<PAGE> 1
As filed with the Securities and Exchange Commission
on February 17, 1998
Securities Act File No. 33-22817
Investment Company Act File No. 811-5600
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.___ [ ]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11 [X]
(Check appropriate box or boxes)
Warburg, Pincus Intermediate Maturity Government Fund, Inc.
..................................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
..................................................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Intermediate Maturity Government Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
..................................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
-----------------------------------
<PAGE> 2
WARBURG, PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
-----------------------------------
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading*
- -------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . The Funds' Expenses
3. Condensed Financial Information . . . . Financial Highlights
4. General Description of Registrant . . . Cover Page; Investment Objectives and Policies; Portfolio
Investments; Risk Factors and Special Considerations; Certain
Investment Strategies; Investment Guidelines; General
Information
5. Management of the
Fund . . . . . . . . . . . . . . . . Management of the Funds
6. Capital Stock and Other Securities . . General Information
7. Purchase of Securities Being Offered . How to Open an Account; How to Purchase Shares; Net Asset Value
8. Redemption or
Repurchase . . . . . . . . . . . . . How to Redeem and Exchange Shares
9. Legal Proceedings . . . . . . . . . . . Not applicable
</TABLE>
- -------------------------
* Relates to Registrant's Common Share prospectus, which is
substantially similar to Registrant's Advisor Share prospectus.
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
<S> <C> <C>
10. Cover Page . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . Contents
12. General Information and History . . . Management of the Funds; Notes to Financial
Statements; See Prospectus--"General Information"
13. Investment Objectives and Policies . Investment Objectives; Investment Policies
14. Management of the Registrant . . . . Management of the Funds; See Prospectus--"Management
of the Funds"
15. Control Persons and Principal Holders
of Securities . . . . . . . . . . Management of the Funds; Miscellaneous; See Prospectus
--"General Information"
16. Investment Advisory and Other
Services . . . . . . . . . . . . . Management of the Funds; See Prospectus--"Management
of the Funds" and "Shareholder Servicing"
17. Brokerage Allocation . . . . . . . . Investment Policies; See Prospectus--"Portfolio
Transactions and Turnover Rate"
18. Capital Stock and Other Securities. . Management of the Funds--Organization of the Fund; See
Prospectus--"General Information"
</TABLE>
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
- -------- -----------------------
<S> <C> <C>
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . Additional Purchase and Redemption Information; See
Prospectus--"How to Open an Account," "How to
Purchase Shares," "How to Redeem and Exchange
Shares" and "Net Asset Value"
20. Tax Status . . . . . . . . . . . . . Additional Information Concerning Taxes; See
Prospectus--"Dividends, Distributions and Taxes"
21. Underwriters . . . . . . . . . . . . Investment Policies; Portfolio Transactions; See
Prospectus--"Management of the Funds" and
"Shareholder Servicing"
22. Calculation of Performance Data . . . Determination of Performance
23. Financial Statements . . . . . . . . Report of Independent Accountants; Financial
Statements
</TABLE>
Part C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this Registration Statement.
-2-
<PAGE> 3
PROSPECTUS
February 17, 1998
WARBURG PINCUS
FIXED INCOME FUND
-
WARBURG PINCUS
GLOBAL FIXED INCOME FUND
-
WARBURG PINCUS
INTERMEDIATE MATURITY GOVERNMENT FUND
-
WARBURG PINCUS
NEW YORK INTERMEDIATE MUNICIPAL FUND
[WARBURG PINCUS FUNDS LOGO]
<PAGE> 4
PROSPECTUS February 17, 1998
Warburg Pincus Funds is a family of open-end mutual funds that offer investors a
variety of investment opportunities. Four funds are described in this
Prospectus:
WARBURG PINCUS FIXED INCOME FUND is a bond fund seeking high current income
consistent with reasonable risk and, secondarily, capital appreciation. The Fund
will pursue its objectives by investing in a diversified portfolio of fixed
income securities.
WARBURG PINCUS GLOBAL FIXED INCOME FUND is a bond fund seeking to maximize total
investment return consistent with prudent investment management, consisting of a
combination of interest income, currency gains and capital appreciation. The
Fund will pursue its objective by investing in a portfolio principally
consisting of investment grade fixed income securities of governmental and
corporate issuers denominated in various currencies, including U.S. dollars.
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND is an intermediate-term
bond fund seeking as high a level of current income as is consistent with the
preservation of capital. The Fund will pursue its objective by investing in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND is an intermediate-term
municipal bond fund designed for New York investors seeking to maximize current
interest income exempt from federal income tax and New York State and New York
City personal income taxes to the extent consistent with prudent investment and
the preservation of capital.
NO LOAD CLASS OF COMMON SHARES
- --------------------------------------------------------------------------------
Common Shares that are "no load" are offered by this Prospectus (i) directly
from the Funds' distributor, Counsellors Securities Inc., and (ii) through
various brokerage firms including Charles Schwab & Company, Inc. Mutual Fund
OneSource(TM) Program; Fidelity Brokerage Services, Inc. FundsNetwork(TM)
Program; Jack White & Company, Inc.; and Waterhouse Securities, Inc.
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 has been filed with the Securities and Exchange Commission (the "SEC"). The
SEC maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Funds. The Statements of Additional Information are available upon
request and without charge by calling Warburg Pincus Funds at (800) 927-2874.
Information regarding the status of shareholder accounts may also be obtained by
calling a Fund at the same number. Warburg Pincus Funds maintains a Web site at
www.warburg.com. 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.
SHARES OF THE FUNDS 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 GOVERNMENT AGENCY.
INVESTMENTS IN SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 5
LOW MINIMUM INVESTMENT
- --------------------------------------------------------------------------------
The minimum initial investment in each Fund is $2,500 ($500 for an IRA or
Uniform Transfers/Gifts to Minors Act account) and the minimum subsequent
investment is $100. Through the Automatic Monthly Investment Plan, subsequent
investment minimums may be as low as $50. See "How to Purchase Shares."
THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
Each of Warburg Pincus Fixed Income Fund (the "Fixed Income Fund"), Warburg
Pincus Global Fixed Income Fund (the "Global Fixed Income Fund"), Warburg Pincus
Intermediate Maturity Government Fund (the "Intermediate Government Fund") and
Warburg Pincus New York Intermediate Municipal Fund (the "New York Municipal
Fund") (collectively, the "Funds") currently offers two separate classes of
shares: Common Shares and Advisor Shares. For a description of Advisor Shares
see "General Information."
<TABLE>
<CAPTION>
Global
Fixed Fixed Intermediate New York
Income Income Government Municipal
Fund Fund Fund Fund
------ ------ ---------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............... 0 0 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees................................... .42% .50% .11% .32%
12b-1 Fees........................................ 0 0 0 0
Other Expenses.................................... .33% .46% .50% .28%
--- ---- --- ---
Total Fund Operating Expenses (after fee
waivers)+....................................... .75% .96%* .61%* .60%
=== ==== === ===
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........................................... $ 8 $ 10 $ 6 $ 6
3 years.......................................... $ 24 $ 31 $ 20 $19
5 years.......................................... $ 42 $ 53 $ 34 $33
10 years.......................................... $ 93 $118 $ 76 $75
</TABLE>
- --------------------------------------------------------------------------------
+ Annual Fund Operating Expenses for the Funds are based on actual expenses for
the fiscal year ended October 31, 1997, net of any applicable fee waivers or
expense reimbursements. Absent such waivers and/or reimbursements, Management
Fees for the Fixed Income, Global Fixed Income, Intermediate Government and
New York Municipal Funds would have equalled .50%, 1.00%, .50% and .40%,
respectively; Other Expenses would have equalled .33%, .35%, .44% and .28%,
respectively; and Total Fund Operating Expenses would have equalled .83%,
1.35%, .94% and .68%, respectively. The investment adviser and
co-administrator are under no obligation to continue waivers and/or
reimbursements.
* Operating expenses for the Global Fixed Income Fund and the Intermediate
Government Fund were each reduced by .01% for the fiscal year ended October
31, 1997 as a result of certain arrangements that served to offset portions of
the Funds' transfer agent expense. After reflecting these arrangements, "Total
Fund Operating Expenses (after fee waivers)" for these Funds were .95% and
.60%, respectively, for the fiscal year ended October 31, 1997.
---------------------------
2
<PAGE> 6
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of each Fund. Certain broker-dealers and
financial institutions also may charge their clients fees in connection with
investments in Fund 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%.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The information regarding each Fund for the five fiscal years ended October
31, 1997 has been derived from information audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report dated December 19, 1997 is incorporated by
reference in the Statement of Additional Information. Further information about
the performance of the Funds is contained in the Funds' annual report, dated
October 31, 1997, copies of which may be obtained without charge by calling
Warburg Pincus Funds at (800) 927-2874.
<TABLE>
<CAPTION>
FIXED INCOME FUND
For the Year Ended October 31,
-----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $10.10 $10.07 $9.61 $10.42 $9.90 $9.61 $8.95 $9.74 $9.93 $9.62
------ ------ ----- ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment Income
(Loss)................. 0.62 0.63 0.70 0.63 0.56 0.67 0.73 0.88 0.91 0.88
Net Gain (Loss) from
Securities [and Foreign
Currency Related Items]
(both realized and
unrealized)............ 0.33 0.03 0.46 (0.70) 0.52 0.29 0.66 (0.79) (0.18) 0.31
------ ------ ----- ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations............. 0.95 0.66 1.16 (0.07) 1.08 0.96 1.39 0.09 0.73 1.19
------ ------ ----- ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net
investment income...... (0.62) (0.63) (0.70) (0.65) (0.56) (0.67) (0.73) (0.88) (0.91) (0.88)
Distributions from
realized gains......... 0.00 0.00 0.00 (0.09) 0.00 0.00 0.00 0.00 (0.01) 0.00
------ ------ ----- ------ ------ ------ ------ ------ ------ ------
Total Distributions...... (0.62) (0.63) (0.70) (0.74) (0.56) (0.67) (0.73) (0.88) (0.92) (0.88)
------ ------ ----- ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD................... $10.43 $10.10 $10.07 $ 9.61 $10.42 $ 9.90 $ 9.61 $ 8.95 $ 9.74 $ 9.93
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return.............. 9.78% 6.80% 12.59% (.60%) 11.63% 10.28% 16.08% .88% 7.78% 12.67%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000s)................... $265,453 $151,184 $116,983 $102,246 $81,181 $65,095 $61,908 $60,815 $87,258 $75,499
Ratios to Average Daily
Net Assets:
Operating Expenses....... .75%@ .76%@ .75% .75% .75% .75% .75% .75% .75% .74%
Net Investment Income
(Loss)................. 6.05% 6.30% 7.25% 6.53% 5.99% 6.82% 7.85% 9.35% 9.34% 8.80%
Decrease reflected in
above operating expense
ratios due to waivers/
reimbursements......... .08% .15% .18% .18% .09% .27% .24% .06% .08% .26%
Portfolio Turnover Rate... 129.06% 194.23% 182.93% 179.44% 227.37% 122.04% 150.61% 132.01% 78.25% 55.80%
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' expenses by .00% and .01% for the years ended October 31, 1997
and 1996, respectively. The Common Shares' operating expense ratio after
reflecting these arrangements were .75% and .75% for the years ended October
31, 1997 and 1996, respectively.
3
<PAGE> 7
<TABLE>
<CAPTION>
For the Year Ended October 31,
--------------------------------------------------------------------------
GLOBAL FIXED INCOME FUND 1997 1996 1995 1994 1993 1992 1991*
-------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 11.17 $ 11.04 $ 10.45 $ 11.38 $ 10.68 $ 10.40 $ 10.00
-------- ------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income.............................. 0.54 0.62 0.99 0.34 0.54 0.86 0.59
Net Gains (Losses) from Securities and Foreign
Currency Related Items (both realized and
unrealized)...................................... 0.08 0.57 0.09 (0.64) 1.13 0.28 0.14
-------- ------- ------- ------- ------- ------- -------
Total from Investment Operations................... 0.62 1.19 1.08 (0.30) 1.67 1.14 0.73
-------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income............... (0.34) (1.06) (0.49) (0.45) (0.85) (0.67) (0.33)
Distributions from realized gains.................. (0.54) 0.00 0.00 (0.14) (0.12) (0.19) 0.00
Return of Capital.................................. 0.00 0.00 0.00 (0.04) 0.00 0.00 0.00
-------- ------- ------- ------- ------- ------- -------
Total Distributions................................ (0.88) (1.06) (0.49) (0.63) (0.97) (0.86) (0.33)
-------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD...................... $ 10.91 $ 11.17 $ 11.04 $ 10.45 $ 11.38 $ 10.68 $ 10.40
======== ======= ======= ======= ======= ======= =======
Total Return........................................ 5.76% 11.35% 10.65% (2.79%) 16.72% 11.08% 7.66%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s).................... $194,731 $131,072 $63,641 $90,394 $61,994 $17,092 $12,160
Ratios to Average Daily Net Assets:
Operating expenses................................. .96%@ .95%@ .95% .95% .49% .45% 1.09%
Net investment income.............................. 5.40% 6.78% 8.18% 6.96% 8.60% 8.66% 7.45%
Decrease reflected in above expense ratios due to
waivers/reimbursements........................... .39% .56% .63% .65% 1.44% 2.42% 2.73%
Portfolio Turnover Rate............................. 202.92% 123.90% 128.70% 178.11% 109.54% 93.14% 185.74%
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on November 1, 1990.
@ Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' expenses by .01% and .00% for the years ended October 31, 1997
and 1996, respectively. The Common Shares' operating expense ratio after
reflecting these arrangements were .95% and .95% for the years ended October
31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND
For the Year Ended October 31,
-----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................ $ 10.07 $ 10.22 $ 9.66 $ 11.03 $ 11.23 $ 10.83 $ 10.24 $ 10.33 $ 10.27
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net Investment Income......... 0.58 0.58 0.59 0.54 0.59 0.68 0.76 0.79 0.82
Net Gains (Losses) from
Securities (both realized
and unrealized)............. 0.10 (0.06) 0.56 (0.73) 0.34 0.41 0.59 (0.09) 0.06
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. 0.68 0.52 1.15 (0.19) 0.93 1.09 1.35 0.70 0.88
------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income...................... (0.58) (0.58) (0.59) (0.55) (0.59) (0.68) (0.76) (0.79) (0.82)
Distributions from realized
gains....................... (0.08) (0.09) 0.00 (0.63) (0.54) (0.01) 0.00 0.00 0.00
Distribution in Excess of
Realized Gains.............. (0.04) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions........... (0.70) (0.67) (0.59) (1.18) (1.13) (0.69) (0.76) (0.79) (0.82)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD........................ $ 10.05 $ 10.07 $ 10.22 $ 9.66 $ 11.03 $ 11.23 $ 10.83 $ 10.24 $ 10.33
======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return................... 6.99% 5.16% 12.32% (1.78%) 8.79% 10.34% 13.71% 7.10% 9.05%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000s)........................ $48,421 $47,690 $55,898 $46,734 $77,565 $113,336 $89,006 $63,663 $26,861
Ratios to Average Daily Net
Assets:
Operating Expenses............ .61%@ .61%@ .60% .60% .60% .60% .57% .50% .50%
Net Investment Income......... 5.81% 5.68% 6.00% 5.43% 5.34% 6.10% 7.29% 7.78% 8.07%
Decrease reflected in above
expense ratios due to
waivers/reimbursements...... .33% .46% .49% .42% .21% .25% .30% .44% 1.53%
Portfolio Turnover Rate........ 104.34% 163.59% 105.79% 115.37% 108.00% 165.70% 39.13% 112.69% 22.55%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
@ Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' expenses by .01% and .01% for the years ended October 31, 1997
and 1996, respectively. The Common Shares' operating expense ratio after
reflecting these arrangements were .60% and .60% for the years ended October
31, 1997 and 1996, respectively.
4
<PAGE> 8
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL FUND
For the Year Ended October 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.................. $10.34 $10.42 $10.07 $10.65 $10.02 $ 9.88 $ 9.57 $ 9.59 $ 9.71 $ 9.39
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment Income...... 0.45 0.45 0.47 0.46 0.47 0.50 0.53 0.60 0.58 0.55
Net Gains (Losses) from
Securities (both realized
and unrealized).......... 0.13 0.04 0.36 (0.45) 0.68 0.14 0.31 (0.02) (0.12) 0.32
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations............... 0.58 0.49 0.83 0.01 1.15 0.64 0.84 0.58 0.46 0.87
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net
investment income........ (0.45) (0.45) (0.47) (0.46) (0.47) (0.50) (0.53) (0.60) (0.58) (0.55)
Distributions from realized
gains.................... (0.12) (0.12) (0.01) (0.13) (0.05) 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions........ (0.57) (0.57) (0.48) (0.59) (0.52) (0.50) (0.53) (0.60) (0.58) (0.55)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD..................... $10.35 $10.34 $10.42 $10.07 $10.65 $10.02 $ 9.88 $ 9.57 $ 9.59 $ 9.71
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return................ 5.83% 4.87% 8.31% .04% 11.67% 6.63% 9.43% 6.18% 4.91% 9.43%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000s)..................... $88,944 $77,559 $73,361 $75,716 $69,578 $54,012 $29,016 $21,916 $20,048 $27,596
Ratios to Average Daily Net
Assets:
Operating Expenses......... .60%@ .61%@ .60% .60% .58% .55% .55% .55% .56% .54%
Net Investment Income...... 4.40% 4.41% 4.50% 4.41% 4.50% 4.99% 5.84% 6.21% 6.14% 5.70%
Decrease reflected in above
expense ratios due to
waivers/ reimbursements.. .08% .17% .26% .20% .20% .40% .65% .76% .72% 1.01%
Portfolio Turnover Rate..... 69.84% 69.23% 105.17% 167.09% 115.98% 47.79% 66.53% 70.45% 74.03% 145.20%
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
Common Shares' expenses by .00% and .01% for the years ended October 31, 1997
and 1996, respectively. The Common Shares' operating expense ratio after
reflecting these arrangements were .60% and .60% for the years ended October
31, 1997 and 1996, respectively.
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.
FIXED INCOME FUND
The Fixed Income Fund seeks to generate high current income consistent with
reasonable risk and, secondarily, capital appreciation. The Fund is a
diversified management investment company which pursues its investment
objectives by investing, under normal market conditions, at least 65% of its
total assets in fixed income securities, such as corporate bonds, debentures and
notes, convertible debt securities, preferred stocks, government obligations,
Municipal Obligations (as described below under "New York Municipal Fund") and
repurchase agreements with respect to portfolio securities. Under normal market
conditions, the Fund intends that its portfolio of fixed income securities will
have a weighted average remaining maturity not exceeding 10 years. The Fund may
invest without limit in U.S. dollar-denominated, investment grade foreign
securities, but limits to 35% of its assets the portion that may be invested in
securities of foreign issuers that either are rated below investment grade or
are denominated in a currency other than U.S. dollars.
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<PAGE> 9
Under normal market conditions, at least 65% of all of the fixed income
securities in the Fund will be rated investment grade. A security will be
considered investment grade if it is rated at the time of purchase within the
four highest grades assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Services ("S&P"). The Fund may hold up to 35% of its
net assets in fixed income securities rated below investment grade and as low as
C by Moody's or D by S&P at the time of purchase or may be unrated securities
considered to be of equivalent quality.
GLOBAL FIXED INCOME FUND
The Global Fixed Income Fund seeks to maximize total investment return
consistent with prudent investment management, consisting of a combination of
interest income, currency gains and capital appreciation. The Fund is a non-
diversified management investment company which seeks to achieve its objective
by investing, under normal market conditions, at least 65% of its total assets
in fixed income obligations of governmental and corporate issuers denominated in
various currencies (including U.S. dollars, or in multinational currency units
such as European Currency Units ("ECUs")), including convertible debt securities
and preferred stock. Issuers of these securities will be located in at least
three countries and issuers located in any one country (other than the United
States) will not represent more than 40% of the Fund's total assets. In
addition, the Fund will not invest 25% or more of its assets in the securities
issued by any one foreign government, its agencies, instrumentalities or
political subdivisions. The Fund may invest up to 20% of its total assets in
equity securities, including common stock, warrants and rights. For temporary
defensive purposes or during times of international political or economic
uncertainty, all of the Fund's investments may be made temporarily in the United
States or denominated in U.S. dollars.
The Fund may invest in a wide variety of fixed income obligations issued
anywhere in the world, including the United States. The Fund may purchase debt
obligations issued or guaranteed by the United States or foreign governments,
their agencies, instrumentalities or political subdivisions, as well as
supranational entities organized or supported by several national governments,
such as the International Bank for Reconstruction and Development (the "World
Bank") or the European Investment Bank. The Fund may also purchase fixed income
obligations of foreign corporations that are issued in a currency other than
U.S. dollars. Because of fluctuating currency values, the Fund may engage in
certain currency transactions, as described under "Certain Investment
Strategies -- Options, Futures and Currency Transactions" below.
Under normal economic and market conditions, the dollar-weighted average
maturity of the Fund's portfolio of fixed income securities will be between 3
and 10 years, using for purposes of this calculation the maturity of a security
on its date of purchase. Individual issues may have maturities shorter or longer
than 3 to 10 years.
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Warburg Pincus Asset Management, Inc., each Fund's investment adviser
("Warburg"), will allocate investments among securities of particular issuers on
the basis of its views as to the best values then currently available in the
marketplace. Such values are a function of yield, maturity, issue classification
and quality characteristics, coupled with expectations regarding the economy,
movements in the general level and term of interest rates, currency values,
political developments and variations in the supply of funds available for
investment in the world bond market relative to the demands placed upon it.
Fixed income securities denominated in currencies other than the U.S. dollar or
in multinational currency units are evaluated on the strength of the particular
currency against the U.S. dollar as well as on the current and expected levels
of interest rates in the country or countries. Currencies generally are
evaluated on the basis of fundamental economic criteria (e.g., relative
inflation and interest rate levels and trends, growth rate forecasts, balance of
payments status and economic policies) as well as technical and political data.
In addition to the foregoing, the Fund may seek to take advantage of differences
in relative values of fixed income securities among various countries.
The Fund may hold up to 35% of its net assets in fixed income securities rated
below investment grade, or in unrated securities considered to be of equivalent
quality.
INTERMEDIATE GOVERNMENT FUND
The Intermediate Government Fund seeks to achieve as high a level of current
income as is consistent with the preservation of capital. The Fund is a
diversified management investment company which pursues its investment objective
by investing, under normal market conditions, at least 65% of its total assets
in obligations issued or guaranteed by the United States government, its
agencies or instrumentalities ("Government Securities"). Under normal market
conditions, the Fund will maintain a weighted average portfolio maturity of
between 3 and 10 years. Investments by the Fund in repurchase agreements on
Government Securities are not included in determining the percentage of assets
invested in Government Securities.
The Fund may invest in Government Trust Certificates. Each Certificate
evidences an undivided fractional interest in a Government Trust (each, a
"Trust"). The assets of each Trust consist of a promissory note, payable in U.S.
Dollars (the "Loan Note"), representing a loan made by the Trust to the
government of Israel (the "Borrower"), backed by a full faith and credit
guaranty issued by the United States of America, acting through the Defense
Security Assistance Agency of the Department of Defense (the "Guaranty"), of the
due and punctual payment of 90% of payments of principal and interest due on the
Loan Note and a security interest in collateral, consisting of non-callable
securities issued or guaranteed by the United States government, or derivatives
thereof, such as trust receipts or other securities evidencing an interest in
such United States government securities, sufficient to pay the remaining 10% of
all payments of principal and interest due on the Loan
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Notes. Each Certificate issued by a Trust represents the right to receive a
portion of the payments due on the Loan Note held by that Trust. The
Certificates are not subject to prepayment or acceleration. Each Guaranty is
entitled to the full faith and credit of the United States of America. A
Certificateholder's right to receive any payments with respect to the Guaranty
will be subject to termination if such holder breaches the terms of its
Certificate.
Certificates are not considered by the Fund to be Government Securities. The
Certificates represent undivided fractional interests in the Loan Notes, but the
Certificates are not direct obligations of, and are not guaranteed by, the
Borrower. Thus, in the event of a failure to pay principal and/or interest when
due, the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation of the Borrower.
NEW YORK MUNICIPAL FUND
The New York Municipal Fund seeks to maximize current interest income exempt
from federal income tax and New York State and New York City personal income
taxes to the extent consistent with prudent investment and the preservation of
capital. The Fund is a non-diversified management investment company which
pursues its investment objective by investing, under normal market conditions,
at least 65% of its total assets in investment grade "New York Municipal
Obligations." New York Municipal Obligations are debt obligations (other than
short-term securities), the interest on which is excluded from gross income for
federal income tax purposes and exempt from New York State and New York City
personal income tax. Under normal market conditions, the Fund will maintain a
weighted average portfolio maturity of between 3 and 10 years. If Warburg
believes that suitable New York Municipal Obligations are not available, the
Fund may for temporary defensive reasons invest without limit in (i) municipal
obligations that pay interest which is excluded from gross income for federal
income tax purposes but which is not exempt from New York State and New York
City personal income taxes and (ii) taxable or tax-exempt money market
obligations. It is a fundamental policy of the Fund that, except during
temporary defensive periods, the Fund will have at least 80% of its assets
invested in obligations issued by or on behalf of states (including the State of
New York), territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities
("Municipal Obligations"). This fundamental policy may not be amended without
first obtaining the approval of holders of a majority of the outstanding shares
of the Fund. The Fund may invest up to 20% of its total assets in debt
obligations other than Municipal Obligations. The Fund may invest in unrated
issues that are believed by Warburg to have financial characteristics that are
comparable and that are otherwise similar in quality to the rated issues it
purchases. Investors should be aware that ratings are relative and subjective
and are not absolute standards of quality.
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PORTFOLIO INVESTMENTS
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MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal
conditions, up to 35% of its total assets in short-term money market obligations
having remaining maturities of less than one year at the time of purchase. These
short-term instruments consist of Government Securities; 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; in the case of the Fixed Income Fund and the
Global Fixed Income Fund, obligations of foreign governments, their agencies or
instrumentalities; and repurchase agreements with respect to portfolio
securities. The short-term money market obligations in which the New York
Municipal Fund is authorized to invest generally will be tax-exempt obligations;
however, the Fund may invest in taxable obligations when suitable tax-exempt
obligations are unavailable or to maintain liquidity for meeting anticipated
redemptions and paying operating expenses. Tax-exempt money market obligations
in which the New York Municipal Fund may invest consist of investment grade
tax-exempt notes and tax-exempt 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
not rated, of municipal issuers having an issue of outstanding Municipal
Obligations rated within the three highest grades by Moody's or S&P.
For temporary defensive purposes or, in the case of the Global Fixed Income
Fund, during times of international political or economic uncertainty, each Fund
other than the Intermediate Government Fund may invest without limit in
short-term money market obligations, and the Intermediate Government Fund may
invest without limit in short-term Government Securities.
Repurchase Agreements. Under normal market conditions, each Fund may invest up
to 20% of its total assets 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, 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
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<PAGE> 13
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 in which the Fund seeks to assert
this right. Warburg, acting under the supervision of the Fund's Board of
Directors or Board of Trustees as applicable (the "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 or Warburg. A money market mutual fund
is an investment company that invests in short-term high quality money market
instruments. A money market mutual fund generally does not purchase securities
with a remaining maturity of more than one year. The Intermediate Government
Fund and the New York Municipal Fund would invest in money market mutual funds
that invest in Government Securities and tax-exempt securities, respectively. 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. The obligations issued or guaranteed by the U.S.
government in which a Fund may invest include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association ("GNMA")); instruments that are supported by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and instruments that are supported by the credit of the instrumentality
(such as Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") bonds).
CONVERTIBLE SECURITIES. Convertible securities in which the Fixed Income and
Global Fixed Income Funds 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
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<PAGE> 14
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.
STRUCTURED SECURITIES. The Funds may purchase any type of publicly traded or
privately negotiated fixed income security, including mortgage-backed
securities; structured notes, bonds or debentures; and assignments of and
participations in loans.
Mortgage-Backed Securities. Mortgage-backed securities are collateralized by
mortgages or interests in mortgages and may be issued by government or
non-government entities. Mortgage-backed securities issued by GNMA, FNMA or
FHLMC provide a monthly payment consisting of interest and principal payments,
and additional payments will be made out of unscheduled prepayments of
principal. Neither the value of nor the yield on these mortgage-backed
securities or shares of the Funds is guaranteed by the U.S. government.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgaged-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Foreclosures and
prepayments, which occur when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities on these securities.
The Funds' yield may be affected by reinvestment of prepayments at higher or
lower rates than the original investment. Prepayments may tend to increase due
to refinancing of mortgages as interest rates decline. In addition, like other
debt securities, the values of mortgage-backed securities will generally
fluctuate in response to interest rates.
Structured Notes, Bonds or Debentures. Typically, the value of the principal
and/or interest on these instruments is determined by reference to changes in
the value of specific currencies, interest rates, commodities, indexes or other
financial indicators (the "Reference") or the relevant change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in the loss of a Fund's entire investment. The value of structured securities
may move in the same or the opposite direction as the value of the Reference, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference so that the security may be more or less
volatile than the Reference, depending on the multiple. Consequently, structured
securities may entail a greater degree of market risk and volatility than other
types of debt obligations.
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Assignments and Participations. Each Fund may invest in assignments of and
participations in loans issued by banks and other financial institutions.
When a Fund purchases assignments from lending financial institutions, the
Fund will acquire direct rights against the borrower on the loan. However, since
assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by a Fund as the purchaser of an assignment may differ from, and be more limited
than, those held by the assigning lender.
Participations in loans will typically result in a Fund having a contractual
relationship with the lending financial institution, not the borrower. A Fund
would have the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender of the payments from the borrower. In
connection with purchasing a participation, a Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan, nor any rights of set-off against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in which
it has purchased a participation. As a result, a Fund purchasing a participation
will assume the credit risk of both the borrower and the lender selling the
participation. In the event of the insolvency of the lender selling the
participation, the Fund may be treated as a general creditor of the lender and
may not benefit from any set-off between the lender and the borrower.
