<PAGE>1
Rule 497(e)
Securities Act File No. 33-27031
Investment Company Act File No. 811-5765
[LOGO]
PROSPECTUS
DECEMBER 29, 1995,
AS REVISED JANUARY 29, 1996
[ ] WARBURG PINCUS EMERGING MARKETS FUND
[ ] WARBURG PINCUS INTERNATIONAL EQUITY FUND
[ ] WARBURG PINCUS JAPAN GROWTH FUND
[ ] WARBURG PINCUS JAPAN OTC FUND
<PAGE>2
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
December 29, 1995,
as revised January 29, 1996
PROSPECTUS
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Four funds are described in this
Prospectus:
WARBURG PINCUS EMERGING MARKETS FUND seeks growth of capital by investing
primarily in equity securities of non-United States issuers consisting of
companies in emerging securities markets.
WARBURG PINCUS INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by
investing in international equity securities that are considered by the Fund's
investment adviser to have above-average potential for appreciation.
WARBURG PINCUS JAPAN GROWTH FUND seeks long-term growth of capital by investing
principally in equity securities of Japanese issuers.
WARBURG PINCUS JAPAN OTC FUND seeks long-term capital appreciation by investing
in a portfolio of securities traded in the Japanese over-the-counter market.
International investing entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
NO LOAD CLASS OF COMMON SHARES
Each Fund offers two classes of shares. A class of Common Shares that is 'no
load' is offered by this Prospectus (i) directly from the Funds' distributor,
Counsellors Securities Inc., and (ii) through various brokerage firms including
Charles Schwab & Company, Inc. Mutual Fund OneSource'TM' Program; Fidelity
Brokerage Services, Inc. FundsNetwork'TM' Program; Jack White & Company, Inc.;
and Waterhouse Securities, Inc. The availability of the Japan OTC Fund through
these brokerage firms may vary. Common Shares of the Emerging Markets Fund, the
Japan Growth Fund and the Japan OTC Fund are subject to a 12b-1 fee of .25% per
annum.
LOW MINIMUM INVESTMENT
The minimum initial investment in each Fund is $2,500 ($500 for an IRA or
Uniform Gifts to Minors Act account) and the minimum subsequent investment is
$100. Through the Automatic Monthly Investment Plan, subsequent investment
minimums may be as low as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about each
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Funds at (800) 927-2874 Information
regarding the status of shareholder accounts may be obtained by calling Warburg
Pincus Funds at (800) 888-6878. The Statements of Additional Information, as
amended or supplemented from time to time, bear the same date as this Prospectus
and are incorporated by reference in their entirety into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<PAGE>3
THE FUNDS' EXPENSES
Each of Warburg, Pincus Emerging Markets Fund, International Equity Fund,
Japan Growth Fund and Japan OTC Fund (the 'Funds') currently offers two separate
classes of shares: Common Shares and Advisor Shares. For a description of
Advisor Shares see 'General Information.' Common Shares of the Emerging Markets
Fund, the Japan Growth Fund and the Japan OTC Fund pay the Fund's distributor a
12b-1 fee. See 'Management of the Funds -- Distributor.'
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL JAPAN JAPAN
MARKETS EQUITY GROWTH OTC
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
Redemption Fee (as a percentage of the value of shares redeemed)... 0 0 0 1.00%*
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees.................................................... 0 1.00% .80% .93%
12b-1 Fees......................................................... .25% 0 .25% .25%
Other Expenses..................................................... .75% .39% .70% .57%
-------- ------ ------ -----
Total Fund Operating Expenses (after fee waivers)`D'............... 1.00% 1.39% 1.75% 1.75%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year............................................................. $ 10 $ 14 $ 18 $ 18
3 years............................................................ $ 32 $ 44 $ 55 $ 55
5 years............................................................ $ 55 $ 76 n.a. $ 95
10 years........................................................... $122 $167 n.a. $206
</TABLE>
[FN]
- ------------
* Redemption fees are charged to shareholders redeeming their shares of the
Japan OTC Fund within six months after the date of purchase and are paid to
the Fund. The redemption fee is currently being waived until such later date
as the Japan OTC Fund may determine. See 'How to Redeem and Exchange Shares.'
`D' Management Fees, Other Expenses and Total Fund Operating Expenses for the
Emerging Markets, International Equity and Japan OTC Funds are based on
actual expenses for the fiscal year or period ended October 31, 1995, net
of any fee waivers or expense reimbursements. Without such waivers and/or
reimbursements, Management Fees for the Emerging Markets and Japan OTC
Funds would have each equalled 1.25%; Other Expenses would have equalled
10.58% and .60%, respectively; and Total Fund Operating Expenses would have
equalled 12.08% and 2.10%, respectively. There were no waivers or
reimbursements in the International Equity Fund. Absent the anticipated
waiver of fees by the Japan Growth Fund's investment adviser and
co-administrator, Management Fees would equal 1.25%, Other Expenses would
equal .75% and Total Fund Operating Expenses would equal 2.25%. Other
Expenses for the Japan Growth Fund are based on annualized estimates of
expenses for the fiscal year ending October 31, 1996, net of any fee
waivers or expense reimbursements. Although Management Fees are higher than
those paid by most other investment companies, including money market and
fixed income funds, the Funds' investment adviser believes that they are
comparable to fees charged by other mutual funds with similar policies and
strategies. The investment adviser and co-administrator are under no
obligation to continue these waivers.
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The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. Certain
broker-dealers and financial institutions also may charge their clients fees in
connection with investments in a Fund's Common Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, each Fund's
actual performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of the Emerging Markets Fund, the Japan Growth Fund or
the Japan OTC Fund may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers, Inc. (the 'NASD').
FINANCIAL HIGHLIGHTS
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the three fiscal years or period ended
October 31, 1995 has been derived from information audited by Coopers & Lybrand
L.L.P., independent auditors, whose report dated December 14, 1995 appears in
the relevant Fund's Statement of
Additional Information. For the International Equity Fund, the information for
the two prior fiscal years has been audited by Ernst & Young LLP, whose report
was unqualified. Financial information is not presented for the Japan Growth
Fund, which had not commenced operations as of October 31, 1995. Further
information about the performance of the Funds (other than the Japan Growth
Fund) is contained in the Funds' annual report, dated October 31, 1995, copies
of which may be obtained without charge by calling Warburg Pincus Funds at (800)
927-2874.
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 30, 1994
(INCEPTION) THROUGH
OCTOBER 31, 1995
-------------------
<S> <C>
Net Asset Value,
Beginning of Period...................................... $ 10.00
------
Income from Investment
Operations
Net Investment
Income................................................ .08
Net Gains (Losses) from
Securities and
Foreign Currency
Related Items
(both realized and
unrealized)........................................... 1.25
-------
Total from Investment
Operations............................................ 1.33
-------
Less Distributions
Dividends (from net
investment income).................................... (.05)
Distributions (from
capital gains)........................................ .00
-------
Total Distributions..................................... (.05)
-------
Net Asset Value, End of
Period.................................................. $ 11.28
-------
-------
Total Return.............................................. 16.09%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s).................................................. $ 6,780
Ratios to Average Daily
Net Assets:
Operating expenses...................................... 1.00%*
Net investment
income................................................ 1.25%*
Decrease reflected in
above operating
expense ratio due to
waivers/reimbursements................................ 11.08%*
Portfolio Turnover
Rate.................................................... 69.12%*
</TABLE>
[FN]
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* Annualized.
3
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INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE
PERIOD
MAY 2, 1989
(COMMENCEMENT
OF
OPERATIONS)
FOR THE YEAR ENDED OCTOBER 31, THROUGH
----------------------------------------------------------------------- OCTOBER 31,
1995 1994 1993 1992 1991 1990 1989
---------- ---------- -------- -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $20.51 $17.00 $12.22 $13.66 $11.81 $11.35 $10.00
---------- ---------- -------- -------- ------- ------- -------------
Income from Investment
Operations
Net Investment Income
(Loss)................... .12 .09 .09 .15 .19 .13 .05
Net Gains (Losses) from
Securities and
Foreign Currency
Related Items (both
realized and
unrealized).............. (.67) 3.51 4.84 (1.28) 2.03 .55 1.30
---------- ---------- -------- -------- ------- ------- -------------
Total from Investment
Operations............... (.55) 3.60 4.93 (1.13) 2.22 .68 1.35
---------- ---------- -------- -------- ------- ------- -------------
Less Distributions
Dividends (from net
investment income)....... (.13) (.04) (.02) (.16) (.33) (.10) .00
Distributions in excess
of net investment
income................... .00 (.01) .00 .00 .00 .00 .00
Distributions (from
capital gains)........... (.53) (.04) (.13) (.15) (.04) (.12) .00
---------- ---------- -------- -------- ------- ------- -------------
Total Distributions........ (.66) (.09) (.15) (.31) (.37) (.22) .00
---------- ---------- -------- -------- ------- ------- -------------
Net Asset Value, End of
Period..................... $19.30 $20.51 $17.00 $12.22 $13.66 $11.81 $11.35
---------- ---------- -------- -------- ------- ------- -------------
---------- ---------- -------- -------- ------- ------- -------------
Total Return................. (2.55%) 21.22% 40.68% (8.44%) 19.42% 5.92% 28.73%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)..................... $2,068,207 $1,533,872 $378,661 $101,763 $72,553 $38,946 $13,260
Ratios to Average Daily
Net Assets:
Operating expenses......... 1.39% 1.44% 1.48% 1.49% 1.50% 1.46% 1.50%*
Net investment income
(loss)................... .69% .19% .38% .88% 1.19% 1.58% 1.33%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements... .00 .00% .00% .07% .17% .38% .89%*
Portfolio Turnover
Rate....................... 39.24% 17.02% 22.60% 53.29% 54.95% 66.12% 27.32%
</TABLE>
[FN]
- ------------
* Annualized.
JAPAN OTC FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1994
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS) THROUGH
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period........ $9.85 $10.00
-------- -------
Income from Investment
Operations
Net Investment
Income................... .00 .00
Net Gains (Losses) from
Securities and
Foreign Currency
Related Items (both
realized and
unrealized).............. (.76) (.15)
-------- -------
Total from Investment
Operations............... (.76) (.15)
-------- -------
Less Distributions
Dividends (from net
investment income)....... .00 .00
Distributions (from
capital gains)........... .00 .00
-------- -------
Total Distributions........ .00 .00
-------- -------
Net Asset Value, End of
Period..................... $9.09 $9.85
-------- -------
-------- -------
Total Return................. (7.72%) (15.84%)*
Ratios/Supplemental Data
Net Assets, End of Period
(000s)..................... $178,568 $ 19,878
Ratios to Average Daily
Net Assets:
Operating expenses......... 1.41% 1.00%*
Net investment
income................... (.15%) .49%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements... 1.35% 4.96%*
Portfolio Turnover
Rate....................... 82.98% .00%
</TABLE>
[FN]
- ------------
* Annualized.
4
<PAGE>6
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.
EMERGING MARKETS FUND
The Emerging Markets Fund seeks growth of capital. The Fund is a
non-diversified management investment company that pursues its investment
objective by investing primarily in equity securities on non-United States
issuers consisting of companies in emerging securities markets. An investment in
the Fund may involve a greater degree of risk than investment in other mutual
funds that seek capital appreciation by investing in larger, more developed
markets.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Fund intends to acquire securities of many issuers located in a
number of foreign countries. The Fund will not necessarily seek to diversify
investments on a geographical basis or on the basis of the level of economic
development of any particular country. However, the Fund will at all times,
except during defensive periods, maintain investments in at least three
countries outside the United States. An equity security of an issuer in an
Emerging Market is defined as common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity interests
in trusts and partnerships; and depositary receipts of an issuer: (i) the
principal securities trading market for which is in an Emerging Market; (ii)
which derives at least 50% of its revenues or earnings, either alone or on a
consolidated basis, from goods produced or sold, investments made or services
performed in an Emerging Market, or which has at least 50% of its total or net
assets situated in one or more Emerging Markets; or (iii) that is organized
under the laws of, and with a principal office in, an Emerging Market.
Determinations as to whether in issuer is an Emerging Markets issuer will be
made by the Fund's investment adviser based on publicly available information
and inquiries made to the issuers.
As used in this Prospectus, an Emerging Market is any country (i) which is
generally considered to be an emerging or developing country by the World Bank
and the International Finance Corporation (the 'IFC') or by the United Nations
Development Programme or (ii) which is included in the IFC Investable Index or
the Morgan Stanley Capital International Emerging Markets Index or (iii) which
as a gross national product ('GNP') per capita of $2,000 or less, in each case
at the time of the Fund's investment. Among the countries which Warburg, Pincus
Counsellors, Inc., the Fund's investment adviser ('Warburg'), currently
considers to be Emerging Markets are the following: Algeria, Angola, Antigua,
Argentina, Armenia, Azerbaijan, Bangladesh, Barbuda, Barbados, Belarus, Belize,
Bhutan, Bolivia, Botswana, Brazil, Bulgaria, Cambodia, Chile, People's Republic
of China, Republic of China (Taiwan), Colombia, Cyprus, Czech Republic,
Dominica, Ecuador, Egypt, Estonia, Georgia, Ghana, Greece, Grenada, Guyana, Hong
Kong, Hungary, India, Indonesia, Israel, Ivory Coast, Jamaica, Jordan,
Kazakhstan, Kenya, Republic of Korea (South Korea), Latvia, Lebanon, Lithuania,
Malawi, Malaysia, Mauritius, Mexico, Moldova, Mongolia, Montserrat, Morocco,
Mozambique, Myanmar (Burma), Namibia, Nepal, Nigeria, Pakistan, Panama, Papua
New Guinea, Paraguay, Peru, Philippines, Poland, Portugal, Romania, Russia,
Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, St. Kitts
and
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<PAGE>7
Nevis, St. Lucia, St. Vincent and the Grenadines, Swaziland, Tanzania, Thailand,
Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, Uruguay,
Uzbekistan, Venezuela, Vietnam, Yugoslavia, Zambia and Zimbabwe. Among the
countries that will not be considered Emerging Markets are: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan,
Luxembourg, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United
Kingdom and the United States.
The Fund may invest in securities of companies of any size, whether traded
on or off a national securities exchange. Fund holdings may include emerging
growth companies, which are small- or medium-sized companies that have passed
their start-up phase and that show positive earnings and prospects for achieving
profit and gain in a relatively short period of time.
In appropriate circumstances, such as when a direct investment by the Fund
in the securities of a particular country cannot be made or when the securities
of an investment company are more liquid than the underlying portfolio
securities, the Fund may, consistent with the provisions of the Investment
Company Act of 1940, as amended (the '1940 Act'), invest in the securities of
closed-end investment companies that invest in foreign securities. As a
shareholder in a closed-end investment company, the Fund will bear its ratable
share of the investment company'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.
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks long-term capital appreciation. The
Fund is a diversified management investment company that pursues its investment
objective by investing primarily in a broadly diversified portfolio of equity
securities of companies, wherever organized, that in Warburg's judgment have
their principal business activities and interests outside the United States. The
Fund will ordinarily invest substantially all of its assets -- but no less than
65% of its total assets -- in common stocks, warrants and securities convertible
into or exchangeable for common stocks. Ordinarily the Fund will hold no less
than 65% of its total assets in at least three countries other than the United
States. The Fund intends to be widely diversified across securities of many
corporations located in a number of foreign countries. Warburg anticipates,
however, that the Fund may from time to time invest a significant portion of its
assets in a single country such as Japan, which may involve special risks. See
'Risk Factors and Special Considerations -- Japanese Investments' below. In
appropriate circumstances, such as when a direct investment by the International
Equity Fund in the securities of a particular country cannot be made or when the
securities of an investment company are more liquid than the underlying
portfolio securities, the Fund may, consistent with the provisions of the 1940
Act, invest in the securities of closed-end investment companies that invest in
foreign securities.
The Fund intends to invest principally in the securities of financially
strong companies with opportunities for growth within growing international
economies and markets through increased earning power and improved utilization
or recognition of assets. Investment may be made in equity securities of
companies of any size, whether traded on or off a national securities exchange.
JAPAN GROWTH FUND
The Japan Growth Fund seeks long-term growth of capital. The Fund is a
non-diversified management investment company that pursues its objective by
investing primarily in equity securities of Japanese issuers that present
attractive opportunities for growth. Under current market conditions the Fund
intends to invest at
6
<PAGE>8
least 80% of its total assets -- but will invest no less than 65% of its assets
under normal market conditions -- in common and preferred stocks, warrants and
other rights, securities convertible into or exchangeable for common stocks and
American Depository Receipts ('ADRs') of Japanese issuers.
Warburg believes that Japanese industry is in the process of deregulation
and restructuring. The Fund is designed to provide an opportunity to participate
in the dynamic structural changes in the Japanese industrial system through
investment in higher growth companies that can be expected to benefit from these
changes. The Fund will seek to identify and invest in Japanese issuers that are
showing or are expected to show a rapid or high rate of growth, based on
comparisons with Japanese or non-Japanese companies in the same industry or
other considerations. The Fund will also invest in Japanese companies that
Warburg believes are undervalued based on price/earnings ratios, comparisons
with Japanese or non-Japanese companies or other factors.
Unlike the Warburg Pincus Japan OTC Fund, which invests primarily in
over-the-counter securities, the Fund may invest in companies of any size,
whether traded on an exchange or over-the-counter. Currently, there are eight
exchanges in Japan -- the Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka,
Niigata and Sapporo exchanges -- and two over-the-counter markets -- JASDAQ and
the Japanese Second Section OTC Market (the 'Frontier Market'). The Fund
considers Japanese issuers to be (i) companies (A) organized under the laws of
Japan, or (B) whose principal business activities are conducted in Japan and
which derive at least 50% of their revenues or profits from goods produced or
sold, investments made, or services performed in Japan, or have at least 50% of
their assets in one or more such countries, or (C) which have issued securities
which are traded principally in Japan, and (ii) Japanese governmental entities
or political subdivisions. Determinations as to the eligibility of issuers under
the foregoing definition will be made by Warburg based on publicly available
information and inquiries made to the companies. The portion of the Fund's
assets not invested in Japanese issuers may be invested in securities of other
Asian issuers. The Fund does not, except during temporary defensive periods,
intend to invest in securities of non-Asian issuers. From time to time, the Fund
may hedge part or all of its exposure to the Japanese yen, thereby reducing or
substantially eliminating any favorable or unfavorable impact of changes in the
value of the yen in relation to the U.S. dollar.
JAPAN OTC FUND
The Japan OTC Fund seeks long-term capital appreciation. The Fund is a
non-diversified management investment company that pursues its investment
objective by investing in a portfolio of securities traded in the Japanese
over-the-counter market. The Fund is designed to provide an opportunity to
participate in the dynamic structural changes in the Japanese industrial system
through investment in less-established, higher growth companies that can be
expected to benefit from these changes. At all times, except during temporary
defensive periods, the Fund will maintain at least 65% of its total assets in
securities of companies traded through JASDAQ, the primary Japanese over-the-
counter market, or the Frontier Market. The portion of the Fund's assets that is
not invested through JASDAQ or the Frontier Market may be invested in securities
of Japanese issuers that are not traded through JASDAQ or the Frontier Market or
exchange-traded and over-the-counter securities of issuers in other Asian
markets, in addition to the other instruments described below. The Fund may
invest up to 35% of its total assets in securities of other Asian issuers, with
no more than 10% invested in any one country. The Fund will not invest in
securities of non-Asian issuers, except that the Fund may, for defensive
purposes, invest in U.S. debt securities
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<PAGE>9
and money market obligations. The Fund intends its portfolio to consist
principally of equity securities (common stock, warrants and securities
convertible into common stock), which may include shares of closed-end
investment companies investing in Asia. The Japan OTC Fund may involve a greater
degree of risk than an investment in other mutual funds that seek capital
appreciation by investing in better-known, larger companies. From time to time,
the Japan OTC Fund may hedge part or all of its exposure to the Japanese yen,
thereby reducing or substantially eliminating any favorable or unfavorable
impact of changes in the value of the yen in relation to the U.S. dollar.
PORTFOLIO INVESTMENTS
DEBT. The International Equity Fund, the Japan Growth Fund and the Japan OTC
Fund may each invest up to 35% of its total assets in investment grade debt
securities (other than money market obligations) and, in the case of the
International Equity and Japan OTC Funds, preferred stocks that are not
convertible into common stock for the purpose of seeking capital appreciation.
The Emerging Markets Fund may invest up to 35% of its total assets in debt
securities (other than money market obligations) for the purpose of seeking
growth of capital. The interest income to be derived may be considered as one
factor in selecting debt securities for investment by Warburg. Because the
market value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt obligations may provide an
opportunity for capital appreciation when interest rates are expected to
decline. The success of such a strategy is dependent upon Warburg's ability to
accurately forecast changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ('Moody's') or Standard &
Poor's Ratings Group ('S&P') or, if unrated, is determined to be of comparable
quality by Warburg. Bonds rated in the fourth highest grade have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. Subsequent to its purchase by
a Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require sale of such securities, although Warburg will consider such event in
its determination of whether the Fund should continue to hold the securities.
The Japan Growth Fund does not currently intend during the coming year to hold
more than 5% of its net assets in securities rated below investment grade,
including convertible and non-convertible debt securities downgraded below
investment grade subsequent to acquisition by the Fund. The Japan OTC Fund does
not currently intend during the coming year to hold more than 5% of its net
assets in securities downgraded below investment grade subsequent to acquisition
by the Fund.
When Warburg believes that a defensive posture is warranted, each Fund
other than the Japan OTC Fund may invest temporarily without limit in U.S. and
foreign investment grade debt obligations, other securities of U.S. companies
and in domestic and foreign money market obligations, including repurchase
agreements. The Japan OTC Fund may, for temporary defensive purposes, invest
without limit in U.S. debt securities and money market obligations.
Emerging Markets Fund. The Fund may invest or hold up to 35% of its net
assets in fixed-income securities (including convertible bonds) rated below
investment grade (commonly referred to as 'junk bonds') and as low as C by
Moody's or D by S&P, or in unrated securities
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<PAGE>10
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.
Among the types of debt securities in which the Emerging Markets Fund may
invest are Brady Bonds, loan participations and assignments, asset-backed
securities and mortgage-backed securities:
Brady Bonds are collateralized or uncollateralized securities created
through the exchange of existing commercial bank loans to public and private
Latin American entities for new bonds in connection with certain debt
restructurings. Brady Bonds have been issued only recently and therefore do not
have a long payment history. However, in light of the history of commercial bank
loan defaults by Latin American public and private entities, investments in
Brady Bonds may be viewed as speculative.
Loan Participations and Assignments of fixed and floating rate loans
arranged through private negotiations between a foreign government as borrower
and one or more financial institutions as lenders will typically result in the
Fund having a contractual relationship only with the lender, in the case of a
participation, or the borrower, in the case of an assignment. The Fund may not
directly benefit from any collateral supporting a participation, and in the
event of the insolvency of a lender will be treated as a general creditor of the
lender. As a result, the Fund assumes the risk of both the borrower and the
lender of a participation. The Fund's rights and obligations as the purchaser of
an assignment may differ from, and be more limited than, those held by the
assigning lender. The lack of a liquid secondary market for both participations
and assignments will have an adverse impact on the value of such securities and
on the Fund's ability to dispose of participations or assignments.
Asset-backed securities are collateralized by interests in pools of
consumer loans, with interest and principal payments ultimately depending on
payments in respect of the underlying loans by individuals (or a financial
institution providing credit enhancement). Because market experience in these
securities is limited, the market's ability to sustain liquidity through all
phases of the market cycle had not been tested. In addition, there is no
assurance that the security interest in the collateral can be realized. The Fund
may purchase asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
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 mortgage-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. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) and medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings
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and loans and similar institutions) that are high quality investments or, if
unrated, deemed by Warburg to be high quality investments; commercial paper
rated no lower than A-2 by S&P or Prime-2 by Moody's or the equivalent from
another major rating service or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories; and
repurchase agreements with respect to the foregoing.
Repurchase Agreements. The Funds may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement, a
Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the 'governing Board' or 'Board'), monitors the
creditworthiness of those bank and non-bank dealers with which each Fund enters
into repurchase agreements to evaluate this risk. A repurchase agreement is
considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, each Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund, Warburg, the Funds'
co-administrator, PFPC Inc. ('PFPC'), or, in the case of the Japan OTC Fund, the
sub-investment adviser (each investment adviser and sub-investment adviser
referred to individually as an 'Adviser'). As a shareholder in any mutual fund,
a Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which a Fund may
invest include: direct obligations of the U.S. Treasury, and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which a Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for
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purchase by the Fund. Neither event will require sale of such securities,
although Warburg will consider such event in its determination of whether the
Fund should continue to hold the securities. The Japan Growth Fund does not
currently intend during the coming year to hold more than 5% of its net assets
in securities rated below investment grade, including convertible and
non-convertible debt securities downgraded below investment grade subsequent to
acquisition by the Fund. The Japan OTC Fund will invest only in convertible
securities rated investment grade at the time of purchase or deemed to be of
equivalent quality and does not currently intend during the coming year to hold
more than 5% of its net assets in the aggregate of investment grade convertible
securities and investment grade debt securities downgraded below investment
grade subsequent to acquisition by the Fund.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to each Fund's investments, see 'Portfolio
Investments' beginning at page 8 and 'Certain Investment Strategies' beginning
at page 15.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described below associated with investing in foreign securities generally. In
addition, because the Japan Growth Fund and the Japan OTC Fund invest primarily
in Japan and the International Equity Fund may from time to time have a large
position in Japanese securities, these Funds will be subject to general economic
and political conditions in Japan. The Japan Growth Fund and the Japan OTC Fund
should each be considered a vehicle for diversification, but the Funds
themselves are not diversified.
Securities in Japan are denominated and quoted in 'yen.' Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of each
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S. dollars. As a result, in the absence of a successful currency hedge, the
value of each Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by fluctuations in the value of Japanese yen relative
to the U.S. dollar.
A significant portion of the Japan OTC Fund's assets will be and assets of the
Japan Growth Fund may be invested in securities traded through JASDAQ. JASDAQ
traded securities can be volatile, which may result in a Fund's net asset value
fluctuating in response. Trading of equity securities through the JASDAQ market
is conducted by securities firms in Japan, primarily through an organization
which acts as a 'matching agent,' as opposed to a recognized stock exchange.
Consequently, securities traded through JASDAQ may, from time to time, and
especially in falling markets, become illiquid and experience short-term price
volatility and wide spreads between bid and offer prices. This combination of
limited liquidity and price volatility may have an adverse effect on the
investment performance of a Fund. In periods of rapid price increases, the
limited liquidity of JASDAQ restricts the Fund's ability to adjust its portfolio
quickly in order to take full advantage of a significant market increase, and
conversely, during periods of rapid price declines, it restricts the ability of
the Fund to dispose of securities quickly in order to realize gains previously
made or to limit losses on securities held in its portfolio. In addition,
although JASDAQ has generally experienced sustained growth in aggregate market
capitalization and trading volume, there have been periods in which aggregate
market capitalization and trading volume have declined. The Frontier Market is
expected to
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present greater liquidity, volatility and trading considerations than JASDAQ.
At December 31, 1994, 581 issues were traded through JASDAQ, having an aggregate
market capitalization in excess of 14 trillion yen (approximately $136 billion
as of December 28, 1995). The entry requirements for JASDAQ generally require a
minimum of 2 million shares outstanding at the time of registration, a minimum
of 200 shareholders, minimum pre-tax profits of 10 yen (approximately $.10 as of
December 28, 1995) per share over the prior fiscal year and net worth of 200
million yen (approximately $1.95 million as of December 28, 1995). JASDAQ has
generally attracted small growth companies or companies whose major shareholders
wish to sell only a small portion of the company's equity.
The Frontier Market is a recently developed second over-the-counter market and
is under the jurisdiction of JASDAQ, which is overseen by the Japanese
Securities and Exchange Commission. The Frontier Market has less stringent entry
requirements than those described above for JASDAQ and is designed to enable
early stage companies access to capital markets. Frontier Market companies need
not have a history of earnings, provided their spending on research and
development equals at least 3% of revenues. In addition, companies traded
through the Frontier Market are not required to have 2 million shares
outstanding at the time of registration. As a result, investments in companies
traded through the Frontier Market may involve a greater degree of risk than
investments in companies traded through JASDAQ. As of the date of this
Prospectus, there were not yet any registrations on the Frontier Market.
The decline in the Japanese securities markets since 1989 has contributed to a
weakness in the Japanese economy, and the impact of a further decline cannot be
ascertained. The common stocks of many Japanese companies continue to trade at
high price-earnings ratios in comparison with those in the United States, even
after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms on the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the Funds
investing there. For additional information see 'Japan and its Securities
Markets' beginning at page 29 of the Statement of Additional Information for
each of the Japan Growth and Japan OTC Funds and 'Investment
Policies -- Japanese Investments' beginning at page 12 of the Statement of
Additional Information for the International Equity Fund.
EMERGING MARKETS. The Funds may invest in securities of issuers located in less
developed countries considered to be 'emerging markets.' Investing in securities
of issuers located in emerging markets involves not only the risks described
below, with respect to investing in
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<PAGE>14
foreign securities, but also other risks, including exposure to economic
structures that are generally less diverse and mature than, and to political
systems that can be expected to have less stability than, those of developed
countries. Other characteristics of emerging markets that may affect investment
there include certain national policies that may restrict investment by
foreigners in issuers or industries deemed sensitive to relevant national
interests and the absence of developed legal structures governing private and
foreign investments and private property. The typically small size of the
markets for securities of issuers located in emerging markets and the
possibility of a low or nonexistent volume of trading in those securities may
also result in a lack of liquidity and in price volatility of those securities.
