<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission
on February 11, 1997
Securities Act File No. 33-36066
Investment Company Act File No. 811-06143
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 7 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 9 [X]
(Check appropriate box or boxes)
Warburg, Pincus Global Fixed Income Fund, Inc.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Global Fixed Income Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
--------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4667
<PAGE>
<PAGE>
It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------------------------------------
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933, as amended (the "1933 Act"), pursuant to Section (a)(1)
of Rule 24f-2 under the Investment Company Act of 1940, as amended (the "1940
Act"), and to the number or amount presently registered is added an indefinite
number or amount of such securities. The Rule 24f-2 Notice for Registrant's
fiscal year ended October 31, 1996 was filed on December 27, 1996.
<PAGE>
<PAGE>
WARBURG, PINCUS GLOBAL FIXED INCOME FUND
FORM N-1A
CROSS REFERENCE SHEET
------------------------------
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading*
-------- -------------------
<S> <C>
1. Cover Page ...................... Cover Page
2. Synopsis ........................ The Funds' Expenses
3. Condensed Financial
Information.................... Financial Highlights
4. General Description of
Registrant .................... Cover Page; Investment Objective and Policies;
Portfolio Investments; Risk Factors and
Special Considerations; Certain Investment
Strategies; Investment Guidelines; General
Information
5. Management of the
Fund ........................... Management of the Funds
6. Capital Stock and Other
Securities ..................... General Information
7. Purchase of Securities Being
Offered ........................ How to Open an Account; How to Purchase
Shares; Net Asset Value
8. Redemption or
Repurchase ..................... How to Redeem and Exchange Shares
9. Legal Proceedings ................ Not applicable
- ----------
* Relates to Registrant's Common Share prospectus, which is substantially
similar to Registrant's Advisor Share Prospectus.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
-------- ----------------------
<S> <C>
10. Cover Page ....................... Cover Page
11. Table of Contents ................ Contents
12. General Information and History .. Management of the Funds; Notes to Financial
Statements; See Prospectus--"General
Information"
13. Investment Objectives
and Policies ................... Investment Objectives; Investment Policies
14. Management of the Registrant ..... Management of the Funds; See
Prospectus--"Management of the Funds"
15. Control Persons and Principal
Holders of Securities .......... Management of the Funds; Miscellaneous; See
Prospectus --"General Information"
16. Investment Advisory and Other
Services ....................... Management of the Funds; See
Prospectus--"Management of the Funds" and
"Shareholder Servicing"
17. Brokerage Allocation ............. Investment Policies; See
Prospectus--"Portfolio Transactions and
Turnover Rate"
18. Capital Stock and Other
Securities ..................... Management of the Funds--Organization of the
Fund; See Prospectus--"General Information"
19. Purchase, Redemption and Pricing
of Securities Being Offered .... Additional Purchase and Redemption
Information; See Prospectus--"How to Open an
Account," "How to Purchase Shares," "How to
Redeem and Exchange Shares" and "Net Asset
Value"
</TABLE>
-2-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Part B Heading in Statement of
Item No. Additional Information
-------- ----------------------
<S> <C>
20. Tax Status ....................... Additional Information Concerning Taxes; See
Prospectus--"Dividends, Distributions and
Taxes"
21. Underwriters ..................... Investment Policies; Portfolio Transactions;
See Prospectus--"Management of the Funds" and
"Shareholder Servicing"
22. Calculation of
Performance Data ............... Determination of Performance
23. Financial Statements ............. Report of Independent Accountants; Financial
Statements
</TABLE>
Part C
Information required to be included in Part C is set forth after
the appropriate item, so numbered, in Part C to this Registration Statement.
-3-
<PAGE>
<PAGE>
PROSPECTUS
February 11, 1997
WARBURG PINCUS
FIXED INCOME FUND
WARBURG PINCUS
GLOBAL FIXED INCOME FUND
WARBURG PINCUS
INTERMEDIATE MATURITY GOVERNMENT FUND
WARBURG PINCUS
NEW YORK INTERMEDIATE MUNICIPAL FUND
[Logo]
<PAGE>
<PAGE>
PROSPECTUS FEBRUARY 11, 1997
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 FIXED INCOME FUND is a bond fund seeking high current income
consistent with reasonable risk and, secondarily, capital appreciation. The Fund
will pursue its objectives by investing in a diversified portfolio of fixed
income securities.
WARBURG PINCUS GLOBAL FIXED INCOME FUND is a bond fund seeking to maximize total
investment return consistent with prudent investment management, consisting of a
combination of interest income, currency gains and capital appreciation. The
Fund will pursue its objective by investing in a portfolio principally
consisting of investment grade fixed income securities of governmental and
corporate issuers denominated in various currencies, including U.S. dollars.
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND is an intermediate-term
bond fund seeking as high a level of current income as is consistent with the
preservation of capital. The Fund will pursue its objective by investing in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND is an intermediate-term
municipal bond fund designed for New York investors seeking to maximize current
interest income exempt from federal income tax and New York State and New York
City personal income taxes to the extent consistent with prudent investment and
the preservation of capital.
NO LOAD CLASS OF COMMON SHARES
- --------------------------------------------------------------------------------
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.
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'). The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Funds.
The Statements of Additional Information are available upon request and without
charge by calling Warburg Pincus Funds at (800) 927-2874. Information regarding
the status of shareholder accounts may also be obtained by calling a Fund at the
same number. The Statements of Additional Information, as amended or
supplemented from time to time, bear the same date as this Prospectus and are
incorporated by reference in their entirety into this Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK AND SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENTS IN SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
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.'
THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
Each of Warburg Pincus Fixed Income Fund (the 'Fixed Income Fund'), Warburg
Pincus Global Fixed Income Fund (the 'Global Fixed Income Fund'), Warburg Pincus
Intermediate Maturity Government Fund (the 'Intermediate Government Fund') and
Warburg Pincus New York Intermediate Municipal Fund (the 'New York Municipal
Fund') (collectively, the 'Funds') currently offers two separate classes of
shares: Common Shares and Advisor Shares. For a description of Advisor Shares
see 'General Information.'
<TABLE>
<CAPTION>
Global Intermediate New York
Fixed Income Fixed Income Government Municipal
Fund Fund Fund Fund
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases (as
a percentage of offering price).......... 0 0 0 0
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees............................ .37% .50% .11% .27%
12b-1 Fees................................. 0 0 0 0
Other Expenses............................. .38% .45% .49% .33%
-- -- --
---
Total Fund Operating Expenses (after fee
waivers)`D'.............................. .75% .95% .60% .60%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year..................................... $ 8 $ 10 $ 6 $ 6
3 years.................................... $24 $ 30 $19 $19
5 years.................................... $42 $ 53 $33 $33
10 years................................... $93 $117 $75 $75
</TABLE>
- --------------------------------------------------------------------------------
`D' Absent the waiver of fees by the Funds' investment adviser and
co-administrator, Management Fees for the Fixed Income, Global Fixed Income,
Intermediate Government and New York Municipal Funds would have equalled
.50%, 1.00%, .50% and .40%, respectively; Other Expenses would have equalled
.41%, .51%, .57% and .38%, respectively; and Total Fund Operating Expenses
would have equalled .91%, 1.51%, 1.07% and .78%, respectively. The Funds'
investment adviser and co-administrator are under no obligation to continue
these waivers.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of each Fund. Certain broker-dealers and
financial institutions also may charge their clients fees in connection with
investments in Fund shares, which fees are not reflected in the table. The
Example should not be considered a representation of past or future expenses;
actual Fund expenses may be greater or less than those shown. Moreover, while
the Example assumes a 5% annual return, each Fund's actual performance will vary
and may result in a return greater or less than 5%.
