-------
Less Distributions:
Dividends from Net Investment Income (.05)
Distributions from Capital Gains .00
-------
Total Distributions (.05)
-------
NET ASSET VALUE, END OF PERIOD $ 11.28
-------
-------
Total Return 16.09%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 6,780
Ratios to average daily net assets:
Operating expenses 1.00%*
Net investment income 1.25%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 11.08%*
Portfolio Turnover Rate 69.12%*
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.05
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
65
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-Venture Capital Fund
---------------------------
Common Shares
---------------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
---------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities (both realized and unrealized) .69
-------
Total from Investment Operations .69
-------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
-------
Total Distributions .00
-------
NET ASSET VALUE, END OF PERIOD $ 10.69
-------
-------
Total Return 6.90%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 3,024
Ratios to average daily net assets:
Operating expenses 1.65%*
Net investment income .25%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 23.76%*
Portfolio Turnover Rate 16.90%*
* Annualized
+ Non-annualized
</TABLE>
66