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of emerging growth
and small-sized companies, which may include JASDAQ and Frontier Market
securities, may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. Because small- and medium-sized
companies normally have fewer shares outstanding than larger companies, it may
be more difficult for a Fund to buy or sell significant amounts of such shares
without an unfavorable impact on prevailing prices. In addition, small- and
medium-sized companies are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning small- and
medium-sized companies than for larger, more established ones. Securities of
issuers in 'special situations' also may be more volatile, since the market
value of these securities may decline in value if the anticipated benefits do
not materialize. Companies in 'special situations' include, but are not limited
to, companies involved in an acquisition or consolidation; reorganization;
recapitalization; merger, liquidation or distribution of cash, securities or
other assets; a tender or exchange offer, a breakup or workout of a holding
company; or litigation which, if resolved favorably, would improve the value of
the companies' securities. Although investing in securities of emerging growth
companies or 'special situations' offers potential for above-average returns if
the companies are successful, the risk exists that the companies will not
succeed and the prices of the companies' shares could significantly decline in
value. Therefore, an investment in the Emerging Markets Fund, the Japan Growth
Fund or the Japan OTC Fund may involve a greater degree of risk than an
investment in other mutual funds that seek capital appreciation by investing in
better-known, larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 Act ('Rule 144A Securities'). An
investment in Rule 144A Securities will be considered illiquid and therefore
subject to each Fund's limitation on the purchase of illiquid securities, unless
(except for the Japan OTC Fund) the Fund's governing Board determines on an
ongoing basis that an adequate trading market exists for the security. In
addition to an adequate trading market, the Board will also consider factors
such as trading activity, availability of reliable price information and other
relevant information in determining whether a Rule 144A Security is liquid. This
investment practice could have the effect of increasing the level of illiquidity
in the 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 an Adviser the daily function of
determining and monitoring the liquidity of Rule 144A Securities, although each
Board will retain ultimate responsibility for
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any determination regarding liquidity. In the case of the Japan OTC Fund, all
Rule 144A Securities will be limited to 10% of the Fund's net assets, included
within the Fund's limit on illiquid securities.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
a Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. A Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Emerging Markets Fund, the Japan Growth Fund and the
Japan OTC Fund are classified as non-diversified investment companies under the
1940 Act, which means that each Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. Each Fund will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the 'Code'), for
qualification as a regulated investment company. As a non-diversified investment
company, each Fund may invest a greater proportion of its assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that a Fund
assumes large positions in the securities of a small number of issuers, its
return may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
LOWER-RATED SECURITIES. Lower-rated 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 organizations, 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, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
The market value of securities in lower rating categories is more volatile
than that of higher quality 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 impace 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.
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
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whenever an Adviser believes it to be in the best interests of the relevant
Fund. A Fund will not consider portfolio turnover rate a limiting factor in
making investment decisions consistent with its investment objective and
policies. It is not possible to predict the Japan Growth Fund's portfolio
turnover rate. However, it is anticipated that the Fund's annual turnover rate
should not exceed 100%. High portfolio turnover rates (100% or more) may result
in dealer mark ups or underwriting commissions as well as other transaction
costs, including correspondingly higher brokerage commissions. In addition,
short-term gains realized from portfolio turnover may be taxable to shareholders
as ordinary income. See 'Dividends, Distributions and Taxes -- Taxes' below and
'Investment Policies -- Portfolio Transactions' in each Fund's Statement of
Additional Information.
All orders for transactions in securities or options on behalf of a Fund
are placed by an Adviser 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
Although there is no intention of doing so during the coming year, each
Fund is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed delivery, (ii) lending portfolio securities and (iii)
except for the International Equity Fund, entering into reverse repurchase
agreements and dollar rolls. The Japan Growth Fund and the Japan OTC Fund may
each invest up to 5% of its net assets in each of mortgage-backed securities and
asset-backed securities. The Emerging Markets, Japan Growth and Japan OTC Funds
may also invest in zero coupon securities, although each Fund currently
anticipates that during the coming year zero coupon securities will not exceed
5% of net assets. The Emerging Markets Fund may invest in stand-by commitments,
although the Fund currently anticipates that during the coming year stand-by
commitments will not exceed 5% of net assets. Detailed information concerning
each Fund's strategies and related risks is contained below and in the Fund's
Statement of Additional Information.
STRATEGIES AVAILABLE TO ALL FUNDS
FOREIGN SECURITIES. Each Fund will ordinarily hold no less than 65% of its total
assets in foreign securities. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Funds,
including the withhold-
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<PAGE>17
ing of dividends. Foreign securities may be subject to foreign government
taxes that would reduce the net yield on such securities. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Investment in foreign securities will also result in higher operating expenses
due to the cost of converting foreign currency into U.S. dollars, the payment of
fixed brokerage commissions on foreign exchanges, which generally are higher
than commissions on U.S. exchanges, higher valuation and communications costs
and the expense of maintaining securities with foreign custodians. The risks
associated with investing in securities of non-U.S. issuers are generally
hightened for investments in securities of issuers in emerging markets.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of the Advisers,
each Fund may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of the Fund's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE A FUND'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect a Fund's net asset value and performance. Therefore, an
investment in a Fund may involve a greater risk than an investment in other
mutual funds that do not utilize these strategies. The Funds' use of these
strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the NASD and by the Code.
Securities and Stock Index Options. The International Equity, Japan Growth
and Japan OTC Funds may each write covered call options, and the Japan Growth
and Japan OTC Funds may write put options, on up to 25% of the net asset value
of the stock and debt securities in its portfolio and will realize fees
(referred to as 'premiums') for granting the rights evidenced by the options.
Each Fund may also utilize up to 10% of its assets to purchase options on stocks
and debt securities that are traded on U.S. and foreign exchanges, as well as
over-the-counter ('OTC') options. The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option has the right to purchase the underlying
security from the writer. In addition to purchasing and writing options on
securities, each Fund may also utilize up to 10% of its total assets (15% in the
case of the Emerging Markets Fund) to purchase exchange-listed and OTC put and
call options on stock indexes, and may also write such options. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its invest ments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. Each Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are
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traded on an exchange designated by the Commodity Futures Trading Commission
(the 'CFTC') or, if consistent with CFTC regulations, on foreign exchanges.
These futures contracts are standardized contracts for the future delivery of
foreign currency or an interest rate sensitive security or, in the case of stock
index and certain other futures contracts, are settled in cash with reference to
a specified multiplier times the change in the specified index, exchange rate or
interest rate. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Funds are limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Funds will conduct their currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) in the case
of the Emerging Markets, Japan Growth and Japan OTC Funds, by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events. The International Equity Fund may
only enter into forward currency contracts for hedging purposes.
Hedging Considerations. The Funds may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. A Fund will engage in hedging transactions only when deemed advisable by
an Adviser, and successful use of hedging transactions will depend on the
Adviser's ability to correctly predict movements in the hedge and the hedged
position and the correlation between them, which could prove to be inaccurate.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or trends.
Additional Considerations. To the extent that a Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect
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to options written by the Fund on securities and indexes; currency, interest
rate and stock index futures contracts and options on these futures contracts;
and forward currency contracts. The use of these strategies may require that the
Fund maintain cash or certain liquid high-grade debt obligations or other assets
that are acceptable as collateral to the appropriate regulatory authority in a
segregated account with its custodian or a designated sub-custodian to the
extent the Fund's obligations with respect to these strategies are not otherwise
'covered' through ownership of the underlying security, financial instrument or
currency or by other portfolio positions or by other means consistent with
applicable regulatory policies. Segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
STRATEGY AVAILABLE TO THE EMERGING MARKETS FUND AND THE JAPAN GROWTH FUND
SHORT SALES AGAINST THE BOX. Each Fund may enter into a short sale of securities
such that when the short position is open the Fund owns an equal amount of the
securities sold short or owns preferred stocks or debt securities, convertible
or exchangeable without payment of further consideration, into an equal number
of securities sold short. This kind of short sale, which is referred to as one
'against the box,' will be entered into by a Fund for the purpose of receiving a
portion of the interest earned by the executing broker from the proceeds of the
sale. The proceeds of the sale will generally be held by the broker until the
settlement date when the Fund delivers securities to close out its short
position. Although prior to delivery the Fund will have to pay an amount equal
to any dividends paid on the securities sold short, the Fund will receive the
dividends from the securities sold short or the dividends from the preferred
stock or interest from the debt securities convertible or exchangeable into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Fund will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities in connection with short
sales against the box. The Fund will endeavor to offset transaction costs
associated with short sales against the box with the income from the investment
of the cash proceeds. Not more than 10% of a Fund's net assets (taken at current
value) may be held as collateral for short sales against the box at any one
time.
The extent to which the Funds may make short sales may be limited by Code
requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
INVESTMENT GUIDELINES
The Emerging Markets Fund and the Japan OTC Fund may each invest up to 15%
of its net assets; the International Equity Fund may invest up to 10% of its
total assets; and the Japan Growth Fund may invest up to 10% of its net assets,
in securities with contractual or other restrictions on resale and other
instruments that are not readily marketable ('illiquid securities'), including
(i) securities issued as part of a privately negotiated transaction between an
issuer and one or more purchasers; (ii) repurchase agreements with maturities
greater than seven days; (iii) time deposits maturing in more than seven
calendar days; and (iv) certain Rule 144A Securities. In addition, up to 5% of
each Fund's total assets may be invested in the securities of issuers which have
been in continuous operation for less than three years, and up to an additional
5% of its assets may be invested in warrants. Each Fund may borrow from banks
for temporary or emergency purposes, such as meet-
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<PAGE>20
ing anticipated redemption requests, provided that reverse repurchase agreements
and any other borrowing by the Fund may not exceed 30% of total assets, and may
pledge its assets to the extent necessary to secure permitted borrowings (up to
10% of its assets in the case of the International Equity Fund). Whenever
borrowings (including reverse repurchase agreements) exceed 5% of a Fund's
assets, the Fund will not make any investments (including roll-overs). Except
for the limitations on borrowing, the investment guidelines set forth in this
paragraph may be changed at any time without shareholder consent by vote of the
governing Board of each Fund, subject to the limitations contained in the 1940
Act. A complete list of investment restrictions that each Fund has adopted
identifying additional restrictions that cannot be changed without the approval
of the majority of the Fund's outstanding shares is contained in each Fund's
Statement of Additional Information.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISERS. Each Fund employs Warburg as investment adviser to the
Fund. The Japan OTC Fund employs SPARX Investment & Research, USA, Inc. ('SPARX
USA') as its sub-investment adviser. With respect to each Fund other than the
Japan OTC Fund, 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. With respect to the Japan OTC
Fund, Warburg has general oversight for the day-to-day management of the Fund,
manages the Fund's U.S. investments and investments in debt securities,
determines the country allocation and industry allocation of Fund assets,
monitors Fund expenses and evaluates the services provided by the sub-investment
adviser to the Fund. Warburg also employs a support staff of management
personnel to provide services to the Funds and furnishes each Fund with office
space, furnishings and equipment. SPARX USA, in accordance with the investment
objective and policies of the Japan OTC Fund and under the supervision of
Warburg and the Fund's governing Board, makes investment decisions for the Fund
involving Japanese and other Asian equity securities, places orders to buy and
sell such securities on behalf of the Fund and provides research to the Fund
relating to Japanese and other Asian companies and securities markets.
For the services provided by Warburg, the Emerging Markets Fund, the Japan
Growth Fund and the Japan OTC Fund each pay Warburg a fee calculated at an
annual rate of 1.25% of the Fund's average daily net assets, and the
International Equity Fund pays Warburg an advisory fee calculated at an annual
rate of 1.00% of the Fund's average daily net assets. Warburg pays SPARX USA a
fee of .625% out of Warburg's advisory fee. The advisory agreement between each
Fund and Warburg provides that Warburg will reimburse the Fund to the extent
certain expenses that are described in the Statement of Additional Information
exceed applicable state expense limitations. Warburg, SPARX USA and each Fund's
co-administrators may voluntarily waive a portion of their fees from time to
time and temporarily limit the expenses to be paid by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of November 30,
1995, Warburg managed approximately $11.9 billion of assets, including
approximately $6.2 billion of assets of twenty-three investment companies or
portfolios. Incorporated in 1970, Warburg is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Warburg through
its ownership of a class of voting preferred stock of
19
<PAGE>21
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
SPARX USA, a Delaware corporation, is a wholly owned subsidiary of SPARX.
SPARX USA, which has not previously acted as adviser to a U.S. investment
company, is registered as an investment adviser under the U.S. Investment
Advisers Act of 1940. SPARX is an independent investment advisory company, which
is owned by Shuhei Abe. The predecessor of SPARX was incorporated in Tokyo in
July 1988 and was registered as an investment adviser under the Investment
Advisory Act of 1986 of Japan. SPARX has no business other than providing
investment advisory services, and as of November 30, 1995 had approximately $764
million in assets under management. SPARX USA's address is 413 Seaside Avenue,
Honolulu, Hawaii 96815.
PORTFOLIO MANAGERS. Emerging Markets Fund. Richard H. King and Nicholas P.W.
Horsley are co-portfolio managers of the Fund, and Harold W. Ehrlich and Vincent
J. McBride are associate portfolio managers and research analysts.
International Equity Fund. Richard H. King is portfolio manager of the
Fund, and Nicholas P.W. Horsley, P. Nicholas Edwards, Harold W. Ehrlich and
Vincent J. McBride are associate portfolio managers and research analysts.
Japan Growth Fund. P. Nicholas Edwards is portfolio manager of the Fund.
Japan OTC Fund. Richard H. King, Nicholas P.W. Horsley and Shuhei Abe are
co-portfolio managers of the Fund, and Toshikatsu Kimura is an associate
portfolio manager.
Mr. King, a managing director of EMW since 1989, has been a portfolio
manager of each Fund other than the Japan Growth Fund since its inception. From
1984 until 1988 he was chief investment officer and a director at Fiduciary
Trust Company International S.A. in London, with responsibility for all
international equity management and investment strategy. From 1982 to 1984 he
was a director in charge of Far East equity investments at N.M. Rothschild
International Asset Management, a London merchant bank.
Mr. Edwards has been with Warburg since August 1995, before which time he
was a director at Jardine Fleming Investment Advisers, Tokyo. He was a vice
president of Robert Fleming Inc. in New York City from 1988 to 1991. Mr. Horsley
has been a co-portfolio manager of the Emerging Markets and Japan OTC Funds
since their inception. Mr. Horsley is a senior vice president of Warburg and has
been with Warburg since 1993, before which time he was a director, portfolio
manager and analyst at Barclays deZoete Wedd in New York City. Mr. Ehrlich is a
senior vice president of Warburg and has been with Warburg and the Funds since
February 1995, before which time he was a senior vice president, portfolio
manager and analyst at Templeton Investment Counsel Inc. Mr. McBride has been
with Warburg and the Funds since 1994. Prior to joining Warburg, Mr. McBride was
an international equity analyst at Smith Barney Inc. from 1993 to 1994 and at
General Electric Investment Corporation from 1992 to 1993. From 1989 to 1992 he
was a portfolio manager/analyst at United Jersey Bank.
Shuhei Abe of SPARX USA, a co-portfolio manager of the Japan OTC Fund since
its inception, is the founder and president of SPARX Asset Management Company
Ltd. ('SPARX'), the parent company of SPARX USA. Prior to founding SPARX in 1989
(by assuming control of a predecessor company), Mr. Abe worked for Soros Fund
Management and Credit Suisse Trust Bank as an independent adviser. Toshikatsu
Kimura has been an associate portfolio manager of the Japan OTC Fund since its
inception. Mr. Kimura has been a portfolio manager and analyst at SPARX since
1992, before which time he was a warrant trader and portfolio manager,
respectively, at Sanyo Securities and Sanyo Investment Management from
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<PAGE>22
1986 to 1990, and at Funai Capital from 1990 to 1992.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in other regulatory filings
as necessary and monitoring and developing compliance procedures for the Funds.
As compensation, each Fund pays Counsellors Service a fee calculated at an
annual rate of .10% of the Fund's average daily net assets.
Each Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation the Funds each pay
PFPC a fee calculated at an annual rate of .12% of each Fund's first $250
million in average daily net assets, .10% of the next $250 million in average
daily net assets, .08% of the next $250 million in average daily net assets, and
.05% of average daily net assets over $750 million, 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. State Street Bank and Trust Company ('State Street') serves as
custodian of the Emerging Markets Fund's and the Japan OTC Fund's assets.
Fiduciary Trust Company International ('Fiduciary') serves as custodian of the
International Equity Fund's assets. PNC Bank, National Association ('PNC'),
serves as custodian of the Japan Growth Fund's U.S. assets, and Fiduciary serves
as custodian of the Fund's non-U.S. assets. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110. Fiduciary's
principal business address is Two World Trade Center, New York, New York 10048.
Like PFPC, PNC is a subsidiary of PNC Bank Corp. and its principal business
address is Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Funds. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ('BFDS'),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Funds. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. Counsellors
Securities receives a fee at an annual rate equal to .25% of the average daily
net assets of each of the Emerging Markets, Japan Growth and Japan OTC Fund's
Common Shares for distribution services, pursuant to a shareholder servicing and
distribution plan (the '12b-1 Plan') adopted by each Fund pursuant to Rule 12b-1
under the 1940 Act. Amounts paid to Counsellors Securities under a 12b-1 Plan
may be used by Counsellors Securities to cover expenses that are primarily
intended to result in, or that are primarily attributable to, (i) the sale of
the Common Shares, (ii) ongoing servicing and/or maintenance of the accounts of
Common Shareholders of the Fund and (iii) sub-transfer agency services,
subaccounting services or administrative services related to the sale of the
Common Shares, all as set forth in the 12b-1 Plans. Payments under the 12b-1
Plans are not tied exclusively to the distribution expenses actually incurred by
Counsellors Securities and the pay-
21
<PAGE>23
ments may exceed distribution expenses actually incurred. The Boards of the
Emerging Markets Fund, the Japan Growth Fund and the Japan OTC Fund evaluate the
appropriateness of the 12b-1 Plans on a continuing basis and in doing so
consider all relevant factors, including expenses borne by Counsellors
Securities and amounts received under the 12b-1 Plans. No compensation is
payable by the International Equity Fund to Counsellors Securities for
distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Funds, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS 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 and
officers of each Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information of each Fund.
HOW TO OPEN AN ACCOUNT
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 927-2874. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg
Pincus Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information (i) about investing in the
Funds through a tax-deferred retirement plan, such as an Individual Retirement
Account ('IRA') or a Simplified Employee Pension IRA ('SEP-IRA'), or (ii) about
opening a Uniform Gifts to Minors Act or Uniform Transfers to Minors Act
('UGMA') account, an investor should telephone Warburg Pincus Funds at (800)
888-6878 or write to Warburg Pincus Funds at the address set forth above.
Investors should consult their own tax advisers about the establishment of
retirement plans and UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 888-6878.
HOW TO PURCHASE SHARES
Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire.
BY MAIL. If the investor desires to purchase
Common Shares by mail, a check or money order made payable to the Fund or
Warburg Pincus Funds (in U.S. currency) should be sent along with the completed
account application to Warburg Pincus Funds through its distributor, Counsellors
Securities Inc., at the address set forth above. Checks payable to the investor
and endorsed to the order of the Fund or Warburg Pincus Funds will not be
accepted as payment and will be returned to the sender. If payment is received
in proper form by the close of regular trading on the New York Stock Exchange
(the 'NYSE') (currently 4:00 p.m., Eastern time) on a day that the Fund
calculates its net asset value (a 'business day'), the purchase will be made at
the Fund's net asset value calculated at the end of that day. If payment is
received after the close of regular trading on the NYSE, the purchase will be
effected at the Fund's net asset value determined for the next business day
after payment has been received. Checks or money orders that are not in proper
form or that are not
22
<PAGE>24
accompanied or preceded by a complete account application will be returned to
the sender. Shares purchased by check or money order are entitled to receive
dividends and distributions beginning on the day after payment has been
received. Checks or money orders in payment for shares of more than one Warburg
Pincus Fund should be made payable to Warburg Pincus Funds and should be
accompanied by a breakdown of amounts to be invested in each fund. If a check
used for purchase does not clear, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred. For a description of the
manner of calculating the Fund's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase Common Shares in a Fund by wiring funds
from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 888-6878. Federal funds may be wired to
Counsellors Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Insert Warburg Pincus Fund name(s) here]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received by the close of regular trading on the
NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the Fund on that day and are entitled to
dividends and distributions beginning on that day. If payment by wire is
received in proper form by the close of the NYSE without a prior telephone
order, the purchase will be priced according to the net asset value of the Fund
on that day and is entitled to dividends and distributions beginning on that
day. However, if a wire in proper form that is not preceded by a telephone order
is received after the close of regular trading on the NYSE, the payment will be
held uninvested until the order is effected at the close of business on the next
business day. Payment for orders that are not accepted will be returned to the
prospective investor after prompt inquiry. If a telephone order is placed and
payment by wire is not received on the same day, the Fund will cancel the
purchase and the investor may be liable for losses or fees incurred.
The minimum initial investment in each Fund is $2,500 and the minimum
subsequent investment is $100, except that subsequent minimum investments can be
as low as $50 under the Automatic Monthly Investment Plan described in the next
section. For retirement plans and UGMA accounts, the minimum initial investment
is $500. The Fund reserves the right to change the initial and subsequent
investment minimum requirements at any time. In addition, the Fund may, in its
sole discretion, waive the initial and subsequent investment minimum
requirements with respect to investors who are employees of EMW or its
affiliates or persons with whom Warburg has entered into an investment advisory
agreement. Existing investors will be given 15 days' notice by mail of any
increase in investment minimum requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Funds
are not normally issued.
PURCHASES THROUGH INTERMEDIARIES. The Funds understand that some broker-dealers
(other than Counsellors Securities), financial institutions,
23
<PAGE>25
securities dealers and other industry professionals, including certain of the
programs discussed below, may impose certain conditions on their clients or
customers that invest in the Funds, which are in addition to or different than
those described in this Prospectus, and may charge their clients or customers
direct fees. Certain features of the Funds, such as the initial and subsequent
investment minimums, redemption fees and certain trading restrictions, may be
modified or waived in these programs, and administrative charges may be imposed
for the services rendered. Therefore, a client or customer should contact the
organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his accounts with the organization.
These organizations will be responsible for promptly transmitting client or
customer purchase and redemption orders to the Funds in accordance with their
agreements with clients or customers.
Common Shares of each Fund are available through the Charles Schwab &
Company, Inc. Mutual Fund OneSource'TM' Program; Fidelity Brokerage Services,
Inc. Funds-Network'TM' Program; Jack White & Company, Inc.; and Waterhouse
Securities, Inc. The availability of the Japan OTC Fund through these brokerage
firms may vary. Generally, these programs do not require customers to pay a
transaction fee in connection with purchases. These and other organizations that
have entered into agreements with a Fund or its agent may enter confirmed
purchase orders on behalf of clients and customers, with payment to follow no
later than the Funds' pricing on the following business day. If payment is not
received by such time, the organization could be held liable for resulting fees
or losses.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders to
authorize a Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account applications and include a voided, unsigned check from the bank
account to be debited. Only an account maintained at a domestic financial
institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information, or
contact Warburg Pincus Funds at (800) 888-6878 for information or to modify or
terminate the program. Investors should allow a period of up to 30 days in order
to implement an automatic investment program. The failure to provide complete
information could result in further delays.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on any
day that the Fund's net asset value is calculated (see 'Net Asset Value' below).
Proceeds from the redemption of shares of the Japan OTC Fund will be reduced by
the amount of any applicable redemption fee (see below).
Common Shares of the Funds may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an investor desires to redeem
his shares by mail, a written request for redemption should be sent to Warburg
Pincus Funds at the address indicated above under 'How to Open an Account.' An
investor should be sure that the redemption request identifies the Fund, the
number of shares to be redeemed and the investor's account number. In order to
change
24
<PAGE>26
the bank account or address designated to receive the redemption proceeds, the
investor must send a written request (with signature guarantee of all investors
listed on the account when such a change is made in conjunction with a
redemption request) to Warburg Pincus Funds. Each mail redemption request must
be signed by the registered owner(s) (or his legal representative(s)) exactly as
the shares are registered. If an investor has applied for the telephone
redemption feature on his account application, he may redeem his shares by
calling Warburg Pincus Funds at (800) 888-6878 between 9:00 a.m. and 4:00 p.m.
(Eastern time) on any business day. An investor making a telephone withdrawal
should state (i) the name of the Fund, (ii) the account number of the Fund,
(iii) the name of the investor(s) appearing on the Fund's records, (iv) the
amount to be withdrawn and (v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although each Fund will
redeem shares purchased by check before the check clears, payments of the
redemption proceeds will be delayed until such check has cleared, which may take
up to 15 days from the purchase date. Investors should consider purchasing
shares using a certified or bank check or money order if they anticipate an
immediate need for redemption proceeds.
If a redemption order is received prior to the close of regular trading on
the NYSE, the redemption order will be effected at the net asset value per share
as determined on that day. If a redemption order is received after the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value as next determined. Except as noted above, redemption proceeds will
normally be mailed or wired to an investor on the next business day following
the date a redemption order is effected. If, however, in the judgment of
Warburg, immediate payment would adversely affect a Fund, each Fund reserves the
right to pay the redemption proceeds within seven days after the redemption
order is effected. Furthermore, each Fund may suspend the right of redemption or
postpone the date of payment upon redemption (as well as suspend or postpone the
recordation of an exchange of shares) for such periods as are permitted under
the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less
than $2,000 ($250 in the case of a retirement plan or UGMA account), each Fund
reserves the right to redeem the shares in that account at net asset value.
Prior to any redemption, the Fund will notify an investor in writing that this
account has a value of less than the minimum. The investor will then have 60
days to make an additional investment before a redemption will be processed by
the Fund.
The Japan OTC Fund imposes a redemption charge on any redemption of shares
(which includes an exchange of shares of the Japan OTC Fund into another Warburg
Pincus Fund) made within six months from the date of purchase. The
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<PAGE>27
charge, which is deducted from the redemption proceeds and retained by the Fund,
is equal to 1.00% of the current value of shares redeemed that were held for
less than six months, including any appreciation in value of the redeemed
shares. If shares being redeemed were not all held for the same length of time,
those shares held longest will be redeemed first for purposes of determining
whether the charge applies. The redemption charge will not be imposed on
redemptions (or exchanges) of shares acquired through the reinvestment of
dividends, and these shares will be redeemed before any shares to which the
redemption charge applies. The redemption fee is currently being waived until
such later date as the Fund may determine.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone, investors
must have completed and returned to Warburg Pincus Funds an account application
containing a telephone election. Unless contrary instructions are elected, an
investor will be entitled to make exchanges by telephone. Neither a Fund nor its
agents will be liable for following instructions communicated by telephone that
it reasonably believes to be genuine. Reasonable procedures will be employed on
behalf of each Fund to confirm that instructions communicated by telephone are
genuine. Such procedures include providing written confirmation of telephone
transactions, tape recording telephone instructions and requiring specific
personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
888-6878.
EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for Common
Shares of another Fund or for Common Shares of another Warburg Pincus Fund at
their respective net asset values. Exchanges may be effected by mail or by
telephone in the manner described under 'Redemption of Shares' above. If an
exchange request is received by Warburg Pincus Funds prior to 4:00 p.m. (Eastern
time), the exchange will be made at each fund's net asset value determined at
the end of that business day. Exchanges may be effected without a sales charge
but must satisfy the minimum dollar amount necessary for new purchases and may,
in the case of exchanges from the Japan OTC Fund, be subject to a redemption
fee. Due to the costs involved in effecting exchanges, each Fund reserves the
right to refuse to honor more than three exchange requests by a shareholder in
any 30-day period. The exchange privilege may be modified or terminated at any
time upon 60 days' notice to shareholders. Currently, exchanges may be made
among the Funds and with the following other funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing
in short-term, high quality municipal obligations designed for New York
investors seeking income exempt from federal, New York State and New York
City income tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an
intermediate-term municipal bond fund designed for New York investors
seeking income exempt from federal, New York State and New York City
income tax;
WARBURG PINCUS TAX FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of capital;
26
<PAGE>28
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an
intermediate-term bond fund investing in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income
and, secondarily, capital appreciation by investing in a diversified
portfolio of fixed-income securities;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed-income securities of
governmental and corporate issuers denominated in various currencies,
including U.S. dollars;
WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return
through a combination of long-term growth of capital and current income
consistent with preservation of capital through diversified investments in
equity and debt securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term
growth of capital and income and a reasonable current return;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking
long-term capital appreciation by investing principally in equity
securities of medium-sized domestic companies;
WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking
long-term capital appreciation by investing primarily in equity securities
of small companies;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum
capital appreciation by investing in emerging growth companies; and
WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing principally in equity securities
of issuers in their post-venture capital stage of development.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. Each Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs a
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Common Shares of the relevant Fund at
net asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Funds at the
address set forth under 'How to Open an Account' or by calling Warburg Pincus
Funds at (800) 888-6878.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identifica-
27
<PAGE>29
tion number or to make required certifications, or who have been notified by the
U.S. Internal Revenue Service that they are subject to backup withholding.