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The information regarding each Fund for the four fiscal years ended October
31, 1996 has been derived from information audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report dated December 18, 1996 is incorporated by
reference in the relevant Fund's Statement of Additional Information. The
information for the fiscal year ended October 31, 1992 has been audited by
Ernst & Young LLP, whose report was unqualified. Further information about the
performance of the Funds is contained in the Funds' annual report, dated
October 31, 1996, copies of which may be obtained without charge by calling
Warburg Pincus Funds at (800) 927-2874.
FIXED INCOME FUND
<TABLE>
<CAPTION>
For the Period
August 17, 1987
(Commencement
of
Operations)
For the Year Ended October 31, through
-------------------------------------------------------------------------------------- October 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period......... $10.07 $ 9.61 $10.42 $ 9.90 $ 9.61 $ 8.95 $ 9.74 $ 9.93 $ 9.62 $ 10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Income from
Investment
Operations
Net Investment
Income....... .63 .70 .63 .56 .67 .73 .88 .91 .88 .19
Net Gains
(Losses) from
Securities
and Foreign
Currency
Related Items
(both
realized and
unrealized)... .03 .46 (.70) .52 .29 .66 (.79) (.18) .31 (.38)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from
Investment
Operations... .66 1.16 (.07) 1.08 .96 1.39 .09 .73 1.19 (.19)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Less
Distributions
Dividends (from
net
investment
income)...... (.63) (.70) (.65) (.56) (.67) (.73) (.88) (.91) (.88) (.19)
Distributions
(from capital
gains)....... .00 .00 (.09) .00 .00 .00 .00 (.01) .00 .00
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total
Distributions.. (.63) (.70) (.74) (.56) (.67) (.73) (.88) (.92) (.88) (.19)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net Asset Value,
End of
Period......... $10.10 $10.07 $ 9.61 $10.42 $ 9.90 $ 9.61 $ 8.95 $ 9.74 $ 9.93 $ 9.62
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total Return.... 6.80% 12.59% (.60%) 11.63% 10.28% 16.08% .88% 7.78% 12.67% (9.17%)*
Ratios/Supplemental
Data
Net Assets, End
of Period
(000s)......... $151,184 $116,983 $102,246 $81,181 $65,095 $61,908 $60,815 $87,258 $75,499 $26,291
Ratios to
Average Daily
Net Assets:
Operating
expenses..... .75% .75% .75% .75% .75% .75% .75% .75% .74% .70%*
Net investment
income....... 6.30% 7.25% 6.53% 5.99% 6.82% 7.85% 9.35% 9.34% 8.80% 9.10%*
Decrease
reflected in
above expense
ratios due to
waivers/
reimbursements.. .16% .18% .18% .09% .27% .24% .06% .08% .26% .80%*
Portfolio
Turnover Rate.. 194.23% 182.93% 179.44% 227.37% 122.04% 150.61% 132.01% 78.25% 55.80% 30.00%*
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
3
<PAGE>
<PAGE>
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992 1991*
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $11.04 $10.45 $11.38 $10.68 $10.40 $10.00
------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net Investment Income................. .62 .99 .34 .54 .86 .59
Net Gains (Losses) from Securities and
Foreign Currency Related Items (both
realized and unrealized)............ .57 .09 (.64) 1.13 .28 .14
------ ------ ------ ------ ------ ------
Total from Investment Operations...... 1.19 1.08 (.30) 1.67 1.14 .73
------ ------ ------ ------ ------ ------
Less Distributions
Dividends (from net investment
income)............................. (1.06) (.49) (.45) (.85) (.67) (.33)
Distributions (from capital gains).... .00 .00 (.14) (.12) (.19) .00
Return of Capital..................... .00 .00 (.04) .00 .00 .00
------ ------ ------ ------ ------ ------
Total Distributions................... (1.06) (.49) (.63) (.97) (.86) (.33)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period......... $11.17 $11.04 $10.45 $11.38 $10.68 $10.40
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total Return........................... 11.35% 10.65% (2.79%) 16.72% 11.08% 7.66%
Ratios/Supplemental Data
Net Assets, End of Period (000s)....... $131,072 $63,641 $90,394 $61,994 $17,092 $12,160
Ratios to Average Daily Net Assets:
Operating expenses.................... .95% .95% .95% .49% .45% 1.09%
Net investment income................. 6.78% 8.18% 6.96% 8.60% 8.66% 7.45%
Decrease reflected in above expense
ratios due to
waivers/reimbursements.............. .56% .63% .65% 1.44% 2.42% 2.73%
Portfolio Turnover Rate................ 123.90% 128.70% 178.11% 109.54% 93.14% 185.74%
</TABLE>
- --------------------------------------------------------------------------------
* The Fund commenced operations on November 1, 1990.
4
<PAGE>
<PAGE>
INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
For the Period
August 22, 1988
(Commencement of
For the Year Ended October 31, Operations)
-------------------------------------------------------------------------- through
1996 1995 1994 1993 1992 1991 1990 1989 October 31, 1988
------ ------ ------ ------ ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $10.22 $ 9.66 $11.03 $11.23 $10.83 $10.24 $10.33 $10.27 $10.00
------ ------ ------ ------ ------ ------ ------ ------ -----
Income from Investment
Operations
Net Investment
Income........... .58 .59 .54 .59 .68 .76 .79 .82 .16
Net Gains (Losses)
from Securities
(both realized
and
unrealized)...... (.06) .56 (.73) .34 .41 .59 (.09) .06 .27
------ ------ ------ ------ ------ ------ ------ ------ -----
Total from
Investment
Operations....... .52 1.15 (.19) .93 1.09 1.35 .70 .88 .43
------ ------ ------ ------ ------ ------ ------ ------ -----
Less Distributions
Dividends (from net
investment
income).......... (.58) (.59) (.55) (.59) (.68) (.76) (.79) (.82) (.16)
Distributions (from
capital gains)... (.09) .00 (.63) (.54) (.01) .00 .00 .00 .00
------ ------ ------ ------ ------ ------ ------ ------ -----
Total
Distributions.... (.67) (.59) (1.18) (1.13) (.69) (.76) (.79) (.82) (.16)
------ ------ ------ ------ ------ ------ ------ ------ -----
Net Asset Value, End
of Period.......... $10.07 $10.22 $ 9.66 $11.03 $11.23 $10.83 $10.24 $10.33 $10.27
------ ------ ------ ------ ------ ------ ------ ------ -----
------ ------ ------ ------ ------ ------ ------ ------ -----
Total Return........ 5.16% 12.32% (1.78%) 8.79% 10.34% 13.71% 7.10% 9.05% 24.36%*
Ratios/Supplemental
Data
Net Assets, End of
Period (000s)...... $47,690 $55,898 $46,734 $77,565 $113,336 $89,006 $63,663 $26,861 $6,640
Ratios to Average
Daily Net Assets:
Operating
expenses......... .60% .60% .60% .60% .60% .57% .50% .50% .50%*
Net investment
income........... 5.68% 6.00% 5.43% 5.34% 6.10% 7.29% 7.78% 8.07% 8.22%*
Decrease reflected
in above expense
ratios due to
waivers/reimbursements.. .47% .49% .42% .21% .25% .30% .44% 1.53% 3.64%*
Portfolio turnover
rate............... 163.59% 105.79% 115.37% 108.00% 165.70% 39.13% 112.69% 22.55% 27.97%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
5
<PAGE>
<PAGE>
NEW YORK MUNICIPAL FUND
<TABLE>
<CAPTION>
For the Period
April 1, 1987
(Commencement of
For the Year Ended October 31, Operations)
------------------------------------------------------------------------------- through October
1996 1995 1994 1993 1992 1991 1990 1989 1988 31, 1987