A Fund may have difficulty disposing of assignments and participations because
there is no liquid market for such securities. The lack of a liquid secondary
market will have an adverse impact on the value of such securities and on a
Fund's ability to dispose of particular assignments or participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid market for assignments and participations also may make it
more difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
With respect to the New York Municipal Fund, income derived from
participations or assignments may not be tax-exempt, depending on the structure
of the particular securities. To the extent such income is not tax-exempt it
will be subject to the New York Municipal Fund's 20% limit on investing in non-
municipal securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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For certain additional risks related to each Fund's investments, see
"Portfolio Investments" and "Certain Investment Strategies."
Among the factors that may be considered in deciding whether to invest in a
security are the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history and the ability of the issuer's
management. Bond prices generally vary inversely in relation to changes in the
level of interest rates, as well as in response to other market factors and
changes in the creditworthiness of the issuers of the securities. Government
Securities are
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<PAGE> 16
considered to be of the highest credit quality available. Government Securities,
however, will be affected by general changes in interest rates. The price
volatility of a Fund's shares where the Fund invests in intermediate maturity
bonds will be substantially less than that of long-term bonds. An intermediate
maturity bond will generally have a lower yield than that of a long-term bond.
Longer-term securities in which the Funds may invest generally offer a higher
current yield than is offered by shorter-term securities, but also generally
involve greater volatility of price and risk of capital than shorter-term
securities.
NEW YORK MUNICIPAL OBLIGATIONS. The New York Municipal Fund's ability to
achieve its investment objective is dependent upon the ability of the issuers of
New York Municipal Obligations to meet their continuing obligations for the
payment of principal and interest. New York State and New York City face
long-term economic problems that could seriously affect their ability and that
of other issuers of New York Municipal Obligations to meet their financial
obligations. Certain substantial issuers of New York Municipal Obligations
(including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing
abilities of all New York issuers and have generally contributed to higher
interest costs for their borrowings and fewer markets for their outstanding debt
obligations. In recent years, several different issues of municipal securities
of New York State and its agencies and instrumentalities and of New York City
have been downgraded by S&P and Moody's. On the other hand, strong demand for
New York Municipal Obligations has at times had the effect of permitting New
York Municipal Obligations to be issued with yields relatively lower, and after
issuance, to trade in the market at prices relatively higher than comparably
rated municipal obligations issued by other jurisdictions. A recurrence of the
financial difficulties previously experienced by certain issuers of New York
Municipal Obligations could result in defaults or declines in the market values
of those issuers' existing obligations and, possibly, in the obligations of
other issuers of New York Municipal Obligations. Although as of the date of this
Prospectus, no issuers of New York Municipal Obligations are in default with
respect to the payment of their municipal obligations, the occurrence of any
such default could affect adversely the market values and marketability of all
New York Municipal Obligations and, consequently, the net asset value of the New
York Municipal Fund's portfolio. Other considerations affecting the New York
Municipal Fund's investments in New York Municipal Obligations are summarized in
the Fund's Statement of Additional Information.
NON-DIVERSIFIED STATUS. The Global Fixed Income Fund and the New York
Municipal Fund are each classified as a non-diversified investment company under
the 1940 Act, which means that the Funds are not limited by the 1940 Act in the
proportion of their assets that they may invest in the obligations of a single
issuer. The Funds will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the
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<PAGE> 17
"Code"), for qualification as a regulated investment company. As non-diversified
investment companies, the Funds may invest a greater proportion of their 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
Funds assume large positions in the securities of a small number of issuers,
their 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.
BELOW INVESTMENT GRADE SECURITIES. There are certain risk factors associated
with lower-rated securities. Securities rated in the fourth highest grade (the
lowest investment grade) have some speculative characteristics associated with
below investment grade securities, and securities rated B have speculative
elements and a greater vulnerability to default than investment grade
securities. Investors should be aware that ratings are relative and subjective
and are not absolute standards of quality.
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 by the Fund,
although Warburg will consider such event in its determination of whether the
Fund should continue to hold the securities. The Fixed Income Fund and the
Global Fixed Income Fund may invest in securities rated as low as C by Moody's
or D by S&P and in unrated securities considered to be of equivalent quality.
Securities that are rated C by Moody's are the lowest rated class and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. Debt rated D by S&P is in default or is expected to default
upon maturity or payment date.
Below investment grade and comparable unrated securities (commonly referred to
as "junk bonds") (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are outweighed
by large uncertainties or major risk exposures to adverse conditions and (ii)
are predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. The
market values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is significantly
greater because these securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.
The market value of below investment grade securities is more volatile than
that of investment grade securities. In addition, a Fund may have difficulty
disposing of certain of these securities because there may be a thin trading
market. The lack of a liquid secondary market for certain securities may have an
adverse impact on the Fund's ability to dispose of particular issues and may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
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For a complete description of the rating systems of Moody's and S&P, see the
Appendix to the Statement of Additional Information.
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 "Securities Act"), but that can be sold to "qualified institutional buyers"
in accordance with Rule 144A under the Securities Act ("Rule 144A Securities").
A Rule 144A Security will be considered illiquid and therefore subject to each
Fund's limitation on the purchase of illiquid securities, unless the Fund's
Board determines on an ongoing basis that an adequate trading market exists for
the security. In addition to an adequate trading market, the Board will also
consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Funds to the extent that qualified institutional
buyers become uninterested for a time in purchasing Rule 144A Securities. The
Board of each Fund will carefully monitor any investments by the Fund in Rule
144A Securities. The Boards may adopt guidelines and delegate to 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 from these 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 that would be applicable if their securities were
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.
UNSEASONED ISSUERS. Investing in securities of companies with continuous
operations of less than three years ("unseasoned issuers") may involve greater
risks since these securities may have limited marketability and, thus, may be
more volatile than securities of larger, more established companies or the
market in general. Because such companies normally have fewer shares outstanding
than larger companies, it may be more difficult for a Fund to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. These companies may have limited product lines, markets or financial
resources and may lack management depth. In addition, these 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 these companies than for
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larger, more established ones. Although investing in securities of unseasoned
issuers 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 more
established, larger companies.
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. In addition, to
the extent it is consistent with a Fund's investment objective, the Fund also
may engage in short-term trading. A Fund will not consider portfolio turnover
rate a limiting factor in making investment decisions consistent with its
investment objective and policies. This investment approach and use of certain
of the investment strategies described below may result in a high portfolio
turnover rate. 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 transactions are 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.
Newly issued Government Securities normally are purchased by a Fund directly
from the issuer or from an underwriter acting as a principal. Other purchases
and sales usually are placed by the Fund with those dealers which Warburg
determines offer the best price and execution. 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 a dealer
in the after market normally are executed at a price between the bid and asked
prices.
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 Board.
CERTAIN INVESTMENT STRATEGIES
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Although there is no intention of doing so during the coming year, each Fund
may purchase when-issued securities and enter into delayed-delivery
transactions. Detailed information concerning each Fund's strategies and related
risks is contained below and in the Statement of Additional Information.
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STRATEGIC AND OTHER TRANSACTIONS AVAILABLE TO ALL FUNDS
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 other applicable regulatory
authorities.
Securities Options and Stock Index Options. The Funds may purchase and write
covered put and call options traded on U.S. and foreign exchanges as well as
over-the-counter ("OTC") without limit on 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 purchaser of a
put option on a security has the right to compel the purchase by the writer of
the underlying security, while the purchaser of a call option on a security has
the right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, each Fund may also purchase and
write without limit exchange-listed and OTC put and call options on securities
indexes. A securities index measures the movement of a certain group of
securities by assigning relative values to the securities included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. Each Fund may enter into interest rate,
securities index and, in the case of the Fixed Income and Global Fixed Income
Funds, currency 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 securities index and certain other futures contracts, are settled in
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<PAGE> 21
cash with reference to a specified multiplier times the change in the specified
interest rate, index or exchange 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 Fixed Income and Global Fixed Income Funds
may conduct 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 and writing exchange-traded and OTC 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 index options. In addition, the use of currency transactions could
result in losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
Hedging Considerations. The 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 predict correctly
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 a position without incurring substantial losses, if at
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all. The Fund is also subject to the risk of a default by a counterparty to an
off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities, indexes and currencies; interest rate, index and
currency futures contracts and options on these futures contracts; and forward
currency contracts. The use of these strategies may require that the Fund
maintain cash or liquid securities in a segregated account with its custodian or
a designated sub-custodian to the extent the Fund's obligations with respect to
these strategies are not otherwise "covered" through 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.
ZERO COUPON SECURITIES. Each Fund may invest without limit in "zero coupon
securities." Zero coupon securities pay no cash income to their holders until
they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the values of securities
that distribute income regularly and may be more speculative than such other
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. Redemption of shares of a Fund that require it
to sell zero coupon securities prior to maturity may result in capital gains or
losses that may be substantial. In addition, a Fund's investments in zero coupon
securities will result in special tax consequences, which are described below
under "Dividends, Distributions and Taxes -- Taxes."
INTEREST RATE, INDEX, MORTGAGE AND CURRENCY SWAPS; INTEREST RATE CAPS, FLOORS
AND COLLARS. Each Fund may enter into interest rate, index and mortgage swaps
and interest rate caps, floors and collars for hedging purposes or to seek to
increase total return; the Fixed Income and Global Fixed Income Funds may enter
into currency swaps for hedging purposes. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Index swaps involve the exchange by the Fund with another party
of the respective amounts payable with respect to a notional principal amount
related to one or more indexes. Mortgage swaps are similar to interest rate
swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages. Currency swaps involve the exchange of cash flows on a notional
amount of two or more currencies based on their relative
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<PAGE> 23
future values. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payment of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling the interest rate floor. An interest rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates.
A Fund will enter into interest rate, index and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate, index and mortgage swaps is limited to the net
amount of interest payments that the Fund is contractually obligated to make. If
the other party to an interest rate, index or mortgage swap defaults, the Fund's
risk of loss consists of the net amount of interest payments that the Fund is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of a gross payment stream in one designated currency in exchange
for the gross payment stream in another designated currency. Therefore, the
entire payment stream under a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations. To
the extent that the net amount payable by the Fund under an interest rate, index
or mortgage swap and the entire amount of the payment stream payable by the Fund
under a currency swap or an interest rate cap, floor or collar are held in a
segregated account consisting of cash or liquid securities, the Funds and
Warburg believe that swaps do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to each Fund's
borrowing restriction.
The Fund will not enter into interest rate, index, mortgage or currency swaps,
or interest rate cap, floor or collar transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party is
rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's or, if
unrated by such rating organizations, determined to be of comparable quality by
Warburg.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each Fund may enter into
reverse repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. Each Fund also may enter
into "dollar rolls," in which the Fund sells fixed-income securities for
delivery in the current month and simultaneously contracts to repurchase similar
but not identical (same type, coupon and maturity) securities on a specified
future date. During the roll period, a Fund would forego principal
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and interest paid on such securities. The Fund would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale.
At the time a Fund enters into a reverse repurchase agreement or dollar roll,
it will establish and maintain a segregated account with an approved custodian
containing cash or liquid securities having a value not less than the repurchase
price (including accrued interest). The assets contained in the segregated
account will be marked-to-market daily and additional assets will be placed in
such account on any day in which the assets fall below the repurchase price
(plus accrued interest). Each Fund's liquidity and ability to manage its assets
might be affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements and dollar rolls that are accounted
for as financings are considered to be borrowings under the 1940 Act.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND, THE GLOBAL FIXED INCOME FUND AND
THE INTERMEDIATE GOVERNMENT FUND
SHORT SALES AGAINST THE BOX. The Fixed Income Fund, the Global Fixed Income
Fund and the Intermediate Government Fund may each enter into a short sale of
securities such that when the short position is open the Fund owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one "against the box," may be entered into by a Fund to, for
example, lock in a sale price for a security the Fund does not wish to sell
immediately. The Fund will deposit, in a segregated account with its custodian
or a qualified subcustodian, the securities sold short or convertible or
exchangeable preferred stocks or debt securities in connection with short sales
against the box. Not more than 10% of a Fund's net assets (taken at current
value) may be held as collateral for short sales against the box at any one
time.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND AND
THE GLOBAL FIXED INCOME FUND
FOREIGN SECURITIES. The Fixed Income and Global Fixed Income Funds may invest
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 less rigorous than those applied in the United States. The yield of the
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Funds may be adversely affected by fluctuations in the value of one or more
currencies relative to the U.S. dollar. 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. Due to the increased exposure of the Funds to market and
foreign exchange fluctuations brought about by such delays and due to the
corresponding negative impact on the Funds' liquidity, the Funds will avoid
investing in countries that are known to experience settlement delays which may
expose the Funds to unreasonable risk of loss. 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.
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 may 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.
REITS. The Fixed Income Fund and the Global Fixed Income Fund may invest in
real estate investment trusts ("REITs"), which are pooled investment vehicles
that invest primarily in income-producing real estate or real estate related
loans or interests. Like regulated investment companies such as the Funds, REITs
are not taxed on income distributed to shareholders provided they comply with
several requirements of the Code. A Fund investing in a REIT will indirectly
bear its proportionate share of any expenses paid by the REIT in addition to the
expenses of the Fund.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, the possibilities of failing to qualify
for the exemption from tax for distributed income under the Code and failing to
maintain their exemptions from the 1940 Act. REITs are also subject to interest
rate risks.
STRATEGY AVAILABLE TO THE FIXED INCOME FUND AND
THE INTERMEDIATE GOVERNMENT FUND
LENDING OF PORTFOLIO SECURITIES. The Fixed Income Fund and the Intermediate
Government Fund may lend portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, a Fund can increase its
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income by continuing to receive interest and any dividends on the loaned
securities as well as by either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
Government Securities are used as collateral. These loans, if and when made, may
not exceed 20% and 30%, respectively, of the total assets of the Fixed Income
Fund and the Intermediate Government Fund, respectively, taken at value and will
be collateralized by cash, letters of credit or Government Securities, which are
maintained at all times in an amount at least equal to 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 pay a part of the interest earned from
the investment collateral received for securities loaned to the borrower and/or
a third party that is unaffiliated with the Fund and that is acting as a
"finder." The Fund bears a risk of loss in the event that the other party to the
loan agreement defaults on its obligations or becomes bankrupt and the Fund is
delayed or prevented from exercising its right to retrieve and dispose of the
loaned securities, including the risk of a possible decline in the value of the
loaned securities during the period in which the Fund seeks to assert its
rights.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND AND
THE NEW YORK MUNICIPAL FUND
NEW YORK MUNICIPAL OBLIGATIONS. New York Municipal Obligations include debt
obligations of the State of New York and its political subdivisions, agencies
and public authorities issued to obtain funds for various public purposes and
debt obligations issued by other governmental entities (such as Puerto Rico) if
such debt obligations generate interest income which is excluded from gross
income for federal taxable income purposes and exempt from New York State and
New York City personal income taxes.
MUNICIPAL OBLIGATIONS. The two principal types of Municipal Obligations, in
terms of the source of payment of debt service on the bonds, are general
obligation bonds and revenue bonds and a Fund may hold both in any proportion.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source but not from the general taxing power. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
A Fund may invest without limit in Municipal Obligations that are repayable
out of revenue streams generated from economically related projects or
facilities or Municipal Obligations whose issuers are located in the same state.
Sizeable investments in such obligations could involve an increased risk to the
Fund should any of such related projects or facilities experience financial
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difficulties. Each Fund intends during the coming year to limit investments in
such obligations to less than 25% of its assets.
ALTERNATIVE MINIMUM TAX BONDS. The Funds may invest without limit in
"Alternative Minimum Tax Bonds," which are certain bonds issued after August 7,
1986 to finance certain non-governmental activities. While the income from
Alternative Minimum Tax Bonds is exempt from regular federal income tax, it is a
tax preference item for purposes of the federal individual and corporate
"alternative minimum tax." The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments or tax
preference items. Available returns on Alternative Minimum Tax Bonds acquired by
a Fund may be lower than those from other Municipal Obligations acquired by a
Fund due to the possibility of federal, state and local alternative minimum or
minimum income tax liability on Alternative Minimum Tax Bonds. At present, the
Fixed Income Fund does not intend to purchase Alternative Minimum Tax Bonds.
VARIABLE RATE AND MASTER DEMAND NOTES. Municipal Obligations purchased by a
Fund may include variable rate and master demand notes issued by industrial
development authorities and other governmental entities. Variable rate demand
notes are tax-exempt Municipal Obligations that provide for a periodic
adjustment in the interest rate paid on the notes. Master demand notes are
tax-exempt Municipal Obligations that provide for a periodic adjustment in the
interest rate paid (usually tied to the Treasury Bill auction rate) and permit
daily changes in the amount borrowed. While there may be no active secondary
market with respect to a particular variable rate or master demand note
purchased by a Fund, the Fund may, upon the notice specified in the note, demand
payment of the principal of and accrued interest on the note at any time and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for the Fund to dispose of
the variable rate or master demand note involved in the event the issuer of the
note defaulted on its payment obligations, and a Fund could, for this or other
reasons, suffer a loss to the extent of the default plus any expenses involved
in an attempt to recover the investment.
STAND-BY COMMITMENTS. The Fixed Income Fund and the New York Municipal Fund
may acquire stand-by commitments with respect to Municipal Obligations held in
their respective portfolios. Under a stand-by commitment, which is commonly
known as a "put", a dealer agrees to purchase, at a Fund's option, specified
Municipal Obligations at a specified price. A Fund may pay for stand-by
commitments either separately in cash or by paying a higher price for the
securities acquired with the commitment, thus increasing the cost of the
securities and reducing the yield otherwise available from them, and will be
valued at zero in determining the Fund's net asset value. A stand-by commitment
is not transferable by a Fund, although the Fund can sell the underlying
Municipal Obligations to a third party at any time. The principal risk of
stand-by commitments is that the writer of a commitment may default on its
obligation to repurchase the securities acquired with it. The Funds
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<PAGE> 28
intend to enter into stand-by commitments only with brokers, dealers and banks
that, in the opinion of Warburg, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Warburg will
periodically review relevant financial information concerning the issuer's
assets, liabilities and contingent claims. The Funds will acquire stand-by
commitments only in order to facilitate portfolio liquidity and do not intend to
exercise their rights under stand-by commitments for trading purposes.
STRATEGY AVAILABLE TO THE INTERMEDIATE GOVERNMENT FUND
GOVERNMENT ZERO COUPON SECURITIES. The Intermediate Government Fund may invest
in (i) Government Securities that have been stripped of their unmatured interest
coupons, (ii) the coupons themselves and (iii) receipts or certificates
representing interests in stripped Government Securities and coupons
(collectively referred to as "Government zero coupon securities"). The market
value of Government zero coupon securities that are considered Government
Securities is used for purposes of determining whether at least 65% of the
Intermediate Government Fund's total assets is invested in Government
Securities. However, receipts or certificates which are underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain notes or bonds issued by the U.S.
government, its agencies, authorities or instrumentalities will not be
considered Government Securities for purposes of the 65% test. For a description
of zero coupon securities and the tax and other considerations associated with
investing in them, see "Zero Coupon Securities" above and "Dividends,
Distributions and Taxes -- Taxes" below.
INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
Each Fund may each 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) with respect to each Fund other than the Intermediate Government Fund,
time deposits maturing in more than seven calendar days; and (iv) certain Rule
144A Securities. Although the Fixed Income Fund and the Global Fixed Income Fund
may each invest up to 10% of its net assets in warrants, neither Fund currently
intends to invest in warrants. Each Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, in an
amount up to 30% of its total assets and may pledge assets to the extent
necessary to secure permitted borrowings. Whenever borrowings (including reverse
repurchase agreements) exceed 5% of the value of a 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 of each
Fund, subject to the limita-
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tions 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 Funds and furnishes the Funds
with office space, furnishings and equipment.
For the services provided by Warburg, the Fixed Income Fund, the Global Fixed
Income Fund, the Intermediate Government Fund and the New York Municipal Fund
pay Warburg a fee calculated at an annual rate of .50%, 1.00%, .50% and .40%,
respectively, of the Fund's average daily net assets. 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 advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of December 31, 1997,
Warburg managed approximately $19.7 billion of assets, including approximately
$11.3 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGERS. Dale C. Christensen is a Co-Portfolio Manager of each of
the Funds. Mr. Christensen is a Managing Director of Warburg and has been
associated with Warburg since 1989. He has been with each Fund since January
1992. M. Anthony E. van Daalen is a Co-Portfolio Manager of the Fixed Income and
Intermediate Government Funds. Mr. van Daalen is a Senior Vice President of
Warburg and has been associated with Warburg since 1992. Laxmi C. Bhandari, also
a Senior Vice President of Warburg, is a Co-Portfolio Manager of the Global
Fixed Income Fund. Mr. Bhandari has been a Co-Portfolio Manager of the Global
Fixed Income Fund since joining Warburg in 1993, before which time he was a vice
president at the Paribas Corporation. Sharon B. Parente is a Co-Portfolio
Manager of the New York Municipal Fund. Ms. Parente is a Managing Director of
Warburg and has been a Co-Portfolio Manager of the New York Municipal Fund since
joining Warburg in 1992.
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CO-ADMINISTRATORS. Each 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 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 services, acting as liaison between each Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual and semiannual reports, assisting in the preparation of tax returns 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 Inc., an indirect, wholly owned subsidiary of PNC Bank
Corp. ("PFPC"), as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for each Fund and
assists in related aspects of the Fund's operations. As compensation each of the
Funds pays PFPC a fee calculated at an annual rate of .05% of its average daily
net assets, subject in each case to a minimum annual fee and exclusive of
out-of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ("PNC") serves as custodian of the
assets of each of the Funds. State Street Bank & Trust Company ("State Street")
also serves as custodian of the Fixed Income Fund's and Global Fixed Income
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 Bank also acts as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Funds. It has delegated to
Boston Financial Data Services, Inc. ("BFDS"), a 50%-owned subsidiary,
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation 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.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients 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. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or
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more Warburg Pincus Funds. Warburg or its affiliates may pay for travel,
meals and lodging in connection with these promotional activities. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
Fund shares.
DIRECTORS/TRUSTEES AND OFFICERS. The officers of each Fund manage its day-
to-day operations and are directly responsible to the Board. The Boards set
broad policies for each Fund and choose its officers. A list of the Directors/
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.
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) 927-2874. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
RETIREMENT PLANS AND UTMA/UGMA ACCOUNTS. For information (i) about investing
in the Funds through a tax-advantaged retirement plan, such as an Individual
Retirement Account ("IRA"), or (ii) about opening a Uniform Gifts to Minors Act
("UGMA") or Uniform Transfers to Minors Act ("UTMA") account, an investor should
telephone Warburg Pincus Funds at (800) 927-2874 or write to Warburg Pincus
Funds at the address set forth above. Investors should consult their own tax
advisers about the establishment of retirement plans and UTMA or UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration, address and/or privileges, an
investor should telephone Warburg Pincus Funds at (800) 927-2874. Shareholders
are responsible for maintaining current account registrations and addresses with
a Fund. No interest will be paid on amounts represented by uncashed distribution
or redemption checks.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire and automated clearing house transactions ("ACH on
Demand"). The minimum initial investment in a 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 or by ACH on Demand,
as described below. For certain retirement plans (described above) and UTMA/UGMA
accounts, the
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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
Warburg 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 below. Wire
payments for initial and subsequent investments should be preceded by an order
placed with a Fund and should clearly indicate the investor's account number and
the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Fund
are not normally issued.
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 a completed account application to Warburg Pincus
Funds through its distributor, Counsellors Securities, 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 prior to the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m.,
Eastern time) on a day that the Fund calculates its net asset value (a "business
day"), the purchase will be made at the Fund's net asset value calculated at the
end of that day. If payment is received at or after the close of regular trading
on the NYSE, the purchase will be effected at the Fund's net asset value
determined for the next business day after payment has been received. Checks or
money orders that are not in proper form or that are not accompanied or preceded
by a complete account application will be returned to the sender. Shares
purchased by check or money order are entitled to receive dividends and
distributions beginning on the business day after payment has been received or
on that day, in the case of the Global Fixed Income Fund. 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 in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 927-2874. Federal funds may be wired using
the following wire address:
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<PAGE> 33
State Street Bank and Trust Company
225 Franklin St.
Boston, MA 02110
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
[Insert Warburg Pincus Fund name(s) here]
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
If a telephone order is received prior to the close of regular trading on the
NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the Fund on that day and are entitled to
dividends and distributions beginning on the following business day or on that
day, in the case of the Global Fixed Income Fund. However, if a wire in proper
form that is not preceded by a telephone order is received at or 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.
AUTOMATIC MONTHLY INVESTMENT PLAN AND ACH ON DEMAND. The Automatic Monthly
Investment Plan allows shareholders to authorize a Fund or its agent to debit
their bank account monthly ($50 minimum) for the purchase of Fund shares on or
about either the tenth or twentieth calender day of each month. Shareholders may
also purchase shares by calling (800) 927-2874 on any business day to request
direct debit or credit (for redemptions) of their bank account through an ACH on
Demand transaction.
To establish the Automatic Monthly Investment Plan and/or ACH on Demand
option, obtain a separate application or complete the relevant section of the
account application. Only an account maintained at a financial institution which
is an automatic clearing house member may be used, and one common name must
appear on both the shareholder's Fund registration and bank account
registration. Shareholders using this service must satisfy the initial
investment minimum for the Fund prior to or concurrent with the start of any
Automatic Monthly Investment Plan or ACH on Demand transaction. Please contact
Warburg Pincus Funds at (800) 927-2874 for additional information. Investors
should allow a period of up to 30 days in order to implement an Automatic
Monthly Investment Plan or ACH on Demand transaction. The failure to provide
complete information could result in further delays.
If an ACH on Demand transaction request is received prior to the closing of
regular trading on the NYSE, the shares will be priced according to the net
asset value of Fund shares on that day and are entitled to dividends and
distributions as described above for wire purchases. If a request is received at
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<PAGE> 34
or after the close of regular trading on the NYSE, the shares will be priced at
the relevant Fund's net asset value on the following business day.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application
or if the ACH on Demand option is elected an investor may request transactions
by telephone. Investors should realize that in conducting transactions by
telephone they may be giving up a measure of security that they may have if they
were to conduct these transactions in writing. 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 designed to give reasonable assurance that instructions
communicated by telephone are genuine. Such procedures include providing written
confirmation of telephone transactions, tape recording telephone instructions
and requiring specific personal information prior to acting upon telephone
instructions.
PURCHASES THROUGH INTERMEDIARIES. Common Shares of each Fund are available
through the Charles Schwab & Company, Inc. Mutual Fund OneSource(TM) Program;
Fidelity Brokerage Services, Inc. FundsNetwork(TM) Program; Jack White &
Company, Inc.; and Waterhouse Securities Inc. Generally, these programs require
customers to pay either no or low transaction fees in connection with purchases,
exchanges or redemptions. The Funds are also available through certain
broker-dealers, financial institutions and other industry professionals
(including the brokerage firms offering the programs described above,
collectively, "Service Organizations"). Certain features of the Funds, such as
the initial and subsequent investment minimums, redemption fees and certain
trading restrictions, may be modified or waived by Service Organizations.
Service Organizations may impose transaction or administrative charges or other
direct fees, which charges or fees would not be imposed if Fund shares are
purchased directly from the Fund. Therefore, a client or customer should contact
the Service Organization acting on his behalf concerning the fees (if any)
charged in connection with a purchase, exchange or redemption of Fund shares and
should read this Prospectus in light of the terms governing his accounts with
the Service Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Fund in
accordance with their agreements with the Fund and with clients or customers.
Service Organizations or, if applicable, their designees may enter confirmed
purchase, exchange or redemption orders on behalf of clients and customers, with
payment to follow no later than a Fund's pricing on the following business day.
If payment is not received by such time, the Service Organization could be held
liable for resulting fees or losses. The Fund may be deemed to have received a
purchase or redemption order when a Service Organization, or, if applicable, its
authorized designee, accepts the order. Such orders received by the Fund in
proper form will be priced at the Fund's net asset value next computed after
they are accepted by the Service Organization or its authorized designee.
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<PAGE> 35
For administration, subaccounting, transfer agency and/or other services,
Warburg, Counsellors Securities or their affiliates may pay Service
Organizations and certain recordkeeping organizations a fee of up to .40% (the
"Service Fee") of the average annual value of accounts with a Fund maintained by
such Service Organizations or recordkeepers. A portion of the Service Fee may be
borne by the Fund as a transfer agency fee. In addition, a Service Organization
or recordkeeper may directly or indirectly pay a portion of its Service Fee to
the Fund's custodian or transfer agent for costs related to accounts of its
clients or customers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of services provided, the operations processing requirements of the
relationship and the standardized fee schedule of the Service Organization or
recordkeeper.
GENERAL. Each Fund reserves the right to reject any specific purchase order,
including certain purchases made by exchange (see "How to Redeem and Exchange
Shares -- Exchange of Shares" below). Purchase orders may be refused if, in
Warburg's opinion, a Fund would be unable to invest the money effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. The Fund may discontinue sales of its shares
if management believes that a substantial further increase in assets may
adversely affect the Fund's ability to achieve its investment objective(s). In
such event, however, it is anticipated that existing shareholders would be
permitted to continue to authorize investment in the Fund and to reinvest any
dividends or capital gains distributions.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor in 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. 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. Payment of redemption proceeds may be delayed in
connection with account changes. Each mail redemption request must be signed by
the registered owner(s) (or his legal representative(s)) exactly as the shares
are registered. If an investor has applied for the telephone redemption feature
on his account application, he may redeem his shares by calling Warburg Pincus
Funds at (800) 927-2874 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. An investor making a telephone withdrawal should state (i) the
name of the Fund, (ii) the account number of the Fund, (iii) the name of the
investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn and
(v) the name of the person requesting the redemption.
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<PAGE> 36
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under "How to Open an Account." Although each Fund will
redeem shares purchased by check, through the Automatic Monthly Investment Plan
or by ACH on Demand before the funds or check clear, payments of the redemption
proceeds will be delayed for up to five days (for funds received through the
Automatic Monthly Investment Plan or by ACH on Demand) or up to 10 days (for
check purchases) from the date of purchase. Investors should consider purchasing
shares using a certified or bank check or money order if they anticipate an
immediate need for redemption proceeds.