TAXES. Each Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be a long-term capital gain or loss if he
has held his shares for more than one year and will be a short-term capital gain
or loss if he has held his shares for one year or less. However, any loss
realized upon the sale or redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
any amounts treated as distributions of long-term capital gain during such
six-month period with respect to such shares. Investors may be proportionately
liable for taxes on income and gains of the Funds, but investors not subject to
tax on their income will not be required to pay tax on amounts distributed to
them. The Fund's investment activities, including short sales of securities,
will not result in unrelated business taxable income to a tax-exempt investor. A
Fund's dividends, to the extent not derived from dividends attributable to
certain types of stock issued by U.S. domestic corporations, will not qualify
for the dividends received deduction for corporations.
Dividends and interest received by the Funds 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 a
Fund qualifies as a regulated investment company, if certain asset and
distribution requirements are satisfied and if more than 50% of the Fund's total
assets at the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. A Fund may qualify for and
make this election in some, but not necessarily all, of its taxable years. If a
Fund were to make an election, shareholders of the Fund would be required to
take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income 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 income 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 Emerging Markets Fund and the Japan
Growth Fund. Certain provisions of the Code may require that a gain recognized
by a Fund upon the closing of a short sale be treated as a short-term capital
gain, and that a loss recognized by the Fund upon the closing of a short sale be
treated as a long-term capital loss, regardless of the amount of time that the
Fund held the securities used to
28
<PAGE>30
close the short sale. A Fund's use of short sales may also affect the holding
periods of certain securities held by the Fund if such securities are
'substantially identical' to securities used by the Fund to close the short
sale. The Funds' short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
Special Tax Matters Relating to the Japan Growth Fund and the Japan OTC
Fund. In the opinion of Japanese counsel for the Funds, the operations of the
Funds will not subject a Fund to any Japanese income, capital gains or other
taxes except for withholding taxes on interest and dividends paid to the Fund by
Japanese corporations and securities transaction taxes payable in the event of
sales of portfolio securities in Japan. In the opinion of such counsel, under
the tax convention between the United States and Japan (the 'Convention') as
currently in force, a Japanese withholding tax at a rate of 15% is, with certain
exceptions, imposed upon dividends paid by Japanese corporations to the Fund.
Pursuant to the present terms of the Convention, interest received by a Fund
from sources within Japan is subject to a Japanese withholding tax at a rate of
10%.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of a Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
NET ASSET VALUE
Each Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of each Fund generally changes each day.
The net asset value per Common Share of each Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Common Shares and then dividing the result by the
total number of outstanding Common Shares.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
PERFORMANCE
The Funds quote the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, each Fund may advertise the average annual total return of its Common
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Common Shares
29
<PAGE>31
from the beginning of the measuring period to the end of the measuring period.
The figures reflect changes in the price of the Common Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Common Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that each Fund seeks long-term appreciation and
that such return may not be representative of any Fund's return over a longer
market cycle. Each Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. Each Fund's
Statement of Additional Information describes the method used to determine the
total return. Current total return figures may be obtained by calling Warburg
Pincus Funds at (800) 927-2874.
In reports or other communications to investors or in advertising material,
a Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) in the case of the Emerging Markets Fund,
with the IFC Emerging Market Free Index, the IFC Investible Index or the Morgan
Stanley Capital International Emerging Markets Index; in the case of the
International Equity Fund, the Morgan Stanley Capital International Europe,
Australia and Far East ('EAFE') Index, the Salomon Russell Global Equity Index,
the FT-Actuaries World Indices (jointly compiled by The Financial Times, Ltd.,
Goldman, Sachs & Co. and NatWest Securities Ltd.) and the S&P 500 Index; and in
the case of the Japan Growth Fund and the Japan OTC Fund, the indexes noted
above for the International Equity Fund, as well as the Nikkei over-the-counter
average, the JASDAQ Index, the Nikkei 225 and 300 Stock Indexes and the Topix
Index; all of which are unmanaged indexes of common stocks; or (iii) other
appropriate indexes of investment securities or with data developed by Warburg
derived from such indexes. A Fund may include evaluations of the Fund published
by nationally recognized ranking services and by financial publications that are
nationally recognized, such as The Wall Street Journal, Investor's Daily, Money,
Inc., Institutional Investor, Barron's, Fortune, Forbes, Business Week, Mutual
Fund Magazine, Morningstar, Inc. and Financial Times.
In reports or other communications to investors or in advertising, each
Fund may also describe the general biography or work experi ence 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
30
<PAGE>32
of Fund activity, which may include a discussion of significant portfolio
holdings and analysis of holdings by industry, country, credit quality and other
characteristics. Each Fund may also discuss measures of risk, the continuum of
risk and return relating to different investments and the potential impact of
foreign stocks on a portfolio otherwise composed of domestic securities.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various time periods. In addition, each Fund may from time to time compare
the expense ratio of its Common Shares to that of investment companies with
similar objectives and policies, based on data generated by Lipper Analytical
Services, Inc. or similar investment services that monitor mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Emerging Markets Fund was incorporated on December 23, 1993
under the laws of the State of Maryland under the name 'Warburg, Pincus Emerging
Markets Fund, Inc.' The International Equity Fund was incorporated on February
9, 1989 under the laws of the State of Maryland under the name 'Counsellors
International Equity Fund, Inc.' On October 27, 1995 the Fund amended its
charter to change its name to 'Warburg, Pincus International Equity Fund, Inc.'
The Japan Growth Fund was incorporated on October 10, 1995 under the laws of the
State of Maryland under the name 'Warburg, Pincus Japan Growth Fund, Inc.,' and
the Japan OTC Fund was incorporated on July 26, 1994 under the laws of the State
of Maryland under the name 'Warburg, Pincus Japan OTC Fund, Inc.'
Each Fund's charter authorizes its Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated 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 Advisor
Shares, pursuant to a separate prospectus. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries. Shares of each class represent equal pro
rata interests in the respective Fund and accrue dividends and calculate net
asset value and performance quotations in the same manner. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Advisor Shares from their investment professional or
by calling Counsellors Securities at (800) 888-6878.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full share
held and fractional votes for fractional shares held. Shareholders of a Fund
will vote in the aggregate except where 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 a Fund may be removed from office
upon the vote of shareholders holding at least a majority of the relevant Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of a Fund. John L. Furth, a
Director and Trustee of the Funds, and Lionel I.
31
<PAGE>33
Pincus, Chairman of the Board and Chief Executive Officer of EMW, may be deemed
to be controlling persons of the Emerging Markets Fund as of November 30, 1995
because they may be deemed to possess or share investment power over shares
owned by clients of Warburg and certain other entities.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). Each Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by the Fund may be obtained
by calling Warburg Pincus Funds at (800) 927-2874.
The prospectuses of the Funds are combined in this Prospectus. Each Fund
offers only its own shares, yet it is possible that a Fund might become liable
for a misstatement, inaccuracy or omission in this Prospectus with regard to
another Fund.
SHAREHOLDER SERVICING
Common Shares may be sold to or through institutions, including insurance
companies, financial institutions and broker-dealers, that will not be paid a
distribution fee by a Fund pursuant to Rule 12b-1 under the 1940 Act, for
services to their clients or customers who may be deemed to be beneficial owners
of Common Shares. These institutions may be paid fees by a Fund, Warburg,
Counsellors Securities or any of their affiliates for transfer agency,
administrative, accounting, shareholder liaison and/or other services provided
to their clients or customers that invest in the Funds' Common Shares.
Organizations that provide recordkeeping or other services to certain employee
benefit plans and qualified and other retirement plans that include a Fund as an
investment alternative and registered representatives (including retirement plan
consultants) that facilitate the administration and servicing of shareholder
accounts may also be paid a fee. Fees paid vary depending on the arrangements
and the amount of Fund assets held by an institution's clients or customers
and/or the number of plan participants investing in the Fund. Warburg,
Counsellors Securities or any of their affiliates may, from time to time, at
their own expense, pay certain Fund transfer agent fees and expenses related to
clients and customers of these institutions and organizations. In addition,
these institutions and organizations may use a portion of their compensation to
compensate the Fund's custodian or transfer agent for costs related to accounts
of their clients or customers.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUNDS'
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EACH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
THE FUNDS' EXPENSES ............................................ 2
FINANCIAL HIGHLIGHTS ........................................... 3
INVESTMENT OBJECTIVES AND POLICIES ............................. 5
PORTFOLIO INVESTMENTS .......................................... 8
RISK FACTORS AND SPECIAL
CONSIDERATIONS ............................................. 11
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE ....................................................... 14
CERTAIN INVESTMENT STRATEGIES ................................. 15
INVESTMENT GUIDELINES ......................................... 18
MANAGEMENT OF THE FUNDS ....................................... 19
HOW TO OPEN AN ACCOUNT ........................................ 22
HOW TO PURCHASE SHARES ........................................ 22
HOW TO REDEEM AND EXCHANGE
SHARES ..................................................... 24
DIVIDENDS, DISTRIBUTIONS AND TAXES ............................ 27
NET ASSET VALUE ............................................... 29
PERFORMANCE ................................................... 29
GENERAL INFORMATION ........................................... 31
SHAREHOLDER SERVICING ......................................... 32
[LOGO]
[ ] WARBURG PINCUS
EMERGING MARKETS FUND
[ ] WARBURG PINCUS
INTERNATIONAL EQUITY FUND
[ ] WARBURG PINCUS
JAPAN GROWTH FUND
[ ] WARBURG PINCUS
JAPAN OTC FUND
PROSPECTUS
DECEMBER 29, 1995,
AS REVISED JANUARY 29, 1996
WPISF-1-0196
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
The trademark symbol shall be expressed as 'TM'
<PAGE>35
Rule 497(e)
Securities Act File No. 33-27031
Investment Company Act File No. 811-5765
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995,
as revised January 29, 1996
WARBURG PINCUS INTERNATIONAL EQUITY FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
Contents
Page
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 28
Additional Purchase and Redemption Information . . . . . . . . . . . . . 35
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Additional Information Concerning Taxes . . . . . . . . . . . . . . . . . 37
Determination of Performance . . . . . . . . . . . . . . . . . . . . . . 40
Auditors and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Appendix - Description of Ratings . . . . . . . . . . . . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P., Independent Auditors . . . . . . . . A-3
This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg
Pincus International Equity Fund (the "Fund"), Warburg Pincus Emerging Markets
Fund, Warburg Pincus Japan Growth Fund and Warburg Pincus Japan OTC Fund, and
with the Prospectus for the Advisor Shares of the Fund, each dated December
29, 1995, as amended or supplemented from time to time, and is incorporated by
reference in its entirety into those Prospectuses. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
the Fund should be made solely upon the information contained herein. Copies
of the Fund's Prospectuses and information regarding the Fund's current
performance may be obtained by calling the Fund at (800) 257-5614.
Information regarding the status of shareholder accounts may be obtained by
calling the Fund at (800) 888-6878 or by writing to the Fund, P.O. Box 9030,
Boston, Massachusetts 02205-9030.
<PAGE>36
INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital
appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objective and policies in the Prospectuses.
Options, Futures and Currency Exchange Transactions
Securities Options. The Fund may write covered call options on
stock and debt securities and may purchase put and call options that are
traded on foreign and U.S. exchanges, as well as over-the-counter ("OTC").
The Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right
of its purchaser to compel the writer of the option to sell to the option
holder an underlying security at a specified price for a specified time period
or at a specified time.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the Fund
as the writer of a covered call option forfeits the right to any appreciation
in the value of the underlying security above the strike price for the life of
the option (or until a closing purchase transaction can be effected).
Nevertheless, the Fund as a call writer retains the risk of a decline in the
price of the underlying security. The size of the premiums that the Fund may
receive may be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-writing
activities.
In the case of options written by the Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery
in accordance with an exercise notice. In these instances, the Fund may
purchase or temporarily borrow the underlying securities for purposes of
physical delivery. By so doing, the Fund will not bear any market risk, since
the Fund will have the absolute right to receive from the issuer of the
underlying security an equal number of shares
<PAGE>37
to replace the borrowed securities, but the Fund may incur additional
transaction costs or interest expenses in connection with any such purchase or
borrowing.
Additional risks exist with respect to certain of the securities for
which the Fund may write covered call options. For example, if the Fund
writes covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the
Fund will compensate for the decline in the value of the cover by purchasing
an appropriate additional amount of mortgage-backed securities.
Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
("Warburg"), expects that the price of the underlying security will remain
flat or decline moderately during the option period, (ii) at-the-money call
options when Warburg expects that the price of the underlying security will
remain flat or advance moderately during the option period and
(iii) out-of-the-money call options when Warburg expects that the premiums
received from writing the call option plus the appreciation in market price of
the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. To secure its
obligation to deliver the underlying security when it writes a call option,
the Fund will be required to deposit in escrow the underlying security or
other assets in accordance with the rules of the Options Clearing Corporation
(the "Clearing Corporation") and of the securities exchange on which the
option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Fund may realize a profit or loss
from the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. When the Fund has purchased an
option and engages in a closing sale transaction, whether the Fund realizes a
profit or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium the Fund initially paid for
the original option plus the related transaction costs. Similarly, in cases
where the Fund has written an option, it will realize a profit if the cost of
the closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. The Fund may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to
<PAGE>38
which it has written an option from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale
or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of the Fund under an option it has
written would be terminated by a closing purchase transaction, but the Fund
would not be deemed to own an option as a result of the transaction. So long
as the obligation of the Fund as the writer of an option continues, the Fund
may be assigned an exercise notice by the broker-dealer through which the
option was sold, requiring the Fund to deliver the underlying security against
payment of the exercise price. This obligation terminates when the option
expires or the Fund effects a closing purchase transaction. The Fund can no
longer effect a closing purchase transaction with respect to an option once it
has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary
market may exist. A liquid secondary market in an option may cease to exist
for a variety of reasons. In the past, for example, higher than anticipated
trading activity or order flow or other unforeseen events have at times
rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions in particular options.
Moreover, the Fund's ability to terminate options positions established in the
over-the-counter market may be more limited than for exchange-traded options
and may also involve the risk that securities dealers participating in
over-the-counter transactions would fail to meet their obligations to the
Fund. The Fund, however, intends to purchase over-the-counter options only
from dealers whose debt securities, as determined by Warburg, are considered
to be investment grade. If, as a covered call option writer, the Fund is
unable to effect a closing purchase transaction in a secondary market, it will
not be able to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. In either case, the Fund
would continue to be at market risk on the security and could face higher
transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group
of investors acting in concert (regardless of whether the options are written
on the same or different securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the Fund and other clients of Warburg and certain of its
affiliates may be considered to be such a group. A securities exchange may
order the liquidation of positions found to be in violation of these limits
and it may impose certain other sanctions. These limits may restrict the
number of options the Fund will be able to purchase on a particular security.
<PAGE>39
Stock Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on stock indexes. A stock index
measures the movement of a certain group of stocks by assigning relative
values to the common stocks included in the index, fluctuating with changes in
the market values of the stocks included in the index. Some stock index
options are based on a broad market index, such as the NYSE Composite Index,
or a narrower market index such as the Standard & Poor's 100. Indexes may
also be based on a particular industry or market segment.
Options on stock indexes are similar to options on stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the index and
the exercise price of the option times a specified multiple. The writer of
the option is obligated, in return for the premium received, to make delivery
of this amount. Stock index options may be offset by entering into closing
transactions as described above for securities options.
OTC Options. The Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Fund
were to purchase a dealer option, however, it would rely on the dealer from
whom it purchased the option to perform if the option were exercised. If the
dealer fails to honor the exercise of the option by the Fund, the Fund would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
dealer to which the Fund originally wrote the option. Although the Fund will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Fund, there can be no assurance that the Fund will be able to liquidate a
dealer option at a favorable price at any time prior to expiration. The
inability to enter into a closing transaction may result in material losses to
the Fund. Until
<PAGE>40
the Fund, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Fund's ability to sell portfolio
securities or, with respect to currency options, currencies at a time when
such sale might be advantageous. In the event of insolvency of the other
party, the Fund may be unable to liquidate a dealer option.
Futures Activities. The Fund may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes
including hedging against changes in the value of portfolio securities due to
anticipated changes in currency values, interest rates and/or market
conditions and increasing return.
The Fund will not enter into futures contracts and related options
for which the aggregate initial margin and premiums (discussed below) required
to establish positions other than those considered to be "bona fide hedging"
by the CFTC exceed 5% of the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may
be at risk with respect to futures activities. The ability of the Fund to
trade in futures contracts and options on futures contracts may be limited by
the requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company.
Futures Contracts. A foreign currency futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified non-U.S. currency at a specified price, date, time and
place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate sensitive financial instrument (debt security) at a specified
price, date, time and place. Stock indexes are capitalization weighted
indexes which reflect the market value of the stock listed on the indexes. A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract
and the price at which the agreement is made.
No consideration is paid or received by the Fund upon entering into
a futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or cash equivalents, such as U.S.
government securities or other liquid high-grade debt obligations, equal to
approximately 1% to 10% of the contract amount (this amount is subject to
change by the exchange on which the contract is traded, and brokers
<PAGE>41
may charge a higher amount). This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. The broker will
have access to amounts in the margin account if the Fund fails to meet its
contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the currency, financial instrument
or stock index underlying the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "marking-to-market." The Fund will also incur brokerage costs in
connection with entering into futures transactions.
At any time prior to the expiration of a futures contract, the Fund
may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions
in futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although
the Fund intends to enter into futures contracts only if there is an active
market for such contracts, there is no assurance that an active market will
exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at
an advantageous price and subjecting the Fund to substantial losses. In such
event, and in the event of adverse price movements, the Fund would be required
to make daily cash payments of variation margin. In such situations, if the
fund had insufficient cash, it might have to sell securities to meet daily
variation margin requirements at a time when it would be disadvantageous to do
so. In addition, if the transaction is entered into for hedging purposes, in
such circumstances the Fund may realize a loss on a futures contract or option
that is not offset by an increase in the value of the hedged position. Losses
incurred in futures transactions and the costs of these transactions will
affect the Fund's performance.
Options on Futures Contracts. The Fund may purchase and write put
and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives
the purchaser the right, in return for the premium paid, to assume a position
in a futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise
of an option, the delivery
<PAGE>42
of the futures position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by which the
market price of the futures contract exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Fund.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of the Fund that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Fund may incur costs in connection with conversion between various currencies.
Currency exchange transactions may be from any non-U.S. currency into U.S.
dollars or into other appropriate currencies. The Fund will conduct its
currency exchange transactions (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on such contracts (as described above) or (iii) through
entering into forward contracts to purchase or sell currency.
Forward Currency Contracts. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract as agreed upon
by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are
standardized as to contract size and delivery date.
At or before the maturity of a forward contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Fund retains the portfolio security and engages
in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward contract prices.
Currency Hedging. The Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect
to specific receivables or payables of the Fund generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. The Fund may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
<PAGE>43
A decline in the U.S. dollar value of a foreign currency in which
the Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. Because transactions in currency exchange are
generally conducted on a principal basis, no fees or commissions are generally
involved. Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Although currency hedges
limit the risk of loss due to a decline in the value of a hedged currency, at
the same time, they also limit any potential gain that might result should the
value of the currency increase. If a devaluation is generally anticipated,
the Fund may not be able to contract to sell a currency at a price above the
devaluation level it anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value
of the Fund's investments and a currency hedge may not be entirely successful
in mitigating changes in the value of the Fund's investments denominated in
that currency. A currency hedge, for example, should protect a Yen-
denominated bond against a decline in the Yen, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income
to offset expenses or increase return, the Fund may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position.
A hedge is designed to offset a loss in a portfolio position with a gain in
the hedged position; at the same time, however, a properly correlated hedge
will result in a gain in the portfolio position being offset by a loss in the
hedged position. As a result, the use of options, futures, contracts and
currency exchange transactions for hedging purposes could limit any potential
gain from an increase in the value of the position hedged. In addition, the
movement in the portfolio position hedged may not be of the same magnitude as
movement in the hedge. With respect to futures contracts, since the value of
portfolio securities will far exceed the value of the futures contracts sold
by the Fund, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Fund's
assets.
In hedging transactions based on an index, whether the Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market
segment, rather than movements in the price of a particular stock. The risk
of imperfect correlation increases as the composition of the Fund's portfolio
varies from the composition of the index. In an effort to compensate for
imperfect correlation of relative movements in the hedged position and the
hedge, the Fund's hedge positions may be in a greater or lesser dollar amount
than the dollar amount of the hedged position. Such "over
<PAGE>44
hedging" or "under hedging" may adversely affect the Fund's net investment
results if market movements are not as anticipated when the hedge is
established. Stock index futures transactions may be subject to additional
correlation risks. First, all participants in the futures market are subject
to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the stock index and futures markets. Secondly, from the point of view
of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market also may cause
temporary price distortions. Because of the possibility of price distortions
in the futures market and the imperfect correlation between movements in the
stock index and movements in the price of stock index futures, a correct
forecast of general market trends by Warburg still may not result in a
successful hedging transaction.
The Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to correctly predict
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate.
This requires different skills and techniques than predicting changes in the
price of individual securities, and there can be no assurance that the use of
these strategies will be successful. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Losses incurred in hedging transactions and the costs of these transactions
will affect the Fund's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures. As described in the Prospectuses, the Fund will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Fund on securities and indexes; and currency, interest rate and index
futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Fund of cash or liquid
high-grade debt securities or other securities that are acceptable as
collateral to the appropriate regulatory authority.
For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. The Fund could
purchase a put option if the strike price of that option is the same or higher
than the strike price of a put option sold by the Fund. If the Fund holds a
futures or forward contract, the Fund could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the
price of the
<PAGE>45
contract held. The Fund may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets
(equal to any remaining obligation), equals its net obligation. Asset
coverage may be achieved by other means when consistent with applicable
regulatory policies.
Additional Information on Other Investment Practices
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S. issuers.
Foreign Currency Exchange. Since the Fund will be investing in
securities denominated in currencies of non-U.S. countries, and since the Fund
may temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, the Fund may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rate
between such currencies and the dollar. A change in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of the Fund assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the
foreign exchange markets. Changes in the exchange rate may result over time
from the interaction of many factors directly or indirectly affecting economic
and political conditions in the United States and a particular foreign
country, including economic and political developments in other countries. Of
particular importance are rates of inflation, interest rate levels, the
balance of payments and the extent of government surpluses or deficits in the
United States and the particular foreign country, all of which are in turn
sensitive to the monetary, fiscal and trade policies pursued by the
governments of the United States and foreign countries important to
international trade and finance. Governmental intervention may also play a
significant role. National governments rarely voluntarily allow their
currencies to float freely in response to economic forces. Sovereign
governments use a variety of techniques, such as intervention by a country's
central bank or imposition of regulatory controls or taxes, to affect the
exchange rates of their currencies. The Fund may use hedging techniques with
the objective of protecting against loss through the fluctuation of the value
of the yen against the U.S. dollar, particularly the forward market in foreign
exchange, currency options and currency futures. See "Currency Exchange
Transactions" and "Futures Activities" above.
Information. Many of the securities held by the Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information
about the securities and about the foreign company or government issuing them
than is available about a domestic company or government entity. Foreign
companies are generally not subject to uniform financial
<PAGE>46
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.
Political Instability. With respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Fund, political or
social instability, or domestic developments which could affect U.S.
investments in those and neighboring countries. For example, tensions in Asia
have increased following the announcement in March 1993 by The Democratic
People's Republic of Korea ("North Korea") of its intention to withdraw from
participation in the Nuclear Non-Proliferation Treaty and its refusal to allow
the International Atomic Energy Agency to conduct full inspections of its
nuclear facilities. Military action involving North Korea or the economic
deterioration of North Korea could adversely affect the entire region and the
performance of the Fund.
Delays. Securities of some foreign companies are less liquid and
their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the
trade and settlement dates of securities purchased or sold. Due to the
increased exposure of the Fund to market and foreign exchange fluctuations
brought about by such delays, and due to the corresponding negative impact on
Fund liquidity, the Fund will avoid investing in countries which are known to
experience settlement delays which may expose the Fund to unreasonable risk of
loss.
Foreign Taxes and Increased Expenses. The operating expenses of the
Fund can be expected to be higher than that of an investment company investing
exclusively in U.S. securities, since the expenses of the Fund, such as
custodial costs, valuation costs and communication costs, as well as the rate
of the investment advisory fees, though similar to such expense of some other
international funds, are higher than those costs incurred by other investment
companies.
General. In general, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. The Fund may invest in
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such
investments as well.
Japanese Investments. From time to time depending on current market
conditions, the Fund may invest a significant portion of its assets in
Japanese securities. Like any investor in Japan, the Fund will be subject to
general economic and political conditions in the country. In addition to the
considerations discussed above, these include future political and economic
developments, the possible imposition of, or changes in, exchange controls or
other Japanese governmental laws or restrictions applicable to such
investments, diplomatic developments, political or social unrest and natural
disasters.
<PAGE>47
The information set forth in this section has been extracted from
various governmental publications and other sources. The Fund makes no
representation as to the accuracy of the information, nor has the Fund
attempted to verify it. Furthermore, no representation is made that any
correlation exists between Japan or its economy in general and the performance
of the Fund.
Economic Background. Over the past 30 years Japan has experienced
significant economic development. During the era of high economic growth in
the 1960's and early 1970's the expansion was based on the development of
heavy industries such as steel and shipbuilding. In the 1970's Japan moved
into assembly industries which employ high levels of technology and consume
relatively low quantities of resources, and since then has become a major
producer of electrical and electronic products and automobiles. Moreover,
since the mid-1980's Japan has become a major creditor nation. With the
exception of the periods associated with the oil crises of the 1970's, Japan
has generally experienced very low levels of inflation. In the mid-1990's,
Japan has been plagued by rising unemployment, excess capacity and significant
bad debts in the banking sector. On January 17, 1995, the Great Hanshin
Earthquake severely damaged Kobe, Japan's largest container port. The
government has announced a $5.9 billion plan to repair the port and estimates
damage to the region at approximately $120 billion. However, the long-term
economic effects of the earthquake cannot be predicted.
Japan is largely dependent upon foreign economies for raw materials.
For instance, almost all of its oil is imported, the majority from the Middle
East. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of
the 1970's. Oil prices have declined mainly due to a worldwide easing of
demand for crude oil. The stabilized price of oil contributed to Japan's
sizeable current account surplus and stability of wholesale and consumer
prices since 1981. While Japan is working to reduce its dependence on foreign
materials, its lack of natural resources poses a significant obstacle to this
effort.
International trade is important to Japan's economy, as exports
provide the means to pay for many of the raw materials it must import.
Japan's trade surplus has increased dramatically in recent years, exceeding
$100 billion per year since 1991 and reaching a record high of $145 billion in
1994. Because of the concentration of Japanese exports in highly visible
products such as automobiles, machine tools and semiconductors, and the large
trade surpluses resulting therefrom, Japan has entered a difficult phase in
its relations with its trading partners, particularly with respect to the
United States, with whom the trade imbalance is the greatest. In 1995,
however, the trade surplus has decreased due to a drop in exports. The
reduced exports are due primarily to the strength of the yen and the impact of
threatened U.S. trade sanctions. The United States and Japan have engaged in
"economic framework" negotiations to help increase the United States' share in
Japanese markets and reduce Japan's current account surplus, but progress in
the negotiations has been hampered by the recent political upheaval in Japan.
On June 28, 1995, the United States agreed not to impose trade sanctions in
return for a modest commitment by Japan to buy
<PAGE>48
more American cars and auto parts. Any trade sanctions imposed upon Japan
by the United States as a result of the current friction or otherwise could
adversely impact Japan and the Fund's investments there.
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years
shown.
CURRENT ACCOUNT
Trade
<TABLE>
<CAPTION>
Year Exports Imports Trade Balance Current Balance
---- ------- ------- ------------- ---------------
(U.S. dollars in millions)
<S> <C> <C> <C> <C>
1989 269,570 192,653 76,917 57,157
1990 280,374 216,846 63,528 35,761
1991 306,557 203,513 103,044 72,901
1992 330,850 198,502 132,348 117,551
1993 351,292 209,778 141,514 131,448
1994 384,176 238,232 145,944 129,140
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
Economic Trends. The following tables set forth Japan's gross
domestic product, wholesale price index and consumer price index for the years
shown.
GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GDP (yen billions)
(Expenditures) Y 469,149 Y 465,972 Y 463,145 Y 451,297 Y 24,537 Y 396,197
Change in GDP
from Preceding
Year
Nominal terms 0.7% 0.6% 2.6% 6.3% 7.2% 6.7%
Real Terms 0.5% -0.2% 1.1% 4.3% 4.8% 4.7%
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
<PAGE>49
WHOLESALE PRICE INDEX
<TABLE>
<CAPTION>
Change from
All Preceding
Year Commodities Year
---- ----------- -----------
(Base year: 1990)
<S> <C> <C>
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 2.1
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.),
Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan; International Monetary Fund
CONSUMER PRICE INDEX
<TABLE>
<CAPTION>
Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
<S> <C> <C>
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
1992 105.0 1.6
1993 106.4 1.3
1994 107.1 0.7
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.),
Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan; International Monetary Fund
<PAGE>50
Securities Markets. There are eight stock exchanges in Japan. Of
these, the Tokyo Stock Exchange is by far the largest, followed by the Osaka
Stock Exchange and the Nagoya Stock Exchange. These exchanges divide the
market for domestic stocks into two sections, with newly listed companies and
smaller companies assigned to the Second Section and larger companies assigned
to the First Section.