------ ------ ------ ------ ------ ----- ----- ----- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period......... $10.42 $10.07 $10.65 $10.02 $ 9.88 $9.57 $9.59 $9.71 $ 9.39 $10.00
------ ------ ------ ------ ------ ----- ----- ----- ------ -----
Income from Investment
Operations
Net Investment
Income....... .45 .47 .46 .47 .50 .53 .60 .58 .55 .30
Net Gains
(Losses) from
Securities
(both
realized and
unrealized)... .04 .36 (.45) .68 .14 .31 (.02) (.12) .32 (.61)
------ ------ ------ ------ ------ ----- ----- ----- ------ -----
Total from
Investment
Operations... .49 .83 .01 1.15 .64 .84 .58 .46 .87 (.31)
------ ------ ------ ------ ------ ----- ----- ----- ------ -----
Less
Distributions
Dividends (from
net
investment
income)...... (.45) (.47) (.46) (.47) (.50) (.53) (.60) (.58) (.55) (.30)
Distributions
(from capital
gains)....... (.12) (.01) (.13) (.05) .00 .00 .00 .00 .00 .00
------ ------ ------ ------ ------ ----- ----- ----- ------ -----
Total
Distributions... (.57) (.48) (.59) (.52) (.50) (.53) (.60) (.58) (.55) (.30)
------ ------ ------ ------ ------ ----- ----- ----- ------ -----
Net Asset Value,
End of
Period......... $10.34 $10.42 $10.07 $10.65 $10.02 $9.88 $9.57 $9.59 $ 9.71 $ 9.39
------ ------ ------ ------ ------ ----- ----- ----- ------ -----
------ ------ ------ ------ ------ ----- ----- ----- ------ -----
Total Return.... 4.87% 8.31% .04% 11.67% 6.63% 9.43% 6.18% 4.91% 9.43% (5.30%)*
Ratios/Supplemental
Data
Net Assets, End
of Period
(000s)......... $77,559 $73,361 $75,716 $69,578 $54,012 $29,016 $21,916 $20,048 $27,596 $10,410
Ratios to
Average Daily
Net Assets:
Operating
expenses..... .59% .60% .60% .58% .55% .55% .55% .56% .54% .50%*
Net investment
income....... 4.41% 4.50% 4.41% 4.50% 4.99% 5.84% 6.21% 6.14% 5.70% 5.50%*
Decrease
reflected in
above expense
ratios due to
waivers/reimbursements.. .18% .26% .20% .20% .40% .65% .76% .72% 1.01% 2.10%*
Portfolio
Turnover Rate.. 69.23% 105.17% 167.09% 115.98% 47.79% 66.53% 70.45% 74.03% 145.20% 28.00%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
6
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Fund's objective is a fundamental policy and may not be amended without
first obtaining the approval of a majority of the outstanding shares of that
Fund. Any investment involves risk and, therefore, there can be no assurance
that any Fund will achieve its investment objective. See 'Portfolio Investments'
and 'Certain Investment Strategies' for descriptions of certain types of
investments the Funds may make.
FIXED INCOME FUND
The Fixed Income Fund seeks to generate high current income consistent with
reasonable risk and, secondarily, capital appreciation. The Fund is a
diversified management investment company which pursues its investment
objectives by investing, under normal market conditions, at least 65% of its
total assets in fixed income securities, such as corporate bonds, debentures and
notes, convertible debt securities, preferred stocks, government obligations,
Municipal Obligations (as described below under 'New York Municipal Fund') and
repurchase agreements with respect to portfolio securities. Under normal market
conditions, the Fund intends that its portfolio of fixed income securities will
have a weighted average remaining maturity not exceeding 10 years. The Fund may
invest without limit in U.S. dollar-denominated, investment grade foreign
securities, but limits to 35% of its assets the portion that may be invested in
securities of foreign issuers that either are rated below investment grade or
are denominated in a currency other than U.S. dollars.
Under normal market conditions, at least 65% of all of the fixed income
securities in the Fund will be rated investment grade. A security will be
considered investment grade if it is rated at the time of purchase within the
four highest grades assigned by Moody's Investors Service, Inc. ('Moody's') or
Standard & Poor's Ratings Services ('S&P'). The Fund may hold up to 35% of its
net assets in fixed income securities rated below investment grade and as low as
C by Moody's or D by S&P at the time of purchase or may be unrated securities
considered to be of equivalent quality.
GLOBAL FIXED INCOME FUND
The Global Fixed Income Fund seeks to maximize total investment return
consistent with prudent investment management, consisting of a combination of
interest income, currency gains and capital appreciation. The Fund is a
non-diversified management investment company which seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in fixed income obligations of governmental and corporate issuers
denominated in various currencies (including U.S. dollars, or in multinational
currency units such as European Currency Units ('ECUs')), including convertible
debt securities and preferred stock. Issuers of these securities will be located
in at least three countries and issuers located in any one country (other than
the United States) will not represent more than 40% of the Fund's total assets.
In addition, the Fund will not invest 25% or more of its assets in
7
<PAGE>
<PAGE>
the securities issued by any one foreign government, its agencies,
instrumentalities or political subdivisions. The Fund may invest up to 20% of
its total assets in equity securities, including common stock, warrants and
rights. For temporary defensive purposes or during times of international
political or economic uncertainty, all of the Fund's investments may be made
temporarily in the United States or denominated in U.S. dollars.
The Fund may invest in a wide variety of fixed income obligations issued
anywhere in the world, including the United States. The Fund may purchase debt
obligations issued or guaranteed by the United States or foreign governments,
their agencies, instrumentalities or political subdivisions, as well as
supranational entities organized or supported by several national governments,
such as the International Bank for Reconstruction and Development (the 'World
Bank') or the European Investment Bank. The Fund may also purchase fixed income
obligations of foreign corporations that are issued in a currency other than
U.S. dollars. Because of fluctuating currency values, the Fund may engage in
certain currency transactions, as described under 'Certain Investment
Strategies -- Options, Futures and Currency Transactions' below.
Under normal economic and market conditions, the dollar-weighted average
maturity of the Fund's portfolio of fixed income securities will be between 3
and 10 years, using for purposes of this calculation the maturity of a security
on its date of purchase. Individual issues may have maturities shorter or longer
than 3 to 10 years.
Warburg, Pincus Counsellors, Inc., each Fund's investment adviser
('Warburg'), will allocate investments among securities of particular issuers on
the basis of its views as to the best values then currently available in the
marketplace. Such values are a function of yield, maturity, issue classification
and quality characteristics, coupled with expectations regarding the economy,
movements in the general level and term of interest rates, currency values,
political developments and variations in the supply of funds available for
investment in the world bond market relative to the demands placed upon it.