If a redemption order is received by a Fund or its agent prior to the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received at or 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.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic
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<PAGE> 37
cash payments of at least $250 monthly or quarterly. To establish this service,
complete the "Automatic Withdrawal Plan" section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of 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 or its agent prior to the
close of regular trading on the NYSE, the exchange will be made at each Fund's
net asset value determined at the end of that business day. Exchanges will be
effected without a sales charge but must satisfy the minimum dollar amount
necessary for new purchases. Currently, exchanges may be made 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 BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
- - WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term growth
of capital and income and a reasonable current return;
- - WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing principally in equity securities of
medium-sized domestic companies;
- - WARBURG PINCUS STRATEGIC VALUE FUND -- an equity fund seeking capital
appreciation by investing in undervalued companies and market sectors;
- - WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
- - WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
- - WARBURG PINCUS SMALL COMPANY GROWTH FUND* -- an equity fund seeking capital
growth by investing in equity securities of small sized domestic companies;
- ---------------
* Warburg Pincus Small Company Growth Fund is currently closed to certain new
investors; the Small Company Growth Fund's prospectus describes the types of
investors that may purchase shares.
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<PAGE> 38
- - WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;
- - WARBURG PINCUS POST-VENTURE CAPITAL FUND -- a fund seeking long-term growth of
capital by investing primarily in equity securities of issuers in their
post-venture capital stage of development and pursuing an aggressive
investment strategy;
- - WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing primarily in equity securities of
U.S. and foreign issuers in their post-venture capital stage of development;
- - WARBURG PINCUS MAJOR FOREIGN MARKETS FUND -- an equity fund seeking long-term
capital appreciation by investing in equity securities of issuers consisting
of companies in major securities markets;
- - 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
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) 927-2874.
The Funds reserve the right to refuse exchange purchases by any person or
group if, in Warburg's judgment, a Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when the Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a "market timing"
strategy) is discerned. The Fund may refuse exchange purchases at any time
without prior notice. The Funds reserve the right to terminate or
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<PAGE> 39
modify the exchange privilege at any time upon 30 days' notice to shareholders.
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. The Fixed Income Fund, the Intermediate Government Fund and
the New York Municipal Fund each declares its dividends from its net investment
income daily and pays those dividends monthly in the calendar year in which they
are declared. The Global Fixed Income Fund declares dividends from its net
investment income quarterly. Net investment income earned on weekends and when
the NYSE is not opened will be computed as of the next business day.
Distributions of net realized long-term and short-term capital gains are
declared annually and will be paid in the calendar year in which they are
declared, generally in November or December. 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.
Special Distribution Matters Relating to the New York Municipal Fund. If, for
any full fiscal year, the New York Municipal Fund's total distributions exceed
net investment income and net realized capital gains, the excess distributions
may be treated as a taxable dividend or a tax-free return of capital (up to the
amount of the shareholder's tax basis in his shares). The amount treated as a
tax-free return of capital will reduce a shareholder's adjusted basis in his
shares. Pursuant to the requirements of the 1940 Act and other applicable laws,
a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net realized capital gains, such distributions may
have the effect of decreasing the Fund's total assets, which may increase the
Fund's expense ratio.
TAXES. Each Fund intends to continue 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
36
<PAGE> 40
and to make such additional distributions as are necessary to avoid the
application of this tax.
The investments by the Funds in zero coupon securities may create special tax
consequences. Zero coupon securities do not make interest payments, although a
portion of the difference between a zero coupon security's maturity value and
its purchase price is imputed as income to the Funds each year even though the
Funds receive no cash distribution until maturity. Under the U.S. federal tax
laws applicable to mutual funds, the Funds will not be subject to tax on this
income if they pay dividends to their shareholders substantially equal to all
the income received from, or imputed with respect to, their investments during
the year, including their zero coupon securities. These dividends ordinarily
will constitute taxable income to the shareholders of the Funds.
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. In the case of the New York Municipal
Fund, any loss realized by a shareholder on the sale or redemption of a Fund
share held by the shareholder for six months or less will be disallowed to the
extent of the amount of any exempt-interest dividend received by the shareholder
with respect to such share. The portion of such loss not disallowed as described
in the preceding sentence shall be treated for federal income tax purposes as a
long-term capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the shareholder with
respect to such share. An investor in the New York Municipal Fund who redeems
his shares prior to the declaration of a dividend may lose tax-exempt status on
accrued income attributable to tax-exempt Municipal Obligations.
The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposi-
37
<PAGE> 41
tion of assets on or after July 29, 1997 held for more than one year and up to
18 months at the time of disposition will be taxed as "mid-term gain" at a
maximum rate of 28%. A rate of 18% instead of 20% will apply after December 31,
2000 for assets held for more than 5 years. However, the 18% rate applies only
to assets acquired after December 31, 2000 unless the taxpayer elects to treat
an asset held prior to such date as sold for fair market value on January 1,
2001. In the case of individuals whose ordinary income is taxed at a 15% rate,
the 20% rate is reduced to 10% and the 10% rate for assets held for more than 5
years is reduced to 8%. The Funds will provide information relating to that
portion of a "capital gain dividend" that may be treated by investors as
eligible for the reduced capital gains rate for capital assets held for more
than 18 months.
Investors may be proportionately liable for taxes on income and gains of the
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. The Funds will designate that portion
of each Fund's dividends that will qualify for the federal dividends received
deduction for corporations.
Dividends and interest received by a Fund with respect to its foreign
investments may be subject to withholding and other taxes imposed by foreign
countries. However, tax conventions between certain countries and the United
States may reduce or eliminate such taxes. If either of the Fixed Income Fund or
the Global Fixed Income Fund qualifies as a regulated investment company, if
certain asset and distribution requirements are satisfied and if more than 50%
of the respective Fund's total assets at the close of its fiscal year consists
of stock or securities of foreign corporations, that Fund may elect for U.S.
income tax purposes to treat foreign income taxes paid by it as paid by its
shareholders. The Fixed Income Fund or the Global Fixed Income Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. As a result, shareholders of the Fund would be required to include their
pro rata portions of such foreign taxes in computing their taxable incomes and
then treat an amount equal to those foreign taxes as a U.S. federal income tax
deduction or as a foreign tax credit against their U.S. federal income taxes.
Shortly after any year for which it makes such an election, each Fund will
report to its shareholders the amount per share of such foreign tax that must be
included in each shareholder's gross income and the amount which will be
available for the deduction or credit. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Special Tax Matters Relating to the Intermediate Government Fund. Investors in
the Intermediate Government Fund do not have to pay state and local income taxes
with respect to interest income on most types of Government Securities if the
investors are the tax owners of these Government Securities. Further-
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<PAGE> 42
more, some states, if certain requirements are satisfied, permit investors to
treat the portion of their regulated investment company dividends that is
attributable to interest income on these Government Securities as tax-exempt
income for state or local income tax purposes. Other states treat all of these
dividends as subject to state and local income taxation. Investors in the Fund
should consult their own tax advisers to assess the consequences of investing in
the Fund under state and local laws generally and to determine whether dividends
paid by the Fund that represent interest derived from Government Securities are
exempt from any applicable state or local taxes.
Special Tax Matters Relating to the New York Municipal Fund and the Fixed
Income Fund. As a regulated investment company, the New York Municipal Fund will
designate and pay exempt-interest dividends derived from interest earned on
qualifying Municipal Obligations. Such exempt-interest dividends may be excluded
by investors of the Fund from their gross income for federal income tax purposes
although (i) all or a portion of such exempt-interest dividends will be a
specific tax-preference item for purposes of the federal individual and
corporate alternative minimum taxes to the extent they are derived from certain
types of private activity bonds issued after August 7, 1986 and (ii) all
exempt-interest dividends will be a component of the "current earnings"
adjustment item for purposes of the federal corporate alternative minimum tax.
Moreover, dividends paid by the Fund will be subject to a branch profits tax of
up to 30% when received by certain foreign corporate investors. Dividends
derived from interest on qualifying New York Municipal Obligations will be
exempt from New York State and New York City personal income (but not corporate
franchise) taxes.
The Fixed Income Fund does not expect to meet the tax requirements that would
enable it to pay exempt-interest dividends with respect to income derived from
its holdings of Municipal Obligations.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. In the case of the New York Municipal Fund,
these statements set forth the dollar amount of income excluded or exempt from
federal income or New York State and New York City personal income taxes and the
dollar amount, if any, subject to federal taxation. These statements also
designate the amount of exempt-interest dividends that is a specific preference
item for purposes of the federal individual and corporate alternative minimum
taxes. 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,
39
<PAGE> 43
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding 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 the Common Shares and then dividing the result by the
total number of outstanding Common Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the 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 yield and average annual total return of its
Common Shares over various periods of time. The yield refers to net investment
income generated by the Common Shares over a specified thirty-day period, which
is then annualized. That is, the amount of net investment income generated by
the Common Shares during that thirty-day period is assumed to be generated over
a 12-month period and is shown as a percentage of the investment. In addition,
advertisements concerning the Intermediate Government Fund and the New York
Municipal Fund may describe a tax equivalent yield. The tax equivalent yield
demonstrates the yield on a taxable investment necessary to produce an after-tax
yield equal to the Common Shares' tax-free yield. It is calculated by increasing
the yield shown for the Common Shares to the extent necessary to reflect the
payment of specified tax rates. Thus, the tax equivalent yield will always
exceed a Fund's Common Shares' yield. Total return figures show the average
percentage change in value of an investment in the Common Shares from the
beginning of the
40
<PAGE> 44
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 a Fund's annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that 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 the Fund's 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 yield, tax-equivalent yield and total return
figures are based on historical earnings and are not intended to indicate future
performance. The Funds' Statement of Additional Information describes the method
used to determine the yield and total return. Current performance figures may be
obtained by calling Warburg Pincus Funds at (800) 927-2874.
A 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 Fixed Income Fund,
with the Lehman Bond Index and the Lehman Intermediate Government/ Corporate
Bond Index (each an unmanaged index of government and corporate bonds calculated
by Lehman Brothers); in the case of the Global Fixed Income Fund, with the J.P.
Morgan Traded Index (an index of non-U.S. dollar bonds of ten countries with
active bond markets), the Salomon Brothers World Government Bond Index (a
hedged, market-capitalization weighted index designed to track major government
debt markets) and the Lipper General World Income Average (an average of funds
that invest primarily in non-U.S. dollar and U.S. dollar debt instruments); in
the case of the Intermediate Government Fund, with the Lehman Intermediate
Government Bond Index (an unmanaged index of government bonds calculated by
Lehman Brothers); and in the case of the New York Municipal Fund, with the Bond
Buyer Index (the "BBI") (an unmanaged index of 20 General Obligation issues of
20-year maturity from various municipalities across the nation published by the
American Banker), the Lehman 5-Year Municipal Bond Index and the Lipper
41
<PAGE> 45
New York Intermediate Municipal Debt Funds Average (an unmanaged index of 61
Intermediate Municipal Debt Funds calculated by Lipper Analytical Services); 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
each Fund published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Mutual Fund Magazine, SmartMoney, The Wall
Street Journal and Worth. 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 its expense ratio of its Common Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
In reports or other communications to investors or in advertising, 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 portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Fund with respect
to relevant market and industry benchmarks. 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.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fixed Income Fund and the New York Municipal Fund were
organized under the laws of The Commonwealth of Massachusetts as Massachusetts
business trusts in 1987 and 1986, respectively. In 1992, these Funds changed
their names from "Counsellors Fixed Income Fund" and "Counsellors New York
Municipal Bond Fund" to "Warburg, Pincus Fixed Income Fund" and "Warburg, Pincus
New York Municipal Bond Fund," respectively. On February 28, 1995, the New York
Municipal Fund changed its name to "Warburg, Pincus New York Intermediate
Municipal Fund." The Global Fixed Income Fund and the Intermediate Government
Fund were incorporated under the laws of the State of Maryland in 1990 and 1988,
respectively, under the names "Counsellors Global Fixed Income Fund, Inc." and
"Counsellors Intermediate Maturity Government Fund, Inc.," respectively. On
October 27, 1995 and February 16, 1996, the Funds amended their respective
charters to change their names to "Warburg, Pincus Global Fixed Income Fund,
Inc." and "Warburg, Pincus Intermediate Maturity Government Fund, Inc."
42
<PAGE> 46
The Agreement and Declaration of Trust of each of the Fixed Income Fund and
the New York Municipal Fund authorizes each Fund's 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 classified as Common Shares and two
billion shares are classified as Advisor Shares. The charters of the Global
Fixed Income Fund and the Intermediate Government Fund authorize each Fund's
Board to issue three billion full and fractional shares of capital stock, $.001
par value per share, of which one billion shares are designated Common Shares
and two billion shares are designated Advisor Shares. Under each Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board of a Fund may similarly classify or reclassify any class
of its shares into one or more series and, without shareholder approval, may
increase the number of authorized shares of the Fund.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Global Fixed Income Fund or the
Intermediate Government Fund may be removed by the shareholders at any time by a
vote of a majority of the votes entitled to be cast for the election of
Directors. Investors of record of no less than two-thirds of the outstanding
shares of the Fixed Income Fund or the New York Municipal 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. 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. Lionel I. Pincus may be deemed to be a
controlling person of each Fund (other than the Global Fixed Income Fund)
because he may be deemed to possess or share investment power over shares owned
by clients of Warburg.
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.
Periodic listings of the investment securities held by a Fund, as well as
certain statistical characteristics of the Fund, may be obtained by calling
43
<PAGE> 47
Warburg Pincus Funds at (800) 927-2874 or on the Warburg Pincus Funds Web site
at www.warburg.com.
The Common Share 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.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ANY 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.
44
<PAGE> 48
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses...................................... 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 5
Portfolio Investments.................................... 9
Risk Factors and Special Considerations.................. 12
Portfolio Transactions and Turnover Rate................. 16
Certain Investment Strategies............................ 16
Investment Guidelines.................................... 25
Management of the Funds.................................. 26
How to Open an Account................................... 28
How to Purchase Shares................................... 28
How to Redeem and Exchange Shares........................ 32
Dividends, Distributions and Taxes....................... 36
Net Asset Value.......................................... 39
Performance.............................................. 40
General Information...................................... 42
</TABLE>
[Warburg Pincus Funds Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPBDF-1-0298
<PAGE> 50
WARBURG PINCUS ADVISOR FUNDS FEBRUARY 17, 1998
FIXED INCOME FUND
GLOBAL FIXED INCOME FUND
INTERMEDIATE MATURITY GOVERNMENT FUND
NEW YORK INTERMEDIATE MUNICIPAL FUND
BOND FUNDS
[Logo]
<PAGE> 51
PROSPECTUS February 17, 1998
Warburg Pincus Advisor Funds is 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. Four Advisor Funds are described in this
Prospectus:
WARBURG PINCUS FIXED INCOME FUND is a bond fund seeking high current income
consistent with reasonable risk and, secondarily, capital appreciation. The Fund
will pursue its objectives by investing in a diversified portfolio of fixed
income securities.
WARBURG PINCUS GLOBAL FIXED INCOME FUND is a bond fund seeking to maximize total
investment return consistent with prudent investment management, consisting of a
combination of interest income, currency gains and capital appreciation. The
Fund will pursue its objective by investing in a portfolio principally
consisting of investment grade fixed income securities of governmental and
corporate issuers denominated in various currencies, including U.S. dollars.
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND is an intermediate-term
bond fund seeking as high a level of current income as is consistent with the
preservation of capital. The Fund will pursue its objective by investing in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND is an intermediate-term
municipal bond fund designed for New York investors seeking to maximize current
interest income exempt from federal income tax and New York State and New York
City personal income taxes to the extent consistent with prudent investment and
the preservation of capital.
The Funds currently offer two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Funds,
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 .25% (in the case of the Global Fixed Income Fund, .50%)
per annum, which is the economic equivalent of a sales charge. The Funds' Common
Shares are available for purchase by individuals directly and are offered by a
separate prospectus.
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 has been filed with the Securities and Exchange Commission (the "SEC"). The
SEC maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Funds. The Statements of Additional Information are also available
upon request and without charge by calling Warburg Pincus Advisor Funds at (800)
369-2728. Information regarding the status of shareholder accounts may be
obtained by calling the Funds at the same number. Warburg Pincus Funds maintains
a Web site at www.warburg.com. 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.
SHARES OF THE FUNDS 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 GOVERNMENT
AGENCY. INVESTMENTS IN SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 52
NO MINIMUM INVESTMENT
- --------------------------------------------------------------------------------
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See "How to Purchase Shares."
THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
Each of Warburg Pincus Fixed Income Fund (the "Fixed Income Fund"), Warburg
Pincus Global Fixed Income Fund (the "Global Fixed Income Fund"), Warburg Pincus
Intermediate Maturity Government Fund (the "Intermediate Government Fund") and
Warburg Pincus New York Intermediate Municipal Fund (the "New York Municipal
Fund") (collectively, the "Funds") 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>
Global
Fixed Fixed Intermediate New York
Income Income Government Municipal
Fund Fund Fund Fund
------ ------ ---------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... 0 0 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.............................. .42% .68% .50% .27%
12b-1 Fees................................... .25%* .50%* .25%* .25%*
Other Expenses............................... .33% .27% .10% .31%
------ ------ ---- ----
Total Fund Operating Expenses (after fee
waivers)+.................................. 1.00% 1.45% .85% .83%
====== ====== ==== ====
EXAMPLE
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period:
1 year...................................... $ 10 $ 15 $ 9 $ 8
3 years..................................... $ 32 $ 46 $ 27 $ 26
5 years..................................... $ 55 $ 79 $ 47 $ 46
10 years..................................... $122 $174 $105 $ 103
</TABLE>
- --------------------------------------------------------------------------------
* 12b-1 fees are .25% per annum for the Fixed Income, Intermediate Government
and New York Municipal Funds and .50% per annum for the Global Fixed Income
Fund, in each case out of a maximum .75% authorized under the Advisor Shares'
Distribution Plans.
+ Annual Fund Operating Expenses for the Funds are based on actual expenses for
the fiscal year ended October 31, 1997, net of any applicable fee waivers or
expense reimbursements. Absent such waivers and/or reimbursements, Management
Fees for the Fixed Income, Global Fixed Income, Intermediate Government and
New York Municipal Funds would have equalled .50%, 1.00%, .50% and .40%,
respectively; Other Expenses would have equalled .58%, .28%, .10% and 486.98%,
respectively; and Total Fund Operating Expenses would have equalled 1.08%,
1.78%, .85% and 487.63%, respectively. The investment adviser and
co-administrator are under no obligation to continue waivers and/or
reimbursements.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of each Fund. Certain broker-dealers and
financial institutions also may charge their clients fees in connection with
investments in Fund 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
2
<PAGE> 53
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 holders of Advisor Shares may pay more than
the economic equivalent of the maximum sales charges permitted by the National
Association of Securities Dealers, Inc.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The information regarding the Fixed Income, Global Fixed Income, Intermediate
Government and New York Intermediate Municipal Funds for the fiscal year ended
October 31, 1997 and the fiscal period ended October 31, 1996 has been derived
from information audited by Coopers & Lybrand L.L.P., independent accountants,
whose report dated December 19, 1997 is incorporated by reference in the
Statement of Additional Information. Further information about the performance
of the Funds is contained in the Funds' annual report, dated October 31, 1997,
copies of which may be obtained without charge by calling Warburg Pincus Advisor
Funds at (800) 369-2728.
<TABLE>
<CAPTION>
For the Period
July 3, 1996
(Commencement of
For the Year Ended Operations) through
FIXED INCOME FUND October 31, 1997 October 31, 1996
------------------ -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $10.10 $9.90
------ ------
Income from Investment Operations:
Net Investment Income (Loss)........................ 0.60 0.19
Net Gain (Loss) from Securities [and Foreign
Currency Related Items](both realized and
unrealized)....................................... 0.33 0.20
------ ------
Total from Investment Operations.................... 0.93 0.39
------ ------
Less Distributions:
Dividends (from net investment income).............. (0.60) (0.19)
Dividends (in excess of net investment income)...... 0.00 0.00
Distributions (from realized gains)................. 0.00 0.00
------ ------
Total Distributions................................. (0.60) (0.19)
------ ------
NET ASSET VALUE, END OF PERIOD........................ $10.43 $ 10.10
====== =======
Total Return.......................................... 9.51% 3.93%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)...................... $3,963 $911
Ratios to Average Daily Net Assets:
Operating Expenses.................................. 1.00%@ 1.00%*@
Net Investment Income............................... 5.62% 5.85%*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements..................... .08% .11%*
Portfolio Turnover Rate............................... 129.06% 194.23%+
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements had no effect on the Advisor
Shares' expense ratio.
+ Non annualized.
* Annualized.
3
<PAGE> 54
<TABLE>
<CAPTION>
For the Period
August 12, 1996
(Commencement of
For the Year Ended Operations) through
GLOBAL FIXED INCOME FUND October 31, 1997 October 31, 1996
------------------ -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $11.17 $ 10.90
------ ------
Income from Investment Operations:
Net Investment Income............................... 0.41 0.10
Net Gains on Securities and Foreign Currency Related
Items (both realized and unrealized).............. 0.15 0.27
------ ------
Total from Investment Operations.................... 0.56 0.37
------ ------
Less Distributions:
Dividends from net investment income................ (0.29) (0.10)
Distributions from realized gains................... (0.54) 0.00
------ ------
Total Distributions................................. (0.83) (0.10)
------ ------
NET ASSET VALUE, END OF PERIOD........................ $10.90 $ 11.17
====== =======
Total Return.......................................... 5.18% 3.41%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)...................... $8,935 $39
Ratios to Average Daily Net Assets:
Operating Expenses.................................. 1.45%@ 1.45%*@
Net Investment Income............................... 4.76% 5.69%*
Decrease reflected in above operating expense ratio
due to waivers/reimbursements..................... .33% .21%*
Portfolio Turnover Rate............................... 202.92% 123.90%+
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements had no effect on the Advisor
Shares' expense ratio.
+ Non annualized.
* Annualized.
<TABLE>
<CAPTION>
For the Period
August 15, 1997
(Commencement of
Operations)
through
INTERMEDIATE MATURITY GOVERNMENT FUND October 31, 1997
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................... $ 9.95
------
Income from Investment Operations:
Net Investment Income................................................. 0.11
Net Gains on Securities (both realized and unrealized)................ 0.11
------
Total from Investment Operations...................................... 0.22
------
Less Distributions:
Dividends from net investment income.................................. (0.11)
Dividends from realized gains......................................... 0.00
------
Total Distributions................................................... (0.11)
------
NET ASSET VALUE, END OF PERIOD.......................................... $10.06
======
Total Return............................................................ 2.22+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s)........................................ $2
Ratios to Average Daily Net Assets:
Operating Expenses.................................................... .85%*@
Net Investment Income................................................. 5.62%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements.............................................. .00%
Portfolio Turnover Rate................................................. 104.34%*
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements had no effect on the Advisor
Shares' expense ratio.
+ Non annualized.
* Annualized.
4
<PAGE> 55
<TABLE>
<CAPTION>
For the Year Ended
NEW YORK INTERMEDIATE MUNICIPAL FUND October 31, 1997
------------------
For the Period
August 5, 1996
(Commencement of
Operations) through
October 31, 1996
-------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $10.34 $10.34
------ ------
Income from Investment Operations:
Net Investment Income................................... 0.41 0.09
Net Gains on Securities (both realized and
unrealized)........................................... 0.11 0.00
------ ------
Total from Investment Operations........................ 0.52 0.09
------ ------
Less Distributions:
Dividends from net investment income.................... (0.41) (0.09)
Distributions from realized gains....................... (0.12) 0.00
------ ------
Total Distributions..................................... (0.53) (0.09)
------ ------
NET ASSET VALUE, END OF PERIOD............................ $10.33 $10.34
====== ======
Total Return.............................................. 5.19% .88%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s).......................... $0 $1
Ratios to Average Daily Net Assets:
Operating Expenses...................................... 36.75%@ .63%*@
Net Investment Income................................... 3.93% 3.88%*
Decrease reflected in above operating expense ratio due
to waivers/reimbursements............................. 450.88% .01%*
Portfolio Turnover Rate................................... 69.84% 69.23%+
</TABLE>
- --------------------------------------------------------------------------------
@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expenses. These arrangements resulted in a reduction to the
Advisor Shares' expenses by 35.92% and .00% for the year or period ended
October 31, 1997 and 1996, respectively. The Advisor Shares' operating expense
ratio after reflecting these arrangements were .83% and .63% for the years
ended October 31, 1997 and 1996, respectively.
+ Non-annualized.
* Annualized.
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.
FIXED INCOME FUND
The Fixed Income Fund seeks to generate high current income consistent with
reasonable risk and, secondarily, capital appreciation. The Fund is a
diversified management investment company which pursues its investment
objectives by investing, under normal market conditions, at least 65% of its
total assets in fixed income securities, such as corporate bonds, debentures and
notes, convertible debt securities, preferred stocks, government obligations,
Municipal Obligations (as described below under "New York Municipal Fund") and
repurchase agreements with respect to portfolio securities. Under normal market
conditions, the Fund intends that its portfolio of fixed income securities will
have a weighted average remaining maturity not exceeding 10 years. The Fund may
invest without limit in U.S. dollar-denominated, investment grade foreign
securities, but limits to 35% of its assets the portion
5
<PAGE> 56
that may be invested in securities of foreign issuers that either are rated
below investment grade or are denominated in a currency other than U.S. dollars.
Under normal market conditions, at least 65% of all of the fixed income
securities in the Fund will be rated investment grade. A security will be
considered investment grade if it is rated at the time of purchase within the
four highest grades assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Services ("S&P"). The Fund may hold up to 35% of its
net assets in fixed income securities rated below investment grade and as low as
C by Moody's or D by S&P at the time of purchase or may be unrated securities
considered to be of equivalent quality.
GLOBAL FIXED INCOME FUND
The Global Fixed Income Fund seeks to maximize total investment return
consistent with prudent investment management, consisting of a combination of
interest income, currency gains and capital appreciation. The Fund is a non-
diversified management investment company which seeks to achieve its objective
by investing, under normal market conditions, at least 65% of its total assets
in fixed income obligations of governmental and corporate issuers denominated in
various currencies (including U.S. dollars, or in multinational currency units
such as European Currency Units ("ECUs")), including convertible debt securities
and preferred stock. Issuers of these securities will be located in at least
three countries and issuers located in any one country (other than the United
States) will not represent more than 40% of the Fund's total assets. In
addition, the Fund will not invest 25% or more of its assets in the securities
issued by any one foreign government, its agencies, instrumentalities or
political subdivisions. The Fund may invest up to 20% of its total assets in
equity securities, including common stock, warrants and rights. For temporary
defensive purposes or during times of international political or economic
uncertainty, all of the Fund's investments may be made temporarily in the United
States or denominated in U.S. dollars.
The Fund may invest in a wide variety of fixed income obligations issued
anywhere in the world, including the United States. The Fund may purchase debt
obligations issued or guaranteed by the United States or foreign governments,
their agencies, instrumentalities or political subdivisions, as well as
supranational entities organized or supported by several national governments,
such as the International Bank for Reconstruction and Development (the "World
Bank") or the European Investment Bank. The Fund may also purchase fixed income
obligations of foreign corporations that are issued in a currency other than
U.S. dollars. Because of fluctuating currency values, the Fund may engage in
certain currency transactions, as described under "Certain Investment
Strategies -- Options, Futures and Currency Transactions" below.
Under normal economic and market conditions, the dollar-weighted average
maturity of the Fund's portfolio of fixed income securities will be between 3
and 10 years, using for purposes of this calculation the maturity of a security
6
<PAGE> 57
on its date of purchase. Individual issues may have maturities shorter or longer
than 3 to 10 years.
Warburg Pincus Asset Management, Inc., each Fund's investment adviser
("Warburg"), will allocate investments among securities of particular issuers on
the basis of its views as to the best values then currently available in the
marketplace. Such values are a function of yield, maturity, issue classification
and quality characteristics, coupled with expectations regarding the economy,
movements in the general level and term of interest rates, currency values,
political developments and variations in the supply of funds available for
investment in the world bond market relative to the demands placed upon it.
Fixed income securities denominated in currencies other than the U.S. dollar or
in multinational currency units are evaluated on the strength of the particular
currency against the U.S. dollar as well as on the current and expected levels
of interest rates in the country or countries. Currencies generally are
evaluated on the basis of fundamental economic criteria (e.g., relative
inflation and interest rate levels and trends, growth rate forecasts, balance of
payments status and economic policies) as well as technical and political data.
In addition to the foregoing, the Fund may seek to take advantage of differences
in relative values of fixed income securities among various countries.
The Fund may hold up to 35% of its net assets in fixed income securities rated
below investment grade, or in unrated securities considered to be of equivalent
quality.
INTERMEDIATE GOVERNMENT FUND
The Intermediate Government Fund seeks to achieve as high a level of current
income as is consistent with the preservation of capital. The Fund is a
diversified management investment company which pursues its investment objective
by investing, under normal market conditions, at least 65% of its total assets
in obligations issued or guaranteed by the United States government, its
agencies or instrumentalities ("Government Securities"). Under normal market
conditions, the Fund will maintain a weighted average portfolio maturity of
between 3 and 10 years. Investments by the Fund in repurchase agreements on
Government Securities are not included in determining the percentage of assets
invested in Government Securities.
The Fund may invest in Government Trust Certificates. Each Certificate
evidences an undivided fractional interest in a Government Trust (each, a
"Trust"). The assets of each Trust consist of a promissory note, payable in U.S.
Dollars (the "Loan Note"), representing a loan made by the Trust to the
government of Israel (the "Borrower"), backed by a full faith and credit
guaranty issued by the United States of America, acting through the Defense
Security Assistance Agency of the Department of Defense (the "Guaranty"), of the
due and punctual payment of 90% of payments of principal and interest due on the
Loan Note and a security interest in collateral, consisting of non-callable
securities issued or guaranteed by the United States government, or derivatives
thereof, such as trust receipts or other securities evidencing an
7
<PAGE> 58
interest in such United States government securities, sufficient to pay the
remaining 10% of all payments of principal and interest due on the Loan Notes.
Each Certificate issued by a Trust represents the right to receive a portion of
the payments due on the Loan Note held by that Trust. The Certificates are not
subject to prepayment or acceleration. Each Guaranty is entitled to the full
faith and credit of the United States of America. A Certificateholder's right to
receive any payments with respect to the Guaranty will be subject to termination
if such holder breaches the terms of its Certificate.