The following table sets forth the number of Japanese companies
listed on the three major Japanese stock exchanges as of the end of 1994.
NUMBER OF LISTED DOMESTIC COMPANIES
<TABLE>
<CAPTION>
Tokyo Osaka Nagoya
--------------------------- -------------------------- -------------------------
1st 2nd 1st 2nd 1st 2nd
Sec. Sec. Sec. Sec. Sec. Sec.
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1,235 454 855 344 431 129
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995
The following table sets forth the trading volume and value of
Japanese stocks on the eight Japanese stock exchanges for the years shown.
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>
Year Volume Value
---- ------ -----
<S> <C> <C>
1989 . . . . . . . . . . . . . . . . . . . . 256,296 Y 386,395
1990 . . . . . . . . . . . . . . . . . . . . 145,837 231,837
1991 . . . . . . . . . . . . . . . . . . . . 107,844 134,160
1992 . . . . . . . . . . . . . . . . . . . . 82,563 80,456
1993 . . . . . . . . . . . . . . . . . . . . 101,172 106,123
1994 . . . . . . . . . . . . . . . . . . . . 105,936 114,622
Source: Tokyo Stock Exchange, Fact Book 1995
</TABLE>
<PAGE>51
Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a
composite index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. TOPIX reflects the change in the aggregate market value of
the common stocks as compared to the aggregate market value of those stocks as
of the close on January 4, 1968.
The following table sets forth the high, low and year-end TOPIX for
the years shown.
TOPIX
(January 4, 1968=100)
<TABLE>
<CAPTION>
Year Year-end High Low
---- -------- ---- ---
<S> <C> <C> <C>
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
Source: Tokyo Stock Exchange, Fact Book 1995
</TABLE>
Currency Fluctuation. The Fund's investments in Japanese securities
will be denominated in yen and most income received by the Fund from such
investments will be in yen. However, the Fund's net asset value will be
reported, and distributions will be made, in U.S. dollars. Therefore, a
decline in the value of the yen relative to the U.S. dollar could have an
adverse effect on the value of the Fund's Japanese investments. The following
table presents the average exchange rates of Japanese yen for U.S. dollars for
the years shown:
Year Yen Per U.S. Dollar
---- -------------------
1994 Y 102.18
1993 111.08
1992 126.79
1991 134.59
1990 145.00
1989 138.07
Source: Board of Governors of the Federal Reserve System, Federal Reserve
Bulletin
On December 28, 1995, the rate of exchange was 102.73 Japanese yen
per U.S. dollar.
<PAGE>52
U.S. Government Securities. The Fund may invest in debt obligations of
varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. Government Securities"). Direct
obligations of the U.S. Treasury include a variety of securities that differ
in their interest rates, maturities and dates of issuance. U.S. Government
Securities also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
FHLMC, Federal Intermediate Credit Banks, Federal Land Banks, FNMA, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. The Fund may also invest in
instruments that are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. government is not obligated by law to
provide support to an instrumentality it sponsors, the Fund will invest in
obligations issued by such an instrumentality only if Warburg determines that
the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Fund.
Securities of Other Investment Companies. The Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of
such company, (ii) do not exceed 5% of the value of the Fund's total assets
and (iii) when added to all other investment company securities held by the
Fund, do not exceed 10% of the value of the Fund's total assets.
Lending of Portfolio Securities. The Fund may lend portfolio securities
to brokers, dealers and other financial organizations that meet capital and
other credit requirements or other criteria established by the Fund's Board of
Directors (the "Board"). These loans, if and when made, may not exceed 20% of
the Fund's total assets taken at value. The Fund will not lend portfolio
securities to E.M. Warburg, Pincus & Co., Inc. ("EMW") or its affiliates
unless the Fund has applied for and received specific authority to do so from
the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. government securities, which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account
of the Fund. From time to time, the Fund may return a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and that is
acting as a "finder."
By lending its securities, the Fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as by
either investing the collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid by the borrower
when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Fund, income
received could be used to pay the Fund's expenses and would increase an
investor's total
<PAGE>53
return. The Fund will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the Fund must receive at least 100% cash
collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) the Fund must be able to terminate the loan at any time;
(iv) the Fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and any
increase in market value; (v) the Fund may pay only reasonable custodian fees
in connection with the loan; and (vi) voting rights on the loaned securities
may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan
and regain the right to vote the securities. Loan agreements involve certain
risks in the event of default or insolvency of the other party including
possible delays or restrictions upon the Fund's ability to recover the loaned
securities or dispose of the collateral for the loan.
When-Issued Securities and Delayed-Delivery Transactions. The Fund may
utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days. The
Fund will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage, but may sell the
securities before the settlement date if Warburg deems it advantageous to do
so. The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the com-
mitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the yields obtained on such
securities may be higher or lower than the yields available in the market on
the dates when the investments are actually delivered to the buyers.
When the Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations or other securities that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case the Fund may be required subsequently to place additional assets
in the segregated account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. It may be expected that
the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets
aside cash. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure
of the seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
American, European and Continental Depositary Receipts. The assets of
the Fund may be invested in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be
<PAGE>54
converted. ADRs are receipts typically issued by a U.S. bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks
and trust companies that evidence ownership of either foreign or domestic
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs and CDRs in bearer form are designed for use in
European securities markets.
Warrants. The Fund may invest up to 5% of net assets in warrants (valued
at the lower of cost or market) (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase), provided
that not more than 2% of net assets may be invested in warrants not listed on
a recognized U.S. or foreign stock exchange. Because a warrant does not carry
with it the right to dividends or voting rights with respect to the securities
which it entitles a holder to purchase, and because it does not represent any
rights in the assets of the issuer, warrants may be considered more
speculative than certain other types of investments. Also, the value of a
warrant does not necessarily change with the value of the underlying
securities and a warrant ceases to have value if it is not exercised prior to
its expiration date.
Non-Publicly Traded and Illiquid Securities. The Fund may not invest
more than 10% of its total assets, in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of
a readily available market, repurchase agreements which have a maturity of
longer than seven days and time deposits maturing in more than seven days.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes.
<PAGE>55
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by the
SEC allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes
a "safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Fund's limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, the Board and its delegates may
consider, inter alia, the following factors: (i) the unregistered nature of
the security; (ii) the frequency of trades and quotes for the security; (iii)
the number of dealers wishing to purchase or sell the security and the number
of other potential purchasers; (iv) dealer undertakings to make a market in
the security and (v) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer).
Borrowing. The Fund may borrow up to 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 total assets. Although the principal of such borrowings will be fixed,
the Fund's assets may change in value during the time the borrowing is
outstanding. The Fund expects that some of its borrowings may be made on a
secured basis. In such situations, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made with
a suitable subcustodian, which may include the lender.
Other Investment Limitations
The investment limitations numbered 1 through 11 may not be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more
of the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations 12 through 16
may be changed by a vote of the Board at any time.
<PAGE>56
The Fund may not:
1. Purchase the securities of any issuer if as a result more than 5% of
the value of the Fund's total assets would be invested in the securities of
such issuer, except that this 5% limitation does not apply to U.S. government
securities and except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.
2. Borrow money or issue senior securities except that the Fund may (a)
borrow from banks for temporary or emergency purposes, and not for leveraging,
and then in amounts not in excess of 30% of the value of the Fund's total
assets at the time of such borrowing and (b) enter into futures contracts; or
mortgage, pledge or hypothecate any assets except in connection with any bank
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Fund's total assets at the time of such
borrowing. Whenever borrowings described in (a) exceed 5% of the value of the
Fund's total assets, the Fund will not make any investments (including
roll-overs). For purposes of this restriction, (a) the deposit of assets in
escrow in connection with the purchase of securities on a when-issued or
delayed-delivery basis and (b) collateral arrangements with respect to initial
or variation margin for futures contracts will not be deemed to be pledges of
the Fund's assets.
3. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
government securities.
4. Make loans, except that the Fund may purchase or hold publicly
distributed fixed-income securities, lend portfolio securities and enter into
repurchase agreements.
5. Underwrite any issue of securities except to the extent that the
investment in restricted securities and the purchase of fixed-income
securities directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be
underwriting.
6. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest
in (a) fixed-income securities secured by real estate, mortgages or interests
therein, (b) securities of companies that invest in or sponsor oil, gas or
mineral exploration or development programs and (c) futures contracts and
related options. The entry into forward foreign currency exchange contracts
is not and shall not be deemed to involve investing in commodities.
7. Make short sales of securities or maintain a short position.
8. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may (a) purchase put and call
options on securities, (b) write covered
<PAGE>57
call options on securities, (c) purchase and write put and call options on
stock indices and (d) enter into options on futures contracts.
9. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
10. Purchase more than 10% of the voting securities of any one issuer,
more than 10% of the securities of any class of any one issuer or more than
10% of the outstanding debt securities of any one issuer; provided that this
limitation shall not apply to investments in U.S. government securities.
11. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin.
12. Invest more than 10% of the value of the Fund's total assets in
securities which may be illiquid because of legal or contractual restrictions
on resale or securities for which there are no readily available market
quotations. For purposes of this limitation, (a) repurchase agreements with
maturities greater than seven days and (b) time deposits maturing in more than
seven calendar days shall be considered illiquid securities.
13. Purchase any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three
years.
14. Purchase or retain securities of any company if, to the knowledge of
the Fund, any of the Fund's officers or Directors or any officer or director
of Warburg individually owns more than 1/2 of 1% of the outstanding securities
of such company and together they own beneficially more than 5% of the
securities.
15. Invest in warrants (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase) if, as a result,
the investments (valued at the lower of cost or market) would exceed 5% of the
value of the Fund's net assets of which not more than 2% of the Fund's net
assets may be invested in warrants not listed on a recognized U.S. or foreign
stock exchange.
16. Invest in oil, gas, or mineral leases.
Certain non-fundamental investment limitations are currently required by
one or more states in which shares of the Fund are sold. These may be more
restrictive than the limitations set forth above. Should
<PAGE>58
the Fund determine that any such commitment is no longer in the best interest
of the Fund and its shareholders, the Fund will revoke the commitment by
terminating the sale of Fund shares in the state involved. In addition, the
relevant state may change or eliminate its policy regarding such investment
limitations.
If a percentage restriction (other than the percentage limitation set
forth in No. 2 above) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in
the values of portfolio securities or in the amount of the Fund's assets will
not constitute a violation of such restriction.
Portfolio Valuation
The Prospectuses discuss the time at which the net asset value of the
Fund is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities
exchange or traded in an over-the-counter market will be valued at the most
recent sale as of the time the valuation is made or, in the absence of sales,
at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options or futures contracts will be
valued similarly. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Board. Amortized cost involves valuing a portfolio
instrument at its initial cost and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. The
amortized cost method of valuation may also be used with respect to other debt
obligations with 60 days or less remaining to maturity. In determining the
market value of portfolio investments, the Fund may employ outside
organizations (a "Pricing Service") which may use a matrix, formula or other
objective method that takes into consideration market indexes, matrices, yield
curves and other specific adjustments. The procedures of Pricing Services are
reviewed periodically by the officers of the Fund under the general
supervision and responsibility of the Board, which may replace a Pricing
Service at any time. Securities, options and futures contracts for which
market quotations are not available and certain other assets of the Fund will
be valued at their fair value as determined in good faith 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 NYSE is open for trading). In addition, securities
trading in a particular country or countries may not take place on all
business days in New York. Furthermore, trading takes place in various
<PAGE>59
foreign markets on days which are not business days in New York and days on
which the Fund's net asset value is not calculated. As a result, calculation
of the Fund's net asset value may not take place contemporaneously with the
determination of the prices of certain portfolio securities used in such
calculation. 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. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the
close of regular trading on the NYSE will not be reflected in the Fund's
calculation of net asset value unless the Board or its delegates deems that
the particular event would materially affect net asset value, in which case an
adjustment may be made. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
prevailing exchange rate as quoted by a Pricing Service. If such quotations
are not available, the rate of exchange will be determined in good faith
pursuant to consistently applied procedures established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where necessary,
modifying the Fund's investment program to achieve its investment objective.
Purchases and sales of newly issued portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer
or with an underwriter acting as principal. Other purchases and sales may be
effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. On most foreign exchanges,
commissions are generally fixed. There is generally no stated commission in
the case of securities traded in domestic or foreign over-the-counter markets,
but the price of securities traded in over-the-counter markets includes an
undisclosed commission or mark-up. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of a broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on
a continuing basis. Warburg may, in its discretion, effect transactions in
portfolio securities with dealers who provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange
<PAGE>60
Act of 1934) to the Fund and/or other accounts over which Warburg exercises
investment discretion. Warburg may place portfolio transactions with a broker
or dealer with whom it has negotiated a commission that is in excess of the
commission another broker or dealer would have charged for effecting the
transaction if Warburg determines in good faith that such amount of commission
was reasonable in relation to the value of such brokerage and research
services provided by such broker or dealer viewed in terms of either that
particular transaction or of the overall responsibilities of Warburg.
Research and other services received may be useful to Warburg in serving both
the Fund and its other clients and, conversely, research or other services
obtained by the placement of business of other clients may be useful to
Warburg in carrying out its obligations to the Fund. Research may include
furnishing advice, either directly or through publications or writings, as to
the value of securities, the advisability of purchasing or selling specific
securities and the availability of securities or purchasers or sellers of
securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management
personnel, industry experts, economists and government officials; comparative
performance evaluation and technical measurement services and quotation
services; and products and other services (such as third party publications,
reports and analyses, and computer and electronic access, equipment, software,
information and accessories that deliver, process or otherwise utilize
information, including the research described above) that assist Warburg in
carrying out its responsibilities. For the fiscal year ended October 31,
1995, $218,775 of total brokerage commissions was paid to brokers and dealers
who provided such research and other services on portfolio transactions of
$2,193,222,536. Research received from brokers or dealers is supplemental to
Warburg's own research program. The fees to Warburg under its advisory
agreement with the Fund are not reduced by reason of its receiving any
brokerage and research services.
During the fiscal years ended October 31, 1993, October 31, 1994 and
October 31, 1995, the Fund paid an aggregate of approximately $963,744,
$3,525,445 and $5,991,704, respectively, in commissions to broker-dealers for
execution of portfolio transactions. The fiscal 1994 and 1995 commission
increases were a result of sharp increases in the volume of share-related
activity as the Fund received large inflows of capital.
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as
the Fund. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which Warburg believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
sold for the Fund. To the extent permitted by law, Warburg may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for such other investment clients in order to obtain best execution.
<PAGE>61
Any portfolio transaction for the Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors
Securities"), if, in Warburg's judgment, the use of Counsellors Securities is
likely to result in price and execution at least as favorable as those of
other qualified brokers, and if, in the transaction, Counsellors Securities
charges the Fund a commission rate consistent with those charged by
Counsellors Securities to comparable unaffiliated customers in similar
transactions. All transactions with affiliated brokers will comply with Rule
17e-1 under the 1940 Act. No portfolio transactions have been executed
through Counsellors Securities since the commencement of the Fund's
operations.
In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities or any affiliated person of such companies.
In addition, the Fund will not give preference to any institutions with whom
the Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services. See
the Prospectuses, "Shareholder Servicing."
Transactions for the Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Fund will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting
as principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
The Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when
Warburg, in its sole discretion, believes such practice to be otherwise in the
Fund's interest.
Portfolio Turnover
The Fund does not intend to seek profits through short-term trading, but
the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the
date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could result in high
portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the
<PAGE>62
price of the underlying security (market decline) or purchased in anticipation
of a rise in the price of the underlying security (market rise) and later
sold.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard N. Cooper (61) . . . . Director
Room 7E47OHB National Intelligence Counsel;
Central Intelligence Agency Professor at Harvard University;
930 Dolly Madison Blvd. Director or Trustee of Circuit City
McClain, Virginia 22107 Stores, Inc. (retail electronics and
appliances) and Phoenix Home Life
Insurance Co.
Donald J. Donahue (71) . . . . Director
99 Indian Field Road Chairman of Magma Copper Company since
Greenwich, Connecticut 06830 January 1987; Director or Trustee of GEV
Corporation and Signet Star Reinsurance
Company; Chairman and Director of NAC Holdings
from September 1990-June 1993.
Jack W. Fritz (68) . . . . . . Director
2425 North Fish Creek Road Private investor; Consultant
P.O. Box 483 and Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and operators
of radio stations); Director of Advo, Inc.
(direct mail advertising).
John L. Furth* (65) . . . . . . Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of EMW;
New York, New York 10017-3147 Associated with EMW since 1970; Director and
officer of other investment companies advised
by Warburg.
[FN]
- ------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>63
Thomas A. Melfe (63) . . . . . Director
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton & Irvine; Director of
Municipal Fund for New York Investors, Inc.
Alexander B. Trowbridge (66) . Director
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc.
Suite 700 (business consulting) from January 1990-
Washington, DC 20036 January 1994; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), P.H.H. Corporation
(fleet auto management; housing and plant
relocation service), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), SunResorts International Ltd.
(hotel and real estate management), Harris
Corp. (electronics and communications
equipment), The Gillette Co. (personal care
products) and Sun Company Inc. (petroleum
refining and marketing).
Richard H. King (51) . . . . . President and Portfolio Manager
466 Lexington Avenue Portfolio Manager or Co-Portfolio
New York, New York 10017-3147 Manager of other Warburg Pincus Funds;
Managing Director of EMW since 1989;
Associated with EMW since 1989; President of
other investment companies advised by Warburg.
Arnold M. Reichman (47) . . . . Executive Vice President
466 Lexington Avenue Managing Director and Assistant
New York, New York 10017-3147 Secretary of EMW; Associated with EMW since
1984; Senior Vice President, Secretary and
Chief Operating Officer of Counsellors
Securities; Officer of other investment
companies advised by Warburg.
Eugene L. Podsiadlo (38) . . . Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with
New York, New York 10017-3147 EMW since 1991; Vice President of Citibank,
N.A. from 1987-1991; Senior Vice President
<PAGE>64
of Counsellors Securities and officer of
other investment companies advised by Warburg.
Stephen Distler (42) . . . . . Vice President and
466 Lexington Avenue Chief Financial Officer
New York, New York 10017-3147 Managing Director, Controller and Assistant
Secretary of EMW; Associated with EMW since
1984; Treasurer of Counsellors Securities;
Vice President, Treasurer and Chief Accounting
Officer or Vice President and Chief Financial
Officer of other investment companies advised
by Warburg.
Eugene P. Grace (44) . . . . . Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April
1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General
Counsel and Secretary, Home Unity Savings Bank
from 1991-1992; Vice President and Chief
Compliance Officer of Counsellors Securities;
Vice President and Secretary of other
investment companies advised by Warburg.
Howard Conroy (41) . . . . . . Vice President, Treasurer
466 Lexington Avenue and Chief Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992; Associated
with Martin Geller, C.P.A. from 1990-1992;
Vice President, Finance with Gabelli/Rosenthal
& Partners, L.P. until 1990; Vice President,
Treasurer and Chief Accounting Officer of
other investment companies advised by Warburg.
Karen Amato (32) . . . . . . . Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987; Assistant
New York, New York 10017-3147 Secretary of other investment companies
advised by Warburg.
No employee of Warburg or PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund
for acting as an officer or director of the Fund. Each Director who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $1,000, and
<PAGE>65
$250 for each meeting of the Board attended by him for his services as
Director and is reimbursed for expenses incurred in connection with his
attendance at Board meetings.
Directors' Compensation
(for the fiscal year ended October 31, 1995)
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund Managed by Warburg*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $2,250 $41,083
Donald J. Donahue $2,500 $43,833
Jack W. Fritz $1,750 $35,333
Thomas A. Melfe $2,500 $43,583
Alexander B. Trowbridge $2,500 $43,833
</TABLE>
[FN]
__________________________
* Each Director also serves as a Director or Trustee of 15 other investment
companies advised by Warburg.
** Mr. Furth is considered to be an interested person of the Fund and
Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receives no compensation from the Fund or any other
investment company managed by Warburg.
Mr. Richard H. King, president and portfolio manager of the Fund,
earned a B.A. degree from Durham University in England. Mr. King has been a
portfolio manager of the Fund since its inception on May 2, 1989 and is also a
co-portfolio manager of Warburg Pincus Japan OTC Fund and Warburg Pincus
Emerging Markets Fund and portfolio manager of the International Equity
Portfolios of Warburg Pincus Institutional Fund, Inc. and Warburg Pincus
Trust. From 1968 to 1982, he worked at W.I. Carr Sons & Company (Overseas), a
leading international brokerage firm. He resided in the Far East as an
investment analyst from 1970 to 1977, became director, and later relocated to
the U.S. where he became founder and president of W.I. Carr (America), based
in New York. From 1982 to 1984 Mr. King was a director in charge of the Far
East equity investments at N.M. Rothschild International Asset Management, a
London merchant bank. In 1984 Mr. King became chief investment officer and
director for all international investment strategy with Fiduciary Trust
Company International S.A., in London. He managed an EAFE mutual fund (FTIT)
1985-1986 which grew from $3 million to over $100 million during this two-year
period.
<PAGE>66
Mr. Nicholas P.W. Horsley, associate portfolio manager and research
analyst of the Fund, is also a co-portfolio manager of Warburg Pincus Japan
OTC Fund and Warburg Pincus Emerging Markets Fund and an associate portfolio
manager and research analyst of the International Equity Portfolios of Warburg
Pincus Institutional Fund, Inc. and Warburg Pincus Trust. He joined Warburg
in 1993. From 1981 to 1984 Mr. Horsley was a Securities Analyst at Barclays
Merchant Bank in London, UK and Johannesburg, RSA. From 1984 to 1986 he was a
Senior Analyst with BZW Investment Management in London. From 1986 to 1993 he
was a director, portfolio manager and analyst at Barclays deZoete Wedd in New
York City. Mr. Horsley earned B.A. and M.A. degrees with honors from
University College, Oxford.
Mr. P. Nicholas Edwards, associate portfolio manager and research
analyst of the Fund, is also portfolio manager of Warburg Pincus Japan Growth
Fund and an associate portfolio manager and research analyst of the
International Equity Portfolios of Warburg Pincus Institutional Fund, Inc. and
Warburg Pincus Trust. Prior to joining Warburg in August 1995, Mr. Edwards
was a director at Jardine Fleming Investment Advisers, Tokyo. He was a vice
president of Robert Fleming Inc. in New York City from 1988 to 1991. Mr.
Edwards earned M.A. degrees from Oxford University and Hiroshima University in
Japan.
Mr. Harold W. Ehrlich, associate portfolio manager and research
analyst of the Fund, is also an associate portfolio manager and research
analyst of Warburg Pincus Emerging Markets Fund and the International Equity
Portfolios of Warburg Pincus Institutional Fund, Inc. and Warburg Pincus
Trust. Prior to joining Warburg, Mr. Ehrlich was a senior vice president,
portfolio manager and analyst at Templeton Investment Counsel Inc. from 1987
to 1995. He was a research analyst and assistant portfolio manager at
Fundamental Management Corporation from 1985 to 1986 and a research analyst at
First Equity Corporation of Florida from 1983 to 1985. Mr. Ehrlich earned a
B.S.B.A. degree from the University of Florida and earned his Chartered
Financial Analyst designation in 1990.
Mr. Vincent J. McBride, associate portfolio manager and research
analyst of the Fund, is also an associate portfolio manager of Warburg Pincus
Emerging Markets Fund and the International Equity Portfolios of Warburg
Pincus Institutional Fund, Inc. and Warburg Pincus Trust. Prior to joining
Warburg in 1994, Mr. McBride was an international equity analyst at Smith
Barney Inc. from 1993 to 1994 and at General Electric Investment Corp. from
1992 to 1993. He was also a portfolio manager/analyst at United Jersey Bank
from 1989 to 1992 and a portfolio manager at First Fidelity Bank from 1987 to
1989. Mr. McBride earned a B.S. degree from the University of Delaware and an
M.B.A. degree from Rutgers University.
As of November 30, 1995, directors and officers of the Fund as a
group owned of record 196,887 of the Fund's outstanding Common Shares. As of
the same date, Mr. John L. Furth may be deemed to have beneficially owned
19.48% of the Fund's outstanding Common Shares, including shares owned by
clients for which Warburg has investment discretion. Mr. Furth disclaims
ownership of these shares and does not intend to
<PAGE>67
exercise voting rights with respect to these shares. No directors or officers
owned of record any Advisor Shares.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund, Counsellors Funds
Service, Inc. ("Counsellors Service") serves as a co-administrator to the Fund
and PFPC serves as a co-administrator to the Fund pursuant to separate written
agreements (the "Advisory Agreement," the "Counsellors Service Co-
Administration Agreement" and the "PFPC Co-Administration Agreement,"
respectively). The services provided by, and the fees payable by the Fund to,
Warburg under the Advisory Agreement, Counsellors Service under the
Counsellors Service Co-Administration Agreement and PFPC under the PFPC Co-
Administration Agreement are described in the Prospectuses. See the
Prospectuses, "Management of the Fund." Each class of shares of the Fund
bears its proportionate share of fees payable to Warburg, Counsellors Service
and PFPC in the proportion that its assets bear to the aggregate assets of the
Fund at the time of calculation. Prior to March 1, 1994, PFPC served as
administrator to the Fund and Counsellors Service served as administrative
services agent to the Fund pursuant to separate written agreements.
Warburg agrees that if, in any fiscal year, the expenses borne by
the Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Fund are registered or
qualified for sale to the public, it will reimburse the Fund to the extent
required by such regulations. Unless otherwise required by law, such
reimbursement would be accrued and paid on a monthly basis. At the date of
this Statement of Additional Information, the most restrictive annual expense
limitation applicable to the Fund is 2.5% of the first $30 million of the
average net assets of the Fund, 2% of the next $70 million of the average net
assets of the Fund and 1.5% of the remaining average net assets of the Fund.
For the years ended October 31, 1993, October 31, 1994 and October
31, 1995, Warburg earned $1,934,531, $9,879,319 and $20,225,631, respectively,
in investment advisory fees. PFPC received $227,714, $851,564 and $1,386,283
for the fiscal years ended October 31, 1993, October 31, 1994 and October 31,
1995, respectively. Counsellors Service received $97,928, $871,165 and
$2,022,563 during the fiscal years ended October 31, 1993, October 31, 1994
and October 31, 1995, respectively.
Custodians and Transfer Agent
Fiduciary Trust Company International ("Fiduciary") is custodian of
the Fund's assets pursuant to a custodian agreement (the "Custodian
Agreement"). Under the Custodian Agreement, Fiduciary (i) maintains a
separate account or accounts in the name of the Fund, (ii) holds and transfers
portfolio securities on account of the Fund, (iii) makes receipts and
disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities and (v) makes periodic reports to the Board concerning the Fund's
custodial arrangements.
<PAGE>68
Fiduciary is authorized to select one or more foreign or domestic banks or
trust companies and securities depositories to serve as sub-custodian on
behalf of the Fund. The principal business address of Fiduciary is Two World
Trade Center, New York, New York 10048.
PNC Bank, National Association ("PNC") also provides certain
custodial services generally in connection with purchases and sales of Fund
shares. PNC is an indirect, wholly owned subsidiary of PNC Bank Corp., and
its principal business address is Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19101.
State Street Bank and Trust Company ("State Street") serves as the
shareholder servicing, transfer and dividend disbursing agent of the Fund
pursuant to a Transfer Agency and Service Agreement, under which State Street
(i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to record owners of Fund shares, including reports
to shareholders, dividend and distribution notices and proxy material for its
meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts and (iv) makes periodic reports to the Board
concerning the transfer agent's operations with respect to the Fund. The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110. State Street has delegated to Boston Financial Data
Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, Boston, Massachusetts 02171.
Organization of the Fund
The Fund's charter authorizes the Board to issue three billion full
and fractional shares of common stock, $.001 par value per share ("Common
Shares"), of which one billion shares are designated Common Stock - Series 1
and one billion shares are designated Common Stock - Series 2 (the "Advisor
Shares"). Only Common Shares and Advisor Shares have been issued by the Fund.
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
The Fund has entered into a distribution agreement with an
institution (the "Service Organization") pursuant to which support services
are provided to the holders of Advisor Shares in consideration of the Fund's
payment, out of the assets attributable to the Advisor Shares, of .50%, on an
annualized basis (a .25% annual service fee and a .25% annual distribution
fee), of the average daily net assets of the Advisor Shares held of record.
The Fund's Advisor Shares paid the Service Organization $1,274,343 in fees for
the year ended October 31, 1995. See the Advisor Prospectus, "Shareholder
Servicing." The Fund may, in the future, enter into additional agreements
("Agreements") with institutional
<PAGE>69
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.
An Institution with which the Fund has entered into an Agreement
with respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii)
compensation balance requirements (a minimum dollar amount a Customer must
maintain in order to obtain the services offered); or (iv) account maintenance
fees (a periodic charge based upon the percentage of assets in the account or
of the dividend paid on those assets). Services provided by an Institution to
Customers are in addition to, and not duplicative of, the services to be
provided under the Fund's co-administration and distribution arrangements. A
Customer of an Institution should read the relevant Prospectus and 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.