Fixed income securities denominated in currencies other than the U.S. dollar or
in multinational currency units are evaluated on the strength of the particular
currency against the U.S. dollar as well as on the current and expected levels
of interest rates in the country or countries. Currencies generally are
evaluated on the basis of fundamental economic criteria (e.g., relative
inflation and interest rate levels and trends, growth rate forecasts, balance of
payments status and economic policies) as well as technical and political data.
In addition to the foregoing, the Fund may seek to take advantage of differences
in relative values of fixed income securities among various countries.
The Fund may hold up to 35% of its net assets in fixed income securities
rated below investment grade, or in unrated securities considered to be of
equivalent quality.
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INTERMEDIATE GOVERNMENT FUND
The Intermediate Government Fund seeks to achieve as high a level of current
income as is consistent with the preservation of capital. The Fund is a
diversified management investment company which pursues its investment objective
by investing, under normal market conditions, at least 65% of its total assets
in obligations issued or guaranteed by the United States government, its
agencies or instrumentalities ('Government Securities'). Under normal market
conditions, the Fund will maintain a weighted average portfolio maturity of
between 3 and 10 years. Investments by the Fund in repurchase agreements on
Government Securities are not included in determining the percentage of assets
invested in Government Securities.
The Fund may invest in Government Trust Certificates. Each Certificate
evidences an undivided fractional interest in a Government Trust (each, a
'Trust'). The assets of each Trust consist of a promissory note, payable in U.S.
Dollars (the 'Loan Note'), representing a loan made by the Trust to the
government of Israel (the 'Borrower'), backed by a full faith and credit
guaranty issued by the United States of America, acting through the Defense
Security Assistance Agency of the Department of Defense (the 'Guaranty'), of the
due and punctual payment of 90% of payments of principal and interest due on the
Loan Note and a security interest in collateral, consisting of non-callable
securities issued or guaranteed by the United States government, or derivatives
thereof, such as trust receipts or other securities evidencing an interest in
such United States government securities, sufficient to pay the remaining 10% of
all payments of principal and interest due on the Loan Notes. Each Certificate
issued by a Trust represents the right to receive a portion of the payments due
on the Loan Note held by that Trust. The Certificates are not subject to
prepayment or acceleration. Each Guaranty is entitled to the full faith and
credit of the United States of America. A Certificateholder's right to receive
any payments with respect to the Guaranty will be subject to termination if such
holder breaches the terms of its Certificate.
Certificates are not considered by the Fund to be Government Securities. The
Certificates represent undivided fractional interests in the Loan Notes, but the
Certificates are not direct obligations of, and are not guaranteed by, the
Borrower. Thus, in the event of a failure to pay principal and/or interest when
due, the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation of the Borrower.
NEW YORK MUNICIPAL FUND
The New York Municipal Fund seeks to maximize current interest income exempt
from federal income tax and New York State and New York City personal income
taxes to the extent consistent with prudent investment and the preservation of
capital. The Fund is a non-diversified management investment company which
pursues its investment objective by investing, under normal market conditions,
at least 65% of its total assets in investment
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grade 'New York Municipal Obligations.' New York Municipal Obligations are debt
obligations (other than short-term securities), the interest on which is
excluded from gross income for federal income tax purposes and exempt from New
York State and New York City personal income tax. Under normal market
conditions, the Fund will maintain a weighted average portfolio maturity of
between 3 and 10 years. If Warburg believes that suitable New York Municipal
Obligations are not available, the Fund may for temporary defensive reasons
invest without limit in (i) municipal obligations that pay interest which is
excluded from gross income for federal income tax purposes but which is not
exempt from New York State and New York City personal income taxes and (ii)
taxable or tax-exempt money market obligations. It is a fundamental policy of
the Fund that, except during temporary defensive periods, the Fund will have at
least 80% of its assets invested in obligations issued by or on behalf of states
(including the State of New York), territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities ('Municipal Obligations'). This fundamental policy may not
be amended without first obtaining the approval of holders of a majority of the
outstanding shares of the Fund. The Fund may invest up to 20% of its total
assets in debt obligations other than Municipal Obligations. The Fund may invest
in unrated issues that are believed by Warburg to have financial characteristics
that are comparable and that are otherwise similar in quality to the rated
issues it purchases. Investors should be aware that ratings are relative and
subjective and are not absolute standards of quality.
PORTFOLIO INVESTMENTS
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MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal
conditions, up to 35% of its total assets in short-term money market obligations
having remaining maturities of less than one year at the time of purchase. These
short-term instruments consist of Government Securities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; in the case of the Fixed Income Fund and the
Global Fixed Income Fund, obligations of foreign governments, their agencies or
instrumentalities; and repurchase agreements with respect to portfolio
securities. The short-term money market obligations in which the New York
Municipal Fund is authorized to invest generally will be tax-exempt obligations;
however, the Fund may invest in taxable obligations when suitable tax-exempt
obligations are unavailable or to maintain liquidity for meeting anticipated
redemptions and paying operating expenses. Tax-exempt money market obligations
in which the New York Municipal Fund may invest consist of investment grade
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tax-exempt notes and tax-exempt commercial paper rated no lower than A-2 by S&P
or Prime-2 by Moody's or the equivalent from another major rating service or, if
not rated, of municipal issuers having an issue of outstanding Municipal
Obligations rated within the three highest grades by Moody's or S&P.
For temporary defensive purposes or, in the case of the Global Fixed Income
Fund, during times of international political or economic uncertainty, each Fund
other than the Intermediate Government Fund may invest without limit in
short-term money market obligations, and the Intermediate Government Fund may
invest without limit in short-term Government Securities.
Repurchase Agreements. Under normal market conditions, each Fund may invest
up to 20% of its total assets in repurchase agreement transactions with member
banks of the Federal Reserve System and certain non-bank dealers. Repurchase
agreements are contracts under which the buyer of a security simultaneously
commits to resell the security to the seller at an agreed-upon price and date.
Under the terms of a typical repurchase agreement, a Fund would acquire any
underlying security for a relatively short period (usually not more than one
week) subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Fund's holding
period. The value of the underlying securities will at all times be at least
equal to the total amount of the purchase obligation, including interest. The
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations or becomes bankrupt and the Fund is
delayed or prevented from exercising its right to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert this
right. Warburg, acting under the supervision of the governing Board of each Fund
(the 'governing Board' or 'Board'), monitors the creditworthiness of those bank
and non-bank dealers with which each Fund enters into repurchase agreements to
evaluate this risk. A repurchase agreement is considered to be a loan under the
Investment Company Act of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity,
each Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg or the Funds'
co-administrator, PFPC Inc. ('PFPC'). A money market mutual fund is an
investment company that invests in short-term high quality money market
instruments. A money market mutual fund generally does not purchase securities
with a remaining maturity of more than one year. The Intermediate Government
Fund and the New York Municipal Fund would invest in money market mutual funds
that invest in Government Securities
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and tax-exempt securities, respectively. As a shareholder in any mutual fund, a
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S GOVERNMENT SECURITIES. The obligations issued or guaranteed by the U.S.
government in which a Fund may invest include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association ('GNMA')); instruments that are supported by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and instruments that are supported by the credit of the instrumentality
(such as Federal National Mortgage Association ('FNMA') and Federal Home Loan
Mortgage Corporation ('FHLMC') bonds).