Certificates are not considered by the Fund to be Government Securities. The
Certificates represent undivided fractional interests in the Loan Notes, but the
Certificates are not direct obligations of, and are not guaranteed by, the
Borrower. Thus, in the event of a failure to pay principal and/or interest when
due, the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation of the Borrower.
NEW YORK MUNICIPAL FUND
The New York Municipal Fund seeks to maximize current interest income exempt
from federal income tax and New York State and New York City personal income
taxes to the extent consistent with prudent investment and the preservation of
capital. The Fund is a non-diversified management investment company which
pursues its investment objective by investing, under normal market conditions,
at least 65% of its total assets in investment grade "New York Municipal
Obligations." New York Municipal Obligations are debt obligations (other than
short-term securities), the interest on which is excluded from gross income for
federal income tax purposes and exempt from New York State and New York City
personal income tax. Under normal market conditions, the Fund will maintain a
weighted average portfolio maturity of between 3 and 10 years. If Warburg
believes that suitable New York Municipal Obligations are not available, the
Fund may for temporary defensive reasons invest without limit in (i) municipal
obligations that pay interest which is excluded from gross income for federal
income tax purposes but which is not exempt from New York State and New York
City personal income taxes and (ii) taxable or tax-exempt money market
obligations. It is a fundamental policy of the Fund that, except during
temporary defensive periods, the Fund will have at least 80% of its assets
invested in obligations issued by or on behalf of states (including the State of
New York), territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities
("Municipal Obligations"). This fundamental policy may not be amended without
first obtaining the approval of holders of a majority of the outstanding shares
of the Fund. The Fund may invest up to 20% of its total assets in debt
obligations other than Municipal Obligations. The Fund may invest in unrated
issues that are believed by Warburg to have financial characteristics that are
comparable and that are otherwise similar in
8
<PAGE> 59
quality to the rated issues it purchases. Investors should be aware that ratings
are relative and subjective and are not absolute standards of quality.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal
conditions, up to 35% of its total assets in short-term money market obligations
having remaining maturities of less than one year at the time of purchase. These
short-term instruments consist of Government Securities; 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; in the case of the Fixed Income Fund and the
Global Fixed Income Fund, obligations of foreign governments, their agencies or
instrumentalities; and repurchase agreements with respect to portfolio
securities. The short-term money market obligations in which the New York
Municipal Fund is authorized to invest generally will be tax-exempt obligations;
however, the Fund may invest in taxable obligations when suitable tax-exempt
obligations are unavailable or to maintain liquidity for meeting anticipated
redemptions and paying operating expenses. Tax-exempt money market obligations
in which the New York Municipal Fund may invest consist of investment grade
tax-exempt notes and tax-exempt 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
not rated, of municipal issuers having an issue of outstanding Municipal
Obligations rated within the three highest grades by Moody's or S&P.
For temporary defensive purposes or, in the case of the Global Fixed Income
Fund, during times of international political or economic uncertainty, each Fund
other than the Intermediate Government Fund may invest without limit in
short-term money market obligations, and the Intermediate Government Fund may
invest without limit in short-term Government Securities.
Repurchase Agreements. Under normal market conditions, each Fund may invest up
to 20% of its total assets 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, 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
9
<PAGE> 60
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 in which the Fund seeks to assert
this right. Warburg, acting under the supervision of a Fund's Board of Directors
or Board of Trustees as applicable (the "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 or Warburg. A money market mutual fund
is an investment company that invests in short-term high quality money market
instruments. A money market mutual fund generally does not purchase securities
with a remaining maturity of more than one year. The Intermediate Government
Fund and the New York Municipal Fund would invest in money market mutual funds
that invest in Government Securities and tax-exempt securities, respectively. 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. The obligations issued or guaranteed by the U.S.
government in which a Fund may invest include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association ("GNMA")); instruments that are supported by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and instruments that are supported by the credit of the instrumentality
(such as Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") bonds).
CONVERTIBLE SECURITIES. Convertible securities in which the Fixed Income and
Global Fixed Income Funds 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,
10
<PAGE> 61
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.
STRUCTURED SECURITIES. The Funds may purchase any type of publicly traded or
privately negotiated fixed income security, including mortgage-backed
securities; structured notes, bonds or debentures; and assignments of and
participations in loans.
Mortgage-Backed Securities. Mortgage-backed securities are collateralized by
mortgages or interests in mortgages and may be issued by government or
non-government entities. Mortgage-backed securities issued by GNMA, FNMA or
FHLMC provide a monthly payment consisting of interest and principal payments,
and additional payments will be made out of unscheduled prepayments of
principal. Neither the value of nor the yield on these mortgage-backed
securities or shares of the Funds is guaranteed by the U.S. government.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgaged-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Foreclosures and
prepayments, which occur when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities on these securities.
The Funds' yield may be affected by reinvestment of prepayments at higher or
lower rates than the original investment. Prepayments may tend to increase due
to refinancing of mortgages as interest rates decline. In addition, like other
debt securities, the values of mortgage-backed securities will generally
fluctuate in response to interest rates.
Structured Notes, Bonds or Debentures. Typically, the value of the principal
and/or interest on these instruments is determined by reference to changes in
the value of specific currencies, interest rates, commodities, indexes or other
financial indicators (the "Reference") or the relevant change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in the loss of a Fund's entire investment. The value of structured securities
may move in the same or the opposite direction as the value of the Reference, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference so that the security may be more or less
volatile than the Reference, depending on the multiple. Conse-
11
<PAGE> 62
quently, structured securities may entail a greater degree of market risk and
volatility than other types of debt obligations.
Assignments and Participations. Each Fund may invest in assignments of and
participations in loans issued by banks and other financial institutions.
When a Fund purchases assignments from lending financial institutions, the
Fund will acquire direct rights against the borrower on the loan. However, since
assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by a Fund as the purchaser of an assignment may differ from, and be more limited
than, those held by the assigning lender.
Participations in loans will typically result in a Fund having a contractual
relationship with the lending financial institution, not the borrower. A Fund
would have the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender of the payments from the borrower. In
connection with purchasing a participation, a Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan, nor any rights of set-off against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in which
it has purchased a participation. As a result, a Fund purchasing a participation
will assume the credit risk of both the borrower and the lender selling the
participation. In the event of the insolvency of the lender selling the
participation, the Fund may be treated as a general creditor of the lender and
may not benefit from any set-off between the lender and the borrower.
A Fund may have difficulty disposing of assignments and participations because
there is no liquid market for such securities. The lack of a liquid secondary
market will have an adverse impact on the value of such securities and on a
Fund's ability to dispose of particular assignments or participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid market for assignments and participations also may make it
more difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
With respect to the New York Municipal Fund, income derived from
participations or assignments may not be tax-exempt, depending on the structure
of the particular securities. To the extent such income is not tax-exempt it
will be subject to the New York Municipal Fund's 20% limit on investing in non-
municipal securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
For certain additional risks related to each Fund's investments, see
"Portfolio Investments" and "Certain Investment Strategies."
Among the factors that may be considered in deciding whether to invest in a
security are the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history and the ability of the issuer's
management. Bond prices generally vary inversely in relation to changes in the
level
12
<PAGE> 63
of interest rates, as well as in response to other market factors and changes in
the creditworthiness of the issuers of the securities. Government Securities are
considered to be of the highest credit quality available. Government Securities,
however, will be affected by general changes in interest rates. The price
volatility of a Fund's shares where the Fund invests in intermediate maturity
bonds will be substantially less than that of long-term bonds. An intermediate
maturity bond will generally have a lower yield than that of a long-term bond.
Longer-term securities in which the Funds may invest generally offer a higher
current yield than is offered by shorter-term securities, but also generally
involve greater volatility of price and risk of capital than shorter-term
securities.
NEW YORK MUNICIPAL OBLIGATIONS. The New York Municipal Fund's ability to
achieve its investment objective is dependent upon the ability of the issuers of
New York Municipal Obligations to meet their continuing obligations for the
payment of principal and interest. New York State and New York City face
long-term economic problems that could seriously affect their ability and that
of other issuers of New York Municipal Obligations to meet their financial
obligations. Certain substantial issuers of New York Municipal Obligations
(including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing
abilities of all New York issuers and have generally contributed to higher
interest costs for their borrowings and fewer markets for their outstanding debt
obligations. In recent years, several different issues of municipal securities
of New York State and its agencies and instrumentalities and of New York City
have been downgraded by S&P and Moody's. On the other hand, strong demand for
New York Municipal Obligations has at times had the effect of permitting New
York Municipal Obligations to be issued with yields relatively lower, and after
issuance, to trade in the market at prices relatively higher than comparably
rated municipal obligations issued by other jurisdictions. A recurrence of the
financial difficulties previously experienced by certain issuers of New York
Municipal Obligations could result in defaults or declines in the market values
of those issuers' existing obligations and, possibly, in the obligations of
other issuers of New York Municipal Obligations. Although as of the date of this
Prospectus, no issuers of New York Municipal Obligations are in default with
respect to the payment of their municipal obligations, the occurrence of any
such default could affect adversely the market values and marketability of all
New York Municipal Obligations and, consequently, the net asset value of the New
York Municipal Fund's portfolio. Other considerations affecting the New York
Municipal Fund's investments in New York Municipal Obligations are summarized in
the Fund's Statement of Additional Information.
NON-DIVERSIFIED STATUS. The Global Fixed Income Fund and the New York
Municipal Fund are each classified as a non-diversified investment company under
the 1940 Act, which means that the Funds are not limited by the 1940 Act in the
proportion of their assets that they may invest in the obligations of a
13
<PAGE> 64
single issuer. The Funds 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 non-diversified investment
companies, the Funds may invest a greater proportion of their 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 Funds
assume large positions in the securities of a small number of issuers, their
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.
BELOW INVESTMENT GRADE SECURITIES. There are certain risk factors associated
with lower-rated securities. Securities rated in the fourth highest grade (the
lowest investment grade) have some speculative characteristics associated with
below investment grade securities, and securities rated B have speculative
elements and a greater vulnerability to default than investment grade
securities. Investors should be aware that ratings are relative and subjective
and are not absolute standards of quality.
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 by the Fund,
although Warburg will consider such event in its determination of whether the
Fund should continue to hold the securities. The Fixed Income Fund and the
Global Fixed Income Fund may invest in securities rated as low as C by Moody's
or D by S&P and in unrated securities considered to be of equivalent quality.
Securities that are rated C by Moody's are the lowest rated class and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. Debt rated D by S&P is in default or is expected to default
upon maturity or payment date.
Below investment grade and comparable unrated securities (commonly referred to
as "junk bonds") (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are outweighed
by large uncertainties or major risk exposures to adverse conditions and (ii)
are predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. The
market values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is significantly
greater because these securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.
The market value of below investment grade securities is more volatile than
that of investment grade securities. In addition, a Fund may have difficulty
disposing of certain of these securities because there may be a thin trading
market. The lack of a liquid secondary market for certain securities may have an
adverse impact on the Fund's ability to dispose of particular issues and
14
<PAGE> 65
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
For a complete description of the rating systems of Moody's and S&P, see the
Appendix to the Statement of Additional Information.
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 "Securities Act"), but that can be sold to "qualified institutional buyers"
in accordance with Rule 144A under the Securities Act ("Rule 144A Securities").
A Rule 144A Security will be considered illiquid and therefore subject to each
Fund's limitation on the purchase of illiquid securities, unless the Fund's
Board determines on an ongoing basis that an adequate trading market exists for
the security. In addition to an adequate trading market, the Board will also
consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Funds to the extent that qualified institutional
buyers become uninterested for a time in purchasing Rule 144A Securities. The
Board of each Fund will carefully monitor any investments by the Fund in Rule
144A Securities. The Boards may adopt guidelines and delegate to 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 from these 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 that would be applicable if their securities were
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.
UNSEASONED ISSUERS. Investing in securities of companies with continuous
operations of less than three years ("unseasoned issuers") may involve greater
risks since these securities may have limited marketability and, thus, may be
more volatile than securities of larger, more established companies or the
market in general. Because such companies normally have fewer shares outstanding
than larger companies, it may be more difficult for a Fund to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. These companies may have limited product lines, markets or financial
resources and may lack management depth. In addition, these companies are
typically subject to a greater degree of changes in earnings and
15
<PAGE> 66
business prospects than are larger, more established companies. There is
typically less publicly available information concerning these companies than
for larger, more established ones. Although investing in securities of
unseasoned issuers 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 more
established, larger companies.
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. In addition, to
the extent it is consistent with a Fund's investment objective, the Fund also
may engage in short-term trading. A Fund will not consider portfolio turnover
rate a limiting factor in making investment decisions consistent with its
investment objective and policies. This investment approach and use of certain
of the investment strategies described below may result in a high portfolio
turnover rate. 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 transactions are 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.
Newly issued Government Securities normally are purchased by a Fund directly
from the issuer or from an underwriter acting as a principal. Other purchases
and sales usually are placed by the Fund with those dealers which Warburg
determines offer the best price and execution. 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 a dealer
in the after market normally are executed at a price between the bid and asked
prices.
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 Board.
CERTAIN INVESTMENT STRATEGIES
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Although there is no current intention of doing so during the coming year,
each Fund may purchase when-issued securities and enter into delayed-deliv-
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ery transactions. Detailed information concerning each Fund's strategies and
related risks is contained below and in the Statement of Additional Information.
STRATEGIES AVAILABLE TO ALL FUNDS
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 other
applicable regulatory authorities.
Securities Options and Stock Index Options. The Funds may purchase and write
covered put and call options traded on U.S. and foreign exchanges as well as
over-the-counter ("OTC") without limit on 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 purchaser of a
put option on a security has the right to compel the purchase by the writer of
the underlying security, while the purchaser of a call option on a security has
the right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, each Fund may also purchase and
write without limit exchange-listed and OTC put and call options on securities
indexes. A securities index measures the movement of a certain group of
securities by assigning relative values to the securities included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. Each Fund may enter into interest rate,
securities index and, in the case of the Fixed Income and Global Fixed Income
Funds, currency futures contracts and purchase and write (sell) related
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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 securities index and certain other futures contracts, are settled
in cash with reference to a specified multiplier times the change in the
specified interest rate, index or exchange 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 Fixed Income and Global Fixed Income Funds
may conduct 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 and writing exchange-traded and OTC 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 index options. In addition, the use of currency transactions could
result in losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
Hedging Considerations. The 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 predict correctly
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.
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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 a position without incurring substantial losses, if at
all. The Fund is also subject to the risk of a default by a counterparty to an
off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities, indexes and currencies; interest rate, index and
currency futures contracts and options on these futures contracts; and forward
currency contracts. The use of these strategies may require that the Fund
maintain cash or liquid securities in a segregated account with its custodian or
a designated sub-custodian to the extent the Fund's obligations with respect to
these strategies are not otherwise "covered" through 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.
ZERO COUPON SECURITIES. Each Fund may invest without limit in "zero coupon
securities." Zero coupon securities pay no cash income to their holders until
they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the values of securities
that distribute income regularly and may be more speculative than such other
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. Redemption of shares of a Fund that require it
to sell zero coupon securities prior to maturity may result in capital gains or
losses that may be substantial. In addition, a Fund's investments in zero coupon
securities will result in special tax consequences, which are described below
under "Dividends, Distributions and Taxes -- Taxes."
INTEREST RATE, INDEX, MORTGAGE AND CURRENCY SWAPS; INTEREST RATE CAPS, FLOORS
AND COLLARS. Each Fund may enter into interest rate index and mortgage swaps and
interest rate caps, floors and collars for hedging purposes or to seek to
increase total return; the Fixed Income and Global Fixed Income Funds may enter
into currency swaps for hedging purposes. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Index swaps involve the exchange by the Fund with another party
of the respective amounts payable with respect to a
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notional principal amount related to one or more indexes. Mortgage swaps are
similar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a reference
pool or pools of mortgages. Currency swaps involve the exchange of cash flows or
a notional amount of two or more currencies based on their relative future
values. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payment of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling the interest rate floor. An interest rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates.
A Fund will enter into interest rate, index and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate, index and mortgage swaps is limited to the net
amount of interest payments that the Fund is contractually obligated to make. If
the other party to an interest rate, index or mortgage swap defaults, the Fund's
risk of loss consists of the net amount of interest payments that the Fund is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of a gross payment stream in one designated currency in exchange
for the gross payment stream in another designated currency. Therefore, the
entire payment stream under a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations. To
the extent that the net amount payable by the Fund under an interest rate, index
or mortgage swap and the entire amount of the payment stream payable by the Fund
under a currency swap or an interest rate cap, floor cap or collar are held in a
segregated account consisting of cash or liquid securities, the Funds and
Warburg believe that swaps do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to each Fund's
borrowing restriction.
The Fund will not enter into interest rate, index, mortgage or currency swaps,
or interest rate cap, floor or collar transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party is
rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's or, if
unrated by such rating organizations, determined to be of comparable quality by
Warburg.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Each Fund may enter into
reverse repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to its agreement to repurchase
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them at a mutually agreed upon date, price and rate of interest. Each Fund also
may enter into "dollar rolls," in which the Fund sells fixed-income securities
for delivery in the current month and simultaneously contracts to repurchase
similar but not identical (same type, coupon and maturity) securities on a
specified future date. During the roll period, a Fund would forego principal and
interest paid on such securities. The Fund would be compensated by the
difference between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the initial
sale.
At the time a Fund enters into a reverse repurchase agreement or dollar roll,
it will establish and maintain a segregated account with an approved custodian
containing cash or liquid securities having a value not less than the repurchase
price (including accrued interest). The assets contained in the segregated
account will be marked-to-market daily and additional assets will be placed in
such account on any day in which the assets fall below the repurchase price
(plus accrued interest). Each Fund's liquidity and ability to manage its assets
might be affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements and dollar rolls that are accounted
for as financings are considered to be borrowings under the 1940 Act.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND, THE GLOBAL FIXED
INCOME FUND AND THE INTERMEDIATE GOVERNMENT FUND
SHORT SALES AGAINST THE BOX. The Fixed Income Fund, the Global Fixed Income
Fund and the Intermediate Government Fund may each enter into a short sale of
securities such that when the short position is open the Fund owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one "against the box," may be entered into by a Fund to, for
example, lock in a sale price for a security the Fund does not wish to sell
immediately. The Fund will deposit, in a segregated account with its custodian
or a qualified subcustodian, the securities sold short or convertible or
exchangeable preferred stocks or debt securities in connection with short sales
against the box. Not more than 10% of a Fund's net assets (taken at current
value) may be held as collateral for short sales against the box at any one
time.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND AND
THE GLOBAL FIXED INCOME FUND
FOREIGN SECURITIES. The Fixed Income and Global Fixed Income Funds may invest
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
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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 less rigorous than those applied in the United States. The yield of the
Funds may be adversely affected by fluctuations in the value of one or more
currencies relative to the U.S. dollar. 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. Due to the increased exposure of the Funds to market and
foreign exchange fluctuations brought about by such delays and due to the
corresponding negative impact on the Funds' liquidity, the Funds will avoid
investing in countries that are known to experience settlement delays which may
expose the Funds to unreasonable risk of loss. 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.
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 may 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.
REITS. The Fixed Income Fund and the Global Fixed Income Fund may invest in
real estate investment trusts ("REITs"), which are pooled investment vehicles
that invest primarily in income-producing real estate or real estate related
loans or interests. Like regulated investment companies such as the Funds, REITs
are not taxed on income distributed to shareholders provided they comply with
several requirements of the Code. A Fund investing in a REIT will indirectly
bear its proportionate share of any expenses paid by the REIT in addition to the
expenses of the Fund.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, the possibilities of failing to qualify
for the exemption from tax for distributed income under the Code and failing to
maintain their exemptions from the 1940 Act. REITs are also subject to interest
rate risks.
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STRATEGY AVAILABLE TO THE FIXED INCOME FUND AND
THE INTERMEDIATE GOVERNMENT FUND
LENDING OF PORTFOLIO SECURITIES. The Fixed Income Fund and the Intermediate
Government Fund may lend portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, a Fund can increase its
income by continuing to receive interest and any dividends on the loaned
securities as well as by either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
Government Securities are used as collateral. These loans, if and when made, may
not exceed 20% and 30%, respectively, of the total assets of the Fixed Income
Fund and the Intermediate Government Fund, respectively, taken at value and will
be collateralized by cash, letters of credit or Government Securities, which are
maintained at all times in an amount at least equal to 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 pay a part of the interest earned from
the investment collateral received for securities loaned to the borrower and/or
a third party that is unaffiliated with the Fund and that is acting as a
"finder." The Fund bears a risk of loss in the event that the other party to the
loan agreement defaults on its obligations or becomes bankrupt and the Fund is
delayed or prevented from exercising its right to retrieve and dispose of the
loaned securities, including the risk of a possible decline in the value of the
loaned securities during the period in which the Fund seeks to assert its
rights.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND AND
THE NEW YORK MUNICIPAL FUND
NEW YORK MUNICIPAL OBLIGATIONS. New York Municipal Obligations include debt
obligations of the State of New York and its political subdivisions, agencies
and public authorities issued to obtain funds for various public purposes and
debt obligations issued by other governmental entities (such as Puerto Rico) if
such debt obligations generate interest income which is excluded from gross
income for federal taxable income purposes and exempt from New York State and
New York City personal income taxes.
MUNICIPAL OBLIGATIONS. The two principal types of Municipal Obligations, in
terms of the source of payment of debt service on the bonds, are general
obligation bonds and revenue bonds and a Fund may hold both in any proportion.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source but not from the general taxing power. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
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A Fund may invest without limit in Municipal Obligations that are repayable
out of revenue streams generated from economically related projects or
facilities or Municipal Obligations whose issuers are located in the same state.
Sizeable investments in such obligations could involve an increased risk to the
Fund should any of such related projects or facilities experience financial
difficulties. Each Fund intends during the coming year to limit investments in
such obligations to less than 25% of its assets.
ALTERNATIVE MINIMUM TAX BONDS. The Funds may invest without limit in
"Alternative Minimum Tax Bonds," which are certain bonds issued after August 7,
1986 to finance certain non-governmental activities. While the income from
Alternative Minimum Tax Bonds is exempt from regular federal income tax, it is a
tax preference item for purposes of the federal individual and corporate
"alternative minimum tax." The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments or tax
preference items. Available returns on Alternative Minimum Tax Bonds acquired by
a Fund may be lower than those from other Municipal Obligations acquired by a
Fund due to the possibility of federal, state and local alternative minimum or
minimum income tax liability on Alternative Minimum Tax Bonds. At present, the
Fixed Income Fund does not intend to purchase Alternative Minimum Tax Bonds.
VARIABLE RATE AND MASTER DEMAND NOTES. Municipal Obligations purchased by a
Fund may include variable rate and master demand notes issued by industrial
development authorities and other governmental entities. Variable rate demand
notes are tax-exempt Municipal Obligations that provide for a periodic
adjustment in the interest rate paid on the notes. Master demand notes are
tax-exempt Municipal Obligations that provide for a periodic adjustment in the
interest rate paid (usually tied to the Treasury Bill auction rate) and permit
daily changes in the amount borrowed. While there may be no active secondary
market with respect to a particular variable rate or master demand note
purchased by a Fund, the Fund may, upon the notice specified in the note, demand
payment of the principal and accrued interest on the note at any time and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for the Fund to dispose of
the variable rate or master demand note involved in the event the issuer of the
note defaulted on its payment obligations, and a Fund could, for this or other
reasons, suffer a loss to the extent of the default plus any expenses involved
in an attempt to recover the investment.
STAND-BY COMMITMENTS. The Fixed Income Fund and the New York Municipal Fund
may acquire stand-by commitments with respect to Municipal Obligations held in
their respective portfolios. Under a stand-by commitment, which is commonly
known as a "put", a dealer agrees to purchase, at a Fund's option, specified
Municipal Obligations at a specified price. A Fund may pay for stand-by
commitments either separately in cash or by paying a higher price for the
securities acquired with the commitment, thus increasing the cost of the
securities and reducing the yield otherwise available from them, and
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will be valued at zero in determining the Fund's net asset value. A stand-by
commitment is not transferable by a Fund, although the Fund can sell the
underlying Municipal Obligations to a third party at any time. The principal
risk of stand-by commitments is that the writer of a commitment may default on
its obligation to repurchase the securities acquired with it. The Funds intend
to enter into stand-by commitments only with brokers, dealers and banks that, in
the opinion of Warburg, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Warburg will
periodically review relevant financial information concerning the issuer's
assets, liabilities and contingent claims. The Funds will acquire stand-by
commitments only in order to facilitate portfolio liquidity and do not intend to
exercise their rights under stand-by commitments for trading purposes.
STRATEGY AVAILABLE TO THE INTERMEDIATE GOVERNMENT FUND
GOVERNMENT ZERO COUPON SECURITIES. The Intermediate Government Fund may invest
in (i) Government Securities that have been stripped of their unmatured interest
coupons, (ii) the coupons themselves and (iii) receipts or certificates
representing interests in stripped Government Securities and coupons
(collectively referred to as "Government zero coupon securities"). The market
value of Government zero coupon securities that are considered Government
Securities is used for purposes of determining whether at least 65% of the
Intermediate Government Fund's total assets is invested in Government
Securities. However, receipts or certificates which are underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain notes or bonds issued by the U.S.
government, its agencies, authorities or instrumentalities will not be
considered Government Securities for purposes of the 65% test. For a description
of zero coupon securities and the tax and other considerations associated with
investing in them, see "Zero Coupon Securities" above and "Dividends,
Distributions and Taxes -- Taxes" below.
INVESTMENT GUIDELINES
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Each Fund may each 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) with respect to each Fund other than the Intermediate Government Fund,
time deposits maturing in more than seven calendar days; and (iv) certain Rule
144A Securities. Although the Fixed Income Fund and the Global Fixed Income Fund
may each invest up to 10% of its net assets in warrants, neither Fund currently
intends to invest in warrants. Each Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, in an
amount up to 30% of its total assets and may pledge assets to the extent
necessary to secure permitted borrowings. Whenever borrowings (including reverse
repurchase agreements) exceed 5%
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of the value of a 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 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
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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 Funds and also furnishes the
Funds with office space, furnishings and equipment.
For the services provided by Warburg, the Fixed Income Fund, the Global Fixed
Income Fund, the Intermediate Government Fund and the New York Municipal Fund
pay Warburg a fee calculated at an annual rate of .50%, 1.00%, .50% and .40%,
respectively, of the Fund's average daily net assets. 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 advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of December 31, 1997,
Warburg managed approximately $19.7 billion of assets, including approximately
$11.3 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus the managing partner of WP&Co. may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGERS. Dale C. Christensen is a Co-Portfolio Manager of each of
the Funds. Mr. Christensen is a Managing Director of Warburg and has been
associated with Warburg since 1989. He has been with each Fund since January
1992. M. Anthony E. van Daalen is a Co-Portfolio Manager of the Fixed Income and
Intermediate Government Funds. Mr. van Daalen is a Senior Vice President of
Warburg and has been associated with Warburg since 1992. Laxmi C. Bhandari, also
a Senior Vice President of Warburg, is a Co-Portfolio Manager of the Global
Fixed Income Fund. Mr. Bhandari has been a Co-Portfolio Manager of the Global
Fixed Income Fund since joining Warburg in 1993, before which time he was a vice
president at the Paribas Corporation.
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Sharon B. Parente is a Co-Portfolio Manager of the New York Municipal Fund. Ms.
Parente is a Managing Director of Warburg and has been a Co-Portfolio Manager of
the New York Municipal Fund since joining Warburg in 1992.
CO-ADMINISTRATORS. Each 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 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 services, acting as liaison between each Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual and semiannual reports, assisting in the preparation of tax returns 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 Inc., an indirect, wholly owned subsidiary of PNC Bank
Corp. ("PFPC"), as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for each Fund and
assists in related aspects of the Fund's operations. As compensation each of the
Funds pays PFPC a fee calculated at an annual rate of .05% of its average daily
net assets, subject in each case to a minimum annual fee and exclusive of
out-of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ("PNC") serves as custodian of the
assets of each of the Funds. State Street Bank & Trust Company ("State Street")
also serves as custodian of the Fixed Income Fund's and Global Fixed Income
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 Bank also acts as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Funds. It has delegated to
Boston Financial Data Services, Inc. ("BFDS"), a 50%-owned subsidiary,
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation 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.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients 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. Incentives
may include opportunities to attend business meetings, conferences, sales or
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training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Funds. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. In some instances, these
incentives may be offered only to certain institutions whose representatives
provide services in connection with the sale or expected sale of Fund shares.
DIRECTORS/TRUSTEES AND OFFICERS. The officers of each Fund manage its day-
to-day operations and are directly responsible to the Board. The Boards set
broad policies for each Fund and choose its officers. A list of the Directors/
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.
HOW TO OPEN AN ACCOUNT
- --------------------------------------------------------------------------------
In order to invest in a Fund, an account application must first be completed
and signed. To obtain an application, telephone the Fund at (800) 369-2728. An
application may also be obtained by writing to:
Warburg Pincus Advisor Funds
P.O. Box 4906
Grand Central Station
New York, New York 10163
Completed and signed applications should be mailed to the above address.
References in this Prospectus to shareholders or investors are generally to
Institutions as the record holders of the Advisor Shares.
UTMA/UGMA ACCOUNTS. For information about opening a Uniform Transfers to
Minors Act ("UTMA") account or Uniform Gifts to Minors Act ("UGMA") account, an
Institution should telephone the Fund at (800) 369-2728 or write to the Fund at
the address set forth above. Individual investors should consult their own tax
advisors about the establishment of UTMA or UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration, address and/or privileges, telephone
the Fund at (800) 369-2728. Institutions and their customers are responsible for
maintaining current account registrations and addresses with the Fund. No
interest will be paid on amounts represented by uncashed distribution or
redemption checks.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Funds reserve the right to make Advisor Shares
available to other investors in the future.
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Each Institution separately determines the rules applicable to its customers
investing in a 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
Funds reserve 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.
Advisor Shares may be purchased at any time by mail or by wire in the manner
outlined below. Wire payments for initial and subsequent investments should be
preceded by an order placed with a Fund and should clearly indicate the account
number and the name of the Fund in which shares are being purchased. In the
interest of economy and convenience, physical certificates representing shares
in the Fund are not normally issued.