The Distribution Plan will continue in effect for so long as its
continuance is specifically approved at least annually by the Board, including
a majority of the Directors who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the
Distribution Plan ("Independent Directors"). Any material amendment of the
Distribution Plan would require the approval of the Board in the same manner.
The Distribution Plan may not be amended to increase materially the amount to
be spent under it without shareholder approval of the Advisor Shares. The
Distribution Plan may be terminated at any time, without penalty, by vote of a
majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities of the Advisor Shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share
net asset value of the relevant class of shares of the Fund. Information on
how to purchase and redeem Fund shares and how such shares are priced is
included in the Prospectuses under "Net Asset Value."
<PAGE>70
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Fund may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other investment instruments which
may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or
other property, a shareholder would incur transaction costs in disposing of
the redemption proceeds. The Fund intends to comply with Rule 18f-1
promulgated under the 1940 Act with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Warburg is
available to investors in the Fund. The funds into which exchanges can be
made by holders of Common Shares currently are the Common Shares of Warburg
Pincus Cash Reserve Fund, Warburg Pincus New York Tax Exempt Fund, Warburg
Pincus New York Intermediate Municipal Fund, Warburg, Pincus Tax Free Fund,
Warburg Pincus Intermediate Maturity Government Fund, Warburg Pincus Fixed
Income Fund, Warburg Pincus Global Fixed Income Fund, Warburg Pincus Balanced
Fund, Warburg Pincus Growth & Income Fund, Warburg Pincus Capital Appreciation
Fund, Warburg Pincus Small Company Value Fund, Warburg Pincus Emerging Growth
Fund, Warburg Pincus Post-Venture Capital Fund, Warburg Pincus Emerging
Markets Fund, Warburg Pincus Japan Growth Fund and Warburg Pincus Japan OTC
Fund. Common Shareholders of the Fund may exchange all or part of their
shares for Common Shares of these or other mutual funds organized by Warburg
in the future on the basis of their relative net asset values per share at the
time of exchange. Exchanges of Advisor Shares may currently be made with
Advisor Shares of Warburg Pincus
<PAGE>71
Balanced Fund, Warburg Pincus Capital Appreciation Fund, Warburg Pincus
Emerging Growth Fund, Warburg Pincus Emerging Markets Fund, Warburg Pincus
Growth & Income Fund, Warburg Pincus International Equity Fund, Warburg Pincus
Japan Growth Fund, Warburg Pincus Japan OTC Fund and Warburg Pincus Post-
Venture Capital Fund at their relative net asset values at the time of the
exchange.
The exchange privilege enables shareholders to acquire shares in a
fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the Common Shares or
Advisor Shares being acquired, as relevant, may legally be sold. Prior to any
exchange, the investor should obtain and review a copy of the current
prospectus of the relevant class of each fund into which an exchange is being
considered. Shareholders may obtain a prospectus of the relevant class of the
fund into which they are contemplating an exchange from Counsellors
Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same
day, at a price as described above, in shares of the relevant class of the
fund being acquired. Warburg reserves the right to reject more than three
exchange requests by a shareholder in any 30-day period. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and
is not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund.
The Fund has qualified and intends to continue to qualify each year
as a "regulated investment company" under Subchapter M of the Code. If it
qualifies as a regulated investment company, the Fund will pay no federal
income taxes on its taxable net investment income (that is, taxable income
other than net realized capital gains) and its net realized capital gains that
are distributed to shareholders. To qualify under Subchapter M, the Fund
must, among other things: (i) distribute to its shareholders at least 90% of
its taxable net investment income (for this purpose consisting of taxable net
investment income and net realized short-term capital gains); (ii) derive at
least 90% of its gross income from dividends, interest, payments with respect
to loans of securities, gains from the sale or other disposition of
securities, or other income (including, but not limited to, gains from
options, futures, and forward contracts) derived with respect to the Fund's
business of investing in securities; (iii) derive less than 30% of its annual
gross income from the sale or other disposition of securities, options,
futures or forward contracts held for less than three months; and (iv)
diversify its holdings so that, at the end of each fiscal quarter of the Fund
<PAGE>72
(a) at least 50% of the market value of the Fund's assets is represented by
cash, U.S. government securities and other securities, with those other
securities limited, with respect to any one issuer, to an amount no greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of the issuer, and (b) not more than 25% of the
market value of the Fund's assets is invested in the securities of any one
issuer (other than U.S. government securities or securities of other regulated
investment companies) or of two or more issuers that the Fund controls and
that are determined to be in the same or similar trades or businesses or
related trades or businesses. In meeting these requirements, the Fund may be
restricted in the selling of securities held by the Fund for less than three
months and in the utilization of certain of the investment techniques
described above and in the Fund's Prospectuses. As a regulated investment
company, the Fund will be subject to a 4% non-deductible excise tax measured
with respect to certain undistributed amounts of ordinary income and capital
gain required to be but not distributed under a prescribed formula. The
formula requires payment to shareholders during a calendar year of
distributions representing at least 98% of the Fund's taxable ordinary income
for the calendar year and at least 98% of the excess of its capital gains over
capital losses realized during the one-year period ending October 31 during
such year, together with any undistributed, untaxed amounts of ordinary income
and capital gains from the previous calendar year. The Fund expects to pay
the dividends and make the distributions necessary to avoid the application of
this excise tax.
The Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Fund, defer Fund losses
and cause the Fund to be subject to hyperinflationary currency rules. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (i) will require the Fund to
mark-to-market certain types of its positions (i.e., treat them as if they
were closed out) and (ii) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books
and records when it acquires any foreign currency, forward contract, option,
futures contract or hedged investment so that (a) neither the Fund nor its
shareholders will be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received, (b) the
Fund will be able to use substantially all of its losses for the fiscal years
in which the losses actually occur and (c) the Fund will continue to qualify
as a regulated investment company.
A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should
have a cost basis in the shares received equal to that amount.
<PAGE>73
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution
that will nevertheless be taxable to them. Upon the sale or exchange of
shares, a shareholder will realize a taxable gain or loss depending upon the
amount realized and the basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, and, as described in the Prospectuses, will be long-term
or short-term depending upon the shareholder's holding period for the shares.
Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced, including replacement through the
reinvestment of dividends and capital gains distributions in the Fund, within
a period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired
will be increased to reflect the disallowed loss.
Each shareholder will receive an annual statement as to the federal
income tax status of his dividends and distributions from the Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable
year regarding the federal income tax status of certain dividends and
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to "backup withholding," the shareholder may be subject to a 31%
"backup withholding" tax with respect to (i) taxable dividends and dis-
tributions and (ii) the proceeds of any sales or repurchases of shares of the
Fund. An individual's taxpayer identification number is his social security
number. Corporate shareholders and other shareholders specified in the Code
are or may be exempt from backup withholding. The backup withholding tax is
not an additional tax and may be credited against a taxpayer's federal income
tax liability. Dividends and distributions also may be subject to state and
local taxes depending on each shareholder's particular situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities classified
under the Code as "passive foreign investment companies" ("PFICs"), the Fund
may be subject to federal income tax on a portion of an "excess distribution"
or gain from the disposition of the shares, even though the income may have to
be distributed as a taxable dividend by the Fund to its shareholders. In
addition, gain on the disposition of shares in a PFIC generally is treated as
ordinary income even though the shares are capital assets in the hands of the
Fund. Certain interest charges may be imposed on either the Fund or its
shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross income its
share of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest
<PAGE>74
charge and the ordinary income treatment on the disposition of stock, but such
an election may have the effect of accelerating the recognition of income and
gains by the Fund compared to a fund that did not make the election. In
addition, information required to make such an election may not be available
to the Fund.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice
indicating that final regulations will provide that regulated investment
companies may elect the mark-to-market election for tax years ending after
March 31, 1992 and before April 1, 1993. Whether and to what extent the
notice will apply to taxable years of the Fund is unclear. If the Fund is not
able to make the foregoing election, it may be able to avoid the interest
charge (but not the ordinary income treatment) on disposition of the stock by
electing, under proposed regulations, each year to mark-to-market the stock
(that is, treat it as if it were sold for fair market value). Such an
election could result in acceleration of income to the Fund.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. With respect to the Fund's Common Shares, the
Fund's average annual total return for the one-year period ended October 31,
1995 was - 2.55%, the average annual total return for the five-year period
ended October 31, 1995 was 12.68% (12.64% without waivers) and the average
annual total return for the period commenced May 2, 1989 (commencement of
operations) and ended October 31, 1995 was 12.77% (12.65% without waivers).
These figures are calculated by finding the average annual compounded rates of
return for the one-, five- and ten- (or such shorter period as the relevant
class of shares has been offered) year periods that would equate the initial
amount invested to the ending redeemable value according to the following
formula: P (1 + T)[*GRAPHIC OMITTED-SEE FOOTNOTE BELOW] = ERV. For purposes
of this formula, "P" is a hypothetical investment of $1,000; "T" is average
annual total return; "n" is number of years; and "ERV" is the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of
the one-, five- or ten-year periods (or fractional portion thereof). Total
return or "T" is computed by finding the average annual change in the value
of an initial $1,000 investment over the period and assumes that all
dividends and distributions are reinvested during the period. The Advisor
Shares average annual total return for the one-year period ended October 31,
1995 was - 3.04%, and the average annual total return for the period
commenced April 5, 1991 (initial issuance) and ended October 31, 1995 was
10.22% (10.19% without waivers).
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or
more other mutual funds with similar investment objectives. The Fund may
advertise average annual calendar year-to-date and calendar quarter returns,
which are calculated according to the formula set forth in the preceding
paragraph, except that the relevant measuring period would be the
[FN]
- ------------------------
* The expression (1 + T) is being raised to the nth power.
<PAGE>75
number of months that have elapsed in the current calendar year or most recent
three months, as the case may be. Investors should note that this performance
may not be representative of the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time to
time depending upon market conditions, the composition of the Fund's portfolio
and operating expenses allocable to it. As described above, total return is
based on historical earnings and is not intended to indicate future
performance. Consequently, any given performance quotation should not be
considered as representative of performance for any specified period in the
future. Performance information may be useful as a basis for comparison with
other investment alternatives. However, the Fund's performance will
fluctuate, unlike certain bank deposits or other investments which pay a fixed
yield for a stated period of time. Any fees charged by Institutions or other
institutional investors directly to their customers in connection with invest-
ments in Fund shares are not reflected in the Fund's total return, and such
fees, if charged, will reduce the actual return received by customers on their
investments.
The Fund intends to diversify its assets among countries, and in
doing so, would expect to be able to reduce the risk arising from economic
problems affecting a single country. Warburg thus believes that, by spreading
risk throughout many diverse markets outside the United States, the Fund will
reduce its exposure to country-specific economic problems. Warburg also
believes that a diversified portfolio of international equity securities, when
combined with a similarly diversified portfolio of domestic equity securities,
tends to have a lower volatility than a portfolio composed entirely of
domestic securities. Furthermore, international equities have been shown to
reduce volatility in single asset portfolios regardless of whether the
investments are in all domestic equities or all domestic fixed-income
instruments, and research indicates that volatility can be significantly
decreased when international equities are added.
To illustrate this point, the performance of international equity
securities, as measured by the Morgan Stanley Capital International (EAFE)
Europe, Australia and Far East Index (the "MS-EAFE Index"), has equalled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S & P 500 Index") in 14 of the last 23
years. The following table compares annual total returns of the MS-EAFE Index
and the S & P 500 Index for the calendar years shown.
<PAGE>76
MS-EAFE Index vs. S&P 500 Index
1972 - 1994
Annual Total Return+
Year MS-EAFE Index S&P 500 Index
---- ------------- -------------
1972* 33.28 14.43
1973* -16.82 -18.85
1974* -25.60 -30.96
1975* 31.21 27.81
1976 -.36 18.27
1977* 14.61 -9.64
1978* 28.92 5.01
1979 1.82 9.02
1980 19.01 27.71
1981* -4.85 -10.17
1982 -4.63 14.80
1983* 20.91 13.93
1984* 5.02 -1.22
1985* 52.97 29.45
1986* 66.80 14.97
1987* 23.18 .26
1988* 26.66 8.61
1989 9.22 28.81
1990 -24.71 -8.24
1991 10.19 27.94
1992 -13.89 4.43
1993* 30.49 7.22
1994* 6.24 -1.34
1995 9.42 34.71
[FN]
_________________
+ Without reinvestment of dividends.
* The MS-EAFE Index has outperformed the S&P 500 Index 15 out of the last
24 years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets
The quoted performance information shown above is not intended to
indicate the future performance of the Fund.
<PAGE>77
Advertising or supplemental sales literature relating to the Fund
may describe the percentage decline from all-time high levels for certain
foreign stock markets. It may also describe how the Fund differs from the MS-
EAFE Index in composition.
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves
as independent auditors for the Fund. The financial statements for the fiscal
years ended October 31, 1994 and October 31, 1995 that appear in this
Statement of Additional Information have been audited by Coopers & Lybrand,
whose report thereon appears elsewhere herein and have been included herein in
reliance upon the report of such firm of independent auditors given upon their
authority as experts in accounting and auditing.
The financial statements for the periods beginning with commencement
of the Fund through October 31, 1992 have been audited by Ernst & Young LLP
("Ernst & Young"), independent auditors, as set forth in their report and have
been included in reliance on such report and upon the authority of such firm
as experts in accounting and auditing. Ernst & Young's address is 787 7th
Avenue, New York, New York 10019.
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of November 30, 1995, the name, address and percentage of
ownership of each person (other than Mr. Furth, see "Management of the Fund")
that owns of record 5% or more of the Fund's outstanding shares were as
follows:
Common Shares
Charles Schwab & Co., Inc. Reinvest Account, Attn: Mutual Funds
Department, 101 Montgomery Street, San Francisco, CA 94104-4122 -- 31.27% and
Nat'l Financial Services Corp., FBO Customers, P.O. Box 3908, Church Street
Station, New York, NY 10008-3908 -- 7.04%. The Fund believes that these
entities are not the beneficial owners of shares held of record by them. Mr.
Lionel I. Pincus, Chairman of the Board and Chief Executive Officer of EMW,
may be deemed to have beneficially owned 19.52% of the Common Shares
outstanding, including shares owned by clients for which Warburg has
investment discretion and by companies that EMW may be deemed to control. Mr.
Pincus disclaims ownership of these shares and does not intend to exercise
voting rights with respect to these shares.
<PAGE>78
Advisor Shares
Connecticut General Life Ins. Co. ("CIGNA") on behalf of its
separate accounts 55E 55F 55G c/o Melissa Spencer, M110, Cigna Corp., P.O. Box
2975, Hartford, CT 06104-2975 -- 99.85%. CIGNA is not the beneficial owner
of shares held of record by them.
FINANCIAL STATEMENTS
The Fund's audited financial statements for the fiscal year ended
October 31, 1995 follow the Report of Independent Auditors.
<PAGE>791
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Group
("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than
for bonds in higher-rated categories.
To provide more detailed indications of credit quality, the ratings from
"AA" to "BBB" may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
<PAGE>802
The following summarizes the ratings used by Moody's for corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
<PAGE>81
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
December 8, 1995
Dear Shareholder:
The objective of Warburg Pincus International Equity Fund (the 'Fund') is
long-term capital appreciation. The Fund aims to tap into the strong growth
potential of today's world stock markets by investing primarily in companies
whose principal business activities and interests are outside the United States.
For the 12 months ended October 31, 1995, the Fund fell 2.55%, vs. losses
of 0.61% in the Lipper International Fund Index and 0.37% in the Morgan Stanley
Europe, Australia and Far East ('EAFE') Index. Exposure to emerging markets (the
Lipper Emerging Markets Fund Index fell 18.35% during the period) accounted for
much of the Fund's underperformance. Shareholders should note, though, that
while the Fund's performance lagged that of the EAFE Index for the fiscal year,
its long-term record is superior. From its inception on May 2, 1989, through
October 31, 1995, the Fund generated an average annual return of 12.77%,
compared to 3.15% for the EAFE Index. Also noteworthy is the fact that the Fund
managed to outperform its benchmark with a lower level of volatility.
After a disappointing first half of its fiscal year, the Fund showed a
considerable improvement in performance in the second half, aided greatly by a
sharp rebound in its Japanese holdings (27.6% of the portfolio through October).
Particularly strong gains were recorded by the Fund's Japanese technology
issues. We believe that these stocks still hold considerable upside potential,
and that most of the broader Japanese market remains significantly undervalued
based on traditional long-term measures of value (e.g., price relative to book
value, sales and cash flow).
Other Asian countries we remain positive on are South Korea and Taiwan, two
emerging markets that have suffered in 1995. Taiwan has seen its stock market
lose roughly a third of its value since the year began, the result of ongoing
political tensions with China. This has created particularly attractive values
in Taiwan's market, and we have used the opportunity to increase our Taiwanese
stake, adding to positions in well-managed companies in the shipping and
industrial sectors. In general, we feel that emerging markets have been
oversold, given their outstanding long-term attractions.
The Fund's European holdings contributed positively to its performance over
the trailing 12 months, supported by falling interest rates. By country, the
Fund's largest weightings as of October 31 were in the United Kingdom and France
(7.2% and 5.9%, respectively, of the portfolio). Our British holdings were
strong performers during the period. French issues generated less impressive
results, hampered by concerns regarding fiscal policies of the Chirac
administration and doubts about the country's ability to meet the criteria for
European economic and monetary union in 1999. But we remain positive on the
outlook for the French companies held in the portfolio, believing they are
strong, well-managed businesses.
Richard H. King
Portfolio Manager
6
- --------------------------------------------------------------------------------
<PAGE>82
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS INTERNATIONAL
EQUITY FUND SINCE INCEPTION AS OF OCTOBER 31, 1995
The graph below illustrates the hypothetical investment of $10,000 in
Common Shares of Warburg Pincus International Equity Fund (the 'Fund') from May
2, 1989 (inception) to October 31, 1995, assuming the reinvestment of dividends
and capital gains at net asset value, compared to the Morgan Stanley Europe,
Australia and Far East Index ('EAFE')* for the same time period.
[GRAPH]
<TABLE>
<CAPTION>
FUND
------
<S> <C>
1 Year Total Return (9/30/94-9/30/95)...................................... 0.01%
5 Year Average Annual Total Return (9/30/90-9/30/95)....................... 14.72%
Average Annual Total Return Since Inception (5/02/89-9/30/95).............. 13.33%
</TABLE>
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost.
[FN]
- ------------
* EAFE is an unmanaged index of international equities with no defined
investment objective that is compiled by Morgan Stanley Capital
International.
7
- --------------------------------------------------------------------------------
<PAGE>83
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Boards of Directors, Trustees and Shareholders of
Warburg Pincus Equity Funds:
We have audited the accompanying statements of net assets of the Warburg Pincus
Capital Appreciation Fund, Warburg Pincus Emerging Growth Fund and Warburg
Pincus International Equity Fund and the accompanying statements of assets and
liabilities including the schedules of investments of Warburg Pincus Japan OTC
Fund, Warburg Pincus Emerging Markets Fund and Warburg Pincus Post-Venture
Capital Fund (all Funds collectively referred to as the 'Warburg Pincus Equity
Funds') as of October 31, 1995, and the related statements of operations for the
year (or period) then ended, and the statements of changes in net assets for
each of the two years (or period) and the financial highlights for each of the
three years (or period) in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of the
Warburg Pincus Equity Funds for each of the two years in the period ended
October 31, 1992, were audited by other auditors, whose report dated December
15, 1992, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Warburg Pincus Equity Funds as of October 31, 1995, and the results of
their operations for the year (or period) then ended, and the changes in their
net assets for each of the two years (or period) and the financial highlights
for each of the three years (or period) in the period then ended, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
December 14, 1995
67
- --------------------------------------------------------------------------------
<PAGE>84
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (90.1%)
Argentina (3.0%)
Banco de Galicia & Buenos Aires SA 365,989 $ 1,729,544
Banco de Galicia & Buenos Aires SA ADR 118,520 2,266,695
Banco Frances del Rio de la Plata SA 510,100 3,712,882
Banco Frances del Rio de la Plata SA ADR 684,800 14,980,000
Capex SA GDR + 499,000 6,050,375
Telefonica de Argentina SA ADR 791,000 16,413,250
YPF SA ADR 1,553,500 26,603,687
--------------
71,756,433
--------------
Australia (2.9%)
BTR Nylex Ltd. 5,305,519 14,423,345
Niugini Mining Ltd. 1,385,000 2,879,270
Pasminco Ltd. 7,766,600 8,575,686
Reinsurance Australia Corp., Ltd. 9,523,400 18,130,173
Woodside Petroleum Ltd. 5,175,800 24,791,227
--------------
68,799,701
--------------
Austria (3.2%)
Boehler-Uddeholm AG + 327,200 23,071,583
Maculan Holding AG Vorzuege 71,360 1,340,837
V.A. Technologie AG 456,374 52,926,291
--------------
77,338,711
--------------
Brazil (0.4%)
Panamerican Beverages, Inc. Class A 366,000 10,019,250
--------------
Denmark (0.9%)
International Service System A/S Class B 1,025,110 21,025,972
--------------
Finland (1.8%)
Metra Oy Class A 300 13,155
Metra Oy Class B 139,750 6,062,049
Metsa-Serla Class B 658,650 24,533,618
Valmet Corp. Class A 442,200 12,301,286
--------------
42,910,108
--------------
France (5.9%)
Bouygues SA 312,722 33,316,009
Cetelem 66,885 10,688,445
Fives-Lille (Compagnie De) 84,060 6,802,643
Lagardere Groupe 1,501,475 28,085,365
Scor SA 555,419 16,590,881
Total Cie Franc Des Petroles Class B 693,650 42,946,329
Total Petroles SA ADR 47,743 1,474,064
--------------
139,903,736
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
<PAGE>85
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Germany (2.5%)
Deutsche Bank AG 694,500 $ 31,352,730
SGL Carbon AG + 432,040 28,350,128
--------------
59,702,858
--------------
Hong Kong (3.2%)
Citic Pacific Ltd. 2,127,000 6,644,124
HSBC Holdings PLC 1,976,869 28,766,267
HSBC Holdings PLC (UK) 195,074 2,901,055
Jardine Matheson Holdings Ltd. ADR 4,819,900 29,401,390
Jilin Chemical Industrial Co. Ltd. ADR + 473,800 9,772,124
--------------
77,484,960
--------------
India (2.1%)
Hindalco Industries Ltd. GDR 783,950 25,086,400
Reliance Industries Ltd. GDS 1,292,500 20,188,850
The India Fund, Inc. 655,900 5,493,162
--------------
50,768,412
--------------
Indonesia (1.6%)
P.T. Bank International Indonesia 1,887,500 6,619,155
P.T. Dynaplast Ltd. 1,709,700 1,508,337
P.T. Mulia Industrindo 2,944,000 8,700,838
P.T. Semen Gresik 3,948,500 10,276,202
P.T. Tri Polyta Indonesia ADR + 675,700 10,473,350
--------------
37,577,882
--------------
Israel (1.5%)
Ampal-American Israel Corp. Class A + 1,374,000 7,728,750
ECI Telecommunications Limited Designs 1,453,500 27,616,500
--------------
35,345,250
--------------
Japan (25.8%)
Canon Inc. 2,452,000 41,982,194
Canon Inc. ADR 98,040 8,357,910
Daimaru Inc. 368,000 2,340,280
DDI Corp. 3,675 29,807,015
East Japan Railway Co. 2,884 13,628,529
Fujitsu Ltd. 2,801,000 33,433,324
Hitachi Ltd. 4,096,250 42,080,643
Kao Corp. 500 6,066
Keyence Corp. 75,600 9,319,636
Kirin Beverage Corp. 124,000 1,880,442
Kyocera Corp. 268,000 21,972,801
Murata Mfg. Co., Ltd. 301,310 10,583,142
NEC Corp. 2,084,000 27,525,682
Nikon Corp. 2,670,000 38,139,125
Nippon Communication Systems Corp. 1,436,700 15,180,863
</TABLE>
See Accompanying Notes to Financial Statements.
21
- --------------------------------------------------------------------------------
<PAGE>86
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Nippon Telegraph & Telephone Corp. 6,339 $ 52,036,716
NTT Data Communications Systems Co. 1,807 45,258,977
Orix Corp. 521,700 18,375,110
Rohm Co. 385,000 23,391,547
Shin-Etsu Chemical Co., Ltd. 751,400 15,364,700
Sony Corp. 566,300 25,486,547
Sony Corp. ADR 113,500 5,192,625
TDK Corp. 892,000 45,991,977
Toho Co., Ltd. 130,240 18,349,046
Tokyo Electron Ltd. 835,000 36,272,380
Tsuchiya Home Co. 297,620 4,222,180
Uny Co., Ltd. 825,500 14,214,656
York-Benimaru Co., Ltd. 505,900 16,036,748
--------------
616,430,861
--------------
Malaysia (0.3%)
Westmont BHD 1,732,000 5,999,449
--------------
Mexico (0.5%)
Gruma SA + 4,094,000 12,075,000
--------------
New Zealand (5.9%)
Brierley Investments Ltd. 42,195,904 32,842,254
Fletcher Challenge Ltd. 8,846,687 23,399,452
Fletcher Forestry 15,589,223 21,490,742
Lion Nathan Ltd. 13,821,300 31,360,861
Sky City Ltd. 965,885 20,068,579
Wrightson Ltd. 14,548,459 11,707,320
--------------
140,869,208
--------------
Norway (1.8%)
Norsk Hydro AS ADR 1,096,022 43,840,880
--------------
Pakistan (0.4%)
Pakistan Telecommunications Corp. + 1,430 139,594
Pakistan Telecommunications Corp. GDR + 93,200 8,900,600
--------------
9,040,194
--------------
Singapore (1.5%)
DBS Land Ltd. 3,866,000 11,440,623
Development Bank of Singapore Ltd. 1,123,250 12,882,584
Development Bank of Singapore Ltd. ADR 79,500 3,657,000
IPC Corp., Ltd. 10,568,000 7,219,908
--------------
35,200,115
--------------
South Korea (4.8%)
Daewoo Electronics Co., Ltd. + 871,120 11,613,415
</TABLE>
See Accompanying Notes to Financial Statements.