CONVERTIBLE SECURITIES. Convertible securities in which the Fixed Income and
Global Fixed Income Funds may invest, including both convertible debt and
convertible preferred stock, may be converted at either a stated price or stated
rate into underlying shares of common stock. Because of this feature,
convertible securities enable an investor to benefit from increases in the
market price of the underlying common stock. Convertible securities provide
higher yields than the underlying equity securities, but generally offer lower
yields than non-convertible securities of similar quality. The value of
convertible securities fluctuates in relation to changes in interest rates like
bonds and, in addition, fluctuates in relation to the underlying common stock.
STRUCTURED SECURITIES. The Funds may purchase any type of publicly traded or
privately negotiated fixed income security, including mortgage-backed
securities; structured notes, bonds or debentures; and assignments of and
participations in loans.
Mortgage-Backed Securities. Mortgage-backed securities are collateralized by
mortgages or interests in mortgages and may be issued by government or
non-government entities. Mortgage-backed securities issued by GNMA, FNMA or
FHLMC provide a monthly payment consisting of interest and principal payments,
and additional payments will be made out of unscheduled prepayments of
principal. Neither the value of nor the yield on these mortgage-backed
securities or shares of the Funds is guaranteed by the U.S. government.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be
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subject to greater price fluctuations. The value of mortgaged-backed securities
may change due to shifts in the market's perceptions of issuers, and regulatory
or tax changes may adversely affect the mortgage securities market as a whole.
Foreclosures and prepayments, which occur when unscheduled or early payments are
made on the underlying mortgages, may shorten the effective maturities on these
securities. The Funds' yield may be affected by reinvestment of prepayments at
higher or lower rates than the original investment. Prepayments may tend to
increase due to refinancing of mortgages as interest rates decline. In addition,
like other debt securities, the values of mortgage-backed securities will
generally fluctuate in response to interest rates.
Structured Notes, Bonds or Debentures. Typically, the value of the principal
and/or interest on these instruments is determined by reference to changes in
the value of specific currencies, interest rates, commodities, indexes or other
financial indicators (the 'Reference') or the relevant change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in the loss of a Fund's entire investment. The value of structured securities
may move in the same or the opposite direction as the value of the Reference, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference so that the security may be more or less
volatile than the Reference, depending on the multiple. Consequently, structured
securities may entail a greater degree of market risk and volatility than other
types of debt obligations.
Assignments and Participations. Each Fund may invest in assignments of and
participations in loans issued by banks and other financial institutions.
When a Fund purchases assignments from lending financial institutions, the
Fund will acquire direct rights against the borrower on the loan. However, since
assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by a Fund as the purchaser of an assignment may differ from, and be more limited
than, those held by the assigning lender.
Participations in loans will typically result in a Fund having a contractual
relationship with the lending financial institution, not the borrower. A Fund
would have the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender of the payments from the borrower. In
connection with purchasing a participation, a Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan, nor any rights of set-off against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in which
it has purchased a participation. As a result, a
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Fund purchasing a participation will assume the credit risk of both the borrower
and the lender selling the participation. In the event of the insolvency of the
lender selling the participation, the Fund may be treated as a general creditor
of the lender and may not benefit from any set-off between the lender and the
borrower.
A Fund may have difficulty disposing of assignments and participations
because there is no liquid market for such securities. The lack of a liquid
secondary market will have an adverse impact on the value of such securities and
on a Fund's ability to dispose of particular assignments or participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid market for assignments and participations also may make it
more difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
With respect to the New York Municipal Fund, income derived from
participations or assignments may not be tax-exempt, depending on the structure
of the particular securities. To the extent such income is not tax-exempt it
will be subject to the New York Municipal Fund's 20% limit on investing in
non-municipal securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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For certain additional risks related to each Fund's investments, see
'Portfolio Investments' beginning at page 10 and 'Certain Investment Strategies'
beginning at page 18.
Among the factors that may be considered in deciding whether to invest in a
security are the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history and the ability of the issuer's
management. Bond prices generally vary inversely in relation to changes in the
level of interest rates, as well as in response to other market factors and
changes in the creditworthiness of the issuers of the securities. Government
Securities are considered to be of the highest credit quality available.
Government Securities, however, will be affected by general changes in interest
rates. The price volatility of a Fund's shares where the Fund invests in
intermediate maturity bonds will be substantially less than that of long-term
bonds. An intermediate maturity bond will generally have a lower yield than that
of a long-term bond. Longer-term securities in which the Funds may invest
generally offer a higher current yield than is offered by shorter-term
securities, but also generally involve greater volatility of price and risk of
capital than shorter-term securities.
NEW YORK MUNICIPAL OBLIGATIONS. The New York Municipal Fund's ability to
achieve its investment objective is dependent upon the ability of the issuers of
New York Municipal Obligations to meet their continuing obligations for the
payment of principal and interest. New York State and New York City face
long-term economic problems that could seriously affect their ability and that
of other issuers of New York Municipal Obligations to meet their financial
obligations. Certain substantial issuers of New York
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Municipal Obligations (including issuers whose obligations may be acquired by
the Fund) have experienced serious financial difficulties in recent years. These
difficulties have at times jeopardized the credit standing and impaired the
borrowing abilities of all New York issuers and have generally contributed to
higher interest costs for their borrowings and fewer markets for their
outstanding debt obligations. In recent years, several different issues of
municipal securities of New York State and its agencies and instrumentalities
and of New York City have been downgraded by S&P and Moody's. On the other hand,
strong demand for New York Municipal Obligations has at times had the effect of
permitting New York Municipal Obligations to be issued with yields relatively
lower, and after issuance, to trade in the market at prices relatively higher
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by certain
issuers of New York Municipal Obligations could result in defaults or declines
in the market values of those issuers' existing obligations and, possibly, in
the obligations of other issuers of New York Municipal Obligations. Although as
of the date of this Prospectus, no issuers of New York Municipal Obligations are
in default with respect to the payment of their municipal obligations, the
occurrence of any such default could affect adversely the market values and
marketability of all New York Municipal Obligations and, consequently, the net
asset value of the New York Municipal Fund's portfolio. Other considerations
affecting the New York Municipal Fund's investments in New York Municipal
Obligations are summarized in the Fund's Statement of Additional Information.
NON-DIVERSIFIED STATUS. The Global Fixed Income Fund and the New York
Municipal Fund are each classified as a non-diversified investment company under
the 1940 Act, which means that the Funds are not limited by the 1940 Act in the
proportion of their assets that they may invest in the obligations of a single
issuer. The Funds will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the 'Code'), for
qualification as a regulated investment company. As non-diversified investment
companies, the Funds may invest a greater proportion of their assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that the Funds
assume large positions in the securities of a small number of issuers, their
return may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
LOWER-RATED SECURITIES. There are certain risk factors associated with
lower-rated securities. Securities rated in the fourth highest grade have
speculative characteristics, and securities rated B have speculative elements
and a greater vulnerability to default than higher-rated securities. Investors
should be aware that ratings are relative and subjective and are not absolute
standards of quality. Subsequent to its purchase by a Fund, an issue of
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securities may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities by the Fund, although Warburg will consider such event in its
determination of whether the Fund should continue to hold the securities.