BY MAIL. To purchase Advisor Shares by mail, a check or money order made
payable to the Fund or Warburg Pincus Advisor Funds (in U.S. currency) should be
sent along with a completed account application to Warburg Pincus Advisor Funds
at the address set forth above. Checks payable to the investor and endorsed to
the order of the Fund or Warburg Pincus Advisor Funds will not be accepted as
payment and will be returned to the sender. If payment is received in proper
form prior to the close of regular trading on The New York Stock Exchange, Inc.
(the "NYSE") (currently 4:00 p.m., Eastern time) on a day that the Fund
calculates its net asset value (a "business day"), the purchase will be made at
the Fund's net asset value calculated at the end of that day. If payment is
received at or after the close of regular trading on the NYSE, the purchase will
be effected at the Fund's net asset value determined for the next business day
after payment has been received. Checks or money orders that are not in proper
form or that are not accompanied or preceded by a complete account application
will be returned to the sender. Shares purchased by check or money order are
entitled to receive dividends and distributions beginning on the business day
after payment has been received or on that day, in the case of the Global Fixed
Income Fund. Checks or money orders in payment for shares of more than one Fund
should be made payable to Warburg Pincus Advisor 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. Advisor Shares in a Fund may also be purchased by wired funds from a
bank. Telephone orders by wire will not be accepted until a completed account
application in proper form has been received and an account number has been
established. Orders should be placed with the Fund prior to wiring
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funds by telephoning (800) 369-2728. Federal funds may be wired using the
following wire address:
State Street Bank and Trust Company
225 Franklin St.
Boston, MA 02110
ABA# 0110 000 28
Attn: Mutual Funds/Custody Department
[Insert Warburg Pincus Advisor Fund name(s) here]
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
If a telephone order is received prior to the close of regular trading on the
NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the Fund on that day and are entitled to
dividends and distributions beginning on the following business day or on that
day, in the case of the Global Fixed Income Fund. However, if a wire in proper
form that is not preceded by a telephone order is received at or 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.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application,
transactions may be conducted by telephone. Institutions should realize that in
conducting transactions by telephone they may be giving up a measure of security
that they may have if they were to conduct these transactions in writing.
Neither the Fund nor its agents will be liable for following instructions
communicated by telephone that it reasonably believes to be genuine. Reasonable
procedures will be employed on behalf of the Fund designed to give reasonable
assurance that instructions communicated by telephone are genuine. Such
procedures include providing written confirmation of telephone transactions,
tape recording telephone instructions and requiring specific personal
information prior to acting upon telephone instructions.
GENERAL. The Funds understand that some Institutions may impose certain
conditions on their clients or customers that invest in a Fund, which are in
addition to or different than those described in this Prospectus, and may charge
their clients or customers transaction or administrative charges or other direct
fees. Certain features of a Fund, such as the initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived by Institutions. Therefore, a client or customer should contact the
Institution acting on his behalf concerning the fees (if any) charged in
connection with a purchase, exchange or redemption of Fund shares and should
read this Prospectus in light of the terms governing his account with
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<PAGE> 81
the Institution. Institutions will be responsible for promptly transmitting
client or customer purchase and redemption orders to the Fund in accordance with
their agreements with the Fund and with clients or customers.
Institutions or, if applicable, their designees may enter confirmed purchase,
exchange or redemption orders on behalf of clients and customers, with payment
to follow no later than a Fund's pricing on the following business day. If
payment is not received by such time, the Institution could be held liable for
resulting fees or losses. The Fund may be deemed to have received a purchase or
redemption order when an Institution, or, if applicable, its authorized
designee, accepts the order. Such orders received by the Fund in proper form
will be priced at the Fund's net asset value next computed after they are
accepted by the Institution or its authorized designee.
Each Fund reserves the right to reject any specific purchase order, including
certain purchases made by exchange (see "How to Redeem and Exchange
Shares -- Exchange of Shares" below). Purchase orders may be refused if, in
Warburg's opinion, a Fund would be unable to invest the money effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. A Fund may discontinue sales of its shares if
management believes that a substantial further increase in assets may adversely
affect the Fund's ability to achieve its investment objective. In such event,
however, it is anticipated that existing shareholders would be permitted to
continue to authorize investment in the Fund and to reinvest any dividends or
capital gains distributions.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor of a Fund 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 this request to the Fund or its agent.
Advisor Shares of the Funds may either be redeemed by mail or by telephone. If
an investor desires to redeem his shares by mail, a written request for
redemption should be sent to Warburg Pincus Advisor 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. Payment of redemption proceeds may be delayed
in connection with account changes. Each mail redemption request must be signed
by the registered owner(s) (or his legal representative(s)) exactly as the
shares are registered. Institutions may redeem Advisor Shares by calling Warburg
Pincus Advisor Funds at (800) 369-2728 between 9:00 a.m. and 4:00 p.m. (Eastern
time) on any business day. An Institution 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.
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<PAGE> 82
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out. 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 Advisor Funds by telephone, an investor may deliver the
redemption request to Warburg Pincus Advisor 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 funds or check clear, payments of the redemption
proceeds will be delayed for up to 10 days from the date of purchase. Investors
should consider purchasing shares using a certified or bank check, money order
or federal funds wire if they anticipate an immediate need for redemption
proceeds.
If a redemption order is received by a Fund or its agent prior to the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received at or 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, it reserves the right to pay the redemption proceeds within seven days
after the redemption order is effected. Furthermore, a 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 a Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
"Redemption of Shares" above. If an exchange request is received by Warburg
Pincus Advisor Funds or its agent prior to the close of regular trading on the
NYSE, the exchange will be made at each fund's net asset value determined at the
end of that business day. Exchanges will be effected without a sales charge.
The exchange privilege is available to shareholders residing in any state in
which Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain
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<PAGE> 83
or loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of a Fund for Advisor Shares in another Warburg Pincus Advisor Fund
should review the prospectus of the other fund prior to making an exchange. For
further information regarding the exchange privilege or to obtain a current
prospectus for another Warburg Pincus Advisor Fund, an investor should contact
Warburg Pincus Advisor Funds at (800) 369-2728.
Each Fund reserves the right to refuse exchange purchases by any person or
group if, in Warburg's judgment, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when the Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a "market timing"
strategy) is discerned. The Fund may refuse exchange purchases at any time
without prior notice. The Fund reserves the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.
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. The Fixed Income Fund, the Intermediate Government Fund and
the New York Municipal Fund each declares its dividends from its net investment
income daily and pays those dividends monthly in the calendar year in which they
are declared. The Global Fixed Income Fund declares dividends from its net
investment income quarterly. Net investment income earned on weekends and when
the NYSE is not open will be computed as of the next business day. Distributions
of net realized long-term and short-term capital gains are declared annually and
will be paid in the calendar year in which they are declared, generally in
November or December. Unless an investor instructs a Fund to pay dividends or
distributions in cash, dividends and distributions will automatically be
reinvested in additional Advisor Shares of the relevant Fund at net asset value.
The election to receive dividends in cash may be made on the account application
or, subsequently, by writing to Warburg Pincus Advisor Funds at the address set
forth under "How to Open an Account" or by calling Warburg Pincus Advisor Funds
at (800) 369-2728.
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.
Special Distribution Matters Relating to the New York Municipal Fund. If, for
any full fiscal year, the New York Municipal Fund's total distributions exceed
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<PAGE> 84
net investment income and net realized capital gains, the excess distributions
may be treated as a taxable dividend or a tax-free return of capital (up to the
amount of the shareholder's tax basis in his shares). The amount treated as a
tax-free return of capital will reduce a shareholder's adjusted basis in his
shares. Pursuant to the requirements of the 1940 Act and other applicable laws,
a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net realized capital gains, such distributions may
have the effect of decreasing the Fund's total assets, which may increase the
Fund's expense ratio.
TAXES. Each Fund intends to continue 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.
The investments by the Funds in zero coupon securities may create special tax
consequences. Zero coupon securities do not make interest payments, although a
portion of the difference between a zero coupon security's maturity value and
its purchase price is imputed as income to the Funds each year even though the
Funds receive no cash distribution until maturity. Under the U.S. federal tax
laws applicable to mutual funds, the Funds will not be subject to tax on this
income if they pay dividends to their shareholders substantially equal to all
the income received from, or imputed with respect to, their investments during
the year, including their zero coupon securities. These dividends ordinarily
will constitute taxable income to the shareholders of the Funds.
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. In the case of the New York Municipal
Fund, any loss realized by a shareholder on the sale or redemption of a Fund
share held by the shareholder for six months or less will be disallowed to the
extent of the amount of any exempt-interest dividend received by the shareholder
with respect to such share. The portion of such loss not disal-
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<PAGE> 85
lowed as described in the preceding sentence shall be treated for federal income
tax purposes as a long-term capital loss to the extent of any distributions or
deemed distributions of long-term capital gains received by the shareholder with
respect to such share. An investor in the New York Municipal Fund who redeems
his shares prior to the declaration of a dividend may lose tax-exempt status on
accrued income attributable to tax-exempt Municipal Obligations.
The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposition
of assets on or after July 29, 1997 held for more than one year and up to 18
months at the time of disposition will be taxed as "mid-term gain" at a maximum
rate of 28%. A rate of 18% instead of 20% will apply after December 31, 2000 for
assets held for more than 5 years. However, the 18% rate applies only to assets
acquired after December 31, 2000 unless the taxpayer elects to treat an asset
held prior to such date as sold for fair market value on January 1, 2001. In the
case of individuals whose ordinary income is taxed at a 15% rate, the 20% rate
is reduced to 10% and the 10% rate for assets held for more than 5 years is
reduced to 8%. The Fund will provide information relating to that portion of a
"capital gain dividend" that may be treated by investors as eligible for the
reduced capital gains rate for capital assets held for more than 18 months.
Investors may be proportionately liable for taxes on income and gains of the
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. The Fund will designate that portion of
its dividends that will qualify for the federal dividends received deduction for
corporations.
Dividends and interest received by a Fund with respect to its foreign
investments may be subject to withholding and other taxes imposed by foreign
countries. However, tax conventions between certain countries and the United
States may reduce or eliminate such taxes. If either of the Fixed Income Fund or
the Global Fixed Income Fund qualifies as a regulated investment company, if
certain asset and distribution requirements are satisfied and if more than 50%
of the respective Fund's total assets at the close of its fiscal year consists
of stock or securities of foreign corporations, that Fund may elect for U.S.
income tax purposes to treat foreign income taxes paid by it as paid by its
shareholders. The Fixed Income Fund or the Global Fixed Income Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. As
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<PAGE> 86
a result, shareholders of the Fund would be required to include their pro rata
portions of such foreign taxes in computing their taxable incomes and then treat
an amount equal to those foreign taxes as a U.S. federal income tax deduction or
as a foreign tax credit against their U.S. federal income taxes. Shortly after
any year for which it makes such an election, each Fund will report to its
shareholders the amount per share of such foreign tax that must be included in
each shareholder's gross income and the amount which will be available for the
deduction or credit. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions. Certain limitations will be imposed
on the extent to which the credit (but not the deduction) for foreign taxes may
be claimed.
Special Tax Matters Relating to the Intermediate Government Fund. Investors in
the Intermediate Government Fund do not have to pay state and local income taxes
with respect to interest income on most types of Government Securities if the
investors are the tax owners of these Government Securities. Furthermore, some
states, if certain requirements are satisfied, permit investors to treat the
portion of their regulated investment company dividends that is attributable to
interest income on these Government Securities as tax-exempt income for state or
local income tax purposes. Other states treat all of these dividends as subject
to state and local income taxation. Investors in the Fund should consult their
own tax advisers to assess the consequences of investing in the Fund under state
and local laws generally and to determine whether dividends paid by the Fund
that represent interest derived from Government Securities are exempt from any
applicable state or local taxes.
Special Tax Matters Relating to the New York Municipal Fund and the Fixed
Income Fund. As a regulated investment company, the New York Municipal Fund will
designate and pay exempt-interest dividends derived from interest earned on
qualifying Municipal Obligations. Such exempt-interest dividends may be excluded
by investors of the Fund from their gross income for federal income tax purposes
although (i) all or a portion of such exempt-interest dividends will be a
specific tax-preference item for purposes of the federal individual and
corporate alternative minimum taxes to the extent they are derived from certain
types of private activity bonds issued after August 7, 1986 and (ii) all
exempt-interest dividends will be a component of the "current earnings"
adjustment item for purposes of the federal corporate alternative minimum tax.
Moreover, dividends paid by the Fund will be subject to a branch profits tax of
up to 30% when received by certain foreign corporate investors. Dividends
derived from interest on qualifying New York Municipal Obligations will be
exempt from New York State and New York City personal income (but not corporate
franchise) taxes.
The Fixed Income Fund does not expect to meet the tax requirements that would
enable it to pay exempt-interest dividends with respect to income derived from
its holdings of Municipal Obligations.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. In the case of the New York Municipal
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<PAGE> 87
Fund, these statements set forth the dollar amount of income excluded or exempt
from federal income or New York State and New York City personal income taxes
and the dollar amount, if any, subject to federal taxation. These statements
also designate the amount of exempt-interest dividends that is a specific
preference item for purposes of the federal individual and corporate alternative
minimum taxes. 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, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding 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 Advisor Share of each 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
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. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the 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.
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PERFORMANCE
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Each 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, each Fund may advertise yield and average annual total return of
its Advisor Shares over various periods of time. The yield of a Fund refers to
net investment income generated by the Advisor Shares over a specified
thirty-day period, which is then annualized. That is, the amount of net
investment income generated by the Advisor Shares during that thirty-day period
is assumed to be generated over a 12-month period and is shown as a percentage
of the investment. In addition, advertisements concerning the Intermediate
Government Fund and the New York Municipal Fund may describe a tax equivalent
yield. The tax equivalent yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Advisor Shares' tax-free
yield. It is calculated by increasing the yield shown for the Advisor Shares to
the extent necessary to reflect the payment of specified tax rates. Thus, the
tax equivalent yield will always exceed a Fund's yield. 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 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 a Fund's annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that 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
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 the Fund's 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 yield, tax-equivalent yield and total return
figures are based on historical earnings and are not intended to indicate future
performance. The Funds' Statement of Additional Information describes the
38
<PAGE> 89
method used to determine the yield and total return. Current performance figures
may be obtained by calling Warburg Pincus Funds at (800) 369-2728.
Each 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 Fixed Income Fund,
with the Lehman Bond Index and the Lehman Intermediate Government/Corporate Bond
Index (each an unmanaged index of government and corporate bonds calculated by
Lehman Brothers); in the case of the Global Fixed Income Fund, with the J.P.
Morgan Traded Index (an index of non-U.S. dollar bonds of ten countries with
active bond markets), the Salomon Brothers World Government Bond Index (a
hedged, market-capitalization weighted index designed to track major government
debt markets) and the Lipper General World Income Average (an average of funds
that invest primarily in non-U.S. dollar and U.S. dollar debt instruments); in
the case of the Intermediate Government Fund, with the Lehman Intermediate
Government Bond Index (an unmanaged index of government bonds calculated by
Lehman Brothers); and in the case of the New York Municipal Fund, with the Bond
Buyer Index (the "BBI") (an unmanaged index of 20 General Obligation issues of
20-year maturity from various municipalities across the nation published by the
American Banker), the Lehman 5-Year Municipal Bond Index and the Lipper New York
Intermediate Municipal Debt Funds Average (an unmanaged index of 61 Intermediate
Municipal Debt Funds calculated by Lipper Analytical Services); 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 each Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Mutual Fund Magazine, SmartMoney, The Wall
Street Journal and Worth. Morningstar, Inc. rates funds in broad categories
based on risk/reward analyses over various periods of time. In addition, each
Fund may from time to time compare its expense ratio to that of investment
companies with similar objectives and policies, based on data generated by
Lipper Analytical Services, Inc. or similar investment services that monitor
mutual funds.
In reports or other communications to investors or in advertising, 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 portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Fund with respect
to relevant market and industry benchmarks. Each Fund may also discuss mea-
39
<PAGE> 90
sures of risk, the continuum of risk and return relating to different
investments, and the potential impact of foreign securities on a portfolio
otherwise composed of domestic securities.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fixed Income Fund and the New York Municipal Fund were
organized under the laws of The Commonwealth of Massachusetts as Massachusetts
business trusts in 1987 and 1986, respectively. In 1992, these Funds changed
their names from "Counsellors Fixed Income Fund" and "Counsellors New York
Municipal Bond Fund" to "Warburg, Pincus Fixed Income Fund" and "Warburg, Pincus
New York Municipal Bond Fund," respectively. On February 28, 1995, the New York
Municipal Fund changed its name to "Warburg, Pincus New York Intermediate
Municipal Fund." The Global Fixed Income Fund and the Intermediate Government
Fund were incorporated under the laws of the State of Maryland in 1990 and 1988,
respectively, under the names "Counsellors Global Fixed Income Fund, Inc." and
"Counsellors Intermediate Maturity Government Fund, Inc.," respectively. On
October 27, 1995 and February 16, 1996, the Funds amended their respective
charters to change their names to "Warburg, Pincus Global Fixed Income Fund,
Inc." and "Warburg, Pincus Intermediate Maturity Government Fund, Inc."
The Agreement and Declaration of Trust of each of the Fixed Income Fund and
the New York Municipal Fund authorizes each Fund's 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 classified as Common Shares and two
billion shares are classified as Advisor Shares. The charters of the Global
Fixed Income Fund and the Intermediate Government Fund authorize each Fund's
Board to issue three billion full and fractional shares of capital stock, $.001
par value per share, of which one billion shares are designated Common Shares
and two billion shares are designated Advisor Shares. Under each Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board of a Fund may similarly classify or reclassify any class
of its shares into one or more series and, without shareholder approval, may
increase the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. Each Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. 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, 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
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<PAGE> 91
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) 927-2874.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Global Fixed Income Fund or the
Intermediate Government Fund may be removed by the shareholders at any time by a
vote of a majority of the votes entitled to be cast for the election of
Directors. Investors of record of no less than two-thirds of the outstanding
shares of the Fixed Income Fund or the New York Municipal 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. 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. Lionel I. Pincus may be deemed to be a
controlling person of each Fund (other than the Global Fixed Income Fund)
because he may be deemed to possess or share investment power over shares owned
by clients of Warburg.
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). 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. Periodic listings of the investment securities held by a Fund, as well
as certain statistical characteristics of the Fund, may be obtained by calling
Warburg Pincus Advisor Funds at (800) 369-2728 or on the Warburg Pincus Funds
Web site at www.warburg.com. 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."
The Advisor Share 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
- --------------------------------------------------------------------------------
Each Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement
41
<PAGE> 92
plans) ("Customers") are owners of Advisor Shares. Either those Institutions or
companies providing certain services to them (together, "Service Organizations")
will enter into agreements ("Agreements") with a Fund and/or Counsellors
Securities pursuant to a Distribution Plan as described below. Such entities may
provide certain distribution, shareholder servicing, administrative and/or
accounting services for its Customers. Distribution services would be marketing
or other services in connection with the promotion and sale of Advisor Shares.
Shareholder services that may be provided include responding to Customer
inquiries, providing information on Customer investments and providing other
shareholder liaison services. Administrative and accounting services related to
the sale of Advisor Shares may include (i) aggregating and processing purchase
and redemption requests from Customers and placing net purchase and redemption
orders with the Fund's transfer agent, (ii) processing dividend payments from
the Fund on behalf of Customers and (iii) providing sub-accounting related to
the sale of Advisor Shares beneficially owned by Customers or the information to
the Fund necessary for sub-accounting. Each Board has approved a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act under which each
participating Service Organization will be paid, out of the assets of the Fund
(either directly or by Counsellors Securities on behalf of the Fund), a
negotiated fee on an annual basis not to exceed .75% (up to a .25% annual
service fee and a .50% annual distribution and/or administrative services fee)
of the value of the average daily net assets of its Customers invested in
Advisor Shares. The current 12b-1 fee is .25% per annum for the Fixed Income,
Intermediate Government and New York Municipal Funds and .50% per annum for the
Global Fixed Income Fund. The Boards evaluate the appropriateness of the Plans
on a continuing basis and in doing so consider all relevant factors.
Warburg, Counsellors Securities or 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 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 a Plan to compensate
the Fund's custodian or transfer agent for costs related to accounts of its
Customers.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ANY FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR 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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<PAGE> 94
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses...................................... 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 5
Portfolio Investments.................................... 9
Risk Factors and Special Considerations.................. 12
Portfolio Transactions and Turnover Rate................. 16
Certain Investment Strategies............................ 16
Investment Guidelines.................................... 25
Management of the Funds.................................. 26
How to Open an Account................................... 28
How to Purchase Shares................................... 28
How to Redeem and Exchange Shares........................ 31
Dividends, Distributions and Taxes....................... 33
Net Asset Value.......................................... 37
Performance.............................................. 38
General Information...................................... 40
Shareholder Servicing.................................... 41
</TABLE>
[WARBURG PINCUS LOGO]
P.O. BOX 4906, GRAND CENTRAL STATION
NEW YORK, NY 10163
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADBDF-1-0298
<PAGE> 95
STATEMENT OF ADDITIONAL INFORMATION
February 17, 1998
WARBURG PINCUS FIXED INCOME FUND
WARBURG PINCUS GLOBAL FIXED INCOME FUND
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call 800-WARBURG
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives........................................................... 2
Investment Policies............................................................. 2
Special Considerations Relating to New York Municipal Obligations............... 36
Management of the Funds......................................................... 50
Additional Purchase and Redemption Information.................................. 59
Exchange Privilege.............................................................. 59
Additional Information Concerning Taxes......................................... 60
Determination of Performance.................................................... 66
Independent Accountants and Counsel............................................. 68
Miscellaneous................................................................... 69
Financial Statements............................................................ 71
Appendix - Description of Ratings............................................... A-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg Pincus
Fixed Income Fund (the "Fixed Income Fund"), Warburg Pincus Intermediate
Maturity Government Fund (the "Intermediate Government Fund"), Warburg Pincus
New York Intermediate Municipal Fund (the "New York Municipal Fund") and Warburg
Pincus Global Fixed Income Fund (the "Global Fixed Income Fund") (each a "Fund"
and collectively, the "Funds"), and with the Prospectus for the Advisor Shares
of the Funds, each dated February 17, 1998, 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 Funds' Prospectuses and information
regarding each Fund's current performance may be obtained by calling the Fund at
(800) 927-2874. Information regarding the status of shareholder accounts may
also be obtained by calling a Fund at the same number or by writing to the Fund,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
<PAGE> 96
INVESTMENT OBJECTIVES
The investment objectives of the Fixed Income Fund are to generate high
current income consistent with reasonable risk and, secondarily, capital
appreciation.
The investment objective of the Global Fixed Income Fund is to maximize
total investment return consistent with prudent investment management,
consisting of a combination of interest income, currency gains and capital
appreciation.
The investment objective of the Intermediate Government Fund is to
achieve as high a level of current income as is consistent with the preservation
of capital.
The investment objective of the New York Municipal Fund is to maximize
current interest income exempt from federal income tax and New York State and
New York City personal income taxes to the extent consistent with prudent
investment management and the preservation of capital.
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 Funds may write covered put and call options on
stock and debt securities and may purchase such options that are traded on
foreign and U.S. exchanges, as well as over-the-counter ("OTC").
A 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, a Fund as the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Fund as a put or call writer retains the risk of a decline in the price of
the underlying security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
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If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
In the case of options written by a 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 securities 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, a Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which a 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 a 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. A Fund may write (i) in-the-money call options when Warburg Pincus
Asset Management, Inc., each Fund's investment adviser ("Warburg"), expects that
the price of the underlying security will remain flat or decline moderately
during the option period, (ii) at-the-money call options when Warburg expects
that the price of the underlying security will remain flat or advance moderately
during the option period and (iii) out-of-the-money call options when Warburg
expects that the premiums received from writing the call option plus the
appreciation in market price of the underlying security up to the exercise price
will be greater than the appreciation in the price of the underlying security
alone. In any of the preceding situations, if the market price of the underlying
security declines and the security is sold at this lower price, the amount of
any realized loss will be offset wholly or in part by the premium received.
Out-of-the-money, at-the-money and in-the-money put options (the reverse of call
options as to the relation of exercise price to market price) may be used in the
same market environments that such call options are used in equivalent
transactions. To secure its obligation to deliver the underlying security when
it writes a call option, the Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing
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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 a 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 a 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 a 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 a Fund under an option it has written
would be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as a result of the transaction. So long as the
obligation of the Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, a 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, a 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
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<PAGE> 99
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 a 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.
Securities Index Options. A Fund may purchase and write exchange-listed
and OTC put and call options on securities indexes. A securities index measures
the movement of a certain group of securities by assigning relative values to
the securities included in the index, fluctuating with changes in the market
values of the securities included in the index. Securities index options may be
based on a broad or narrow market index or on a particular industry or market
segment.
Options on securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities 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 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. Index options may be offset by entering into closing transactions
as described above for securities options.
OTC Options. A 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 securities 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 a Fund, the Fund would lose the premium it paid for the option
and the expected benefit of the transaction.
5
<PAGE> 100
Listed options generally have a continuous liquid market while dealer
options have none. Consequently, a 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 a Fund. Until the Fund, as a covered OTC call
option writer, is able to effect a closing purchase transaction, it will not be
able to liquidate securities (or other assets) used to cover the written option
until the option expires or is exercised. This requirement may impair the Fund's
ability to sell portfolio securities or, with respect to currency options,
currencies at a time when such sale might be advantageous. In the event of
insolvency of the other party, the Fund may be unable to liquidate a dealer
option.
Futures Activities. A Fund may enter into foreign currency, interest
rate and securities 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.
A 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. Although a Fund is limited in the amount of assets it may invest in
futures transactions (as described above and in the Prospectuses), there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Futures Contracts. (The Intermediate Government and New York Municipal
Funds may not engage in foreign currency futures transactions.) A foreign
currency futures contract provides for the future sale by one party and the
purchase by the other party of a certain amount of a specified non-U.S. currency
at a specified price, date, time and place. An interest rate futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specific interest rate sensitive financial instrument
(debt security) at a specified price, date, time and place. Securities indexes
are capitalization weighted indexes which reflect the market value of the
securities listed on the indexes. A securities index futures contract is an
agreement to be settled by delivery of an amount of cash
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<PAGE> 101
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 a 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 liquid securities acceptable to
the broker 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 a Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." The Fund will also incur brokerage costs in connection with
entering into futures transactions.
At any time prior to the expiration of a futures contract, a 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 a 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 Intermediate Government and New York
Municipal Funds may not purchase or write options on foreign currency.) A Fund
may purchase and write put and call options on foreign currency, interest rate
and securities 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
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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 securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of a
Fund.
Currency Exchange Transactions. (Fixed Income and Global Fixed Income
Funds only) The value in U.S. dollars of the assets of a 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. A 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 and writing 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, a 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.
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Currency Options. A Fund may purchase and write 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. A 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. A Fund may not
position hedge to an extent greater than the aggregate market value (at the time
of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in which a
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, a 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, a 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
a 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.
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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, a 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 its 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 a Fund, an increase in the value of the
futures contracts could only mitigate, but not totally offset, the decline in
the value of the Fund's assets.
In hedging transactions based on an index, whether a Fund will realize
a gain or loss from the purchase or writing of options on an index depends upon
movements in the level of securities prices in the market generally or, in the
case of certain indexes, in an industry or market segment, rather than movements
in the price of a particular security. 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 a Fund's
net investment results if market movements are not as anticipated when the hedge
is established. Securities 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 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 an index and
movements in the price of index futures, a correct forecast of general market
trends by Warburg still may not result in a successful hedging transaction.
A 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.
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Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectuses, a 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, indexes and currencies; 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 certain liquid
securities that are acceptable as collateral to the appropriate regulatory
authority.
For example, a call option written by a Fund on securities may require
the Fund to hold the securities subject to the call (or securities convertible
into the securities without additional consideration) or to segregate assets (as
described above) sufficient to purchase and deliver the securities if the call
is exercised. A call option written by the Fund on an index may require the Fund
to own portfolio securities that correlate with the index or to segregate assets
(as described above) equal to the excess of the index value over the exercise
price on a current basis. A put option written by a Fund may require the Fund to
segregate assets (as described above) equal to the exercise price. The Fund
could purchase a put option if the strike price of that option is the same or
higher than the strike price of a put option sold by the Fund. If the Fund holds
a futures or forward contract, the Fund could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. The Fund may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
Additional Information on Investment Practices
Foreign Investments. (Fixed Income and Global Fixed Income Funds only)
Investors should recognize that investing in foreign companies involves certain
risks, including those discussed below, which are not typically associated with
investing in United States issuers.
Foreign Currency Exchange. Since a 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 in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of the Fund assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholder 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
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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 other 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. A 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.
Many of the foreign securities held by a 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 such
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. A 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.
Delays. Securities of some foreign companies are less liquid and their
prices 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 a 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.
Increased Expenses. The operating expenses of a Fund, to the extent it
invests in foreign securities, may be higher than that of an investment company
investing exclusively in U.S. securities, since the expenses of the Fund, such
as custodial costs, valuation costs and communication costs, may be higher than
those costs incurred by investment companies not investing in foreign
securities.
Foreign Debt Securities. The returns on foreign debt securities reflect
interest rates and other market conditions prevailing in those countries and the
effect of gains and losses in the denominated currencies against the U.S.
dollar, which have had a substantial impact on investment in foreign fixed
income securities. The relative performance of various
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countries' fixed income markets historically has reflected wide variations
relating to the unique characteristics of each country's economy. Year-to-year
fluctuations in certain markets have been significant, and negative returns have
been experienced in various markets from time to time.
The foreign government securities in which a Fund may invest generally
consist of obligations issued or backed by national, state or provincial
governments or similar political subdivisions or central banks in foreign
countries. Foreign government securities also include debt obligations of
supranational entities, which include international organizations designated, or
backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
U.S. Government Securities. A 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"), Federal Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. A 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 United States 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.
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Loan Participations and Assignments. A Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign government (a "Borrower") and one or more financial institutions
("Lenders"). The majority of the Fund's investments in Loans are expected to be
in the form of participations in Loans ("Participations") and assignments of
portions of Loans from third parties ("Assignments"). Participations typically
will result in the Fund having a contractual relationship only with the Lender,
not with the Borrower. A Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the Borrower. In connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the Borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the Borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund will assume the credit risk of both the Borrower and the Lender that is
selling the Participation. In the event of the insolvency of the Lender selling
a Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the Borrower. The Fund
will acquire Participations only if the Lender interpositioned between the Fund
and the Borrower is determined by Warburg to be creditworthy.