22
- --------------------------------------------------------------------------------
<PAGE>87
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Daewoo Electronics Co., Ltd. New + 3,290 $ 41,926
Hana Bank 455,740 9,911,794
Hanil Bank 1,943,692 25,241,829
Korea Europe Fund Ltd. 1,210 5,596,250
Korea Long Term Credit Bank 251,095 8,123,256
Mando Machinery Corp. + 29,000 1,923,984
Samsung Electronics Co., Ltd. 134,710 30,171,096
Samsung Electronics Co., Ltd. GDR 28,932 1,909,512
Samsung Electronics Co., Ltd. GDR New 248 29,760
Samsung Electronics Co., Ltd. New 6,821 1,532,251
Samsung Electronics Co., Ltd. Second Series 2,470 543,329
Samsung Heavy Industries Co., Ltd. 500,703 15,248,177
--------------
111,886,579
--------------
Spain (3.5%)
Banco de Santander 144,866 6,321,771
Banco de Santander ADR 1,172,200 50,551,125
Repsol SA ADR 928,700 27,512,738
--------------
84,385,634
--------------
Sweden (2.6%)
Asea AB Series B 251,500 24,828,555
Astra AB Series B 1,066,500 38,578,405
--------------
63,406,960
--------------
Switzerland (2.4%)
BBC Brown Boveri AG 39,008 45,247,081
Danzas Holding AG 12,824 11,294,698
--------------
56,541,779
--------------
Taiwan (3.3%)
China Steel Corp. + 12,873,000 10,161,012
Evergreen Marine Corp. Ltd. 4,782,800 7,178,188
Grand Pacific Fund 2,872,000 713,078
Kwang Hua Growth Fund 6,346,000 2,198,818
Taiwan Semiconductor Mfg. Co. + 5,338,000 16,616,342
Ton Yi Industrial Corp. + 9,785,000 12,981,397
Tuntex Distinct Corp. + 15,377,242 9,744,333
Tuntex Distinct Corp. GDS + 654,510 4,090,688
Yang Ming Marine Transport Corp. 13,302,000 14,640,334
--------------
78,324,190
--------------
Thailand (1.2%)
Industrial Finance Corp. of Thailand 7,467,400 24,554,026
Thai Military Bank Ltd. 908,300 3,583,966
--------------
28,137,992
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
23
- --------------------------------------------------------------------------------
<PAGE>88
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (CONT'D)
United Kingdom (7.1%)
AAF Industries PLC + 847,750 $ 348,344
British Air Authority PLC 3,426,533 26,643,240
BTR PLC 1,969,931 10,460,617
Cookson Group PLC 3,138,000 14,530,735
Govett & Co., Ltd. 3,005,000 11,540,318
Grand Metropolitan PLC 3,064,000 21,209,474
Grand Metropolitan PLC ADR 123,000 3,382,500
Prudential Corp. PLC 4,063,800 25,432,821
Reckitt & Coleman PLC 2,058,429 21,893,640
Singer & Friedlander Group PLC 9,093,000 15,232,812
Takare PLC 5,657,400 18,328,958
Trio Holdings PLC 7,868,850 1,492,312
--------------
170,495,771
--------------
Zimbabwe
Delta Corp., Ltd. 530,000 835,620
--------------
TOTAL COMMON STOCK (Cost $2,058,122,790) 2,150,103,505
--------------
PREFERRED STOCK (0.7%)
Austria (0.1%)
Maculan Holdings AG Vorzuege 113,775 2,068,845
--------------
South Korea (0.5%)
Mando Machinery Corp. + 110,000 4,021,592
Samsung Electronics Co., Ltd. 48,040 5,962,586
Samsung Electronics Co., Ltd. New 9,507 1,162,237
--------------
11,146,415
--------------
United Kingdom (0.1%)
Singer & Friedlander Group PLC 8.5% Convertible 1,435,737 2,938,405
--------------
TOTAL PREFERRED STOCK (Cost $20,093,486) 16,153,665
--------------
STOCK WARRANTS (0.2%)
Australia
Niugini Mining Ltd., 12/08/95 + 346,250 184,569
--------------
Hong Kong
Jardine Strategic Holdings Ltd., 05/02/98 + 2,115,400 560,581
--------------
Israel
Ampal-American Israel Corp. Class A, 01/31/99 + 455,000 184,844
--------------
Japan
Bandai Industries, 11/04/97 + 2,936 2,862,600
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
24
- --------------------------------------------------------------------------------
<PAGE>89
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
STOCK WARRANTS (CONT'D)
Switzerland
Danzas Holding AG, 08/02/96 + 9,050 $ 3,587
--------------
TOTAL STOCK WARRANTS (Cost $5,829,846) 3,796,181
--------------
CONTRACTS
----------
CALL OPTIONS (0.5%)
Japan
Topix Index, 03/08/96, (Strike price $1,251.24) + 20,426 3,622,143
Topix Index, 03/08/96, (Strike price $1,261.12) + 21,024 3,554,948
Topix Index, 03/08/96, (Strike price $1,349.00) + 9,152 943,480
Topix Index, 05/10/96, (Strike price $1,323.64) + 20,842 2,486,451
Topix Index, 06/14/96, (Strike price $1,275.00) + 11,519 1,910,541
--------------
12,517,563
--------------
Mexico
Mexican Inmex, 03/29/96, (Strike price $56.60) + 249,080 4,982
--------------
Switzerland
Danzas Holding AG, 08/22/96, (Strike price 12.50 Sfr) + 1,000 3,963
--------------
TOTAL CALL OPTIONS (Cost $10,439,121) 12,526,508
--------------
</TABLE>
<TABLE>
<S> <C> <C>
PAR =
-------------
CONVERTIBLE BONDS/NOTES (2.3%)
Argentina (0.3%)
Banco de Galicia & Buenos Aires SA 7.00%, 08/01/02 $ 7,648,000 6,156,640
--------------
Australia (0.3%)
BTR Nylex Ltd. 9.00%, 11/30/49 (A) 57,300,000 6,518,912
--------------
India (0.2%)
Reliance Industries Ltd. 3.50%, 11/03/99 $ 3,850,000 3,936,625
--------------
Japan (1.1%)
Matsushita Electric Works Ltd. 2.70%, 05/31/02 (B) 2,465,000,000 27,541,630
--------------
New Zealand
Brierley Investments Ltd. 9.00%, 06/30/98 (C) 1,314,875 936,675
--------------
Taiwan (0.4%)
Yang Ming Marine Transport Corp. 2.00%, 10/06/01 $ 8,429,000 8,997,958
--------------
TOTAL CONVERTIBLE BONDS/NOTES (Cost $53,163,859) 54,088,440
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
25
- --------------------------------------------------------------------------------
<PAGE>90
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
------------- --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.2%)
Repurchase agreement with State Street Bank & Trust dated 10/31/95 at 5.83%
to be repurchased at $77,068,479 on 11/01/95. (Collateralized by $50,000,000
U.S.
Treasury Note 6.875%, due 10/31/96 and $27,625,000 U.S. Treasury Note 6.00%,
due 8/31/97. Market value of collateral is $78,664,375.)(cost $77,056,000) $ 77,056,000 $ 77,056,000
--------------
TOTAL INVESTMENTS AT VALUE (97.0%) (Cost $2,224,705,102*) 2,313,724,299
OTHER ASSETS IN EXCESS OF LIABILITIES (3.0%) 72,219,548
--------------
NET ASSETS (100.0%) (applicable to 107,177,463 Common Shares and 16,584,820 Advisor
Shares) $2,385,943,847
--------------
--------------
NET ASSET VALUE, offering and redemption price per Common Share
($2,068,207,597[div]107,177,463) $19.30
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($317,736,250[div]16,584,820) $19.16
------
------
</TABLE>
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
ADR =American Depository Receipt
GDR =Global Depository Receipt
GDS =Global Depository Share
</TABLE>
[FN]
+ Non-income producing security.
* Cost for Federal income tax purposes is $2,225,158,852.
= Unless otherwise indicated below, all bonds are denominated in U.S. Dollars
(A) Denominated in Australian Dollars.
(B) Denominated in Japanese Yen.
(C) Denominated in New Zealand Dollars.
See Accompanying Notes to Financial Statements.
26
- --------------------------------------------------------------------------------
<PAGE>91
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth International Equity
Fund Fund Fund
-------------------- --------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,107,232 $ 772,834 $ 40,091,101
Interest 684,526 2,112,707 7,110,116
Foreign taxes withheld (2,423) 0 (5,031,072)
-------------------- --------------- --------------------
Total investment income 2,789,335 2,885,541 42,170,145
-------------------- --------------- --------------------
EXPENSES:
Investment advisory 1,367,729 3,824,061 20,225,631
Administrative services 390,780 849,790 3,408,846
Audit 27,208 27,469 69,286
Custodian/Sub-custodian 63,554 145,277 1,753,400
Directors/Trustees 10,500 10,500 11,500
Distribution/Shareholder servicing 45,989 531,359 1,274,343
Insurance 10,104 14,770 58,340
Legal 90,851 76,677 102,549
Organizational 0 0 0
Printing 27,954 41,914 172,129
Registration 62,918 159,555 428,595
Transfer agent 92,488 149,133 1,538,272
Miscellaneous 35,776 37,625 380,319
-------------------- --------------- --------------------
2,225,851 5,868,130 29,423,210
Less: fees waived and expenses reimbursed 0 0 0
-------------------- --------------- --------------------
Total expenses 2,225,851 5,868,130 29,423,210
-------------------- --------------- --------------------
Net investment income (loss) 563,484 (2,982,589) 12,746,935
-------------------- --------------- --------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
AND FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 31,649,453 49,113,782 (34,444,203)
Net realized gain (loss) from foreign currency
related items 0 0 16,792,905
Net change in unrealized appreciation (depreciation)
from investments and foreign currency related items 12,386,702 84,670,426 (4,675,049)
-------------------- --------------- --------------------
Net realized and unrealized gain (loss) from
investments and foreign currency related
items 44,036,155 133,784,208 (22,326,347)
-------------------- --------------- --------------------
Net increase (decrease) in net assets
resulting from operations $ 44,599,639 $ 130,801,619 $ (9,579,412)
-------------------- --------------- --------------------
-------------------- --------------- --------------------
</TABLE>
40
- --------------------------------------------------------------------------------
<PAGE>92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture Capital
Fund Fund (1) Fund (2)
-------------- ---------------- --------------------
<S> <C> <C>
$ 221,577 $ 33,788 $ 0
412,522 22,711 2,675
(33,237) (3,250) 0
-------------- ---------------- -----------
600,862 53,249 2,675
-------------- ---------------- -----------
599,720 29,641 1,756
138,679 5,217 280
25,700 16,000 9,000
60,612 45,701 5,771
11,290 14,625 1,250
119,941 5,926 351
2,761 855 0
96,359 54,987 5,000
42,449 37,432 1,932
2,579 14,765 1,000
115,649 26,664 6,000
100,690 28,656 2,833
10,620 6,070 500
-------------- ---------------- -----------
1,327,049 286,539 35,673
(652,386) (262,824) (33,354)
-------------- ---------------- -----------
674,663 23,715 2,319
-------------- ---------------- -----------
(73,801) 29,534 356
-------------- ---------------- -----------
(4,629,196) 102,219 (26,884)
7,895,010 (4,992) 0
(195,368) (9,058) 164,441
-------------- ---------------- -----------
3,070,446 88,169 137,557
-------------- ---------------- -----------
$2,996,645 $117,703 $137,913
-------------- ---------------- -----------
-------------- ---------------- -----------
(1) For the period December 30, 1994 (Commencement of Operations) through October 31, 1995.
(2) For the period September 29, 1995 (Commencement of Operations) through October 31, 1995.
</TABLE>
See Accompanying Notes to Financial Statements.
41
- --------------------------------------------------------------------------------
<PAGE>93
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth
Fund Fund
----------------------------------- -----------------------------------
For the Year Ended October 31, For the Year Ended October 31,
1995 1994 1995 1994
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 563,484 $ 384,246 $ (2,982,589) $ (1,678,646)
Net realized gain (loss) from
security transactions 31,649,453 11,173,174 49,113,782 (5,721,525)
Net realized gain (loss) from foreign
currency related items 0 0 0 0
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency related items 12,386,702 (9,106,613) 84,670,426 10,930,919
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets resulting from
operations 44,599,639 2,450,807 130,801,619 3,530,748
--------------- ---------------- --------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (563,484) (419,337) 0 0
Advisor Shares 0 (27,724) 0 0
Distributions in excess of net
investment income:
Common Shares 0 0 0 0
Distributions from capital gains:
Common Shares (10,419,627) (12,899,141) 0 (10,576,150)
Advisor Shares (575,892) (852,608) 0 (1,639,316)
--------------- ---------------- --------------- ----------------
Net decrease from distributions (11,559,003) (14,198,810) 0 (12,215,466)
--------------- ---------------- --------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 88,963,455 45,617,531 335,569,078 180,813,270
Reinvested dividends 11,246,752 13,809,167 0 12,758,387
Net asset value of shares redeemed (53,459,471) (49,851,500) (116,280,844) (71,767,717)
--------------- ---------------- --------------- ----------------
Net increase in net assets from
capital share transactions 46,750,736 9,575,198 219,288,234 121,803,940
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets 79,791,372 (2,172,805) 350,089,853 113,119,222
NET ASSETS:
Beginning of period 167,514,493 169,687,298 304,672,758 191,553,536
--------------- ---------------- --------------- ----------------
End of period $ 247,305,865 $167,514,493 $ 654,762,611 $304,672,758
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
42
- --------------------------------------------------------------------------------
<PAGE>94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture
Warburg Pincus Fund Fund Capital Fund
International Equity --------------------------------------- ------------------- -------------------
Fund For the Period For the Period For the Period
----------------------------------- September 30, 1994 December 30, 1994 September 29, 1995
For the (Commencement of (Commencement of (Commencement of
For the Year Ended October 31, Year Ended Operations) through Operations) through Operations) through
1995 1994 October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1995
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 12,746,935 $ 1,310,933 $ (73,801) $ 5,115 $ 29,534 $ 356
(34,444,203 ) 48,091,665 (4,629,196) 0 102,219 (26,884)
16,792,905 (2,772,944) 7,895,010 (294,437) (4,992) 0
(4,675,049 ) 82,484,415 (195,368) (35,099) (9,058) 164,441
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(9,579,412 ) 129,114,069 2,996,645 (324,421) 117,703 137,913
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(11,671,023 ) (1,764,380) 0 0 (14,321) 0
(629,473 ) (218,961) 0 0 (3) 0
0 (223,659) 0 0 0 0
(42,332,078 ) (1,047,367) 0 0 0 0
(5,756,403 ) (129,979) 0 0 0 0
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(60,388,977 ) (3,384,346) 0 0 (14,324) 0
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
1,383,361,959 1,430,739,923 200,565,875 20,287,158 7,753,908 2,792,403
54,872,977 2,950,772 0 0 13,802 0
(715,598,203 ) (249,050,078) (44,871,674) (185,101) (1,191,160) (4,887)
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
722,636,733 1,184,640,617 155,694,201 20,102,057 6,576,550 2,787,516
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
652,668,344 1,310,370,340 158,690,846 19,777,636 6,679,929 2,925,429
1,733,275,503 422,905,163 19,878,636 101,000 101,000 100,000
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
$2,385,943,847 $1,733,275,503 $178,569,482 $19,878,636 $ 6,780,929 $ 3,025,429
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
</TABLE>
See Accompanying Notes to Financial Statements.
43
- --------------------------------------------------------------------------------
<PAGE>95
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout Each Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $20.51 $17.00 $12.22 $13.66 $11.81
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .12 .09 .09 .15 .19
Net Gain (Loss) on Securities and
Foreign Currency Related Items (both
realized and unrealized) (.67) 3.51 4.84 (1.28) 2.03
------ ------ ------ ------ ------
Total from Investment Operations (.55) 3.60 4.93 (1.13) 2.22
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.13) (.04) (.02) (.16) (.33)
Distributions in Excess of
Net Investment Income .00 (.01) .00 .00 .00
Distributions from Capital Gains (.53) (.04) (.13) (.15) (.04)
------ ------ ------ ------ ------
Total Distributions (.66) (.09) (.15) (.31) (.37)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $19.30 $20.51 $17.00 $12.22 $13.66
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return (2.55%) 21.22% 40.68% (8.44%) 19.42%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $2,068,207 $1,533,872 $378,661 $101,763 $72,553
Ratios to average daily net assets:
Operating expenses 1.39% 1.44% 1.48% 1.49% 1.50%
Net investment income .69% .19% .38% .88% 1.19%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .00% .00% .07% .17%
Portfolio Turnover Rate 39.24% 17.02% 22.60% 53.29% 54.95%
</TABLE>
See Accompanying Notes to Financial Statements.
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.46
Long-term capital gain .20
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
46
- --------------------------------------------------------------------------------
<PAGE>96
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund'), Warburg Pincus
International Equity Fund (the 'International Equity Fund') and Warburg Pincus
Post-Venture Capital Fund (the 'Post-Venture Capital Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund'), Warburg Pincus Japan OTC Fund
(the 'Japan OTC Fund') and Warburg Pincus Emerging Markets Fund (the 'Emerging
Markets Fund', together with the Capital Appreciation Fund, the International
Equity Fund, the Post-Venture Capital Fund, the Emerging Growth Fund and the
Japan OTC Fund, the 'Funds') which are registered under the 1940 Act as non-
diversified, open-end management investment companies.
Investment objectives for each Fund are as follows: the Capital
Appreciation Fund, the International Equity Fund and the Japan OTC Fund seek
long-term capital appreciation; the Emerging Growth Fund seeks maximum capital
appreciation; the Emerging Markets Fund seeks growth of capital; the
Post-Venture Capital Fund seeks long-term growth of capital.
Each Fund offers two classes of shares, one class being referred to as
Common Shares and one class being referred to as Advisor Shares. Common and
Advisor Shares in each Fund represent an equal pro rata interest in such Fund,
except that they bear different expenses which reflect the difference in the
range of services provided to them. Common Shares for the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund bear expenses paid
pursuant to a shareholder servicing and distribution plan adopted by each Fund
at an annual rate not to exceed .25% of the average daily net asset value of
each Fund's outstanding Common Shares. Advisor Shares for each Fund bear
expenses paid pursuant to a distribution plan adopted by each Fund at an annual
rate not to exceed .75% of the average daily net asset value of each Fund's
outstanding Advisor Shares. The Common and the Advisor Shares are currently
bearing expenses of .25% and .50% of average daily net assets, respectively.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported bid price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's governing Board. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are
50
- --------------------------------------------------------------------------------
<PAGE>97
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
reported in the results of operations for the current period. The Funds do not
isolate that portion of gains and losses on investments in equity securities
which are due to changes in the foreign exchange rate from that which are due to
changes in market prices of equity securities. The Funds isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses, principally distribution,
transfer agent and printing) and realized/unrealized gains/losses are allocated
proportionately to each class of shares based upon the relative net asset value
of outstanding shares. The cost of investments sold is determined by use of the
specific identification method for both financial reporting and income tax
purposes.
Dividends from net investment income are declared and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared and
paid annually. However, to the extent that a net realized capital gain can be
reduced by a capital loss carryover, such gain will not be distributed. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
Certain amounts in the Financial Highlights have been reclassified to
conform with current year presentation.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Japan OTC Fund, the Emerging Markets Fund and the
Post-Venture Capital Fund in connection with their organization have been
deferred and are being amortized over a period of five years from the date each
Fund commenced its operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives the
following fees based on each Fund's average daily net assets:
51
- --------------------------------------------------------------------------------
<PAGE>98
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- --------------------------------- ----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
Emerging Markets 1.25% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
</TABLE>
For the period or year ended October 31, 1995, investment advisory fees,
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ------------------------------------------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 1,367,729 $ 0 $ 1,367,729 $ 0
Emerging Growth 3,824,061 0 3,824,061 0
International Equity 20,225,631 0 20,225,631 0
Japan OTC 599,720 (599,720) 0 (25,920)
Emerging Markets 29,641 (29,641) 0 (230,338)
Post-Venture Capital 1,756 (1,756) 0 (31,458)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Warburg pays SPARX USA a fee at an annual rate of .625% of the average daily net
assets of the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to
SPARX USA for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Fund's average daily net assets. For the period or year
ended October 31, 1995, administrative services fees earned by CFSI were as
follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 195,390
Emerging Growth 424,895
International Equity 2,022,563
Japan OTC 47,978
Emerging Markets 2,372
Post-Venture Capital 140
</TABLE>
For its administrative services, PFPC currently receives a fee calculated
at an annual rate of .10% of the average daily net assets of the Capital
Appreciation Fund, the Emerging Growth Fund and the Post-Venture Capital Fund.
For the International Equity Fund, the Japan OTC Fund and the Emerging Markets
Fund, PFPC currently receives a fee calculated at an annual rate of .12% on each
Fund's first $250 million in average daily net assets, .10% on the next $250
million in average daily net assets, .08%
52
- --------------------------------------------------------------------------------
<PAGE>99
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
on the next $250 million in average daily net assets, and .05% of the average
daily net assets over $750 million.
For the period or year ended October 31, 1995, administrative service fees
earned and waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- ----------------------------------------- --------------------- -------- -------------------------
<S> <C> <C> <C>
Capital Appreciation $ 195,390 $ 0 $ 195,390
Emerging Growth 424,895 0 424,895
International Equity 1,386,283 0 1,386,283
Japan OTC 90,701 (26,746) 63,955
Emerging Markets 2,845 (2,845) 0
Post-Venture Capital 140 (140) 0
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund, the Emerging Growth Fund or the International Equity
Fund to CSI for distribution services. For its shareholder servicing and
distribution services, CSI currently receives a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares for the Japan OTC
Fund, the Emerging Markets Fund and the Post-Venture Capital Fund pursuant to a
shareholder servicing and distribution plan adopted by each Fund. For the period
or year ended October 31, 1995, distribution fees earned by CSI were as follows:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Japan OTC $119,941
Emerging Markets 5,926
Post-Venture Capital 351
</TABLE>
3. INVESTMENTS IN SECURITIES
For the period or year ended October 31, 1995, purchases and sales of
investment securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------------------------------------- -------------- ------------
<S> <C> <C>
Capital Appreciation $ 299,741,274 $269,962,070
Emerging Growth 532,722,466 336,581,792
International Equity 1,457,609,458 735,613,078
Japan OTC 189,768,420 36,507,703
Emerging Markets 7,181,659 1,297,140
Post-Venture Capital 2,714,501 222,270
</TABLE>
53
- --------------------------------------------------------------------------------
<PAGE>100
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 45,397,319 $ (3,203,157) $ 42,194,162
Emerging Growth 144,909,782 (9,681,675) 135,228,107
International Equity 260,125,513 (171,560,066) 88,565,447
Japan OTC 6,205,079 (7,100,852) (895,773)
Emerging Markets 341,944 (352,944) (11,000)
Post-Venture Capital 233,929 (69,488) 164,441
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund, the Japan OTC Fund, the Emerging Markets
Fund and the Post-Venture Capital Fund may enter into forward currency contracts
for the purchase or sale of a specific foreign currency at a fixed price on a
future date. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. The Funds will enter into forward contracts primarily for hedging
purposes. The forward currency contracts are adjusted by the daily exchange rate
of the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
54
- --------------------------------------------------------------------------------
<PAGE>101
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the International Equity Fund and the Japan OTC Fund had
the following open forward foreign currency contracts:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French Francs 11/15/95 260,000,000 $ 52,170,074 $ 53,253,590 $ (1,083,516)
French Francs 11/16/95 122,216,250 25,050,833 25,032,515 18,318
German Marks 11/16/95 110,000,000 78,272,317 78,263,963 8,354
German Marks 05/17/96 78,928,380 55,400,000 56,652,584 (1,252,584)
Japanese Yen 03/21/96 5,547,240,000 57,000,000 55,475,507 1,524,493
Japanese Yen 03/21/96 4,764,377,500 47,298,496 47,646,443 (347,947)
Japanese Yen 03/21/96 4,764,377,500 47,276,203 47,646,443 (370,240)
Japanese Yen 03/21/96 1,385,445,000 13,761,286 13,855,226 (93,940)
Japanese Yen 05/13/96 8,731,990,000 109,000,000 88,008,212 20,991,788
Japanese Yen 05/16/96 9,247,700,000 110,000,000 93,246,752 16,753,248
Japanese Yen 05/16/96 4,586,012,000 55,400,000 46,241,847 9,158,153
Japanese Yen 09/18/96 4,660,000,000 50,000,000 47,860,895 2,139,105
------------ ------------ ----------------
$700,629,209 $653,183,977 $ 47,445,232
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
FORWARD CURRENCY EXPIRATION TO BE CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE PURCHASED AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
German Marks 11/16/95 34,500,000 $ 25,050,828 $ 24,546,425 $ (504,403)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JAPAN OTC FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 11/30/95 12,567,400,000 $124,000,000 $123,536,813 $ 463,187
Japanese Yen 11/30/95 2,027,000,000 20,000,000 19,925,293 74,707
Japanese Yen 11/30/95 1,520,250,000 15,000,000 14,943,969 56,031
------------ ------------ ----------------
$159,000,000 $158,406,075 $ 593,925
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
55
- --------------------------------------------------------------------------------
<PAGE>102
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
5. EQUITY SWAP TRANSACTIONS
The International Equity Fund (the 'Fund') entered into a Taiwanese equity
swap agreement (which represents approximately .005% of the Fund's net assets at
October 31, 1995) dated August 11, 1995, where the Fund receives a quarterly
payment, representing the total return (defined as market appreciation and
dividend income) on a basket of three Taiwanese common stocks ('Common Stocks').
In return, the Fund pays quarterly the Libor rate (London Interbank Offered
Rate), plus 1.25% per annum (7.125% on October 31, 1995) on the initial stock
purchase amount ('Notional amount') of $12,000,000. The Notional amount is
marked to market on each quarterly reset date. In the event that the Common
Stocks decline in value, the Fund will be required to pay quarterly, the amount
of any depreciation in value from the notional amount. The equity swap agreement
will terminate on August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At October 31, 1995, the
Fund has recorded an unrealized gain of $502,018 and interest payable of
$192,375 on the equity swap transaction.
56
- --------------------------------------------------------------------------------
<PAGE>103
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
The Capital Appreciation Fund is authorized to issue three billion of full
and fractional shares of beneficial interest, $.001 par value per share, of
which one billion shares are classified as Series 2 Shares (the Advisor Shares).
The Emerging Growth Fund, the International Equity Fund, the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund are each authorized to
issue three billion full and fractional shares of capital stock, $.001 par value
per share, of which one billion shares of each Fund are designated as Series 2
Shares (the Advisor Shares).
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
Common Shares Advisor Shares
----------------------------- ---------------------------
For the Year Ended October 31,
-------------------------------------------------------------
1995 1994 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Shares sold 6,020,619 2,958,494 201,782 290,193
Shares issued to
shareholders on
reinvestment of
dividends 850,478 920,210 46,554 61,526
Shares redeemed (3,638,974) (3,126,497) (110,027) (460,020)
------------ ------------ ----------- -----------
Net increase
(decrease) in
shares outstanding 3,232,123 752,207 138,309 (108,301)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Proceeds from sale
of shares $ 85,992,655 $ 41,570,590 $ 2,970,800 $ 4,046,941
Reinvested dividends 10,670,876 12,945,690 575,876 863,477
Net asset value of
shares redeemed (51,907,650) (43,449,501) (1,551,821) (6,401,999)
------------ ------------ ----------- -----------
Net increase
(decrease) from
capital share
transactions $ 44,755,881 $ 11,066,779 $ 1,994,855 $(1,491,581)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
<CAPTION>
EMERGING GROWTH FUND
Common Shares Advisor Shares
----------------------------- ----------------------------
For the Year Ended October 31,
--------------------------------------------------------------
1995 1994 1995 1994
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 9,808,362 6,133,751 3,172,686 2,233,737
Shares issued to
shareholders on
reinvestment of
dividends 0 506,720 0 80,473
Shares redeemed (4,294,179) (2,859,413) (383,922) (517,898)
------------ ------------ ----------- ------------
Net increase
(decrease) in
shares outstanding 5,514,183 3,781,058 2,788,764 1,796,312
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Proceeds from sale
of shares $256,886,928 $132,922,995 $78,682,150 $ 47,890,275
Reinvested dividends 0 11,015,146 0 1,743,241
Net asset value of
shares redeemed (106,777,032) (61,126,667) (9,503,812) (10,641,050)
------------ ------------ ----------- ------------
Net increase
(decrease) from
capital share
transactions $150,109,896 $ 82,811,474 $69,178,338 $ 38,992,466
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
57
- --------------------------------------------------------------------------------
<PAGE>104
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND EMERGING MARKETS FUND
Common Shares Advisor Shares
Common Shares Advisor Shares ------------- --------------
-------------------------------- ---------------------------- For the Period
For the Year Ended October 31, December 30, 1994
---------------------------------------------------------------- (Commencement of Operations)
1995 1994 1995 1994 through October 31, 1995
-------------- -------------- ------------ ------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 68,096,606 64,218,907 7,225,150 7,956,088 694,008 22
Shares issued to
shareholders on
reinvestment of
dividends 2,623,005 147,031 346,377 6,879 1,267 0
Shares redeemed (38,317,625) (11,861,720) (770,753) (795,406) (104,480) 0
-------------- -------------- ------------ ------------ ------------- -----
Net increase (decrease)
in shares outstanding 32,401,986 52,504,218 6,800,774 7,167,561 590,795 22
-------------- -------------- ------------ ------------ ------------- -----
-------------- -------------- ------------ ------------ ------------- -----
Proceeds from sale of
shares $1,251,776,887 $1,275,306,263 $131,585,072 $155,433,660 $ 7,753,651 $257
Reinvested dividends 48,487,109 2,820,903 6,385,868 129,869 13,802 0
Net asset value of shares
redeemed (701,310,424) (233,614,600) (14,287,779) (15,435,478) (1,191,160) 0
-------------- -------------- ------------ ------------ ------------- -----
Net increase (decrease)
from capital share
transactions $ 598,953,572 $1,044,512,566 $123,683,161 $140,128,051 $ 6,576,293 $257
-------------- -------------- ------------ ------------ ------------- -----
-------------- -------------- ------------ ------------ ------------- -----
</TABLE>
7. NET ASSETS
Net Assets at October 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL EMERGING
APPRECIATION FUND GROWTH FUND
----------------- ------------
<S> <C> <C>
Capital contributed, net $ 173,327,827 $479,035,241
Accumulated net investment income (loss) 0 0
Accumulated net realized gain (loss) from security transactions 31,648,355 40,302,640
Net unrealized appreciation (depreciation) from investments and
foreign currency related items 42,329,683 135,424,730
----------------- ------------
Net assets $ 247,305,865 $654,762,611
----------------- ------------
----------------- ------------
</TABLE>
58
- --------------------------------------------------------------------------------
<PAGE>105
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN OTC FUND
Common Shares Advisor Shares
------------------------------------- -------------------------------------
For the Period For the Period POST-VENTURE CAPITAL FUND
September 30, September 30, Advisor Shares
1994 1994 --------------
(Commencement (Commencement
Common Shares
-------------
For the Period
For the of Operations) For the of Operations) September 29, 1995
Year Ended through Year Ended through (Commencement of Operations)
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994 through October 31, 1995
---------------- ---------------- ---------------- ---------------- --------------------------------
<S> <C> <C> <C> <C> <C>
22,809,795 2,025,697 0 15 273,510 19
0 0 0 0 0 0
(5,180,432) (18,605) 0 0 (473) 0
---------------- ---------------- --- ----- ------------- -----
17,629,363 2,007,092 0 15 273,037 19
---------------- ---------------- --- ----- ------------- -----
---------------- ---------------- --- ----- ------------- -----
$200,565,875 $ 20,287,008 $0 $150 $ 2,792,203 $200
0 0 0 0 0 0
(44,871,674) (185,101) 0 0 (4,887) 0
---------------- ---------------- --- ----- ------------- -----
$155,694,201 $ 20,101,907 $0 $150 $ 2,787,316 $200
---------------- ---------------- --- ----- ------------- -----
---------------- ---------------- --- ----- ------------- -----
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING POST-VENTURE
EQUITY FUND MARKETS FUND JAPAN OTC FUND CAPITAL FUND
-------------- ------------ -------------- ------------
<S> <C> <C> <C>
$2,271,007,433 $6,677,550 $175,619,527 $2,887,516
19,124,669 10,218 7,821,209 356
(40,671,086) 102,219 (4,640,787) (26,884)
136,482,831 (9,058) (230,467) 164,441
-------------- ------------ -------------- ------------
$2,385,943,847 $6,780,929 $178,569,482 $3,025,429
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
</TABLE>
59
- --------------------------------------------------------------------------------
<PAGE>106
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
8. CAPITAL LOSS CARRYOVER
At October 31, 1995, the International Equity Fund, the Japan OTC Fund and
the Post-Venture Capital Fund had capital loss carryovers of $40,671,086,
$4,629,196 and $26,884, respectively, expiring in 2003 to offset possible future
capital gains of each Fund.
9. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Advisor Shares,
representing equal prorata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for an Advisor Share of each Fund are as
follows:
<TABLE>
<CAPTION>
Capital Appreciation Fund
----------------------------------------------------------------
Advisor Shares
----------------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.22 $15.28 $13.28 $12.16 $12.04
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .00 (.08) .00 (.01) .05
Net Gain on Securities (both realized and
unrealized) 3.02 .23 2.76 1.20 .13
------ ------ ------ ------ -------
Total from Investment Operations 3.02 .15 2.76 1.19 .18
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income .00 (.02) .00 (.02) (.06)
Distributions from Capital Gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ -------
Total Distributions (.98) (1.21) (.76) (.07) (.06)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $16.26 $14.22 $15.28 $13.28 $12.16
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return 23.41% 1.23% 21.64% 9.83% 2.66%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $11,594 $8,169 $10,437 $1,655 $443
Ratios to average daily net assets:
Operating expenses 1.62% 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss) (.18%) (.24%) (.25%) (.11%) .25%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .01%*
Portfolio Turnover Rate 146.09% 51.87% 48.26% 55.83% 39.50%
<FN>
* Annualized
</TABLE>
60
- --------------------------------------------------------------------------------
<PAGE>107
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.02
Long-term capital gain .96
</TABLE>
Ordinary income dividends qualifying for the dividends received deduction
available to corporate shareholders was 100.00%.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
61
- --------------------------------------------------------------------------------
<PAGE>108
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Growth Fund
--------------------------------------------------------
Advisor Shares
--------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $22.05 $23.51 $18.19 $16.99 $15.18
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Loss (.09) (.08) (.08) (.06) .00
Net Gain (Loss) on Securities (both
realized and unrealized) 7.42 (.02) 5.77 1.62 1.82
------ ------ ------ ------ -------
Total from Investment Operations 7.33 (.10) 5.69 1.56 1.82
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income .00 .00 .00 .00 (.01)
Distributions from Capital Gains .00 (1.36) (.37) (.36) .00
------ ------ ------ ------ -------
Total Distributions .00 (1.36) (.37) (.36) (.01)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $29.38 $22.05 $23.51 $18.19 $16.99
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return 33.24% (.29%) 31.67% 9.02% 23.43%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $167,225 $64,009 $26,029 $5,398 $275
Ratios to average daily net assets:
Operating expenses 1.76% 1.72% 1.73% 1.74% 1.74%*
Net investment loss (1.08%) (1.08%) (1.09%) (.87%) (.49%)*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements .00% .04% .00% .06% .42%*
Portfolio Turnover Rate 84.82% 60.38% 68.35% 63.38% 97.69%
<FN>
* Annualized
</TABLE>
62
- --------------------------------------------------------------------------------
<PAGE>109
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
--------------------------------------------------------
Advisor Shares
--------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.38 $16.91 $12.20 $13.66 $13.14
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .03 .16 (.01) .13 .00
Net Gain (Loss) on Securities and
Foreign Currency Related Items
(both realized and unrealized) (.67) 3.35 4.86 (1.32) .58
------ ------ ------ ------ -------
Total from Investment Operations (.64) 3.51 4.85 (1.19) .58
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income (.05) .00 (.01) (.12) (.06)
Distributions from Capital Gains (.53) (.04) (.13) (.15) .00
------ ------ ------ ------ -------
Total Distributions (.58) (.04) (.14) (.27) (.06)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $19.16 $20.38 $16.91 $12.20 $13.66
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return (3.04%) 20.77% 40.06% (8.86%) 7.85%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $317,736 $199,404 $44,244 $1,472 $153
Ratios to average daily net assets:
Operating expenses 1.89% 1.94% 2.00% 2.00% 2.23%*
Net investment income (loss) .20% (.29%) (.36%) .54% .30%*
Decrease reflected in above operating expense ratios due to
waivers/reimbursements .00% .00% .00% .07% .17%*
Portfolio Turnover Rate 39.24% 17.02% 22.60% 53.29% 54.95%
<FN>
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.38
Long-term capital gain .20
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
63
- --------------------------------------------------------------------------------
<PAGE>110
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Japan OTC Fund
----------------------------------------
Advisor Shares
----------------------------------------
For the Period
September 30, 1994
For the (Commencement of
Year Ended Operations) through
October 31, 1995 October 31, 1994
---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.85 $10.00
------ -------
Income from Investment Operations:
Net Investment Income (Loss) (.02) .00
Net Loss on Securities and Foreign Currency Related Items (both
realized and unrealized) (.75) (.15)
------ -------
Total from Investment Operations (.77) (.15)
------ -------
Less Distributions:
Dividends from Net Investment Income .00 .00
Distributions from Capital Gains .00 .00
------ -------
Total Distributions .00 .00
------ -------
NET ASSET VALUE, END OF PERIOD $ 9.08 $ 9.85
------ -------
------ -------
Total Return (7.82%) (15.84%)*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1 $1
Ratios to average daily net assets:
Operating expenses 1.31% 1.18%*
Net investment income (loss) (.19%) .12%*
Decrease reflected in above operating expense ratios due to
waivers/reimbursements 1.83% 4.74%*
Portfolio Turnover Rate 82.98% .00%
<FN>
* Annualized
</TABLE>
64
- --------------------------------------------------------------------------------
<PAGE>111
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Markets Fund
---------------------
Advisor Shares
---------------------
December 30, 1994
(Commencement of
Operations) through
October 31, 1995
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .14
Net Gain on Securities and Foreign Currency Related Items (both realized and unrealized) 1.19
-------
Total from Investment Operations 1.33
-------
Less Distributions:
Dividends from Net Investment Income (.03)
Distributions from Capital Gains .00
-------
Total Distributions (.03)
-------
NET ASSET VALUE, END OF PERIOD $ 11.30
-------
-------
Total Return 16.05%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 1.22%*
Net investment income 1.76%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 16.36%*
Portfolio Turnover Rate 69.12%*
<FN>
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.03
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
65
- --------------------------------------------------------------------------------
<PAGE>112
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-Venture Capital Fund
-------------------------
Advisor Shares
-------------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
-------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities .68
-------
Total from Investment Operations .68
-------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
-------
Total Distributions .00
-------
NET ASSET VALUE, END OF PERIOD $ 10.68
-------
-------
Total Return 6.80%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 2.15%*
Net investment income .09%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 9.25%*
Portfolio Turnover Rate 16.90%*
<FN>
* Annualized
+ Non annualized
</TABLE>
66
- --------------------------------------------------------------------------------
<PAGE>113
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- ADVISOR SHARES
- --------------------------------------------------------------------------------
December 8, 1995
Dear Shareholder:
The objective of the Advisor Shares of Warburg Pincus International Equity
Fund (the 'Fund') is long-term capital appreciation. The Fund aims to tap into
the strong growth potential of today's world stock markets by investing
primarily in companies whose principal business activities and interests are
outside the United States.
For the 12 months ended October 31, 1995, the Fund fell 3.04%, vs. losses
of 0.61% in the Lipper International Fund Index and 0.37% in the Morgan Stanley
Europe, Australia and Far East ('EAFE') Index. Exposure to emerging markets (the
Lipper Emerging Markets Fund Index fell 18.35% during the period) accounted for
much of the Fund's underperformance. Shareholders should note, though, that
while the Fund's performance lagged that of the EAFE Index for the fiscal year,
its long-term record is superior. From its inception on April 5, 1991, through
October 31, 1995, the Fund generated an average annual return of 10.22%,
compared to 6.98% for the EAFE Index. Also noteworthy is the fact that the Fund
managed to outperform its benchmark with a lower level of volatility.
After a disappointing first half of its fiscal year, the Fund showed a
considerable improvement in performance in the second half, aided greatly by a
sharp rebound in its Japanese holdings (27.6% of the portfolio through October).
Particularly strong gains were recorded by the Fund's Japanese technology
issues. We believe that these stocks still hold considerable upside potential,
and that most of the broader Japanese market remains significantly undervalued
based on traditional long-term measures of value (e.g., price relative to book
value, sales and cash flow).
Other Asian countries we remain positive on are South Korea and Taiwan, two
emerging markets that have suffered in 1995. Taiwan has seen its stock market
lose roughly a third of its value since the year began, the result of ongoing
political tensions with China. This has created particularly attractive values
in Taiwan's market, and we have used the opportunity to increase our Taiwanese
stake, adding to positions in well-managed companies in the shipping and
industrial sectors. In general, we feel that emerging markets have been
oversold, given their outstanding long-term attractions.
The Fund's European holdings contributed positively to its performance over
the trailing 12 months, supported by falling interest rates. By country, the
Fund's largest weightings as of October 31 were in the United Kingdom and France
(7.2% and 5.9%, respectively, of the portfolio). Our British holdings were
strong performers during the period. French issues generated less impressive
results, hampered by concerns regarding fiscal policies of the Chirac
administration and doubts about the country's ability to meet the criteria for
European economic and monetary union in 1999. But we remain positive on the
outlook for the French companies held in the portfolio, believing they are
strong, well-managed businesses.
Richard H. King
Portfolio Manager
6
- --------------------------------------------------------------------------------
<PAGE>114
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- ADVISOR SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ADVISOR SHARES OF WARBURG PINCUS INTERNATIONAL
EQUITY FUND
SINCE INCEPTION AS OF OCTOBER 31, 1995
The graph below illustrates the hypothetical investment of $10,000 in
Advisor Shares of Warburg Pincus International Equity Fund (the 'Fund') from
April 5, 1991 (inception) to October 31, 1995, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the Morgan Stanley
Europe, Australia and Far East Index ('EAFE')* for the same time period.
[ INSERT GRAPHIC HERE ]
<TABLE>
<CAPTION>
FUND
------
<S> <C>
1 Year Total Return (9/30/94-9/30/95)................................................ - 0.43%
Average Annual Total Return Since Inception (4/05/91-9/30/95)........................ 10.97%
</TABLE>
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost.
[FN]
- ------------
* EAFE is an unmanaged index of international equities with no defined
investment objective that is compiled by Morgan Stanley Capital International.
7
- --------------------------------------------------------------------------------
<PAGE>115
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Boards of Directors, Trustees and Shareholders of
Warburg Pincus Equity Funds:
We have audited the accompanying statements of net assets of the Warburg Pincus
Capital Appreciation Fund, Warburg Pincus Emerging Growth Fund and Warburg
Pincus International Equity Fund and the accompanying statements of assets and
liabilities including the schedules of investments of Warburg Pincus Japan OTC
Fund, Warburg Pincus Emerging Markets Fund and Warburg Pincus Post-Venture
Capital Fund (all Funds collectively referred to as the 'Warburg Pincus Equity
Funds') as of October 31, 1995, and the related statements of operations for the
year (or period) then ended, and the statements of changes in net assets for
each of the two years (or period) and the financial highlights for each of the
three years (or period) in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of the
Warburg Pincus Equity Funds for each of the two years in the period ended
October 31, 1992, were audited by other auditors, whose report dated December
15, 1992, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Warburg Pincus Equity Funds as of October 31, 1995, and the results of
their operations for the year (or period) then ended, and the changes in their
net assets for each of the two years (or period) and the financial highlights
for each of the three years (or period) in the period then ended, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
December 14, 1995
<PAGE>116
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (90.1%)
Argentina (3.0%)
Banco de Galicia & Buenos Aires SA 365,989 $ 1,729,544
Banco de Galicia & Buenos Aires SA ADR 118,520 2,266,695
Banco Frances del Rio de la Plata SA 510,100 3,712,882
Banco Frances del Rio de la Plata SA ADR 684,800 14,980,000
Capex SA GDR + 499,000 6,050,375
Telefonica de Argentina SA ADR 791,000 16,413,250
YPF SA ADR 1,553,500 26,603,687
--------------
71,756,433
--------------
Australia (2.9%)
BTR Nylex Ltd. 5,305,519 14,423,345
Niugini Mining Ltd. 1,385,000 2,879,270
Pasminco Ltd. 7,766,600 8,575,686
Reinsurance Australia Corp., Ltd. 9,523,400 18,130,173
Woodside Petroleum Ltd. 5,175,800 24,791,227
--------------
68,799,701
--------------
Austria (3.2%)
Boehler-Uddeholm AG + 327,200 23,071,583
Maculan Holding AG Vorzuege 71,360 1,340,837
V.A. Technologie AG 456,374 52,926,291
--------------
77,338,711
--------------
Brazil (0.4%)
Panamerican Beverages, Inc. Class A 366,000 10,019,250
--------------
Denmark (0.9%)
International Service System A/S Class B 1,025,110 21,025,972
--------------
Finland (1.8%)
Metra Oy Class A 300 13,155
Metra Oy Class B 139,750 6,062,049
Metsa-Serla Class B 658,650 24,533,618
Valmet Corp. Class A 442,200 12,301,286
--------------
42,910,108
--------------
France (5.9%)
Bouygues SA 312,722 33,316,009
Cetelem 66,885 10,688,445
Fives-Lille (Compagnie De) 84,060 6,802,643
Lagardere Groupe 1,501,475 28,085,365
Scor SA 555,419 16,590,881
Total Cie Franc Des Petroles Class B 693,650 42,946,329
Total Petroles SA ADR 47,743 1,474,064
--------------
139,903,736
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
<PAGE>117
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Germany (2.5%)
Deutsche Bank AG 694,500 $ 31,352,730
SGL Carbon AG + 432,040 28,350,128
--------------
59,702,858
--------------
Hong Kong (3.2%)
Citic Pacific Ltd. 2,127,000 6,644,124
HSBC Holdings PLC 1,976,869 28,766,267
HSBC Holdings PLC (UK) 195,074 2,901,055
Jardine Matheson Holdings Ltd. ADR 4,819,900 29,401,390
Jilin Chemical Industrial Co. Ltd. ADR + 473,800 9,772,124
--------------
77,484,960
--------------
India (2.1%)
Hindalco Industries Ltd. GDR 783,950 25,086,400
Reliance Industries Ltd. GDS 1,292,500 20,188,850
The India Fund, Inc. 655,900 5,493,162
--------------
50,768,412
--------------
Indonesia (1.6%)
P.T. Bank International Indonesia 1,887,500 6,619,155
P.T. Dynaplast Ltd. 1,709,700 1,508,337
P.T. Mulia Industrindo 2,944,000 8,700,838
P.T. Semen Gresik 3,948,500 10,276,202
P.T. Tri Polyta Indonesia ADR + 675,700 10,473,350
--------------
37,577,882
--------------
Israel (1.5%)
Ampal-American Israel Corp. Class A + 1,374,000 7,728,750
ECI Telecommunications Limited Designs 1,453,500 27,616,500
--------------
35,345,250
--------------
Japan (25.8%)
Canon Inc. 2,452,000 41,982,194
Canon Inc. ADR 98,040 8,357,910
Daimaru Inc. 368,000 2,340,280
DDI Corp. 3,675 29,807,015
East Japan Railway Co. 2,884 13,628,529
Fujitsu Ltd. 2,801,000 33,433,324
Hitachi Ltd. 4,096,250 42,080,643
Kao Corp. 500 6,066
Keyence Corp. 75,600 9,319,636
Kirin Beverage Corp. 124,000 1,880,442
Kyocera Corp. 268,000 21,972,801
Murata Mfg. Co., Ltd. 301,310 10,583,142
NEC Corp. 2,084,000 27,525,682
Nikon Corp. 2,670,000 38,139,125
Nippon Communication Systems Corp. 1,436,700 15,180,863
</TABLE>
See Accompanying Notes to Financial Statements.
21
- --------------------------------------------------------------------------------
<PAGE>118
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Nippon Telegraph & Telephone Corp. 6,339 $ 52,036,716
NTT Data Communications Systems Co. 1,807 45,258,977
Orix Corp. 521,700 18,375,110
Rohm Co. 385,000 23,391,547
Shin-Etsu Chemical Co., Ltd. 751,400 15,364,700
Sony Corp. 566,300 25,486,547
Sony Corp. ADR 113,500 5,192,625
TDK Corp. 892,000 45,991,977
Toho Co., Ltd. 130,240 18,349,046
Tokyo Electron Ltd. 835,000 36,272,380
Tsuchiya Home Co. 297,620 4,222,180
Uny Co., Ltd. 825,500 14,214,656
York-Benimaru Co., Ltd. 505,900 16,036,748
--------------
616,430,861
--------------
Malaysia (0.3%)
Westmont BHD 1,732,000 5,999,449
--------------
Mexico (0.5%)
Gruma SA + 4,094,000 12,075,000
--------------
New Zealand (5.9%)
Brierley Investments Ltd. 42,195,904 32,842,254
Fletcher Challenge Ltd. 8,846,687 23,399,452
Fletcher Forestry 15,589,223 21,490,742
Lion Nathan Ltd. 13,821,300 31,360,861
Sky City Ltd. 965,885 20,068,579
Wrightson Ltd. 14,548,459 11,707,320
--------------
140,869,208
--------------
Norway (1.8%)
Norsk Hydro AS ADR 1,096,022 43,840,880
--------------
Pakistan (0.4%)
Pakistan Telecommunications Corp. + 1,430 139,594
Pakistan Telecommunications Corp. GDR + 93,200 8,900,600
--------------
9,040,194
--------------
Singapore (1.5%)
DBS Land Ltd. 3,866,000 11,440,623
Development Bank of Singapore Ltd. 1,123,250 12,882,584
Development Bank of Singapore Ltd. ADR 79,500 3,657,000
IPC Corp., Ltd. 10,568,000 7,219,908
--------------
35,200,115
--------------
South Korea (4.8%)
Daewoo Electronics Co., Ltd. + 871,120 11,613,415
</TABLE>
See Accompanying Notes to Financial Statements.
22
- --------------------------------------------------------------------------------
<PAGE>119
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Daewoo Electronics Co., Ltd. New + 3,290 $ 41,926
Hana Bank 455,740 9,911,794
Hanil Bank 1,943,692 25,241,829
Korea Europe Fund Ltd. 1,210 5,596,250
Korea Long Term Credit Bank 251,095 8,123,256
Mando Machinery Corp. + 29,000 1,923,984
Samsung Electronics Co., Ltd. 134,710 30,171,096
Samsung Electronics Co., Ltd. GDR 28,932 1,909,512
Samsung Electronics Co., Ltd. GDR New 248 29,760
Samsung Electronics Co., Ltd. New 6,821 1,532,251
Samsung Electronics Co., Ltd. Second Series 2,470 543,329
Samsung Heavy Industries Co., Ltd. 500,703 15,248,177
--------------
111,886,579
--------------
Spain (3.5%)
Banco de Santander 144,866 6,321,771
Banco de Santander ADR 1,172,200 50,551,125
Repsol SA ADR 928,700 27,512,738
--------------
84,385,634
--------------
Sweden (2.6%)
Asea AB Series B 251,500 24,828,555
Astra AB Series B 1,066,500 38,578,405
--------------
63,406,960
--------------
Switzerland (2.4%)
BBC Brown Boveri AG 39,008 45,247,081
Danzas Holding AG 12,824 11,294,698
--------------
56,541,779
--------------
Taiwan (3.3%)
China Steel Corp. + 12,873,000 10,161,012
Evergreen Marine Corp. Ltd. 4,782,800 7,178,188
Grand Pacific Fund 2,872,000 713,078
Kwang Hua Growth Fund 6,346,000 2,198,818
Taiwan Semiconductor Mfg. Co. + 5,338,000 16,616,342
Ton Yi Industrial Corp. + 9,785,000 12,981,397
Tuntex Distinct Corp. + 15,377,242 9,744,333
Tuntex Distinct Corp. GDS + 654,510 4,090,688
Yang Ming Marine Transport Corp. 13,302,000 14,640,334
--------------
78,324,190
--------------
Thailand (1.2%)
Industrial Finance Corp. of Thailand 7,467,400 24,554,026
Thai Military Bank Ltd. 908,300 3,583,966
--------------
28,137,992
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
23
- --------------------------------------------------------------------------------
<PAGE>120
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
COMMON STOCK (CONT'D)
United Kingdom (7.1%)
AAF Industries PLC + 847,750 $ 348,344
British Air Authority PLC 3,426,533 26,643,240
BTR PLC 1,969,931 10,460,617
Cookson Group PLC 3,138,000 14,530,735
Govett & Co., Ltd. 3,005,000 11,540,318
Grand Metropolitan PLC 3,064,000 21,209,474
Grand Metropolitan PLC ADR 123,000 3,382,500
Prudential Corp. PLC 4,063,800 25,432,821
Reckitt & Coleman PLC 2,058,429 21,893,640
Singer & Friedlander Group PLC 9,093,000 15,232,812
Takare PLC 5,657,400 18,328,958
Trio Holdings PLC 7,868,850 1,492,312
--------------
170,495,771
--------------
Zimbabwe
Delta Corp., Ltd. 530,000 835,620
--------------
TOTAL COMMON STOCK (Cost $2,058,122,790) 2,150,103,505
--------------
PREFERRED STOCK (0.7%)
Austria (0.1%)
Maculan Holdings AG Vorzuege 113,775 2,068,845
--------------
South Korea (0.5%)
Mando Machinery Corp. + 110,000 4,021,592
Samsung Electronics Co., Ltd. 48,040 5,962,586
Samsung Electronics Co., Ltd. New 9,507 1,162,237
--------------
11,146,415
--------------
United Kingdom (0.1%)
Singer & Friedlander Group PLC 8.5% Convertible 1,435,737 2,938,405
--------------
TOTAL PREFERRED STOCK (Cost $20,093,486) 16,153,665
--------------
STOCK WARRANTS (0.2%)
Australia
Niugini Mining Ltd., 12/08/95 + 346,250 184,569
--------------
Hong Kong
Jardine Strategic Holdings Ltd., 05/02/98 + 2,115,400 560,581
--------------
Israel
Ampal-American Israel Corp. Class A, 01/31/99 + 455,000 184,844
--------------
Japan
Bandai Industries, 11/04/97 + 2,936 2,862,600
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
24
- --------------------------------------------------------------------------------
<PAGE>121
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
STOCK WARRANTS (CONT'D)
Switzerland
Danzas Holding AG, 08/02/96 + 9,050 $ 3,587
--------------
TOTAL STOCK WARRANTS (Cost $5,829,846) 3,796,181
--------------
CONTRACTS
----------
CALL OPTIONS (0.5%)
Japan
Topix Index, 03/08/96, (Strike price $1,251.24) + 20,426 3,622,143
Topix Index, 03/08/96, (Strike price $1,261.12) + 21,024 3,554,948
Topix Index, 03/08/96, (Strike price $1,349.00) + 9,152 943,480
Topix Index, 05/10/96, (Strike price $1,323.64) + 20,842 2,486,451
Topix Index, 06/14/96, (Strike price $1,275.00) + 11,519 1,910,541
--------------
12,517,563
--------------
Mexico
Mexican Inmex, 03/29/96, (Strike price $56.60) + 249,080 4,982
--------------
Switzerland
Danzas Holding AG, 08/22/96, (Strike price 12.50 Sfr) + 1,000 3,963
--------------
TOTAL CALL OPTIONS (Cost $10,439,121) 12,526,508
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR =
-------------
<S> <C> <C>
CONVERTIBLE BONDS/NOTES (2.3%)
Argentina (0.3%)
Banco de Galicia & Buenos Aires SA 7.00%, 08/01/02 $ 7,648,000 6,156,640
--------------
Australia (0.3%)
BTR Nylex Ltd. 9.00%, 11/30/49 (A) 57,300,000 6,518,912
--------------
India (0.2%)
Reliance Industries Ltd. 3.50%, 11/03/99 $ 3,850,000 3,936,625
--------------
Japan (1.1%)
Matsushita Electric Works Ltd. 2.70%, 05/31/02 (B) 2,465,000,000 27,541,630
--------------
New Zealand
Brierley Investments Ltd. 9.00%, 06/30/98 (C) 1,314,875 936,675
--------------
Taiwan (0.4%)
Yang Ming Marine Transport Corp. 2.00%, 10/06/01 $ 8,429,000 8,997,958
--------------
TOTAL CONVERTIBLE BONDS/NOTES (Cost $53,163,859) 54,088,440
--------------
</TABLE>
See Accompanying Notes to Financial Statements.
25
- --------------------------------------------------------------------------------
<PAGE>122
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
------------- --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.2%)
Repurchase agreement with State Street Bank & Trust dated 10/31/95 at 5.83%
to be repurchased at $77,068,479 on 11/01/95. (Collateralized by $50,000,000
U.S.
Treasury Note 6.875%, due 10/31/96 and $27,625,000 U.S. Treasury Note 6.00%,
due 8/31/97. Market value of collateral is $78,664,375.)(cost $77,056,000) $ 77,056,000 $ 77,056,000
--------------
TOTAL INVESTMENTS AT VALUE (97.0%) (Cost $2,224,705,102*) 2,313,724,299
OTHER ASSETS IN EXCESS OF LIABILITIES (3.0%) 72,219,548
--------------
NET ASSETS (100.0%) (applicable to 107,177,463 Common Shares and 16,584,820 Advisor
Shares) $2,385,943,847
--------------
--------------
NET ASSET VALUE, offering and redemption price per Common Share
($2,068,207,597[div]107,177,463) $19.30
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($317,736,250[div]16,584,820) $19.16
------
------
</TABLE>
INVESTMENT ABBREVIATIONS
ADR=American Depository Receipt
GDR=Global Depository Receipt
GDS=Global Depository Share
[FN]
+ Non-income producing security.
* Cost for Federal income tax purposes is $2,225,158,852.
= Unless otherwise indicated below, all bonds are denominated in U.S. Dollars
(A) Denominated in Australian Dollars.
(B) Denominated in Japanese Yen.
(C) Denominated in New Zealand Dollars.
See Accompanying Notes to Financial Statements.
26
- --------------------------------------------------------------------------------
<PAGE>123
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth International Equity
Fund Fund Fund
-------------------- --------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,107,232 $ 772,834 $ 40,091,101
Interest 684,526 2,112,707 7,110,116
Foreign taxes withheld (2,423) 0 (5,031,072)
-------------------- --------------- --------------------
Total investment income 2,789,335 2,885,541 42,170,145
-------------------- --------------- --------------------
EXPENSES:
Investment advisory 1,367,729 3,824,061 20,225,631
Administrative services 390,780 849,790 3,408,846
Audit 27,208 27,469 69,286
Custodian/Sub-custodian 63,554 145,277 1,753,400
Directors/Trustees 10,500 10,500 11,500
Distribution/Shareholder servicing 45,989 531,389 1,274,343
Insurance 10,104 14,770 58,340
Legal 90,851 76,677 102,549
Organizational 0 0 0
Printing 27,954 41,914 172,129
Registration 62,918 159,555 428,595
Transfer agent 92,488 149,133 1,538,272
Miscellaneous 35,776 37,625 380,319
-------------------- --------------- --------------------
2,225,851 5,868,130 29,423,210
Less: fees waived and expenses reimbursed 0 0 0
-------------------- --------------- --------------------
Total expenses 2,225,851 5,868,130 29,423,210
-------------------- --------------- --------------------
Net investment income (loss) 563,484 (2,982,589) 12,746,935
-------------------- --------------- --------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
AND FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 31,649,453 49,113,782 (34,444,203)
Net realized gain (loss) from foreign currency
related items 0 0 16,792,905
Net change in unrealized appreciation (depreciation)
from investments and foreign currency related items 12,386,702 84,670,426 (4,675,049)
-------------------- --------------- --------------------
Net realized and unrealized gain (loss) from
investments and foreign currency related
items 44,036,155 133,784,208 (22,326,347)
-------------------- --------------- --------------------
Net increase (decrease) in net assets
resulting from operations $ 44,599,639 $ 130,801,619 $ (9,579,412)
-------------------- --------------- --------------------
-------------------- --------------- --------------------
</TABLE>
40
- --------------------------------------------------------------------------------
<PAGE>124
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture Capital
Fund Fund (1) Fund (2)
-------------- ---------------- --------------------
<S> <C> <C> <C>
$ 221,577 $ 33,788 $ 0
412,522 22,711 2,675
(33,237) (3,250) 0
-------------- ---------------- -----------
600,862 53,249 2,675
-------------- ---------------- -----------
599,720 29,641 1,756
138,679 5,217 280
25,700 16,000 9,000
60,612 45,701 5,771
11,290 14,625 1,250
119,941 5,926 351
2,761 855 0
96,359 54,987 5,000
42,449 37,432 1,932
2,579 14,765 1,000
115,649 26,664 6,000
100,690 28,656 2,833
10,620 6,070 500
-------------- ---------------- -----------
1,327,049 286,539 35,673
(652,386) (262,824) (33,354)
-------------- ---------------- -----------
674,663 23,715 2,319
-------------- ---------------- -----------
(73,801) 29,534 356
-------------- ---------------- -----------
(4,629,196) 102,219 (26,884)
7,895,010 (4,992) 0
(195,368) (9,058) 164,441
-------------- ---------------- -----------
3,070,446 88,169 137,557
-------------- ---------------- -----------
$2,996,645 $117,703 $137,913
-------------- ---------------- -----------
-------------- ---------------- -----------
</TABLE>
[FN]
(1) For the period December 30, 1994 (Commencement of Operations) through
October 31, 1995.