The Fixed Income Fund and the Global Fixed Income Fund may invest in
securities rated as low as C by Moody's or D by S&P and in unrated securities
considered to be of equivalent quality. Securities that are rated C by Moody's
are the lowest rated class and can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Debt rated D by S&P is
in default or is expected to default upon maturity or payment date.
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 organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, 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-rated categories is more volatile
than that of higher quality securities. In addition, the Fixed Income Fund and
the Global Fixed Income Fund may have difficulty disposing of certain of these
securities because there may be a thin trading market. The lack of a liquid
secondary market for certain securities may have an adverse impact on the Funds'
ability to dispose of particular issues and may make it more difficult for the
Fixed Income Fund and the Global Fixed Income Fund to obtain accurate market
quotations for purposes of valuing the Funds and calculating their respective
net asset values.
For a complete description of the rating systems of Moody's and S&P, see the
Appendix to the Statement of Additional Information of the Fixed Income and
Global Fixed Income Funds.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
A Rule 144A Security will be considered illiquid and therefore subject to each
Fund's limitation on the purchase of illiquid securities, unless the Fund's
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,
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availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Funds to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board of each Fund will carefully monitor
any investments by the Fund in Rule 144A Securities. The Boards may adopt
guidelines and delegate to Warburg the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although each Board will
retain ultimate responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and a Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly traded. A Fund's investment in illiquid securities is subject to the
risk that should the Fund desire to sell any of these securities when a ready
buyer is not available at a price that is deemed to be representative of their
value, the value of the Fund's net assets could be adversely affected.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
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A Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the relevant Fund. In addition, to
the extent it is consistent with a Fund's investment objective, the Fund also
may engage in short-term trading. A Fund will not consider portfolio turnover
rate a limiting factor in making investment decisions consistent with its
investment objective and policies. This investment approach and use of certain
of the investment strategies described below may result in a high portfolio
turnover rate. High portfolio turnover rates (100% or more) may result in dealer
mark ups or underwriting commissions as well as other transaction costs,
including correspondingly higher brokerage commissions. In addition, short-term
gains realized from portfolio transactions are taxable to shareholders as
ordinary income. See 'Dividends, Distributions and Taxes -- Taxes' below and
'Investment Policies -- Portfolio Transactions' in each Fund's Statement of
Additional Information.
Newly issued Government Securities normally are purchased by a Fund directly
from the issuer or from an underwriter acting as a principal. Other purchases
and sales usually are placed by the Fund with those dealers which Warburg
determines offer the best price and execution. The purchase price paid by the
Fund to underwriters of newly issued securities usually includes
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a concession paid by the issuer to the underwriter, and purchases of securities
from a dealer in the after market normally are executed at a price between the
bid and asked prices.
All orders for transactions in securities or options on behalf of a Fund are
placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Funds' distributor ('Counsellors Securities'). A Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
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Although there is no intention of doing so during the coming year, each Fund
may enter into reverse repurchase agreements and dollar rolls. Detailed
information concerning each Fund's strategies and related risks is contained
below and in the Fund's Statement of Additional Information.
STRATEGIES AVAILABLE TO ALL FUNDS
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg,
each Fund may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of the Fund's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE A FUND'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect a Fund's net asset value and performance. Therefore, an
investment in a Fund may involve a greater risk than an investment in other
mutual funds that do not utilize these strategies. The Funds' use of these
strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the National Association of Securities
Dealers, Inc. and by the Code.
Securities and Index Options. The Funds may purchase and write covered put
and call options traded on U.S. and foreign exchanges as well as over-the-
counter ('OTC') without limit on the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as 'premiums')
for granting the rights evidenced by the options. The purchaser of a put option
on a security has the right to compel the purchase by the writer of the
underlying security, while the purchaser of a call option on a security has the
right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, each Fund may also purchase and
write without limit exchange-listed and OTC put and call options on securities
indexes. A securities index measures the movement of a certain
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group of securities by assigning relative values to the securities included in
the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. Each Fund may enter into interest
rate, securities index and, in the case of the Fixed Income and Global Fixed
Income Funds, currency futures contracts and purchase and write (sell) related
options that are traded on an exchange designated by the Commodity Futures
Trading Commission (the 'CFTC') or, if consistent with CFTC regulations, on
foreign exchanges. These futures contracts are standardized contracts for the
future delivery of foreign currency or an interest rate sensitive security or,
in the case of securities index and certain other futures contracts, are settled
in cash with reference to a specified multiplier times the change in the
specified interest rate, index or exchange rate. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Funds are limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fixed Income and Global Fixed Income
Funds may conduct currency exchange transactions either (i) on a spot (i.e.,
cash) basis at the rate prevailing in the currency exchange market, (ii) through
entering into futures contracts or options on futures contracts (as described
above), (iii) through entering into forward contracts to purchase or sell
currency or (iv) by purchasing and writing exchange-traded and OTC currency
options. A forward currency contract involves an obligation to purchase or sell
a specific currency at a future date at a price set at the time of the contract.
An option on a foreign currency operates similarly to an option on a security.
Risks associated with currency forward contracts and purchasing currency options
are similar to those described in this Prospectus for futures contracts and
securities index options. In addition, the use of currency transactions could
result in losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
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Hedging Considerations. The Funds may engage in options, futures and currency
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedge position. As a result,
the use of options, futures contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in value of the
position hedged. In addition, the movement in the portfolio position hedged may
not be of the same magnitude as movement in the hedge. A Fund will engage in
hedging transactions only when deemed advisable by Warburg, and successful use
of hedging transactions will depend on Warburg's ability to correctly predict
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that a Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities, indexes and currencies; interest rate, index and
currency futures contracts and options on these futures contracts; and forward
currency contracts. The use of these strategies may require that the Fund
maintain cash or liquid securities in a segregated account with its custodian or
a designated sub-custodian to the extent the Fund's obligations with respect to
these strategies are not otherwise 'covered' through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
ZERO COUPON SECURITIES. Each Fund may invest without limit in 'zero coupon
securities.' Zero coupon securities pay no cash income to their holders until
they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the values of
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securities that distribute income regularly and may be more speculative than
such other securities. Accordingly, the values of these securities may be highly
volatile as interest rates rise or fall. Redemption of shares of a Fund that
require it to sell zero coupon securities prior to maturity may result in
capital gains or losses that may be substantial. In addition, a Fund's
investments in zero coupon securities will result in special tax consequences,
which are described below under 'Dividends, Distributions and Taxes -- Taxes.'
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fixed Income
Fund, the Global Fixed Income Fund and the Intermediate Government Fund may each
utilize up to 20% of its total assets to purchase securities on a when-issued
basis and purchase or sell securities on a delayed-delivery basis. The New York
Municipal Fund may without limit purchase Municipal Obligations on a when-issued
basis. In these transactions, payment for and delivery of the securities occur
beyond the regular settlement dates, normally within 30-45 days after the
transaction. A Fund will not enter into a when-issued or delayed-delivery
transaction for the purpose of leverage, but may sell the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive securities in a delayed-delivery transaction if Warburg deems it
advantageous to do so. The payment obligation and the interest rate that will be
received in when-issued and delayed-delivery transactions are fixed at the time
the buyer enters into the commitment. Due to fluctuations in the value of
securities purchased 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-issued securities may include securities purchased on a
'when, as and if issued' basis under which the issuance of the security depends
on the occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. A Fund will establish a segregated account
with its custodian consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
and delayed-delivery purchase commitments, and will segregate the securities
underlying commitments to sell securities for delayed delivery.