When a Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the Borrower on the Loan. However, since Assignments are
generally arranged through private negotiations between potential assignees and
potential assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
There are risks involved in investing in Participations and
Assignments. A Fund may have difficulty disposing of them because there is no
liquid market for such securities. The lack of a liquid secondary market will
have an adverse impact on the value of such securities and on the Fund's ability
to dispose of particular Participations or Assignments when necessary to meet
the Fund's liquidity needs or in response to a specific economic event, such as
a deterioration in the creditworthiness of the Borrower. The lack of a liquid
market for Participations and Assignments also may make it more difficult for a
Fund to assign a value to these securities for purposes of valuing the Fund's
portfolio and calculating its net asset value.
Mortgaged-Backed Securities. A Fund may invest in mortgage-backed
securities, such as those issued by the GNMA, FNMA, FHLMC or certain foreign
issuers. Mortgage-backed securities represent direct or indirect participations
in, or are secured by and payable from, mortgage loans secured by real property.
The mortgages backing these securities include, among other mortgage
instruments, conventional 30-year fixed-rate mortgages, 15-year fixed-rate
mortgages, graduated payment mortgages and adjustable rate mortgages. The
government or the issuing agency typically guarantees the payment of interest
and principal of these securities. However, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Fund's shares. These securities generally are
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"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the Fund's
yield.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield to
the holder of such securities.
Municipal Obligations. (Fixed Income and New York Municipal Funds only)
Under normal circumstances, at least 80% of the Municipal Fund's assets will be
invested in "Municipal Obligations." Municipal Obligations are debt obligations
issued by or on behalf of states (including the state of New York), territories
and possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities.
Except for temporary defensive purposes, the New York Municipal Fund
will invest no less than 65% of its assets in intermediate and long term
obligations with interest which is excluded from gross income for federal income
tax purposes and which is exempt from New York State and New York City personal
income taxes ("New York Municipal Obligations") and intends to invest
substantially all of its assets in those obligations. New
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York Municipal Obligations include obligations issued by or on the behalf of the
State of New York, its political subdivisions, agencies and instrumentalities.
Municipal Obligations are issued by governmental entities to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately-operated facilities are included within
the term Municipal Obligations if the interest paid thereon is exempt from
federal income tax.
The two principal types of Municipal Obligations, in terms of the
source of payment of debt service on the bonds, consist of "general obligation"
and "revenue" issues. General obligation bonds are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenues derived from a
particular facility or class of facilities or in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Consequently, the credit quality of revenue bonds is
usually directly related to the credit standing of the user of the facility
involved.
There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Services ("S&P") represent their opinions as to the quality of Municipal
Obligations. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and Municipal Obligations with the same
maturity, interest rate and rating may have different yields while Municipal
Obligations of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to its purchase by a Fund, an issue of Municipal
Obligations may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Fund's investment adviser will
consider such an event in determining whether the Fund should continue to hold
the obligation. See the Appendix attached hereto for further information
concerning the ratings of Moody's and S&P and their significance.
Among other instruments, a Fund may purchase short term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short term loans. Such notes are issued with a short term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
The yields on Municipal Obligations are dependent upon a variety of
factors, including general economic and monetary conditions, money market
factors, conditions of the municipal bond market, size of a particular offering,
maturity of the obligation offered and rating of the issue.
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Municipal Obligations are also subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. There is also
the possibility that as a result of litigation or other conditions, the power or
ability of any one or more issuers to pay, when due, principal of and interest
on its, or their, Municipal Obligations may be materially affected.
Securities of Other Investment Companies. A Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Fund's total assets and (iii)
when added to all other investment company securities held by the Fund, do not
exceed 10% of the value of the Fund's total assets.
Below Investment Grade Securities. (Fixed Income and Global Fixed
Income Funds only) A Fund may invest in fixed income securities rated below
investment grade and as low as C by Moody's or D by S&P, and in comparable
unrated securities. While the market values of these securities tend to react
less to fluctuations in interest rate levels than do those of investment grade
securities, the market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than investment grade securities. In addition, these securities
generally present a higher degree of credit risk. Issuers of such securities are
often highly leveraged and may not have more traditional methods of financing
available to them so that their ability to service their debt obligations during
an economic downturn or during sustained periods of rising interest rates may be
impaired.
The market for below investment grade securities and unrated securities
is relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
A Fund may have difficulty disposing of certain of these securities
because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, the Fund anticipates that
these securities could be sold only to a limited number of dealers or
institutional investors. To the extent a secondary trading market for these
securities does exist, it generally is not as liquid as the secondary market for
investment grade securities. The lack of a liquid secondary market, as well as
adverse publicity and investor perception with respect to these securities, may
have an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain
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securities also may make it more difficult for the Fund to obtain accurate
market quotations for purposes of valuing the Fund and calculating its net asset
value.
The market value of securities rated below investment grade is more
volatile than that of investment grade securities. Factors adversely impacting
the market value of these securities will adversely impact a Fund's net asset
value. A Fund will rely on the judgment, analysis and experience of Warburg in
evaluating the creditworthiness of an issuer. In this evaluation, Warburg will
take into consideration, among other things, the issuer's financial resources,
its sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. Normally, these
securities are not intended for short-term investment. The Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings of such
securities.
Lending Portfolio Securities. (Fixed Income and Intermediate Maturity
Government Funds only) A Fund may lend portfolio securities to brokers, dealers
and other financial organizations that meet capital and other credit
requirements or other criteria established by a Fund's Board of
Directors/Trustees (the "Board"). These loans, if and when made, may not exceed
20% of a Fund's total assets taken at value (30% in the case of the Intermediate
Government Fund). The Fund will not lend portfolio securities to Warburg or its
affiliates unless it has applied for and received specific authority to do so
from the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. government securities, which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of the
Fund. From time to time, a Fund may return a part of the interest earned from
the investment of collateral received for securities loaned to the borrower
and/or a third party that is unaffiliated with the Fund and that is acting as a
"finder."
By lending its securities, a 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. 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 of a Fund 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.
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Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase
agreements and dollar rolls involve the risk that the market value of the
securities retained in lieu of sale may decline below the price of the
securities a Fund has sold but is obligated to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce a Fund's obligation to
repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
Zero Coupon Securities. A Fund may invest in "zero coupon" U.S.
Treasury, foreign government and U.S. and foreign corporate convertible and
nonconvertible debt securities, which are bills, notes and bonds that have been
stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representation interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest. The Fund
anticipates that it will not normally hold zero coupon securities to maturity.
Federal tax law requires that a holder of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year,
even though the holder receives no interest payment on the security during the
year. Such accrued discount will be includible in determining the amount of
dividends the Fund must pay each year and, in order to generate cash necessary
to pay such dividends, the Fund may liquidate portfolio securities at a time
when it would not otherwise have done so. At present, the U.S. Treasury and
certain U.S. agencies issue stripped Government Securities. In addition, in the
recent past, a number of banks and brokerage firms have separated the principal
portions from the coupon portions of U.S. Treasury bonds and notes and sold them
separately in the form of receipts or certificates representing undivided
interests in these instruments.
Short Sales. (Fixed Income, Global Fixed Income and Intermediate
Government Funds only) In a short sale, a Fund sells a borrowed security and has
a corresponding obligation to the lender to return the identical security. The
seller does not immediately deliver the securities sold and is said to have a
short position in those securities until delivery occurs. If the Fund engages in
a short sale, the collateral for the short position will be maintained by the
Fund's custodian or qualified sub-custodian. While the short sale is open, the
Fund will maintain in a segregated account an amount of securities equal in
value to the securities sold short.
While a short sale is made by selling a security a Fund does not own, a
short sale is "against the box" to the extent that the Fund contemporaneously
owns or has the right to obtain, at no added cost, securities identical to those
sold short. A Fund does not intend to engage in short sales against the box for
investment purposes. The Fund may, however, make a short sale as a hedge, when
it believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund (or a security convertible or exchangeable
for such security). In such case, any future losses in the Fund's long position
should be offset by a gain in the short position and, conversely, any gain in
the long position should be
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reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Fund owns. There will be certain additional
transaction costs associated with short sales against the box, but the Fund will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
If a fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which a fund may effect short sales.
Variable Rate and Master Demand Notes. (Fixed Income and New York
Municipal Funds only) Variable rate demand notes ("VRDNs") are obligations
issued by corporate or governmental entities which contain a floating or
variable interest rate adjustment formula and an unconditional right of demand
to receive payment of the unpaid principal balance plus accrued interest upon a
short notice period not to exceed seven days. The interest rates are adjustable
at intervals ranging from daily to up to every six months to some prevailing
market rate for similar investments, such adjustment formula being calculated to
maintain the market value of the VRDN at approximately the par value of the VRDN
upon the adjustment date. The adjustments are typically based upon the prime
rate of a bank or some other appropriate interest rate adjustment index.
Master demand notes are notes which provide for a periodic adjustment
in the interest rate paid (usually tied to the Treasury Bill auction rate) and
permit daily changes in the principal amount borrowed. While there may be no
active secondary market with respect to a particular VRDN purchased by a Fund,
the Fund may, upon the notice specified in the note, demand payment of the
principal of and accrued interest on the note at any time and may resell the
note at any time to a third party. The absence of such an active secondary
market, however, could make it difficult for the Fund to dispose of the VRDN
involved in the event the issuer of the note defaulted on its payment
obligations, and the Fund could, for this or other reasons, suffer a loss to the
extent of the default.
When-Issued Securities and Delayed-Delivery Transactions. A Fund may
utilize its assets to purchase securities on a "when-issued" basis or purchase
or sell securities for delayed delivery (i.e., payment or delivery occur beyond
the normal settlement date at a stated price and yield). The Fund will enter
into a when-issued transaction for the purpose of acquiring portfolio securities
and not for the purpose of leverage, but may sell the securities before the
settlement date if Warburg deems it advantageous to do so. The payment
obligation and the interest rate that will be received on when-issued securities
are fixed at the time the buyer enters into the commitment. Due to fluctuations
in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the yields obtained on such securities may be higher or
lower than the yields available in the market on the dates when the investments
are actually delivered to the buyers.
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When a Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that the Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
a Fund engages in when-issued or delayed-delivery transactions, it relies on the
other party to consummate the trade. Failure of the seller to do so may result
in the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitment Agreements. (Fixed Income and New York Municipal
Funds only) A Fund may acquire "stand-by commitments" with respect to securities
held in its portfolio. Under a stand-by commitment, a dealer agrees to purchase
at the Fund's option specified securities at a specified price. The Fund's right
to exercise stand-by commitments is unconditional and unqualified. Stand-by
commitments acquired by the Fund may also be referred to as "put" options. A
stand-by commitment is not transferable by the Fund, although the Fund can sell
the underlying securities to a third party at any time.
The principal risk of stand-by commitments is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. A Fund intends to enter into stand-by commitments only with brokers,
dealers and banks that, in the opinion of Warburg, present minimal credit risks.
In evaluating the creditworthiness of the issuer of a stand-by commitment,
Warburg will periodically review relevant financial information concerning the
issuer's assets, liabilities and contingent claims. The Fund will acquire
stand-by commitments only in order to facilitate portfolio liquidity and does
not intend to exercise its rights under stand-by commitments for trading
purposes.
The amount payable to a Fund upon its exercise of a stand-by commitment
is normally (i) the Fund's acquisition cost of the securities (excluding any
accrued interest which the Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
A Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Fund's portfolio will
not exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.
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A Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by the Fund would be valued at zero in determining net asset value.
Where the Fund paid any consideration directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund. Stand-by commitments
would not affect the average weighted maturity of a Fund's portfolio.
The Internal Revenue Service has issued a revenue ruling to the effect
that a registered investment company will be treated for federal income tax
purposes as the owner of the Municipal Obligations acquired subject to a
stand-by commitment and the interest on the Municipal Obligations will be tax
exempt to a Fund.
Depositary Receipts. (Fixed Income and Global Fixed Income
Funds only) Assets of a Fund may be invested in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and International Depositary Receipts ("IDRS").
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
and IDRs, which are sometimes referred to as Global Depositary Receipts, are
issued outside the United States. EDRs And IDRs Are Typically Issued by non-U.S.
banks and trust companies AND 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 IDRs in bearer form are designed for use in
European securities markets and non-U.S. securities markets, respectively.
Warrants. (Fixed Income and Global Fixed Income Funds only) A Fund may
purchase warrants issued by domestic and foreign companies to purchase newly
created equity securities consisting of common and preferred stock. The equity
security underlying a warrant is outstanding at the time the warrant is issued
or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
Non-Publicly Traded and Illiquid Securities. A Fund may not invest more
than 15% of its net assets in non-publicly traded and illiquid securities,
including securities that are illiquid by virtue of the absence of a readily
available market, repurchase agreements which have a maturity of longer than
seven days, VRDNs and master demand notes providing for
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settlement upon more than seven days notice by the Fund, and time deposits
maturing in more than seven calendar days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by the
SEC allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to a Fund's limit on the purchase of illiquid securities
unless the Fund's Board of Directors/Trustees or its delegates determines that
the Rule 144A Securities are liquid. In reaching liquidity decisions, Warburg
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
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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. A Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Fund's net assets.
Although the principal of such borrowings will be fixed, a 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.
Non-Diversified Status. (Global Fixed Income and New York Municipal
Funds only) The Funds are classified as non-diversified within the meaning of
the 1940 Act, which means that they are not limited by such Act in the
proportion of its assets that it may invest in securities of a single issuer. A
Fund's investments will be limited, however, in order to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). See "Additional Information Concerning Taxes." To qualify,
a Fund will comply with certain requirements, including limiting its investments
so that at the close of each quarter of the taxable year (i) not more than 25%
of the market value of its total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer.
Taxable Investments. (New York Municipal Fund only) Because the Fund's
purpose is to provide income exempt from federal income tax and New York State
and New York City personal income tax, the Fund generally will invest in taxable
obligations only if and when the Fund's investment adviser believes it would be
in the best interests of the Fund's investors to do so. Situations in which the
Fund may invest up to 20% of its total assets in taxable securities include: (i)
pending investment of proceeds of sales of Fund shares or portfolio securities
or (ii) when the Fund requires highly liquid securities in order to meet
anticipated redemptions. The Fund may temporarily invest more than 20% of its
total assets in taxable securities to maintain a "defensive" posture when the
Fund's investment adviser determines that it is advisable to do so because of
adverse market conditions affecting the market for Municipal Obligations
generally.
Among the taxable investments in which the Fund may invest are
repurchase agreements and time deposits maturing in not more than seven days.
The Fund may engage in repurchase agreement transactions on U.S. government
securities with member banks of the Federal Reserve System or with certain
dealers listed on the Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation 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
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holding period. A repurchase agreement is considered to be a loan under the 1940
Act. The value of the underlying securities will be at least equal at all times
to the total amount of the repurchase 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 and the Fund is delayed or prevented from exercising
its rights 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 these rights. The Fund's investment adviser,
acting under the supervision of the Board, reviews on an ongoing basis, the
creditworthiness and the values of the collateral of those banks and dealers
with which the Fund enters into repurchase agreements to evaluate potential
risks.
Other Investment Limitations
Fixed Income Fund. The investment limitations numbered 1 through 12 may
not be changed without the affirmative vote of the holders of a majority of the
Fixed Income 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
13 through 15 may be changed by a vote of the Board at any time.
The Fixed Income Fund may not:
1. Borrow money except that the Fund may (i) borrow from banks for
temporary or emergency purposes, and (ii) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the value
of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Make loans except that the Fund may purchase or hold fixed-income
securities, including loan participations, assignments and structured
securities; lend portfolio securities; and enter into repurchase agreements.
4. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the sale of securities in accordance
with the Fund's investment objective, policies and limitations may be deemed to
be underwriting.
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5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs or oil, gas and mineral leases, except that
the Fund may invest in (a) securities secured by real estate, mortgages or
interests therein and (b) securities of companies that invest in or sponsor oil,
gas or mineral exploration or development programs.
6. Make short sales of securities or maintain a short position, except
the Fund may maintain short positions in forward currency contracts, options,
futures contracts and options on futures contracts and make short sales "against
the box."
7. Purchase more than 10% of the voting securities of any one issuer;
provided that this limitation shall not apply to investments in U.S. government
securities.
8. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
10. Issue any senior security except as permitted in these Investment
Restrictions.
11. 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.
12. 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.
13. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
14. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, (a) repurchase agreements with maturities
greater than seven days, (b) VRDNs and master
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demand notes providing for settlement upon more than seven days notice by the
Fund and (c) time deposits maturing in more than seven calendar days shall be
considered illiquid securities.
15. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
Global Fixed Income Fund. The investment limitations numbered 1 through
10 may not be changed without the affirmative vote of the holders of a majority
(as defined above) of the Global Fixed Income Fund's outstanding shares.
Investment limitations 11 through 13 may be changed by a vote of the Board at
any time.
The Global Fixed Income Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the value
of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Make loans, except that the Fund may purchase or hold fixed-income
securities, including loan participations and assignments and structured
securities; lend portfolio securities; and enter into repurchase agreements.
4. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the sale of securities in accordance
with the Fund's investment objective, policies and limitations may be deemed to
be underwriting.
5. Purchase or sell real estate or invest in real estate limited
partnerships, oil, gas or mineral exploration or development programs or oil,
gas and mineral leases, except that the Fund may invest in (a) securities
secured by real estate, mortgages or interests therein and (b) securities of
companies that invest in or sponsor oil, gas or mineral exploration or
development programs.
6. Make short sales of securities or maintain a short position, except
the Fund may maintain short positions in forward currency contracts, options,
futures contracts and options on futures contracts and make short sales "against
the box."
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7. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
8. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
9. Issue any senior security except as permitted in these Investment
Restrictions.
10. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
12. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
13. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
Intermediate Government Fund. The investment limitations numbered 1
through 12 may not be changed without the affirmative vote of the holders of a
majority (as defined above) of the Intermediate Government Fund's outstanding
shares. Investment limitations 13 through 15 may be changed by a vote of the
Board at any time.
The Intermediate Government Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward
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commitment transactions and dollar roll transactions that are not accounted for
as financings (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of Government
Securities.
3. Make loans except that the Fund may purchase or hold fixed income
securities, including loan participations, assignments and structured
securities; lend portfolio securities and enter into repurchase agreements.
4. Underwrite any securities issued by others except to the extent
that the investment in restricted securities and the sale of securities in
accordance with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
5. Purchase or sell real estate, real estate investment trust
securities or invest in oil, gas or mineral exploration or development programs,
except that the Fund may invest in securities secured by real estate, mortgages
or interests therein.
6. Make short sales of securities or maintain a short position,
except the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and make short sales
"against the box".
7. Purchase more than 10% of the voting securities of any one
issuer; provided that this limitation shall not apply to investments in
Government Securities.
8. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
10. Issue any senior security except as permitted in these
Investment Restrictions.
11. 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 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.
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<PAGE> 124
12. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange or as permitted under the 1940 Act.
13. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
14. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
15. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
New York Municipal Fund. The investment limitations numbered 1
through 10 may not be changed without the affirmative vote of the holders of a
majority (as defined above) of the Municipal Fund's outstanding shares.
Investment limitations 11 and 14 may be changed by a vote of the Board at any
time.
The New York Municipal Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause more than 25% 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 (a) U.S.
government securities, (b) certificates of deposit issued by United States
branches of United States banks or (c) Municipal Obligations. For purposes of
this restriction, private purpose bonds ultimately payable by companies within
the same industry are treated as if they were issued by issuers in the same
industry.
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<PAGE> 125
3. Make loans except that the Fund may purchase or hold fixed-income
securities, including loan participations, assignments and structured
securities, and enter into repurchase agreements in accordance with its
investment objective, policies and limitations.
4. Underwrite any securities issued by others except to the extent
that the investment in restricted securities and the sale of securities in
accordance with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
5. Purchase or sell real estate, real estate investment trust
securities or invest in oil, gas or mineral exploration or development programs,
except that the Fund may invest in securities secured by real estate, mortgages
or interests therein.
6. Make short sales of securities or maintain a short position,
except the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts.
7. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
8. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities or indexes, and purchase
and sell currencies or securities on a forward commitment or delayed-delivery
basis.
9. Issue any senior security except as permitted in these Investment
Restrictions.
10. Purchase securities of other investment companies except (a) in
connection with a merger, consolidation, acquisition or reorganization or (b) as
permitted under the 1940 Act.
11. Invest less than 80% of its assets in securities the interest on
which is exempt from federal income tax, except during temporary defensive
periods or under unusual market conditions, as determined by the Fund's
investment adviser.
12. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchased securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
13. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for
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which there are no readily available market quotations. For purposes of this
limitation, (a) repurchase agreements with maturities greater than seven days,
(b) variable rate and master demand notes providing for settlement upon more
than seven days' notice by the Fund and (c) time deposits maturing in more than
seven calendar days shall be considered illiquid securities.
14. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage limitation
set forth in each of No. 1 above) is adhered to at the time of an investment, a
later increase or decrease in the percentage of assets resulting from a change
in the values of portfolio securities or in the amount of a 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 a
Fund is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence of
sales, at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options or futures contracts will be valued
similarly. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. Short-term obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Board. Amortized cost involves valuing a portfolio instrument at its initial
cost and thereafter assuming a constant amortization to maturity of any discount
or premium. The amortized cost method of valuation may also be used with respect
to other debt obligations with 60 days or less remaining to maturity.
Notwithstanding the foregoing, in determining the market value of portfolio
investments, the Fund may employ outside organizations (a "Pricing Service")
which may use a matrix or formula 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 any
such Pricing Service at any time. Securities, options and futures contracts for
which market quotations are not available and certain other assets will be
valued at their fair value as determined in good faith pursuant to consistently
applied procedures established by the Board. In addition, the Board or its
delegates may value a security at fair value if it determines that such
security's value determined by the methodology set forth above does not reflect
its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which The New York Stock Exchange, Inc. (the "NYSE") is open for
trading). In addition, securities
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<PAGE> 127
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 a Fund's net
asset value is not calculated. As a result, calculation of the Fund's net asset
value may not take place contemporaneously with the determination of the prices
of certain portfolio securities used in such calculation. 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 a Fund's investment program to achieve its investment
objectives. 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 a 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. No brokerage commissions are typically paid on
purchases and sales of U.S. government securities.
Warburg will select specific portfolio investments and effect
transactions for a Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to
the Fund and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research
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<PAGE> 128
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, 1997, $76 of total brokerage commissions for
the Fixed Income Fund was paid to brokers and dealers who provided such research
and other services. Research received from brokers or dealers is supplemental to
Warburg's own research program. The fees to Warburg under its advisory agreement
with a Fund are not reduced by reason of its receiving any brokerage and
research services.
The following table details amounts paid by each Fund in commissions
to broker-dealers for execution of portfolio transactions during the indicated
fiscal year or period.
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1995 October 31, 1996 October 31, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Fixed Income Fund $14,573 $31,906 $29,433
Global Fixed Income
Fund -0- -0- $900
Intermediate Government Fund
-0- -0- -0-
New York Municipal Fund
-0- -0- -0-
</TABLE>
The increase in portfolio turnover and brokerage commissions paid
by the Global Fixed Income Fund in the most recent fiscal year was due to an
increase in overall assets of the Fund and increased equity investments.
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<PAGE> 129
The table below shows the amount of outstanding repurchase
agreements that a Fund had, as of October 31, 1997, with Goldman, Sachs & Co.,
one of the regular broker-dealers of each Fund.
<TABLE>
<S> <C>
Fixed Income Fund $4,842,000
Global Fixed Income Fund $10,450,000
Intermediate Maturity Government Fund $2,389,000
</TABLE>
Investment decisions for a Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as the
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions are averaged as to price
and available investments allocated as to amount, in a manner which Warburg
believes to be equitable to each client, including the Fund. In some instances,
this investment procedure may adversely affect the price paid or received by a
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 a Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the Fund a
commission rate consistent with those charged by Counsellors Securities to
comparable unaffiliated customers in similar transactions. All transactions with
affiliated brokers will comply with Rule 17e-1 under the 1940 Act. No portfolio
securities 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, a 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.
Transactions for the Fixed Income and Global Fixed Income Funds may
be effected on foreign securities exchanges. In transactions for securities not
actively traded on a foreign securities exchange, a 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,
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<PAGE> 130
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon exercise of options.
A 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
A Fund's portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of its portfolio securities for the year by the
monthly average value of the portfolio securities. Securities with remaining
maturities of one year or less at the date of acquisition are excluded from the
calculation.
Certain practices that may be employed by the Fund could result in
high portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what Warburg believes to be a
temporary disparity in the normal yield relationship between the two securities.
These yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for, or supply of, various types of
securities. In addition, options on securities may be sold in anticipation of a
decline in the price of the underlying security (market decline) or purchased in
anticipation of a rise in the price of the underlying security (market rise) and
later sold. To the extent that its portfolio is traded for the short-term, the
Fund will be engaged essentially in trading activities based on short-term
considerations affecting the value of an issuer's stock instead of long-term
investments based on fundamental valuation of securities. Because of this
policy, portfolio securities may be sold without regard to the length of time
for which they have been held. Consequently, the annual portfolio turnover rate
of the Fund may be higher than mutual funds having a similar objective that do
not utilize these strategies.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL
OBLIGATIONS
Some of the significant financial considerations relating to the New
York Municipal Fund's investments in New York Municipal Obligations are
summarized below. This summary information is not intended to be a complete
description and is principally derived from official statements relating to
issues of New York Municipal Obligations that were available prior to the date
of this Statement of Additional Information. The accuracy and completeness of
the information contained in those official statements have not been
independently verified.
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<PAGE> 131
State Economy
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries. New York City (the "City"), which is the most populous city
in the State and nation and is the center of the nation's largest metropolitan
area, accounts for a large portion of the State's population and personal
income.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially.
Moderate growth is projected to continue in 1998 and 1999 for
employment, wages, and personal income, although the growth rates will lessen
gradually during the course of the two years. Overall employment growth is
expected to continue at a modest rate, reflecting the slowing growth in the
national economy, continued spending restraint in government, and restructuring
in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
State Budget
The State Constitution requires the governor (the "Governor") to
submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
The State's budget for the 1997-98 fiscal year was adopted by the
Legislature on August 4, 1997, more than four months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for State-supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as
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<PAGE> 132
enacted by the Legislature, as well as actual results for the first quarter of
the current fiscal year (the "1997-98 State Financial Plan"). In recent years,
the State has failed to adopt a budget prior to the beginning of its fiscal
year. There can be no assurance that State budgets in future fiscal years will
be adopted by the April 1 statutory deadline.
The Governor is required by law to propose a balanced budget each
year. In order to address any potential remaining budget gap, the Governor is
expected to make additional proposals to bring receipts in line with
disbursements. The State has closed projected budget gaps of $5.0 billion, $3.9
billion and $2.3 billion in its 1995-96, 1996-97 and 1997-98 fiscal years,
respectively.
The 1997-98 General Fund Financial Plan is projected to be balanced
on a cash basis, with a projected cash surplus of $1.83 billion. As compared to
the Governor's Executive Budget as amended in February 1997, the State's adopted
budget for 1997-98 increased General Fund spending by $1.7 billion, primarily
from increases for local assistance ($1.3 billion). Resources used to fund these
additional expenditures include increased revenues projected for the 1997-98
fiscal year, increased resources produced in the 1996-97 fiscal year that will
be utilized in 1997-98, re-estimates of social service, fringe benefit and other
spending, and certain non-recurring resources.
The 1997-98 adopted budget includes multi-year reductions, including
a State funded property and local income tax reduction program, estate tax
relief, utility gross receipts tax reductions, permanent reductions in the State
sales tax on clothing, and elimination of assessments on medical providers.
These reductions are intended to reduce the overall level of State and local
taxes in New York and to improve the State's competitive position vis-a-vis
other states. The various elements of the State and local tax and assessments
reductions have little or no impact on the 1997-98 State Financial Plan, and do
not begin to materially affect the outyear projections until the State's
1999-2000 fiscal year.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
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On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The Governor presented his 1998-99 Executive Budget to the
Legislature on January 20, 1998. The Executive Budget contains financial
projections for the State's 1997-98 through 2000-01 fiscal years, detailed
estimates of receipts and a proposed Capital Program and Financing Plan for the
1997-98 through 2002-03 fiscal years. It is expected that the Governor will
prepare amendments to his Executive Budget as permitted under law and that these
amendments will be reflected in a revised Financial Plan. There can be no
assurance that the Legislature will enact into law the Executive Budget as
proposed by the Governor, or that the State's adopted budget projections will
not differ materially and adversely from the projections set forth therein.
The 1998-99 Financial Plan is projected to be balanced on a cash
basis in the General Fund. Total General Fund receipts, including transfers from
other funds, are projected to be $36.22 billion, an increase of $1.02 billion
over projected receipts in the current fiscal year. Total General Fund
disbursements, including transfers to other funds, are projected to be $36.18
billion, an increase of $1.02 billion over the projected expenditures (including
pre-payments), for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes year-to-year growth in General
Fund spending of 2.89 percent. State Funds spending (i.e., General Fund plus
other dedicated funds, with the exception of federal aid) is projected to grow
by 8.5 percent. Spending from All Governmental Funds (excluding transfers) is
proposed to increase by 7.6 percent from the prior fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates
several Executive Budget tax proposals that, if enacted, would further reduce
receipts otherwise available to the General Fund by approximately $700 million
during 1998-99. The Executive Budget proposes accelerating school tax relief for
senior citizens under STAR, which is projected to reduce General Fund receipts
by $537 million in 1998-99. The proposed reduction supplements STAR tax
reductions already scheduled in law, which are projected at $187 million in
1998-99. The Budget also proposes several new tax-cut initiatives and other
funding changes that are projected to further reduce receipts available to the
General Fund by over $200 million. These initiatives include reducing the fee to
register passenger motor vehicles and earmarking a larger portion of such fees
to dedicated funds and other purposes; extending the number of weeks in which
certain
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clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget estimates that the 1998-99 Financial Plan
includes approximately $62 million in non-recurring resources, comprising less
than two-tenths of one percent of General Fund disbursements. The non-recurring
resources projected for use in 1998-99 consist of $27 million in retroactive
federal welfare reimbursements for family assistance recipients with HIV/AIDS,
$25 million in receipts from the Housing Finance Agency that were originally
anticipated in 1997-98, and $10 million in other measures, including $5 million
in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated
at $4.82 billion, or $1.07 billion higher than 1997-98. The proposed spending
plan includes: $2.51 billion in disbursements for transportation purposes,
including the State and local highway and bridge program; $815 million for
environmental activities; $379 million for correctional services; $228 million
for the State University of New York ("SUNY") and the City University of New
York ("CUNY"); $290 million for mental hygiene projects; and $375 million for
CEFAP. Approximately 28 percent of capital projects are proposed to be financed
by "pay-as-you-go" resources. State-supported bond issuances finance 46 percent
of capital projects, with federal grants financing the remaining 26 percent.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, the financial plan is based
upon forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. Actual results, however, could differ
materially and adversely from the projections set forth in a financial plan, and
those projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
Division of Budget believes it could take similar actions should variances occur
in its projections for the current fiscal year.