(2) For the period September 29, 1995 (Commencement of Operations) through
October 31, 1995.
See Accompanying Notes to Financial Statements.
41
- --------------------------------------------------------------------------------
<PAGE>125
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth
Fund Fund
----------------------------------- -----------------------------------
For the Year Ended October 31, For the Year Ended October 31,
1995 1994 1995 1994
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 563,484 $ 384,246 $ (2,982,589) $ (1,678,646)
Net realized gain (loss) from
security transactions 31,649,453 11,173,174 49,113,782 (5,721,525)
Net realized gain (loss) from foreign
currency related items 0 0 0 0
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency related items 12,386,702 (9,106,613) 84,670,426 10,930,919
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets resulting from
operations 44,599,639 2,450,807 130,801,619 3,530,748
--------------- ---------------- --------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (563,484) (419,337) 0 0
Advisor Shares 0 (27,724) 0 0
Distributions in excess of net
investment income:
Common Shares 0 0 0 0
Distributions from capital gains:
Common Shares (10,419,627) (12,899,141) 0 (10,576,150)
Advisor Shares (575,892) (852,608) 0 (1,639,316)
--------------- ---------------- --------------- ----------------
Net decrease from distributions (11,559,003) (14,198,810) 0 (12,215,466)
--------------- ---------------- --------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 88,963,455 45,617,531 335,569,078 180,813,270
Reinvested dividends 11,246,752 13,809,167 0 12,758,387
Net asset value of shares redeemed (53,459,471) (49,851,500) (116,280,844) (71,767,717)
--------------- ---------------- --------------- ----------------
Net increase in net assets from
capital share transactions 46,750,736 9,575,198 219,288,234 121,803,940
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets 79,791,372 (2,172,805) 350,089,853 113,119,222
NET ASSETS:
Beginning of period 167,514,493 169,687,298 304,672,758 191,553,536
--------------- ---------------- --------------- ----------------
End of period $ 247,305,865 $167,514,493 $ 654,762,611 $304,672,758
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
42
- --------------------------------------------------------------------------------
<PAGE>126
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets
Warburg Pincus Fund Fund
International Equity --------------------------------------- -------------------
Fund For the Period For the Period
----------------------------------- September 30, 1994 December 30, 1994
For the (Commencement of (Commencement of
For the Year Ended October 31, Year Ended Operations) through Operations) through
1995 1994 October 31, 1995 October 31, 1994 October 31, 1995
--------------- ---------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 12,746,935 $ 1,310,933 $ (73,801) $ 5,115 $ 29,534
(34,444,203 ) 48,091,665 (4,629,196) 0 102,219
16,792,905 (2,772,944) 7,895,010 (294,437) (4,992)
(4,675,049 ) 82,484,415 (195,368) (35,099) (9,058)
--------------- ---------------- ---------------- ------------------- -------------------
(9,579,412 ) 129,114,069 2,996,645 (324,421) 117,703
--------------- ---------------- ---------------- ------------------- -------------------
(11,671,023 ) (1,764,380) 0 0 (14,321)
(629,473 ) (218,961) 0 0 (3)
0 (223,659) 0 0 0
(42,332,078 ) (1,047,367) 0 0 0
(5,756,403 ) (129,979) 0 0 0
--------------- ---------------- ---------------- ------------------- -------------------
(60,388,977 ) (3,384,346) 0 0 (14,324)
--------------- ---------------- ---------------- ------------------- -------------------
1,383,361,959 1,430,739,923 200,565,875 20,287,158 7,753,908
54,872,977 2,950,772 0 0 13,802
(715,598,203 ) (249,050,078) (44,871,674) (185,101) (1,191,160)
--------------- ---------------- ---------------- ------------------- -------------------
722,636,733 1,184,640,617 155,694,201 20,102,057 6,576,550
--------------- ---------------- ---------------- ------------------- -------------------
652,668,344 1,310,370,340 158,690,846 19,777,636 6,679,929
1,733,275,503 422,905,163 19,878,636 101,000 101,000
--------------- ---------------- ---------------- ------------------- -------------------
$2,385,943,847 $1,733,275,503 $178,569,482 $19,878,636 $ 6,780,929
--------------- ---------------- ---------------- ------------------- -------------------
--------------- ---------------- ---------------- ------------------- -------------------
<CAPTION>
Warburg Pincus
Post-Venture
Capital Fund
-------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
-------------------
<S> <C>
$ 356
(26,884)
0
164,441
-------------------
137,913
-------------------
0
0
0
0
0
-------------------
0
-------------------
2,792,403
0
(4,887)
-------------------
2,787,516
-------------------
2,925,429
100,000
-------------------
$ 3,025,429
-------------------
-------------------
</TABLE>
See Accompanying Notes to Financial Statements.
43
- --------------------------------------------------------------------------------
<PAGE>127
- --------------------------------------------------------------------------------
WARBURG PINCUS INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 4, 1991
For the Year Ended October 31, (Initial Issuance)
-------------------------------------------- through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.38 $16.91 $12.20 $13.66 $13.14
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .03 .16 (.01) .13 .00
Net Gain (Loss) on Securities and
Foreign Currency Related Items
(both realized and unrealized) (.67) 3.35 4.86 (1.32) .58
------ ------ ------ ------ -------
Total from Investment Operations (.64) 3.51 4.85 (1.19) .58
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income (.05) .00 (.01) (.12) (.06)
Distributions from Capital Gains (.53) (.04) (.13) (.15) .00
------ ------ ------ ------ -------
Total Distributions (.58) (.04) (.14) (.27) (.06)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $19.16 $20.38 $16.91 $12.20 $13.66
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return (3.04%) 20.77% 40.06% (8.86%) 7.85%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $317,736 $199,404 $44,244 $1,472 $153
Ratios to average daily net assets:
Operating expenses 1.89% 1.94% 2.00% 2.00% 2.23%*
Net investment income (loss) .20% (.29%) (.36%) .54% .30%*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements .00% .00% .00% .07% .17%*
Portfolio Turnover Rate 39.24% 17.02% 22.60% 53.29% 54.95%
<FN>
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.38
Long-term capital gain .20
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
See Accompanying Notes to Financial Statements.
46
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>128
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund'), Warburg Pincus
International Equity Fund (the 'International Equity Fund') and Warburg Pincus
Post-Venture Capital Fund (the 'Post-Venture Capital Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund'), Warburg Pincus Japan OTC Fund
(the 'Japan OTC Fund') and Warburg Pincus Emerging Markets Fund (the 'Emerging
Markets Fund', together with the Capital Appreciation Fund, the International
Equity Fund, the Post-Venture Capital Fund, the Emerging Growth Fund and the
Japan OTC Fund, the 'Funds') which are registered under the 1940 Act as non-
diversified, open-end management investment companies.
Investment objectives for each Fund are as follows: the Capital
Appreciation Fund, the International Equity Fund and the Japan OTC Fund seek
long-term capital appreciation; the Emerging Growth Fund seeks maximum capital
appreciation; the Emerging Markets Fund seeks growth of capital; the
Post-Venture Capital Fund seeks long-term growth of capital.
Each Fund offers two classes of shares, one class being referred to as
Common Shares and one class being referred to as Advisor Shares. Common and
Advisor Shares in each Fund represent an equal pro rata interest in such Fund,
except that they bear different expenses which reflect the difference in the
range of services provided to them. Common Shares for the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund bear expenses paid
pursuant to a shareholder servicing and distribution plan adopted by each Fund
at an annual rate not to exceed .25% of the average daily net asset value of
each Fund's outstanding Common Shares. Advisor Shares for each Fund bear
expenses paid pursuant to a distribution plan adopted by each Fund at an annual
rate not to exceed .75% of the average daily net asset value of each Fund's
outstanding Advisor Shares. The Common and the Advisor Shares are currently
bearing expenses of .25% and .50% of average daily net assets, respectively.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported bid price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's governing Board. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are
50
- --------------------------------------------------------------------------------
<PAGE>129
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
reported in the results of operations for the current period. The Funds do not
isolate that portion of gains and losses on investments in equity securities
which are due to changes in the foreign exchange rate from that which are due to
changes in market prices of equity securities. The Funds isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses, principally distribution,
transfer agent and printing) and realized/unrealized gains/losses are allocated
proportionately to each class of shares based upon the relative net asset value
of outstanding shares. The cost of investments sold is determined by use of the
specific identification method for both financial reporting and income tax
purposes.
Dividends from net investment income are declared and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared and
paid annually. However, to the extent that a net realized capital gain can be
reduced by a capital loss carryover, such gain will not be distributed. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
Certain amounts in the Financial Highlights have been reclassified to
conform with current year presentation.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Japan OTC Fund, the Emerging Markets Fund and the
Post-Venture Capital Fund in connection with their organization have been
deferred and are being amortized over a period of five years from the date each
Fund commenced its operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives the
following fees based on each Fund's average daily net assets:
51
- --------------------------------------------------------------------------------
<PAGE>130
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- --------------------------------- ----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
Emerging Markets 1.25% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
</TABLE>
For the period or year ended October 31, 1995, investment advisory fees,
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ------------------------------------------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 1,367,729 $ 0 $ 1,367,729 $ 0
Emerging Growth 3,824,061 0 3,824,061 0
International Equity 20,225,631 0 20,225,631 0
Japan OTC 599,720 (599,720) 0 (25,920)
Emerging Markets 29,641 (29,641) 0 (230,338)
Post-Venture Capital 1,756 (1,756) 0 (31,458)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Warburg pays SPARX USA a fee at an annual rate of .625% of the average daily net
assets of the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to
SPARX USA for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Fund's average daily net assets. For the period or year
ended October 31, 1995, administrative services fees earned by CFSI were as
follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 195,390
Emerging Growth 424,895
International Equity 2,022,563
Japan OTC 47,978
Emerging Markets 2,372
Post-Venture Capital 140
</TABLE>
For its administrative services, PFPC currently receives a fee calculated
at an annual rate of .10% of the average daily net assets of the Capital
Appreciation Fund, the Emerging Growth Fund and the Post-Venture Capital Fund.
For the International Equity Fund, the Japan OTC Fund and the Emerging Markets
Fund, PFPC currently receives a fee calculated at an annual rate of .12% on each
Fund's first $250 million in average daily net assets, .10% on the next $250
million in average daily net assets, .08%
52
- --------------------------------------------------------------------------------
<PAGE>131
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
on the next $250 million in average daily net assets, and .05% of the average
daily net assets over $750 million.
For the period or year ended October 31, 1995, administrative service fees
earned and waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- ----------------------------------------- --------------------- -------- -------------------------
<S> <C> <C> <C>
Capital Appreciation $ 195,390 $ 0 $ 195,390
Emerging Growth 424,895 0 424,895
International Equity 1,386,283 0 1,386,283
Japan OTC 90,701 (26,746) 63,955
Emerging Markets 2,845 (2,845) 0
Post-Venture Capital 140 (140) 0
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund, the Emerging Growth Fund or the International Equity
Fund to CSI for distribution services. For its shareholder servicing and
distribution services, CSI currently receives a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares for the Japan OTC
Fund, the Emerging Markets Fund and the Post-Venture Capital Fund pursuant to a
shareholder servicing and distribution plan adopted by each Fund. For the period
or year ended October 31, 1995, distribution fees earned by CSI were as follows:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Japan OTC $119,941
Emerging Markets 5,926
Post-Venture Capital 351
</TABLE>
3. INVESTMENTS IN SECURITIES
For the period or year ended October 31, 1995, purchases and sales of
investment securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------------------------------------- -------------- ------------
<S> <C> <C>
Capital Appreciation $ 299,741,274 $269,962,070
Emerging Growth 532,722,466 336,581,792
International Equity 1,457,609,458 735,613,078
Japan OTC 189,768,420 36,507,703
Emerging Markets 7,181,659 1,297,140
Post-Venture Capital 2,714,501 222,270
</TABLE>
53
- --------------------------------------------------------------------------------
<PAGE>132
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 45,397,319 $ (3,203,157) $ 42,194,162
Emerging Growth 144,909,782 (9,681,675) 135,228,107
International Equity 260,125,513 (171,560,066) 88,565,447
Japan OTC 6,205,079 (7,100,852) (895,773)
Emerging Markets 341,944 (352,944) (11,000)
Post-Venture Capital 233,929 (69,488) 164,441
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund, the Japan OTC Fund, the Emerging Markets
Fund and the Post-Venture Capital Fund may enter into forward currency contracts
for the purchase or sale of a specific foreign currency at a fixed price on a
future date. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. The Funds will enter into forward contracts primarily for hedging
purposes. The forward currency contracts are adjusted by the daily exchange rate
of the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
54
- --------------------------------------------------------------------------------
<PAGE>133
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the International Equity Fund and the Japan OTC Fund had
the following open forward foreign currency contracts:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French Francs 11/15/95 260,000,000 $ 52,170,074 $ 53,253,590 $ (1,083,516)
French Francs 11/16/95 122,216,250 25,050,833 25,032,515 18,318
German Marks 11/16/95 110,000,000 78,272,317 78,263,963 8,354
German Marks 05/17/96 78,928,380 55,400,000 56,652,584 (1,252,584)
Japanese Yen 03/21/96 5,547,240,000 57,000,000 55,475,507 1,524,493
Japanese Yen 03/21/96 4,764,377,500 47,298,496 47,646,443 (347,947)
Japanese Yen 03/21/96 4,764,377,500 47,276,203 47,646,443 (370,240)
Japanese Yen 03/21/96 1,385,445,000 13,761,286 13,855,226 (93,940)
Japanese Yen 05/13/96 8,731,990,000 109,000,000 88,008,212 20,991,788
Japanese Yen 05/16/96 9,247,700,000 110,000,000 93,246,752 16,753,248
Japanese Yen 05/16/96 4,586,012,000 55,400,000 46,241,847 9,158,153
Japanese Yen 09/18/96 4,660,000,000 50,000,000 47,860,895 2,139,105
------------ ------------ ----------------
$700,629,209 $653,183,977 $ 47,445,232
------------ ------------ ----------------
------------ ------------ ----------------
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
FORWARD CURRENCY EXPIRATION TO BE CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE PURCHASED AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
German Marks 11/16/95 34,500,000 $ 25,050,828 $ 24,546,425 $ (504,403)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JAPAN OTC FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 11/30/95 12,567,400,000 $124,000,000 $123,536,813 $ 463,187
Japanese Yen 11/30/95 2,027,000,000 20,000,000 19,925,293 74,707
Japanese Yen 11/30/95 1,520,250,000 15,000,000 14,943,969 56,031
------------ ------------ ----------------
$159,000,000 $158,406,075 $ 593,925
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
55
- --------------------------------------------------------------------------------
<PAGE>134
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
5. EQUITY SWAP TRANSACTIONS
The International Equity Fund (the 'Fund') entered into a Taiwanese equity
swap agreement (which represents approximately .005% of the Fund's net assets at
October 31, 1995) dated August 11, 1995, where the Fund receives a quarterly
payment, representing the total return (defined as market appreciation and
dividend income) on a basket of three Taiwanese common stocks ('Common Stocks').
In return, the Fund pays quarterly the Libor rate (London Interbank Offered
Rate), plus 1.25% per annum (7.125% on October 31, 1995) on the initial stock
purchase amount ('Notional amount') of $12,000,000. The Notional amount is
marked to market on each quarterly reset date. In the event that the Common
Stocks decline in value, the Fund will be required to pay quarterly, the amount
of any depreciation in value from the notional amount. The equity swap agreement
will terminate on August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At October 31, 1995, the
Fund has recorded an unrealized gain of $502,018 and interest payable of
$192,375 on the equity swap transaction.
56
- --------------------------------------------------------------------------------
<PAGE>135
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
The Capital Appreciation Fund is authorized to issue three billion of full
and fractional shares of beneficial interest, $.001 par value per share, of
which one billion shares are classified as Series 2 Shares (the Advisor Shares).
The Emerging Growth Fund, the International Equity Fund, the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund are each authorized to
issue three billion full and fractional shares of capital stock, $.001 par value
per share, of which one billion shares of each Fund are designated as Series 2
Shares (the Advisor Shares).
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
Common Shares Advisor Shares Common Shares Advisor Shares
----------------------------- --------------------------- ------------------------------ --------------
For the Year Ended October 31, For the Year Ended October 31,
------------------------------------------------------------- ----------------------------------------------
1995 1994 1995 1994 1995 1994 1995
------------ ------------ ----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 6,020,619 2,958,494 201,782 290,193 9,808,362 6,133,751 3,172,686
Shares issued to
shareholders on
reinvestment of
dividends 850,478 920,210 46,554 61,526 0 506,720 0
Shares redeemed (3,638,974) (3,126,497) (110,027) (460,020) (4,294,179) (2,859,413) (383,922)
------------ ------------ ----------- ----------- ------------- ------------ -----------
Net increase
(decrease) in
shares
outstanding 3,232,123 752,207 138,309 (108,301) 5,514,183 3,781,058 2,788,764
------------ ------------ ----------- ----------- ------------- ------------ -----------
------------ ------------ ----------- ----------- ------------- ------------ -----------
Proceeds from sale
of shares $ 85,992,655 $ 41,570,590 $ 2,970,800 $ 4,046,941 $ 256,886,928 $132,922,995 $78,682,150
Reinvested
dividends 10,670,876 12,945,690 575,876 863,477 0 11,015,146 0
Net asset value of
shares redeemed (51,907,650) (43,449,501) (1,551,821) (6,401,999) (106,777,032) (61,126,667) (9,503,812)
------------ ------------ ----------- ----------- ------------- ------------ -----------
Net increase
(decrease) from
capital share
transactions $ 44,755,881 $ 11,066,779 $ 1,994,855 $(1,491,581) $ 150,109,896 $ 82,811,474 $69,178,338
------------ ------------ ----------- ----------- ------------- ------------ -----------
------------ ------------ ----------- ----------- ------------- ------------ -----------
<CAPTION>
1994
------------
<S> <C>
Shares sold 2,233,737
Shares issued to
shareholders on
reinvestment of
dividends 80,473
Shares redeemed (517,898)
------------
Net increase
(decrease) in
shares
outstanding 1,796,312
------------
------------
Proceeds from sale
of shares $ 47,890,275
Reinvested
dividends 1,743,241
Net asset value of
shares redeemed (10,641,050)
------------
Net increase
(decrease) from
capital share
transactions $ 38,992,466
------------
------------
</TABLE>
57
- --------------------------------------------------------------------------------
<PAGE>136
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONT'D)
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
INTERNATIONAL EQUITY FUND Common Shares Advisor Shares
Common Shares Advisor Shares --------------- -----------------
-------------------------------- ---------------------------- For the Period
For the Year Ended October 31, December 30, 1994
---------------------------------------------------------------- (Commencement of Operations)
1995 1994 1995 1994 through October 31, 1995
-------------- -------------- ------------ ------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 68,096,606 64,218,907 7,225,150 7,956,088 694,008 22
Shares issued to
shareholders on
reinvestment of
dividends 2,623,005 147,031 346,377 6,879 1,267 0
Shares redeemed (38,317,625) (11,861,720) (770,753) (795,406) (104,480) 0
-------------- -------------- ------------ ------------ --------------- -----
Net increase
(decrease) in
shares outstanding 32,401,986 52,504,218 6,800,774 7,167,561 590,795 22
-------------- -------------- ------------ ------------ --------------- -----
-------------- -------------- ------------ ------------ --------------- -----
Proceeds from sale of
shares $1,251,776,887 $1,275,306,263 $131,585,072 $155,433,660 $ 7,753,651 $ 257
Reinvested dividends 48,487,109 2,820,903 6,385,868 129,869 13,802 0
Net asset value of
shares redeemed (701,310,424) (233,614,600) (14,287,779) (15,435,478) (1,191,160) 0
-------------- -------------- ------------ ------------ --------------- -----
Net increase
(decrease) from
capital share
transactions $ 598,953,572 $1,044,512,566 $123,683,161 $140,128,051 $ 6,576,293 $ 257
-------------- -------------- ------------ ------------ --------------- -----
-------------- -------------- ------------ ------------ --------------- -----
</TABLE>
7. NET ASSETS
Net Assets at October 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL EMERGING
APPRECIATION FUND GROWTH FUND
----------------- ------------
<S> <C> <C>
Capital contributed, net $ 173,327,827 $479,035,241
Accumulated net investment income (loss) 0 0
Accumulated net realized gain (loss) from security transactions 31,648,355 40,302,640
Net unrealized appreciation (depreciation) from investments and
foreign currency related items 42,329,683 135,424,730
----------------- ------------
Net assets $ 247,305,865 $654,762,611
----------------- ------------
----------------- ------------
</TABLE>
58
- --------------------------------------------------------------------------------
<PAGE>137
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN OTC FUND
Common Shares Advisor Shares
------------------------------------- -------------------------------------
For the Period For the Period POST-VENTURE CAPITAL FUND
September 30, September 30, Common Shares
1994 1994 ------------------
(Commencement of (Commencement of For the Period
For the Operations) For the Operations) September 29, 1995
Year Ended through Year Ended through (Commencement of Operations)
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994 through October 31, 1995
---------------- ---------------- ---------------- ---------------- --------------------------
<S> <C> <C> <C> <C> <C>
22,809,795 2,025,697 0 15 273,510
0 0 0 0 0
(5,180,432) (18,605) 0 0 (473)
--
---------------- ---------------- ----- ------------------
17,629,363 2,007,092 0 15 273,037
--
--
---------------- ---------------- ----- ------------------
---------------- ---------------- ----- ------------------
$200,565,875 $ 20,287,008 $0 $150 $2,792,203
0 0 0 0 0
(44,871,674) (185,101) 0 0 (4,887)
--
---------------- ---------------- ----- ------------------
$155,694,201 $ 20,101,907 $0 $150 $2,787,316
--
--
---------------- ---------------- ----- ------------------
---------------- ---------------- ----- ------------------
<CAPTION>
Advisor Shares
---------------------
<S> <C>
19
0
0
-----
19
-----
-----
$ 200
0
0
-----
$ 200
-----
-----
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING POST-VENTURE
EQUITY FUND MARKETS FUND JAPAN OTC FUND CAPITAL FUND
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
$2,271,007,433 $6,677,550 $175,619,527 $2,887,516
19,124,669 10,218 7,821,209 356
(40,671,086 ) 102,219 (4,640,787) (26,884)
136,482,831 (9,058) (230,467) 164,441
-------------- ------------ -------------- ------------
$2,385,943,847 $6,780,929 $178,569,482 $3,025,429
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
</TABLE>
59
- --------------------------------------------------------------------------------
<PAGE>138
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
8. CAPITAL LOSS CARRYOVER
At October 31, 1995, the International Equity Fund, the Japan OTC Fund and
the Post-Venture Capital Fund had capital loss carryovers of $40,671,086,
$4,629,196 and $26,884, respectively, expiring in 2003 to offset possible future
capital gains of each Fund.
9. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Common Shares,
representing equal prorata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for a Common Share of each Fund are as
follows:
<TABLE>
<CAPTION>
Capital Appreciation Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.29 $15.32 $13.30 $12.16 $ 9.78
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .04 .04 .05 .04 .15
Net Gain on Securities (both
realized and unrealized) 3.08 .17 2.78 1.21 2.41
------ ------ ------ ------ ------
Total from Investment Operations 3.12 .21 2.83 1.25 2.56
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.04) (.05) (.05) (.06) (.18)
Distributions from Capital Gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ ------
Total Distributions (1.02) (1.24) (.81) (.11) (.18)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $16.39 $14.29 $15.32 $13.30 $12.16
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 24.05% 1.65% 22.19% 10.40% 26.39%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $235,712 $159,346 $159,251 $117,900 $115,191
Ratios to average daily net assets:
Operating expenses 1.12% 1.05% 1.01% 1.06% 1.08%
Net investment income .31% .26% .30% .41% 1.27%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .00%
Portfolio Turnover Rate 146.09% 51.87% 48.26% 55.83% 39.50%
</TABLE>
60
- --------------------------------------------------------------------------------
<PAGE>139
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.06
Long-term capital gain .96
</TABLE>
Ordinary income dividends qualifying for the dividends received deduction
available to corporate shareholders was 100.00%.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
61
- --------------------------------------------------------------------------------
<PAGE>140
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Growth Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $22.38 $23.74 $18.28 $16.97 $10.83
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income (Loss) (.05) (.06) (.10) (.03) .05
Net Gain on Securities (both
realized and unrealized) 7.64 .06 5.93 1.71 6.16
------ ------ ------ ------ ------
Total from Investment Operations 7.59 .00 5.83 1.68 6.21
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income .00 .00 .00 (.01) (.07)
Distributions from Capital Gains .00 (1.36) (.37) (.36) .00
------ ------ ------ ------ ------
Total Distributions .00 (1.36) (.37) (.37) (.07)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $29.97 $22.38 $23.74 $18.28 $16.97
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 33.91% .16% 32.28% 9.87% 57.57%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $487,537 $240,664 $165,525 $99,562 $42,061
Ratios to average daily net assets:
Operating expenses 1.26% 1.22% 1.23% 1.24% 1.25%
Net investment income (loss) (.58%) (.58%) (.60%) (.25%) .32%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .04% .00% .08% .47%
Portfolio Turnover Rate 84.82% 60.38% 68.35% 63.35% 97.69%
</TABLE>
62
- --------------------------------------------------------------------------------
<PAGE>141
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $20.51 $17.00 $12.22 $13.66 $11.81
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .12 .09 .09 .15 .19
Net Gain (Loss) on Securities and
Foreign Currency Related Items (both
realized and unrealized) (.67) 3.51 4.84 (1.28) 2.03
------ ------ ------ ------ ------
Total from Investment Operations (.55) 3.60 4.93 (1.13) 2.22
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.13) (.04) (.02) (.16) (.33)
Distributions in Excess of
Net Investment Income .00 (.01) .00 .00 .00
Distributions from Capital Gains (.53) (.04) (.13) (.15) (.04)
------ ------ ------ ------ ------
Total Distributions (.66) (.09) (.15) (.31) (.37)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $19.30 $20.51 $17.00 $12.22 $13.66
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return (2.55%) 21.22% 40.68% (8.44%) 19.42%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $2,068,207 $1,533,872 $378,661 $101,763 $72,553
Ratios to average daily net assets:
Operating expenses 1.39% 1.44% 1.48% 1.49% 1.50%
Net investment income .69% .19% .38% .88% 1.19%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .00% .00% .07% .17%
Portfolio Turnover Rate 39.24% 17.02% 22.60% 53.29% 54.95%
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.46
Long-term capital gain .20
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
63
- --------------------------------------------------------------------------------
<PAGE>142
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Japan OTC Fund
---------------------------------------------------------
Common Shares
---------------------------------------------------------
For the Period
September 30, 1994
(Commencement of
For the Year Ended Operations) through
October 31, 1995 October 31, 1994
--------------------------- --------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 10.00
----------- ----------
Income from Investment Operations:
Net Investment Income .00 .00
Net Loss on Securities and Foreign Currency
Related Items (both realized and unrealized) (.76) (.15)
----------- ----------
Total from Investment Operations (.76) (.15)
----------- ----------
Less Distributions:
Dividends from Net Investment Income .00 .00
Distributions from Capital Gains .00 .00
----------- ----------
Total Distributions .00 .00
----------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.09 $ 9.85
----------- ----------
----------- ----------
Total Return (7.72%) (15.84%)*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 178,568 $ 19,878
Ratios to average daily net assets:
Operating expenses 1.41% 1.00%*
Net investment income (loss) (.15%) .49%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 1.35% 4.96%*
Portfolio Turnover Rate 82.98% .00%
<FN>
* Annualized
</TABLE>
64
- --------------------------------------------------------------------------------
<PAGE>143
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Markets Fund
---------------------------
Common Shares
---------------------------
For the Period
December 30, 1994
(Commencement of
Operations) through
October 31, 1995
---------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .08
Net Gain on Securities and Foreign Currency Related Items (both
realized and unrealized) 1.25
-------
Total from Investment Operations 1.33
-------
Less Distributions:
Dividends from Net Investment Income (.05)
Distributions from Capital Gains .00
-------
Total Distributions (.05)
-------
NET ASSET VALUE, END OF PERIOD $ 11.28
-------
-------
Total Return 16.09%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 6,780
Ratios to average daily net assets:
Operating expenses 1.00%*
Net investment income 1.25%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 11.08%*
Portfolio Turnover Rate 69.12%*
<FN>
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.05
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
65
- --------------------------------------------------------------------------------
<PAGE>144
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-Venture Capital Fund
---------------------------
Common Shares
---------------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
---------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities (both realized and unrealized) .69
-------
Total from Investment Operations .69
-------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
-------
Total Distributions .00
-------
NET ASSET VALUE, END OF PERIOD $ 10.69
-------
-------
Total Return 6.90%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 3,024
Ratios to average daily net assets:
Operating expenses 1.65%*
Net investment income .25%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 23.76%*
Portfolio Turnover Rate 16.90%*
<FN>
* Annualized
+ Non-annualized
</TABLE>
66