INTEREST RATE, INDEX, MORTGAGE AND CURRENCY SWAPS; INTEREST RATE CAPS, FLOORS
AND COLLARS. Each Fund may enter into interest rate, index and mortgage swaps
and interest rate caps, floors and collars for hedging purposes or to seek to
increase total return; the Fixed Income and Global Fixed Income Funds may enter
into currency swaps for hedging purposes. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Index swaps involve the exchange by the Fund with another party
of the respective amounts payable with respect to a notional principal amount
related to one or more indexes. Mortgage swaps are similar to interest rate
swaps in that they represent
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commitments to pay and receive interest. The notional principal amount, however,
is tied to a reference pool or pools of mortgages. Currency swaps involve the
exchange of cash flows on a notional amount of two or more currencies based on
their relative future values. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payment of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
A Fund will enter into interest rate, index and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate, index and mortgage swaps is limited to the net
amount of interest payments that the Fund is contractually obligated to make. If
the other party to an interest rate, index or mortgage swap defaults, the Fund's
risk of loss consists of the net amount of interest payments that the Fund is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of a gross payment stream in one designated currency in exchange
for the gross payment stream in another designated currency. Therefore, the
entire payment stream under a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations. To
the extent that the net amount payable by the Fund under an interest rate, index
or mortgage swap and the entire amount of the payment stream payable by the Fund
under a currency swap or an interest rate cap, floor or collar are held in a
segregated account consisting of cash or liquid securities, the Funds and
Warburg believe that swaps do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to each Fund's
borrowing restriction.
The Fund will not enter into interest rate, index, mortgage or currency
swaps, or interest rate cap, floor or collar transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party is
rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's or, if
unrated by such rating organizations, determined to be of comparable quality by
Warburg.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND, THE GLOBAL FIXED INCOME FUND AND
THE INTERMEDIATE GOVERNMENT FUND
SHORT SALES AGAINST THE BOX. The Fixed Income Fund, the Global Fixed Income
Fund and the Intermediate Government Fund may each enter into a short sale of
securities such that when the short position is open the Fund
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owns an equal amount of the securities sold short or owns preferred stocks or
debt securities, convertible or exchangeable without payment of further
consideration, into an equal number of securities sold short. This kind of short
sale, which is referred to as one 'against the box,' may be entered into by a
Fund to, for exmple, lock in a sale price for a security the Fund does not wish
to sell immediately or to postpone a gain or loss for federal income tax
purposes. The Fund will deposit, in a segregated account with its custodian or a
qualified subcustodian, the securities sold short or convertible or exchangeable
preferred stocks or debt securities in connection with short sales against the
box. Not more than 10% of a Fund's net assets (taken at current value) may be
held as collateral for short sales against the box at any one time. The extent
to which the Fund may make short sales may be limited by Code requirements for
qualification as a regulated investment company. See 'Dividends, Distributions
and Taxes' for other tax considerations applicable to short sales.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND AND
THE GLOBAL FIXED INCOME FUND
FOREIGN SECURITIES. The Fixed Income and Global Fixed Income Funds may invest
in the securities of foreign issuers. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in domestic investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, the lack of uniform accounting, auditing and financial
reporting standards and other regulatory practices and requirements that are
often less rigorous than those applied in the United States. The yield of the
Funds may be adversely affected by fluctuations in the value of one or more
currencies relative to the U.S. dollar. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. Due to the increased exposure of the Funds to market and
foreign exchange fluctuations brought about by such delays and due to the
corresponding negative impact on the Funds' liquidity, the Funds will avoid
investing in countries that are known to experience settlement delays which may
expose the Funds to unreasonable risk of loss. In addition, with respect to
certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Funds, including the withholding of dividends.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign
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securities may also result in higher operating expenses due to the cost of
converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
REITS. The Fixed Income Fund and the Global Fixed Income Fund may invest in
real estate investment trusts ('REITs'), which are pooled investment vehicles
that invest primarily in income-producing real estate or real estate related
loans or interests. Like regulated investment companies such as the Funds, REITs
are not taxed on income distributed to shareholders provided they comply with
several requirements of the Code. A Fund investing in a REIT will indirectly
bear its proportionate share of any expenses paid by the REIT in addition to the
expenses of the Fund.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, the possibilities of failing to qualify
for the exemption from tax for distributed income under the Code and failing to
maintain their exemptions from the 1940 Act. REITs are also subject to interest
rate risks.
STRATEGY AVAILABLE TO THE FIXED INCOME FUND AND
THE INTERMEDIATE GOVERNMENT FUND
LENDING OF PORTFOLIO SECURITIES. The Fixed Income Fund and the Intermediate
Government Fund may lend portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, a Fund can increase its
income by continuing to receive interest and any dividends on the loaned
securities as well as by either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
Government Securities are used as collateral. These loans, if and when made, may
not exceed 20% and 30%, respectively, of the total assets of the Fixed Income
Fund and the Intermediate Government Fund, respectively, taken at value and will
be collateralized by cash, letters of credit or Government Securities, which are
maintained at all times in an amount at least equal to the current market value
of the loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund. From time to time, the Fund may pay a part of the interest earned from
the investment collateral received for securities loaned to the borrower and/or
a third party that is unaffiliated with the Fund and that is acting as a
'finder.' The Fund bears a risk of loss in the event that the other party to the
loan agreement defaults on its obligations or becomes bankrupt and the Fund is
delayed or prevented from exercising its right to retrieve and dispose of the
loaned securities,
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including the risk of a possible decline in the value of the loaned securities
during the period in which the Fund seeks to assert its rights.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND AND
THE NEW YORK MUNICIPAL FUND
NEW YORK MUNICIPAL OBLIGATIONS. New York Municipal Obligations include debt
obligations of the State of New York and its political subdivisions, agencies
and public authorities issued to obtain funds for various public purposes and
debt obligations issued by other governmental entities (such as Puerto Rico) if
such debt obligations generate interest income which is excluded from gross
income for federal taxable income purposes and exempt from New York State and
New York City personal income taxes.
MUNICIPAL OBLIGATIONS. The two principal types of Municipal Obligations, in
terms of the source of payment of debt service on the bonds, are general
obligation bonds and revenue bonds and a Fund may hold both in any proportion.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source but not from the general taxing power. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
A Fund may invest without limit in Municipal Obligations that are repayable
out of revenue streams generated from economically related projects or
facilities or Municipal Obligations whose issuers are located in the same state.
Sizeable investments in such obligations could involve an increased risk to the
Fund should any of such related projects or facilities experience financial
difficulties. Each Fund intends during the coming year to limit investments in
such obligations to less than 25% of its assets.
ALTERNATIVE MINIMUM TAX BONDS. The Funds may invest without limit in
'Alternative Minimum Tax Bonds,' which are certain bonds issued after August 7,
1986 to finance certain non-governmental activities. While the income from
Alternative Minimum Tax Bonds is exempt from regular federal income tax, it is a
tax preference item for purposes of the federal individual and corporate
'alternative minimum tax.' The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments or tax
preference items. Available returns on Alternative Minimum Tax Bonds acquired by
a Fund may be lower than those from other Municipal Obligations acquired by a
Fund due to the possibility of federal, state and local alternative minimum or
minimum income tax liability on Alternative Minimum Tax Bonds. At present, the
Fixed Income Fund does not intend to purchase Alternative Minimum Tax Bonds.