Recent Financial Results
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another
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fund. It is the State's largest fund and receives almost all State taxes and
other resources not dedicated to particular purposes.
The State ended the first six months of its 1997-98 fiscal year with
an unaudited General Fund cash balance of $3.2 billion, or $254 million above
the August Financial Plan estimate. Total unaudited receipts, including
transfers from other funds, totaled $18.8 billion, or $340 million higher than
expected. The additional receipts reflected higher-than-anticipated tax revenues
of $244 million and miscellaneous receipts of $93 million. Unaudited General
Fund spending for the same period equaled $16.0 billion, or $86 million above
the cashflow projections published in the August Financial Plan. For fiscal year
1997-98, total General Fund receipts were projected at $35.09 billion, an
increase of $2.05 billion from 1996-97 results. Total disbursements, including
transfers to capital projects, debt service and other funds, were projected at
$34.60 billion, or 5.2 percent higher than disbursements in 1996-97.
The mid-year update projected a closing balance in the General Fund
of $927 million, which was composed of a $530 million reserve for future needs,
a $332 million balance in the Tax Stabilization Reserve Fund ("TSRF"), and a $65
million balance in the Contingency Reserve Fund ("CRF").
As part of the 1997-98 Adopted Budget Report, the State also issued
its update to the GAAP-basis Financial Plan for the State's 1997-98 fiscal year,
based on the cash-basis 1997-98 State Financial Plan completed in August. The
GAAP-basis update projected a General Fund operating deficit of $959 million,
primarily reflecting the use of a portion of the 1996-97 cash surplus to fund
1997-98 liabilities, offset by the $530 million reserve for future needs.
Debt Limits and Outstanding Debt
There are a number of methods by which the State of New York may
incur debt. Under the State Constitution, the State may not, with limited
exceptions for emergencies, undertake long-term general obligation borrowing
(i.e., borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved by
the voters. There is no limitation on the amount of long-term general obligation
debt that may be so authorized and subsequently incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
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The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the Local Government
Assistance Corporation ("LGAC") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through New York State's annual seasonal borrowing. The legislation empowered
LGAC to issue its bonds and notes in an amount to yield net proceeds not in
excess of $4.7 billion (exclusive of certain refunding bonds). Over a period of
years, the issuance of these long-term obligations, which were to be amortized
over no more than 30 years, was expected to eliminate the need for continued
short-term seasonal borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt service on
these bonds. The legislation also imposed a cap on the annual seasonal borrowing
of the State at $4.7 billion, less net proceeds of bonds issued by LGAC and
bonds issued to provide for capitalized interest, except in cases where the
Governor and the legislative leaders have certified the need for additional
borrowing and provided a schedule for reducing it to the cap. If borrowing above
the cap was thus permitted in any fiscal year, it was required by law to be
reduced to the cap by the fourth fiscal year after the limit was first exceeded.
As of June 1995, LGAC had issued bonds to provide net proceeds of $4.7 billion,
completing the program.
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On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On
January 6, 1992, Moody's reduced its ratings on outstanding limited-liability
State lease purchase and contractual obligations from A to Baa1. On February 28,
1994, Moody's reconfirmed its A rating on the State's general obligation
long-term indebtedness.
The State anticipates that its capital programs will be financed, in
part, by State and public authorities borrowings in the 1997-98 fiscal year. The
State expects to issue $605 million in general obligation bonds (including $140
million for purposes of redeeming outstanding bond anticipation notes) and $140
million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in certificates of participation
(including costs of issuance, reserve funds and other costs) during the State's
1997-98 fiscal year for equipment purchases. The projection of State borrowings
for the 1997-98 fiscal year is subject to change as market conditions, interest
rates and other factors vary throughout the fiscal year.
The proposed 1997-98 through 2002-03 Capital Program and Financing
Plan was released with the 1998-99 Executive Budget on January 20, 1998. As a
part of that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
As a result of these changes, the State's 1997-98 borrowing plan now
reflects: $501 million in general obligation bonds (including $140 million for
purposes of redeeming outstanding BANs) and $140 million in general obligation
commercial paper; the issuance of $83 million in COPs for equipment purchases;
and approximately $1.8 billion in borrowings by public authorities pursuant to
lease-purchase and contractual-obligation financings for capital programs of the
State, including costs of issuance, reserve funds, and other costs, net of
anticipated refundings and other adjustments for 1997-98 capital projects. The
projection of State borrowings for the 1997-98 fiscal year is subject to change
as market conditions, interest rates and other factors vary through the end of
the fiscal year.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
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Litigation
Certain litigation pending against New York State or its officers or
employees could have a substantial or long-term adverse effect on New York State
finances. Among the more significant of these cases are those that involve (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to New York State of certain land in central and upstate New
York; (2) certain aspects of New York State's Medicaid policies, including its
rates, regulations and procedures; (3) action against New York State and New
York City officials alleging inadequate shelter allowances to maintain proper
housing; (4) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (5)
alleged responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (6) challenges to regulations promulgated by
the Superintendent of Insurance establishing certain excess medical malpractice
premium rates; (7) challenges to certain aspects of petroleum business taxes;
(8) action alleging damages resulting from the failure by the State's Department
of Environmental Conservation to timely provide certain data; (9) challenges to
the constitutionality of Public Health Law 2807-d, which imposes a gross
receipts tax from certain patient care services; (10) an action seeking
reimbursement from the State for certain costs arising out of the provision of
pre-school services and programs for children with handicapped conditions; (11)
action seeking enforcement of certain sales and excise taxes and tobacco
products and motor fuel sold to non-Indian consumers on Indian reservations; and
(12) a challenge to the constitutionality of Clean Water/Clean Air Bond Act.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision in
the case of State of Delaware v. State of New York, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the
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1997-98 fiscal year or thereafter. Adverse developments in these proceedings,
other proceedings for which there are unanticipated, unfavorable and material
judgments, or the initiation of new proceedings could affect the ability of the
State to maintain a balanced financial plan. An adverse decision in any of these
proceedings could exceed the amount of the reserve established in the State's
financial plan for the payment of judgments and, therefore, could affect the
ability of the State to maintain a balanced financial plan. In its audited
financial statements for the 1996-97 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $364
million, of which $134 million is expected to be paid during the 1997-98 fiscal
year.
Although other litigation is pending against New York State, except
as described herein, no current litigation involves New York State's authority,
as a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
Authorities
The fiscal stability of New York State is related, in part, to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
New York City and Other Localities
The fiscal health of the State of New York may also be impacted by
the fiscal health of its localities, particularly the City of New York, which
has required and continues to require significant financial assistance from New
York State. The City depends on State aid
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both to enable the City to balance its budget and to meet its cash requirements.
There can be no assurance that there will not be reductions in State aid to the
City from amounts currently projected or that State budgets will be adopted by
the April 1 statutory deadline or that any such reductions or delays will not
have adverse effects on the City's cash flow or expenditures. In addition, the
Federal budget negotiation process could result in a reduction in or a delay in
the receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979. In 1975, S&P suspended its A
rating of City bonds. This suspension remained in effect until March 1981, at
which time the City received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+
and on November 19, 1987, to A-. Moody's ratings of City bonds were revised in
November 1981 from B (in effect since 1977) to Ba1, in November 1983 to Baa, in
December 1985 to Baa1, in May 1988 to A and again in February 1991 to Baa1. On
February 3, 1998, S&P placed a BBB+ rating on the City's general obligation debt
on CreditWatch with positive implications.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid revenues below a specified level are included among the events of default in
the resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do not
constitute an enforceable obligation or debt of either the State or the City. As
of June 30, 1997, MAC had outstanding an aggregate of approximately $4.267
billion of its bonds. MAC is authorized to issue bonds and notes to refunds its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to the Transit
Authority and the New York City School Construction Authority through the 1997
fiscal year in the event the City fails to provide such financing.
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Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and CUNY and
reflected the City's expense and capital budgets for the 1998 fiscal year, which
were adopted on June 6, 1997. The 1998-2001 Financial Plan projected revenues
and expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the
impact of scheduled tax reductions that will lower receipts by $38 million, as
well as the impact of two Executive Budget proposals that are projected to lower
receipts by an additional $79 million. The first proposal would divert $30
million in motor vehicle registration fees from the General Fund to the
Dedicated Highway and Bridge Trust Fund; the second would reduce fees for motor
vehicle registrations, which would further lower receipts by $49 million. The
underlying growth of receipts in this category is projected at 4 percent, after
adjusting for these scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the
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General Fund GAAP Financial Plan shows total revenues of $34.68 billion, total
expenditures of $35.94 billion, and net other financing sources and uses of $42
million.
Since the preparation of the 1998-2001 Financial Plan, the State has
adopted its budget for the 1997-1998 fiscal year. The State budget enacted a
smaller sales tax reduction than the tax reduction program assumed by the City
in the financial plan, which will increase projected City sales tax revenues;
provided for State aid to the City which was less than assumed in the financial
plan; and enacted a State funded tax relief program which begins a year later
than reflected in the financial plan. In addition, the net effect of tax law
changes made in the Federal Balanced Budget Act of 1997 are expected to increase
tax revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of its
last sixteen fiscal years and is projected to achieve balanced operating results
for the 1997 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were based
on various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent
upon the City's ability to market its securities successfully. The City's
financing program for fiscal years 1998 through 2001 contemplates the issuance
of $5.7 billion of general obligation bonds and $5.7 billion of bonds to be
issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority,
was created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt
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limit includes liability on capital contracts that are expected to be funded
with general obligation bonds, as well as general obligation bonds. On June 2,
1997, an action was commenced seeking a declaratory judgment declaring the
legislation establishing the Transitional Finance Authority to be
unconstitutional. If such legislation were voided, projected contracts for the
City capital projects would exceed the City's debt limit during fiscal year
1997-98. Future developments concerning the City or entities issuing debt for
the benefit of the City, and public discussion of such developments, as well as
prevailing market conditions and securities credit ratings, may affect the
ability or cost to sell securities issued by the City or such entities and may
also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs
in the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. Although the City's current financial plan projects
$2.4 billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are
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outstanding. Troy MAC has issued bonds to effect a restructuring of the City of
Troy's obligations.
Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in New York State other than New York City was approximately $19
billion. A small portion (approximately $102.3 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Eighteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1995.
From time to time, federal expenditure reductions could reduce, or
in some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
New York State assistance in the future.
MANAGEMENT OF THE FUNDS
Officers and Boards of Directors/Trustees
The names (and ages) of the Funds' Directors/Trustees and officers,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below.
50
<PAGE> 145
<TABLE>
<S> <C>
Richard N. Cooper* (63) Director/Trustee
Harvard University Professor at Harvard University; National
1737 Cambridge Street Intelligence Council from June 1995 until January
Cambridge, Massachusetts 02138 1997; Director or Trustee of CircuitCity Stores, Inc.
(retail electronics and appliances) and Phoenix Home
Life Mutual Insurance Company.
Jack W. Fritz (70) Director/Trustee
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications
Wilson, Wyoming 83014 (developers and operators of radio stations);
Director of Advo, Inc. (direct mail advertising).
John L. Furth* (67) Chairman of the Board
466 Lexington Avenue Vice Chairman, Managing Director and Director of
New York, New York 10017-3147 Warburg; Associated with Warburg since 1970; Director
of Counselors Securities; Chairman of the Board of
other investment companies advised by Warburg.
Jeffrey E. Garten (57) Director/Trustee
Box 208200 Dean of Yale School of Management and William S.
New Haven, Connecticut 06520-8200 Beinecke Professor in the Practice of International
Trade and Finance; Undersecretary of Commerce for
International Trade from November 1993 to
October 1995; Professor at Columbia University from
September 1992 to November 1993.
Thomas A. Melfe (66) Director/Trustee
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure Newton &
New York, New York 10112 Irvine; Chairman of the Board, Municipal Fund for New
York Investors, Inc.
</TABLE>
- ----------
* Indicates a Director/Trustee who is an "interested person" of the Fund
as defined in the 1940 Act.
51
<PAGE> 146
<TABLE>
<S> <C>
Arnold M. Reichman* (49) Director/Trustee
466 Lexington Avenue Managing Director, Chief Operating Officer and
New York, New York 10017-3147 Assistant Secretary of Warburg; Director of The RBB
Fund, Inc.; Associated with Warburg since 1984; Director,
Secretary and Chief Operating Officer of
Counselors Securities; Director/Trustee of
other investment companies advised by Warburg.
Alexander B. Trowbridge (68) Director/Trustee
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business
Washington, DC 20004 consulting) from January 1990- November 1996;
Director or Trustee of New England Mutual Life
Insurance Co., ICOS Corporation (biopharmaceuticals),
WMX Technologies Inc. (solid and hazardous waste
collection and disposal), The Rouse Company (real
estate development), Harris Corp. (electronics and
communications equipment), The Gillette Co. (personal
care products) and Sun Company Inc. (petroleum
refining and marketing).
Eugene L. Podsiadlo (41) President
466 Lexington Avenue Managing Director of Warburg; Associated with Warburg
New York, New York 10017-3147 since 1991; Officer of Counselors Securities and
other investment companies advised by Warburg.
Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director of Warburg; Associated with Warburg
New York, New York 10017-3147 since 1984; Treasurer of Counselors Securities;
Officer of other investment companies advised by Warburg.
</TABLE>
52
<PAGE> 147
<TABLE>
<S> <C>
Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Senior Vice President of Warburg; Associated with
New York, New York 10017-3147 Warburg since April 1994; Attorney-at-law from
September 1989-April 1994; life insurance
agent, New York Life Insurance Company from
1993-1994; Officer of Counselors Securities
and other investment companies advised by
Warburg.
Howard Conroy, CPA (44) Vice President and Chief Financial Officer
466 Lexington Avenue Vice President of Warburg; Associated with Warburg
New York, New York 10017-3147 since 1992; Officer of other investment companies
advised by Warburg.
Daniel S. Madden, CPA (32) Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated with Warburg
New York, New York 10017-3147 since 1995; Associated with BlackRock Financial
Management, Inc. from September 1994 to October 1995;
Associated with BEA Associates from April
1993 to September 1994; Associated with
Ernst & Young LLP from 1990 to 1993; Officer
of other investment companies advised by Warburg.
Janna Manes, Esq. (30) Assistant Secretary
466 Lexington Avenue Vice President of Warburg; Associated with Warburg
New York, New York 10017-3147 since 1996; Associated with the law firm of Willkie
Farr & Gallagher from 1993-1996; Officer of
other investment companies advised by Warburg.
</TABLE>
No employee of Warburg or PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund for
acting as an officer or director/trustee of a Fund. Each Director/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 Director/Trustee and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
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<PAGE> 148
Directors'/Trustees' Compensation
(for fiscal year ended October 31, 1997)
<TABLE>
<CAPTION>
Total Compensation from all
Total Compensation Investment Companies Managed by
Name of Director/Trustee from a Fund Warburg*
- ------------------------ ----------- --------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $2,000 $44,500
Donald J. Donahue*** $2,000 $44,500
Jack W. Fritz $2,000 $44,500
Jeffrey E. Garten**** N/A N/A
Thomas A. Melfe $2,000 $44,500
Alexander B. Trowbridge $2,000 $44,500
</TABLE>
* Each Director/Trustee serves as a Director or Trustee of 24 investment
companies advised by Warburg.
** Mr. Furth and Mr. Reichman receive compensation as affiliates of Warburg,
and, accordingly, receive no compensation from the Fund or any other
investment company advised by Warburg.
*** Mr. Donahue resigned as a Director/Trustee of each fund effective February
6, 1998.
**** Mr. Garten became a Director/Trustee of each Fund effective February 6,
1998 and, accordingly, received no compensation from the Funds for the
fiscal year ended October 31, 1997.
Mr. Dale C. Christensen, Co-Portfolio Manager of the Funds, earned a
B.S. in Agriculture from the University of Alberta and a B.Ed. in Mathematics
from the University of Calgary, both located in Canada. Mr. Christensen also
directs the fixed income group at Warburg, which he joined in 1989, providing
portfolio management for Warburg Pincus Funds and institutional clients around
the world. Mr. Christensen was a vice president in the International Private
Banking division and the domestic pension fund management division at Citicorp
from 1984 to 1989. Prior to that, Mr. Christensen was a fixed income portfolio
manager at CIC Asset Management from 1982 to 1984.
Mr. M. Anthony E. van Daalen, Co-Portfolio Manager of the Fixed
Income Fund and the Intermediate Government Fund, earned a B.A. degree from
Wesleyan University and a M.B.A. degree from New York University. He has been
with these Funds since joining Warburg in 1992, specializing in government and
high yield bonds. Mr. van Daalen was an assistant vice president, portfolio
manager at Citibank in the Private Banking Group from 1985 to 1991. Prior to
that Mr. van Daalen was a retail banking manager at The Connecticut Bank and
Trust Co. from 1983 to 1985 and an analyst at Goldstein/Krall Market Research
from 1982 to 1983.
Mr. Laxmi C. Bhandari, Co-Portfolio Manager of the Global Fixed
Income Fund, earned a Ph.D in Finance and a M.B.A. from the University of
Chicago, his P.G.D.M. degree (M.B.A. equivalent) from the Indian Institute of
Management, Ahmedabad, India and
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<PAGE> 149
B.Com. degree from Rajasthan University, India. He has been with the Fund
since joining Warburg in 1993, specializing in derivative-based products. Mr.
Bhandari was a vice president in charge of Arbitrage Trading at the Paribas
Corporation from 1991 to 1993. Prior to that Mr. Bhandari was a vice president
of Asset Liability Management at Chemical Bank from 1987 to 1991 and an
assistant professor of Advanced Portfolio Management and Advanced Corporate
Finance at the University of Alberta from 1982 to 1987.
Sharon B. Parente, Co-Portfolio Manager of the Municipal Fund,
earned a B.S. degree from the University of Virginia. Ms. Parente has been with
the Fund since joining Warburg in 1992, specializing in municipal bonds and
corporate cash. Ms. Parente was a vice president at Citibank, N.A. in the
Private Banking Group from 1985 to 1992. Prior to that, Ms. Parente was a fixed
income portfolio manager at Calvert Group from 1981 to 1985 and a municipal
trader's assistant at Prescott, Ball & Turben from 1979 to 1981.
As of January 30, 1998, the Directors/Trustees and officers of
each Fund as a group owned of record less than 1% of that Fund's outstanding
Common Shares and Advisor Shares.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Funds, PFPC serves as
co-administrator to the Funds and Counsellors Funds Service, Inc. ("Counsellors
Service") serves as co-administrator to the Funds pursuant to separate written
agreements with each Fund (the "Advisory Agreement," the "PFPC Co-Administration
Agreement" and the "Counsellors Service Co-Administration Agreement,"
respectively). The services provided by, and the fees payable by a Fund to,
Warburg under the Advisory Agreement, PFPC under the PFPC Co-Administration
Agreement and Counsellors Service under the Counsellors Service
Co-Administration Agreement are described in the Prospectuses. Each class of
shares of a Fund bears its proportionate share of fees payable to Warburg, PFPC
and Counsellors Service in the proportion that its assets bear to the aggregate
assets of the Fund at the time of calculation. These fees are calculated at an
annual rate based on a percentage of a Fund's average daily net assets. See the
Prospectuses, "Management of the Funds."
55
<PAGE> 150
Advisory Fees paid to Warburg (portions of fees waived, if any, are noted in
parenthesis next to the amount earned)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1995 October 31, 1996 October 31, 1997
------------------------ -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Fund $ 555,483 ($162,585) $ 648,732 ($163,311) $ 973,381 ($151,599)
Global Fixed Income Fund $ 773,318 ($435,848) $ 1,031,630 ($514,200) $ 1,783,032 ($707,931)
Intermediate Government Fund
$ 253,734 ($226,320) $ 254,649 ($196,577) $ 234,862 ($133,433)
New York Municipal Fund
$ 316,050 ($168,856) $ 301,602 ($102,812) $ 332,574 ($ 65,877)
</TABLE>
Co-Administration Fees paid to PFPC (portions of fees waived, if any, are noted
in parenthesis next to the amount earned)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1995 October 31, 1996 October 31, 1997
----------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Fund $111,097 ($41,568) $117,711 ($28,629) $97,338
Global Fixed Income
Fund $ 92,798 ($49,312) $109,014 ($58,514) $89,151
Intermediate Government
Fund $ 51,914 ($41,568) $ 47,013 ($36,869) $23,486 ($22,971)
New York Municipal
Fund $ 79,012 ($33,063) $ 68,978 ($25,703) $41,572
</TABLE>
Co-Administration Fees paid to Counsellors Service
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1995 October 31, 1996 October 31, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Fixed Income Fund $ 111,097 $ 129,747 $ 194,676
Global Fixed Income
Fund $ 77,332 $ 103,163 $ 178,303
Intermediate Government
Fund $ 50,747 $ 50,930 $ 46,972
New York Municipal
Fund $ 79,012 $ 75,401 $ 83,144
</TABLE>
Custodian and Transfer Agent
PNC Bank, National Association ("PNC") serves as custodian of each
Fund's assets pursuant to a custodian agreement (the "PNC Custodian
Agreements"). State Street Bank & Trust Company ("State Street") serves as
custodian of the Fixed Income
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<PAGE> 151
Fund's and the Global Fixed Income Fund's non-U.S. assets pursuant to a
custodian agreement (the "State Street Custodian Agreement") (collectively, the
"Custodian Agreements"). Under the Custodian Agreements, PNC and State Street
each (i) maintains a separate account or accounts in the name of a 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 may delegate its duties under
its Custodian Agreement with a Fund to a wholly owned direct or indirect
subsidiary of PNC or PNC Bank Corp. upon notice to the Fund and upon the
satisfaction of certain other conditions. State Street is authorized to select
one or more foreign banking institutions and foreign securities depositaries as
sub-custodian on behalf of the Global Fixed Income Fund. PNC is an indirect
wholly owned subsidiary of PNC Bank Corp., and its principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101. The principal
business address of State Street is 225 Franklin Street, Boston, Massachusetts
02110.
State Street serves as the shareholder servicing, transfer and
dividend disbursing agent of each Fund pursuant to separate Transfer Agency and
Service Agreements, under which State Street (i) issues and redeems shares of a
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 Fund's Board concerning the transfer agent's operations with
respect to the Fund. State Street has delegated to Boston Financial Data
Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.
Organization of the Funds
The Fixed Income Fund's and New York Municipal Fund's Agreement and
Declaration of Trust (the "Trust Agreements") and the Global Fixed Income Fund's
and Intermediate Government Fund's charter authorizes the Board of each Fund to
issue full and fractional shares of common stock, $.001 par value per share
("Common Stock"), of which one billion shares are designated Common Shares and
two billion shares are designated Advisor Shares.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fixed Income
and New York Municipal Funds. However, the Trust Agreements disclaim shareholder
liability for acts or obligations of a Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or a Trustee. The Trust Agreements provide for
indemnification from the Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to
57
<PAGE> 152
circumstances in which the Fund would be unable to meet its obligations, a
possibility that Warburg believes is remote and immaterial. Upon payment of any
liability incurred by the Fund, the shareholder paying the liability will be
entitled to reimbursement from the general assets of the Fund. The Trustees
intend to conduct the operations of the Fund in such a way so as to avoid, as
far as possible, ultimate liability of the shareholders for liabilities of the
Fund.
All shareholders of a Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors/Trustees can elect all Directors/Trustees of a
Fund. Shares are transferable but have no preemptive, conversion or subscription
rights.
Distribution and Shareholder Servicing
The Funds have entered into agreements ("Agreements") with
institutional shareholders of record, broker-dealers, financial institutions,
depository institutions, retirement plans and financial intermediaries
("Institutions") to provide certain distribution, shareholder servicing,
administrative and/or accounting services for their clients or customers (or
participants in the case of retirement plans) ("Customers") who are beneficial
owners of Advisor Shares. See the Advisor Prospectus, "Shareholder Servicing."
Agreements will be governed by a distribution plan (the "Distribution Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Distribution Plan requires the
Board, at least quarterly, to receive and review written reports of amounts
expended under the Distribution Plan and the purposes for which such
expenditures were made. For the fiscal year ended October 31, 1997, the Fixed
Income and Global Fixed Income Funds paid $5,970 and $24,956 respectively, in
12b-1 fees in connection with the Fund's Advisor Shares, all of which were paid
to Institutions.
An Institution with which a Fund has entered into an Agreement 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 each Fund's co-administration and distribution and shareholder
servicing arrangements. A Customer of an Institution should read the relevant
Prospectus and this Statement of Additional Information in conjunction with the
Agreement and other literature describing the services and related fees that
would be provided by the Institution to its Customers prior to any purchase of
Fund shares. Prospectuses are available from the Fund's distributor upon
request. No preference will be shown in the selection of Fund portfolio
investments for the instruments of Institutions.
General. The Distribution Plans and 12b-1 Plans will continue in
effect for so long as its continuance is specifically approved at least annually
by the Board, including a
58
<PAGE> 153
majority of the Directors/Trustees who are not interested persons of a Fund and
who have no direct or indirect financial interest in the operation of the
Distribution Plan ("Independent Directors/Trustees"). Any material amendment of
the Distribution Plan would require the approval of the Board in the same
manner. The Distribution Plans or the 12b-1 Plans may not be amended to increase
materially the amount to be spent under it without shareholder approval of the
Advisor Shares. The Distribution Plans or the 12b-1 Plans may be terminated at
any time, without penalty, by vote of a majority of the Independent
Directors/Trustees or by a vote of a majority of the outstanding voting
securities of the Advisor Shares of a Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of a 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, a 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 Funds 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, a 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 a 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 a 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.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Warburg is
available to investors in a Fund. The funds into which exchanges of Common
Shares currently can be
59
<PAGE> 154
made are listed in the Common Share Prospectus. Exchanges may also be made
between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares
in a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. Subject to the restrictions
on exchange purchases contained in the Common Share Prospectus and any other
applicable restrictions, 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.
Subject to the restrictions described above, 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. The exchange privilege
may be modified or terminated at any time upon 30 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting a 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. Individuals are often exempt from state and local personal income
taxes on distributions of tax-exempt interest income derived from obligations of
issuers located in the state in which they reside when these distributions are
received directly from these issuers, but are usually subject to such taxes on
income derived from obligations of issuers located in other jurisdictions.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
As described above and in the New York Municipal Fund's
Prospectuses, the New York Municipal Fund is designed to provide investors with
current income which is excluded from gross income for federal income tax
purposes and which is exempt from New York State and New York City personal
income taxes. The Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital gains or maximum
tax-exempt income irrespective of fluctuations in principal. Investment in the
Fund would not be suitable for tax-exempt institutions, individual retirement
plans, employee benefit plans and individual retirement accounts since such
investors would not gain any additional tax benefit from the receipt of
tax-exempt income.
Each of the Funds intends to continue to qualify each year as
a "regulated investment company" under Subchapter M of the Code. If a Fund
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
60
<PAGE> 155
gains that are distributed to shareholders. To qualify under Subchapter M, a
Fund must, among other things: (i) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities, loans and 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; and (ii) 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. 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 Funds expect to pay the
dividends and make the distributions necessary to avoid the application of this
excise tax.
A Fund's short sales against the box, if any, and
transactions, if any, in foreign currencies, forward contracts, options and
futures contracts (including options and forward contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses recognized by the Fund
(i.e., may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses and cause the Fund to be
subject to hyperinflationary currency rules. These rules could therefore affect
the character, amount and timing of distributions to shareholders. These
provisions also (i) will require the Fund to mark-to-market certain types of its
positions (i.e., treat them as if they were closed out) and (ii) may cause the
Fund to recognize income without receiving cash with which to pay dividends or
make distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes. The Fund will monitor its transactions,
will make the appropriate tax elections and will make the appropriate entries in
its books and records when it acquires any foreign currency, forward contract,
option, futures contract or hedged investment so that (a) neither the Fund nor
its shareholders will be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received, (b) the Fund
will be able to use substantially all of its losses for the fiscal years in
which the losses actually occur and (c) the Fund will continue to qualify as a
regulated investment company.
A shareholder of a Fund receiving dividends or distributions
in additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount
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<PAGE> 156
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 a 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
United States federal income tax status of his dividends, distributions and
deemed distributions attributable to undistributed capital gains made by a Fund
to its shareholders. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of a Fund's taxable year
regarding the federal income tax status of certain dividends and distributions
that were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he has provided a correct taxpayer identification number
and that he is not subject to "backup withholding," the shareholder may be
subject to a 31% "backup withholding" tax with respect to (i) taxable dividends
and distributions and (ii) the proceeds of any sales or repurchases of shares of
a 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. In the case of the New York Municipal
Fund, any taxable distributions from the Fund will not be subject to backup
withholding if the Fund reasonably estimates that at least 95% of its
distributions will be exempt-interest dividends. 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.
Special Tax Considerations Regarding the New York Municipal
Fund. Because the New York Municipal Fund will distribute exempt-interest
dividends, interest on indebtedness incurred by a shareholder to purchase or
carry Fund shares is not deductible for federal income, New York State and New
York City personal income tax purposes. If a shareholder receives an
exempt-interest dividend with respect to any share of the Fund and if such share
is held by the shareholder for six months or less, then any loss on the sale or
exchange of such share, to the extent of such exempt-interest dividend, shall be
disallowed. In
62
<PAGE> 157
addition, the Code may require a shareholder, if he or she receives
exempt-interest dividends, to treat as taxable income a portion of certain
otherwise non-taxable social security and railroad retirement benefit payments.
Furthermore, that portion of any exempt interest dividend paid by the Fund which
represents income from private activity bonds may not retain its tax-exempt
status in the hands of a shareholder who is a "substantial user" (or persons
related thereto) of a facility financed by such bonds. Similar rules apply for
purposes of New York State and New York City personal income tax.
Under the Code, interest on specified private activity bonds
issued after August 7, 1986, although otherwise exempt from federal income tax,
is treated as an item of tax preference for purposes of the alternative minimum
tax on individuals and corporations. If the New York Municipal Fund invests in
such specified "private activity bonds," it will report a portion of the
"exempt-interest dividends" paid to its shareholders as interest on specified
private activity bonds, and hence as a tax preference item. Exempt interest
dividends are included in adjusted current earnings. The amount of the
alternative minimum tax imposed by the Code is the excess, if any, of the
taxpayer's "tentative minimum tax" over the taxpayer's regular tax liability for
the taxable year. The "tentative minimum tax" is equal to (i) 26% of the first
$175,000, and 28% of any amount over $175,000 (for corporations, 20% of the
whole), of the taxpayer's alternative minimum taxable income (defined as regular
taxable income modified by certain adjustments and increased by the taxpayer's
"items of tax preference," including the adjustment for corporate current
earnings and the tax preference for tax-exempt interest on private activity
bonds described above) for the taxable year in excess of the exemption amount,
less (ii) the alternative minimum tax foreign tax credit for the taxable year.
The exemption amount is $40,000 for corporations, $45,000 for those filing joint
returns, lesser amounts for others, and is phased out over certain income
levels. Prospective investors should consult their own tax advisers with respect
to the possible application of the alternative minimum tax to their tax
situations.
In addition, the receipt of New York Municipal Fund dividends
and distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporation shareholder's federal
"excess net passive income" tax liability. Shareholders should consult their own
tax advisers as to whether they are (i) substantial users with respect to a
facility or related to such users within the meaning of the Code or (ii) subject
to a federal alternative minimum tax, any applicable state alternative minimum
tax, the federal branch profit tax, or the federal excess net passive income
tax. Shareholders who are recipients of Social Security benefits should be aware
that tax-exempt interest dividends received from the Fund are included in their
"modified adjusted gross income" for purposes of determining the amount of such
Social Security benefits, if any, that are required to be included in their
gross income.
While the New York Municipal Fund does not expect to realize a
significant amount of net capital gains, any such gains realized will be
distributed annually as described in the Fund's Prospectus. Such distributions
("capital gain dividends"), if any, will be taxable to the shareholders as
long-term capital gains, regardless of how long a shareholder has held the
Fund's shares, and will be designated as capital gain dividends in a written
notice mailed by the Fund to the shareholders after the close of the Fund's
prior taxable year. If a shareholder
63
<PAGE> 158
receives a capital gain dividend with respect to any share and if such share is
held by the shareholder for six months or less, then any loss (to the extent not
disallowed pursuant to the other six month rule described above) on the sale or
exchange of such share, to the extent of the capital gain dividend, shall be
treated as a long-term capital loss. The maximum tax rate for individuals
imposed on net capital gains is 28% whereas the maximum marginal income tax rate
is 39.6%. Up to the 28% maximum, all capital gains, whether long-term or
short-term, are taxed as ordinary income.
Capital gain distributions by the New York Municipal Fund
result in a reduction in the net asset value of the Fund's shares. Should a
distribution reduce the net asset value below a shareholder's cost basis, such
distribution would nevertheless be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
consider the tax implications of buying shares just prior to a distribution. The
price of shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive a
partial return of capital upon the distribution, which will nevertheless be
taxable to them.
If, for any full fiscal year, the New York Municipal Fund's
total distributions exceed net investment income and net realized capital gains,
the excess distributions may be treated as a taxable dividend or as a tax-free
return of capital (up to the amount of the shareholder's tax basis in his or her
shares). The amount treated as a tax-free return of capital will reduce a
shareholder's adjusted basis in his or her shares. Pursuant to the requirements
of the 1940 Act and other applicable laws, a notice will accompany any
distribution paid from sources other than net investment income. In the event
the Fund distributes amounts in excess of its net investment income and net
realized capital gains, such distributions may have the effect of decreasing the
Fund's total assets, which may increase the Fund's expense ratio.
Dividends derived by the New York Municipal Fund from
tax-exempt interest are designated as tax-exempt in the same percentage of the
day's dividend as the actual tax-exempt income earned on that day. Thus, the
percentage of the dividend designated as tax-exempt may vary from day to day.
Similarly, dividends derived by the Fund from interest on New York State
Municipal Obligations will be designated as exempt from New York's personal
income taxation in the same percentage of the day's dividend as the actual
interest on New York's Municipal Obligations earned on that day.
It should be noted that the portion of any New York Municipal
Fund dividends constituting New York exempt-interest dividends is excludable
from income for New York State and New York City personal income tax purposes
only. Any dividends paid to the Fund's shareholders subject to state or city
franchise or corporate income tax therefore may be taxed as ordinary dividends
to such shareholders, notwithstanding that all or a portion of such dividends is
exempt from state or city personal income tax.
Potential shareholders in the New York Municipal Fund,
including, in particular, corporate shareholders which may be subject to either
New York franchise tax or New York corporate income tax, should consult their
tax advisers with respect to (i) the
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<PAGE> 159
application of corporate and franchise taxes to the receipt of Fund dividends
and as to their own state tax situation in general, and (ii) the application of
other state and local taxes to the receipt of the Fund's dividends and
distributions.
Although the New York Municipal Fund expects to be relieved of
all or substantially all federal, New York State and New York City income or
franchise taxes, depending upon the extent of its activities in other states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Fund would reduce the amount of income and gains
available for distribution to shareholders.
Passive Foreign Investment Companies (Fixed Income and Global Fixed Income Funds
only)
If a 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.
A 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.
Recently, legislation was enacted that provides a
mark-to-market election for regulated investment companies effective for taxable
years beginning after December 31, 1997. This election would result in a Fund
being treated as if it had sold and repurchased all of the PFIC stock at the end
of each year. In this case, the Fund would report gains as ordinary income and
would deduct losses as ordinary losses to the extent of previously recognized
gains. The election, once made, would be effective for all subsequent taxable
years of the Fund, unless revoked with the consent of the IRS. By making the
election, the Fund could potentially ameliorate the adverse tax consequences
with respect to its ownership of shares in a PFIC, but in any particular year
may be required to recognize income in excess of the distributions it receives
from PFICs and its proceeds from dispositions of PFIC company stock. The Fund
may have to distribute this "phantom" income and gain to satisfy its
distribution requirement and to avoid imposition of the 4% excise tax. The Fund
will make the appropriate tax elections, if
65
<PAGE> 160
possible, and take any additional steps that are necessary to mitigate the
effect of these rules.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING A FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.
DETERMINATION OF PERFORMANCE
From time to time, a 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 a Fund's Common and/or Advisor
Shares, the Fund's average annual total return for the periods ended October 31,
1997 were as follows:
Performance (Common Shares)
(performance figures calculated without the waiver of fees
by a Fund's service provider(s), if any, are noted in parenthesis)
<TABLE>
<CAPTION>
Period from the
commencement
One-Year Five-Year of operations
-------- --------- -------------
<S> <C> <C> <C> <C>
Fixed Income Fund 9.78% (9.70%) 7.93% (7.79%) 8.27% (8.10%)
--------------- --------------- ---------------
(commenced operations on
August 17, 1987)
Global Fixed Income
Fund
(commenced operations on 5.76% (5.38%) 8.13% (7.41%) 8.47% (7.21%)
--------------- --------------- ---------------
November 1, 1990)
Intermediate Government
Fund
(commenced operations on 6.99% (6.63%) 6.19% (5.77%) 8.19% (7.53%)
--------------- --------------- ---------------
August 22, 1988)
New York Municipal
Fund
(commenced operations on 5.83% (5.75%) 6.07% (5.89%) 5.98% (5.41%)
--------------- --------------- ---------------
April 1, 1987)
</TABLE>
66
<PAGE> 161
Performance (Advisor Shares)
(performance figures calculated without the waiver of fees
by a Fund's service provider(s), if any, are noted in parenthesis)
<TABLE>
<CAPTION>
Period from the
commencement of
One-Year operations
-------- ----------
<S> <C> <C>
Fixed Income Fund 9.51% (9.38%) 10.20% (10.08%)
(Advisor Class commenced operations on ---------------- ----------------------
July 3, 1996)
Global Fixed Income Fund 5.18% (4.72%) 7.11% (6.69%)
(Advisor Class commenced operations on ---------------- ----------------------
August 12, 1996)
Intermediate Government Fund N/A 2.22%
(Advisor Class commenced operations on --------- -----
August 15, 1997)
New York Municipal Fund 5.19% 4.90%
(Advisor Class commenced operations on ---- -----
August 5, 1996)
</TABLE>
These figures are calculated by finding the average annual
compounded rates of return for the one-, five- and ten- (or such shorter period
as the relevant class of shares has been offered) year periods that would equate
the initial amount invested to the ending redeemable value according to the
following formula: P (1 + T)(n) = ERV. For purposes of this formula, "P" is a
hypothetical investment of $1,000; "T" is average annual total return; "n" is
number of years; and "ERV" is the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the one-, five- or ten-year periods (or
fractional portion thereof). Total return or "T" is computed by finding the
average annual change in the value of an initial $1,000 investment over the
period and assumes that all dividends and distributions are reinvested during
the period. Investor should note that the performance may not be representative
of the Fund's total return over longer market cycles.
A 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.
Yield is calculated by annualizing the net investment income
generated by a Fund over a specified thirty-day period according to the
following formula:
YIELD = 2[( a-b +1)(6)-1]
-------
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of
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<PAGE> 162
shares outstanding during the period that were entitled to receive dividends;
and "d" is the maximum offering price per share on the last day of the period.
<TABLE>
<CAPTION>
30-day annualized current yield
Fund (Common/Advisor Shares) as of October 31, 1997
- ---- --------------------- ----------------------
<S> <C>
Fixed Income Fund 5.99%/5.74%
Global Fixed Income Fund 6.13%/5.63%
Intermediate Government Fund 5.67%/5.23%
New York Municipal Fund 3.86%/1.07%
</TABLE>
Tax equivalent yield is calculated over a specified thirty-day
period by dividing that portion of the Fund's yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield of the Municipal Fund that is not tax-exempt. The New York
Municipal Fund's tax-equivalent yield for the thirty-day period ending October
31, 1997 was 7.01%.
The performance of a class of a 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 and yield are based on historical earnings and are 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 performance figures
and such fees, if charged, will reduce the actual return received by customers
on their investments.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Funds. The financial statements for the fiscal
year ended October 31, 1997 that are incorporated by reference in this Statement
of Additional Information have been audited by Coopers & Lybrand, whose report
thereon appears elsewhere herein and have been included herein in reliance upon
the report of such firm of independent accountants given upon their authority as
experts in accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Funds as
well as counsel to Warburg, Counsellors Service and Counsellors Securities.
68
<PAGE> 163
MISCELLANEOUS
As of January 30, 1998, there were no persons (other than Mr.
Furth, see "Management of the Fund") that owned of record 5% or more of a Fund's
outstanding shares.
<TABLE>
<CAPTION>
FIXED INCOME FUND Common Shares Advisor Shares
------------- --------------
<S> <C> <C>
Charles Schwab & Co., Inc.* 27.21%
Reinvest Account
Attn.: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
IN Trust* 99.99%
c/o Brian Frambes
3435 Stelzer Road, Ste. 1000
Columbus, OH 43219-6004
Nat'l Financial Svcs. Corp.* 8.97%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Smith Barney Inc.* 11.46%
Book Entry Account
Attn.: Matt Maestri
333 West 34 Street
7th Floor Mutual Funds Dept.
New York, NY 10001-2483
</TABLE>
<TABLE>
<CAPTION>
GLOBAL FIXED INCOME FUND Common Shares Advisor Shares
------------- --------------
<S> <C> <C>
Charles Schwab & Co., Inc.* 40.62%
Reinvest Account
Attn.: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
Corelink Financial Inc.* 16.99%
P.O. Box 4054
Concord, CA 94524-4054
Nat'l Financial Svcs. Corp.* 19.85%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>
69
<PAGE> 164
<TABLE>
<S> <C> <C>
Prudential Securities Inc.* 6.53%
For Exclusive Benefit of Customer PC
1 New York Plaza
New York, NY 10004-1902
SBT & CO FBO 8134* 79.98%
PO Box 8469
La Jolla, CA 92038-8469
Smith Barney Inc.* 7.04%
Book Entry Account
Attn.: Matt Maestri
333 West 34 Street
7th Floor Mutual Funds Dept.
New York, NY 10001-2483
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND Common Shares Advisor Shares
------------- --------------
<S> <C> <C>
Charles Schwab & Co., Inc.* 20.74%
Reinvest Account
Attn.: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
Albert J. Lagerman 98.15%
Gene W. Reisinger TTEES
Family Practice Center PC
401k Trust
307 E. Chestnut Street
Mifflinburg, PA 17844-9678
Nat'l Financial Svcs. Corp.* 11.91%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL FUND Common Shares Advisor Shares
------------- --------------
<S> <C> <C>
Boston Financial Data Services, Inc.* 34.08%
Corporate Actions Reinvest
Audit Acct. #2 FD 37
WP NY Inter Muni Advisor
2 Heritage Drive, 8th Floor
No. Quincy, MA 02171-2144
</TABLE>
70
<PAGE> 165
<TABLE>
<S> <C> <C>
Boston Financial Data Services, Inc.* 34.09%
Corporate Actions Fiduciary
Audit Acct. #4 FD 37
WP NY Inter Muni Advisor
2 Heritage Drive, 8th Floor
No. Quincy, MA 02171-2144
Boston Financial Data Services, Inc.* 31.83%
Corporate Actions Cash
Audit Acct. #1 FD 37
WP NY Inter Muni Advisor
2 Heritage Drive, 8th Floor
No. Quincy, MA 02171-2144
Christopher W. Brody 7.69%
30 East 71st Street
New York, NY 10021-4956
Charles Schwab & Co., Inc.* 9.30%
Reinvest Account
Attn.: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
* The Funds believe that these entities are not the beneficial owner of shares
held of record by them.
Mr. Lionel I. Pincus, Chairman of the New York Municipal
Fund's Board and Chief Executive Officer of Warburg, may be deemed to have
beneficially owned 26.3%, 34.9% and 51.3% of the Common Shares outstanding of
the Fixed Income, Intermediate Government and New York Municipal Funds,
including shares owned by clients for which Warburg has investment discretion
and by companies that Warburg 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.
FINANCIAL STATEMENTS
Each Fund's audited annual report, dated October 31, 1997,
which either accompanies this Statement of Additional Information or has
previously been provided to the investor to whom this Statement of Additional
Information is being sent, is incorporated herein by reference. Each Fund will
furnish without charge a copy of its annual report upon request by calling
Warburg Pincus Funds at (800) 927-2874.
71
<PAGE> 166
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, 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 has
an adequate capacity to pay interest and repay principal. Although it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is
regarded, on balance, as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have
<PAGE> 167
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
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.
A-2
<PAGE> 168
While the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect
to the bonds rated "Aa" through "B". The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
A-3
<PAGE> 169
Short-Term Note Ratings
The following summarizes the two highest ratings used by S&P
for short-term notes:
SP-1 - Loans bearing this designation evidence a very strong
or strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus sign
designation.
SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest.
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1 - Obligations bearing these designations are of
the best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of
high quality with margins of protection ample although not so large as in the
preceding group.
Municipal Obligations Ratings
The following summarizes the ratings used by S&P for Municipal
Obligations:
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 has
an adequate capacity to pay interest and repay principal. Although adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is
regarded, on balance, as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-4
<PAGE> 170
BB - Bonds rated BB have less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions, which could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB rating.
B - Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the highest four municipal ratings
used by Moody's:
Aaa - Bonds which 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 edge." 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.
A-5
<PAGE> 171
Aa - Bonds which are rated as are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
NOTE: Those bonds in the AA, A, BAA, BA and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols AA1, A1, BAA1, BA1, and B1.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
A-6
<PAGE> 172
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements relating to Common Shares
(1) Financial Statements included in Part A:
(a) Financial Highlights
(2) Financial Statements included in Part B
(incorporated by reference to the Fund's Annual
Report dated October 31, 1997):
(a) Report of Coopers & Lybrand L.L.P.,
Independent Accountants
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
1(a) Articles of Incorporation.(1)
(b) Articles Supplementary.(2)
2(a) Amended and Restated By-Laws.(1)
(b) Amendment to By-Laws.
3 Not applicable.
4 Form of Stock Certificates.(3)
5 Investment Advisory Agreement.(2)
</TABLE>
- -------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission in January 16, 1996.
(2) Incorporated by reference to Post-Effective Amendment No.9 to
Registrant's Registration Statement on Form N-1A, filed on
Feburary 11, 1997.
(3) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 2 to the Registration Statement of
Warburg, Pincus Post-Venture Capital Fund, Inc. filed on September 25,
1995 (Securities Act File No. 33-61225).
C-1
<PAGE> 173
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
6 Form of Distribution Agreement.(1)
7 Not applicable.
8 Form of Custodian Agreement with PNC Bank, as
amended.(4)
9(a) Form of Transfer Agency Agreement with State Street
Bank & Trust Company.(5)
(b) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc.(5)
(c) Form of Co-Administration Agreement with PFPC Inc.(5)
(d) Forms of Services Agreements.(6)
10 Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
12 Not applicable.
13 Form of Purchase Agreement.(4)
14 Form of Retirement Plans.(7)
</TABLE>
- -------------------------
(4) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 10 to the Registration Statement on Form
N-1A of Warburg, Pincus International Equity Fund, Inc. filed on
September 22, 1995 (Securities Act File No. 33-27031).
(5) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A of Warburg, Pincus Trust filed on June 14, 1995 (Securities Act
File No. 33-58125).
(6) Incorporated by reference; material provisons of this exhibt
substantially similar to those of the corresponding exhibit in Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-1A
of Warburg, Pincus Japan Growth Fund, Inc. filed on December 18, 1995
(Securities Act File No. 33-63653).
(7) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement of Warburg, Pincus Managed Bond Trust, filed on
February 28, 1995 (Securities Act File No. 33-73672).
(continued)
C-2
<PAGE> 174
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
15(a) Form of Shareholder Services Plan. (8)
(b) Form of Distribution Plan. (8)
16 Schedule for Computation of Total Return and Yield
Quotations relating to Common Shares.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
18 Form of Rule 18f-3 Plan.(2)
</TABLE>
- -------------------------
(8) Incorporated by reference; material provisions of this exhibit to the
Registration Statement on Form N-14 of Warburg, Pincus Major Foreign
Markets Fund, Inc. (formerly known as Warburg, Pincus Managed EAFE(R)
Countries Fund, Inc.) filed on November 5, 1997 (Securities Act File
No. 333-39611).
C-3
<PAGE> 175
Item 25. Persons Controlled by or Under Common Control with Registrant
From time to time, Warburg Pincus Asset Management, Inc.
("Warburg") may be deemed to control the Fund and other registered investment
companies it advises through its beneficial ownership of more than 25% of the
relevant fund's shares on behalf of discretionary advisory clients. Warburg
has five wholly-owned subsidiaries: Counsellors Securities Inc., a New York
corporation; Counsellors Funds Service Inc., a Delaware corporation;
Counsellors Agency Inc., a New York corporation; Warburg, Pincus Investments
International (Bermuda), Ltd., a Bermuda corporation; and Warburg Pincus Asset
Management International, Inc., a Delaware corporation.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class As of January 30, 1998
-------------- ----------------------
<S> <C>
Common Shares 419
Advisor Shares 4
</TABLE>
Item 27. Indemnification
Registrant and officers and directors or trustees of Warburg,
Counsellors Securities Inc. ("Counsellors Securities") and Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. Discussion of this coverage is
incorporated by reference to Item 27 of Part C of Post-Effective Amendment No. 9
to Registrant's Registration Statement on Form N-1A, filed on February 11, 1997.
Item 28. Business and Other Connections of Investment Adviser
Warburg, a wholly owned subsidiary of Warburg, Pincus Asset
Management Holdings, Inc., acts as investment adviser to Registrant. Warburg
renders investment advice to a wide variety of individual and institutional
clients. The list required by this Item 28 of officers and directors of
Warburg, together with information as to their other business, profession,
vocation or employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by Warburg
(SEC File No. 801-07321).
C-4
<PAGE> 176
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for The RBB
Fund, Inc.; Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation
Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund;
Warburg Pincus Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg
Pincus Global Fixed Income Fund; Warburg Pincus Global Post-Venture Capital
Fund; Warburg Pincus Growth & Income Fund; Warburg Pincus Health Sciences Fund;
Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus Japan
Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus Major Foreign
Markets Fund; Warburg Pincus New York Intermediate Municipal Fund; Warburg
Pincus New York Tax Exempt Fund; Warburg Pincus Post-Venture Capital Fund;
Warburg Pincus Small Company Growth Fund; Warburg Pincus Small Company Value
Fund; Warburg Pincus Strategic Value Fund; Warburg Pincus Trust; and Warburg
Pincus Trust II.
(b) For information relating to each director, officer or
partner of Counsellors Securities, reference is made to Form BD (SEC File No.
8-32482) filed by Counsellors Securities under the Securities Exchange Act of
1934.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Intermediate Maturity
Government Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, by-laws and
minute books)
(2) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer
agent and dividend disbursing agent)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as
co-administrator)
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
co-administrator)
C-5
<PAGE> 177
(5) PNC Bank, National Association
1600 Market Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
(6) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(7) Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
(8) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer
agent and dividend disbursing agent)
Item 31. Management Services
Not applicable.
Item 31. Undertakings
(a) Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of Registrant's latest annual
report to shareholders, upon request and without charge.
(b) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
director or directors of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to communications with the
shareholders of certain common-law trusts.
C-6
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and the State of New York, on the 17th day of February, 1998.
WARBURG, PINCUS INTERMEDIATE MATURITY
GOVERNMENT FUND, INC.
By:/s/ Eugene L. Podsiadlo
------------------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John L. Furth Chairman of the Board of Directors February 17, 1998
- -----------------------------
John L. Furth
/s/ Eugene L. Podsiadlo President February 17, 1998
- -----------------------------
Eugene L. Podsiadlo
/s/ Howard Conroy Vice President and Chief Financial February 17, 1998
- ----------------------------- Officer
Howard Conroy
/s/ Daniel S. Madden Treasurer and Chief Accounting February 17, 1998
- ----------------------------- Officer
Daniel S. Madden
/s/ Richard N. Cooper Director February 17, 1998
- -----------------------------
Richard N. Cooper
/s/ Jack W. Fritz Director February 17, 1998
- -----------------------------
Jack W. Fritz
/s/ Jeffrey E. Garten Director February 17, 1998
- -----------------------------
Jeffrey E. Garten
/s/ Thomas A. Melfe Director February 17, 1998
- -----------------------------
Thomas A. Melfe
/s/ Arnold M. Reichman Director February 17, 1998
- -----------------------------
Arnold M. Reichman
/s/ Alexander B. Trowbridge Director February 17, 1998
- -----------------------------
Alexander B. Trowbridge
</TABLE>
<PAGE> 179
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
-- ----------------------
<S> <C>
2(b) Amendment to By-Laws.
10 Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
16 Schedule for Computation of Total Return and Yield Quotations
relating to Common Shares.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
</TABLE>
<PAGE> 1
WARBURG PINCUS FUNDS
- --------------------------------------------------------------------------------
AMENDMENT TO BY-LAWS
(Maryland Corporations)
RESOLVED, that pursuant to Article VIII of the Fund's By-Laws, Article IIA
entitled "Honorary Directors" be added to the Fund's By-Laws and shall read as
follows:
ARTICLE IIA
HONORARY DIRECTORS
Section 1. Number; Qualification; Term: The Board of
Directors may from time to time designate and appoint one or more qualified
persons to the position of "honorary director." Each honorary director shall
serve for such term as shall be specified in the resolution of the Board of
Directors appointing him or until his earlier resignation or removal. An
honorary director may be removed from such position with or without cause by
the vote of a majority of the Board of Directors given at any regular meeting
or special meeting.
Section 2. Duties; Remuneration: An honorary director shall
be entitled to attend at least one meeting of the Board of Directors each
fiscal year at the invitation of the Board of Directors. An honorary director
shall not be a "Director" or "officer" within the meaning of the Corporation's
Articles of Incorporation or of these By-Laws, shall not be deemed to be a
member of an "advisory board" within the meaning of the Investment Company Act
of 1940, as amended from time to time, shall not hold himself out as any of the
foregoing, and shall not be liable to any person for any act of the
Corporation. Notice of special meetings may be given to an honorary director
but the failure to give such notice shall not affect the validity of any
meeting or the action taken thereat. An honorary director shall not have the
powers of a Director, may not vote at meetings of the Board of Directors and
shall not take part in the operation or governance of the Corporation. An
honorary director shall not receive any compensation but shall be reimbursed
for expenses incurred in attending meetings of the Board of Directors.
Dated: February 6, 1998
<PAGE> 1
February 17, 1998
Warburg, Pincus Intermediate Maturity Government Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Re: Post-Effective Amendment No. 10 to Registration Statement
(Securities Act File No. 33-22817; Investment Company Act
File No. 811-5600) (the "Registration Statement")
Ladies and Gentlemen:
You have requested us, as counsel to Warburg, Pincus Intermediate Maturity
Government Fund, Inc. (the "Fund"), a corporation organized under the laws of
the State of Maryland, to furnish you with this opinion in connection with the
Fund's filing of Post-Effective Amendment No. 10 to its Registration Statement
on Form N-1A (the "Amendment").
We have examined copies of the Fund's Articles of Incorporation, as amended or
supplemented (the "Articles"), the Fund's By-Laws, as amended (the "By-Laws"),
and the Amendment. We have also examined such other records, documents,
papers, statutes and authorities as we have deemed necessary to form a basis
for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all copies submitted to us. As to
various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Based upon the foregoing, we are of the opinion that the shares of common stock
of the Fund, par value $.001 per share (the "Shares"), when duly sold, issued
and paid for in accordance with the laws of applicable jurisdictions and the
terms of the Articles, the By-Laws and the Prospectuses and Statement of
Additional Information ("SAI") included as part of the Amendment, and assuming
that at the time of sale such Shares will be sold at a sales price in each case
in excess of the par value, will be valid, legally issued, fully paid and
non-assessable.
<PAGE> 2
Warburg, Pincus Intermediate
Maturity Government Fund, Inc.
February 17, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the Amendment,
to the reference to our name under the heading "Independent Accountants and
Counsel" in the SAI included as part of the Amendment, and to the filing of
this opinion as an exhibit to any application made by or on behalf of the Fund
or any distributor or dealer in connection with the registration or
qualification of the Fund or the Shares under the securities laws of any state
or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 10 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (File No. 33-22817) of our report dated December 19, 1997 of our audit of
the financial statements and financial highlights of Warburg, Pincus
Intermediate Maturity Government Fund, Inc., which report is included in the
Annual Report to Shareholders for the year ended October 31, 1997. We also
consent to the reference to our Firm under the caption "Financial Highlights"
in the Prospectus and under the caption "Independent Accountants and Counsel"
in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 12, 1998
<PAGE> 1
SCHEDULE 16 CALCULATIONS
WARBURG PINCUS INTERMEDIATE MUNICIPAL FUND
FOR THE YEAR ENDED OCTOBER 31, 1997
ANNUALIZED TOTAL RETURNS WITH WAIVERS
COMMON SHARES
1/1
One Year ((10,698.64/10000) -1)= 6.99%
1/3
Three Year ((12,637.39/10000) -1)= 8.12%
1/5
Five Year ((13,503.60/10000) -1)= 6.19%
1/9.20
From Inception ((20,632.46/10000) -1)= 8.19%
SERIES 2 SHARES
1/1
One Year ((00,000.00/10000) -1)= 0.00%
1/3
Three Year ((00,000.00/10000) -1)= 0.00%
1/5
Five Year ((00,000.00/10000) -1)= 0.00%
From Inception ((10,222.34/10000)-1)= 2.22%
ANNUALIZED TOTAL RETURNS WITHOUT WAIVERS
COMMON SHARES
1/1
One Year ((10,663.31/10000) -1)= 6.63%
1/3
Three Year ((12,475.84/10000) -1)= 7.65%
1/5
Five Year ((13,240.25/10000) -1)= 5.77%
1/9.20
From Inception ((19,497.33/10000) -1)= 7.53%
SERIES 2 SHARES
1/1
One Year ((00,000.00/10000) -1)= 0.00%
1/3
Three Year ((00,000.00/10000) -1)= 0.00%
1/5
Five Year ((00,000.00/10000) -1)= 0.00%
From Inception ((10,222.34/10000)-1)= 2.22%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000835598
<NAME> WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND
<SERIES>
<NUMBER> 001
<NAME> COMMON CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 48448826
<INVESTMENTS-AT-VALUE> 49154620
<RECEIVABLES> 888330
<ASSETS-OTHER> 1339
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50044289
<PAYABLE-FOR-SECURITIES> 1500000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 120584
<TOTAL-LIABILITIES> 1620584
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47914941
<SHARES-COMMON-STOCK> 4818207
<SHARES-COMMON-PRIOR> 4738076
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (197030)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 705794
<NET-ASSETS> 48423705
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3010926
<OTHER-INCOME> 0
<EXPENSES-NET> 281835
<NET-INVESTMENT-INCOME> 2729091
<REALIZED-GAINS-CURRENT> 90816
<APPREC-INCREASE-CURRENT> 353152
<NET-CHANGE-FROM-OPS> 3173059
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2729091)
<DISTRIBUTIONS-OF-GAINS> (545534)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22575023
<NUMBER-OF-SHARES-REDEEMED> (24347987)
<SHARES-REINVESTED> 2608543
<NET-CHANGE-IN-ASSETS> 734013
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 257688
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 234862
<INTEREST-EXPENSE> 446
<GROSS-EXPENSE> 438239
<AVERAGE-NET-ASSETS> 46972215
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> (.12)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000835598
<NAME> WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND
<SERIES>
<NUMBER> 002
<NAME> ADVISOR CLASS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
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