VARIABLE RATE AND MASTER DEMAND NOTES. Municipal Obligations purchased by a
Fund may include variable rate and master demand notes issued by industrial
development authorities and other governmental entities. Variable rate demand
notes are tax-exempt Municipal Obligations that
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provide for a periodic adjustment in the interest rate paid on the notes. Master
demand notes are tax-exempt Municipal Obligations that provide for a periodic
adjustment in the interest rate paid (usually tied to the Treasury Bill auction
rate) and permit daily changes in the amount borrowed. While there may be no
active secondary market with respect to a particular variable rate or master
demand note purchased by a Fund, the Fund may, upon the notice specified in the
note, demand payment of the principal of and accrued interest on the note at any
time and may resell the note at any time to a third party. The absence of such
an active secondary market, however, could make it difficult for the Fund to
dispose of the variable rate or master demand note involved in the event the
issuer of the note defaulted on its payment obligations, and a Fund could, for
this or other reasons, suffer a loss to the extent of the default plus any
expenses involved in an attempt to recover the investment.
STAND-BY COMMITMENTS. The Fixed Income Fund and the New York Municipal Fund
may acquire stand-by commitments with respect to Municipal Obligations held in
their respective portfolios. Under a stand-by commitment, which is commonly
known as a 'put', a dealer agrees to purchase, at a Fund's option, specified
Municipal Obligations at a specified price. A Fund may pay for stand-by
commitments either separately in cash or by paying a higher price for the
securities acquired with the commitment, thus increasing the cost of the
securities and reducing the yield otherwise available from them, and will be
valued at zero in determining the Fund's net asset value. A stand-by commitment
is not transferable by a Fund, although the Fund can sell the underlying
Municipal Obligations to a third party at any time. The principal risk of
stand-by commitments is that the writer of a commitment may default on its
obligation to repurchase the securities acquired with it. The Funds intend to
enter into stand-by commitments only with brokers, dealers and banks that, in
the opinion of Warburg, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Warburg will
periodically review relevant financial information concerning the issuer's
assets, liabilities and contingent claims. The Funds will acquire stand-by
commitments only in order to facilitate portfolio liquidity and do not intend to
exercise their rights under stand-by commitments for trading purposes.
STRATEGY AVAILABLE TO THE INTERMEDIATE GOVERNMENT FUND
GOVERNMENT ZERO COUPON SECURITIES. The Intermediate Government Fund may
invest in (i) Government Securities that have been stripped of their unmatured
interest coupons, (ii) the coupons themselves and (iii) receipts or certificates
representing interests in stripped Government Securities and coupons
(collectively referred to as 'Government zero coupon securities'). The market
value of Government zero coupon securities that are considered Government
Securities is used for purposes of determining whether at least 65% of the
Intermediate Government Fund's total assets is invested in Government
Securities. However, receipts or certificates which are
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underwritten by securities dealers or banks that evidence ownership of future
interest payments, principal payments or both on certain notes or bonds issued
by the U.S. government, its agencies, authorities or instrumentalities will not
be considered Government Securities for purposes of the 65% test. For a
description of zero coupon securities and the tax and other considerations
associated with investing in them, see 'Zero Coupon Securities' above and
'Dividends, Distributions and Taxes -- Taxes' below.
INVESTMENT GUIDELINES
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Each Fund may each invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) with respect to each Fund other than the Intermediate Government Fund,
time deposits maturing in more than seven calendar days; and (iv) certain Rule
144A Securities. Although the Fixed Income Fund and the Global Fixed Income Fund
may each invest up to 10% of its net assets in warrants, neither Fund currently
intends to invest in warrants. Each Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, in an
amount up to 30% of its total assets and may pledge assets to the extent
necessary to secure permitted borrowings. Whenever borrowings (including reverse
repurchase agreements) exceed 5% of the value of a Fund's total assets, the Fund
will not make any investments (including roll-overs). Except for the limitations
on borrowing, the investment guidelines set forth in this paragraph may be
changed at any time without shareholder consent by vote of the 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
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INVESTMENT ADVISER. Each Fund employs Warburg as its investment adviser.
Warburg, subject to the control of each Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Funds in accordance with
each Fund's investment objective and stated investment policies. Warburg makes
investment decisions for each Fund and places orders to purchase or sell
securities on behalf of each such Fund. Warburg also employs a support staff of
management personnel to provide services to the Funds and furnishes the Funds
with office space, furnishings and equipment.
For the services provided by Warburg, the Fixed Income Fund, the Global Fixed
Income Fund, the Intermediate Government Fund and the New York Municipal Fund
pay Warburg a fee calculated at an annual rate of .50%,
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1.00%, .50% and .40%, respectively, of the Fund's average daily net assets.
Warburg and each Fund's co-administrators may voluntarily waive a portion of
their fees from time to time and temporarily limit the expenses to be paid by
the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of January 31,
1997, Warburg managed approximately $17.9 billion of assets, including
approximately $10.7 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership, which itself is controlled by
Warburg, Pincus & Co. ('WP&Co.'), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
PORTFOLIO MANAGERS. Dale C. Christensen is a co-portfolio manager and
president of each of the Funds. Mr. Christensen is a managing director of
Warburg and has been associated with Warburg since 1989, before which time he
was a senior vice president at Citibank, N.A. He has been with each Fund since
January 1992. M. Anthony E. van Daalen is a co-portfolio manager of the Fixed
Income and Intermediate Government Funds. Mr. van Daalen is a senior vice
president of Warburg and has been associated with Warburg since 1992, prior to
which time he was an assistant vice president at Citibank, N.A. Laxmi C.
Bhandari, also a senior vice president of Warburg, is a co-portfolio manager of
the Global Fixed Income Fund. Mr. Bhandari has been a co-portfolio manager of
the Global Fixed Income Fund since joining Warburg in 1993, before which time he
was a vice president at the Paribas Corporation. Sharon B. Parente is a
co-portfolio manager of the New York Municipal Fund. Ms. Parente is a senior
vice president of Warburg and has been a co-portfolio manager of the New York
Municipal Fund since joining Warburg in 1992, before which time she was a vice
president at Citibank, N.A.
CO-ADMINISTRATORS. Each Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds, including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between each Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the governing Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and monitoring and developing compliance procedures
for the Funds. As compensation, each Fund pays
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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 each Fund and assists in
related aspects of the Fund's operations. As compensation each of the Fixed
Income, Intermediate Maturity Government and New York Municipal Funds pays PFPC
a fee calculated at an annual rate of .05% of its average daily net assets,
subject in each case to a minimum annual fee and exclusive of out-of-pocket
expenses. As compensation the Global Fixed Income Fund pays PFPC a fee
calculated at an annual rate of .12% of its 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 to a minimum annual fee and exclusive of
out-of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
assets of each of the Funds. Fiduciary Trust Company International ('Fiduciary')
also serves as custodian of the Global Fixed Income Fund's assets. Like PFPC,
PNC is a subsidiary of PNC Bank Corp. and its principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101. Fiduciary's
principal business address is Two World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Funds. It has delegated to Boston Financial Data Services, Inc. ('BFDS'), a
50%-owned subsidiary, responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as
distributor of the shares of the Funds. Counsellors Securities is a wholly owned
subsidiary of Warburg and is located at 466 Lexington Avenue, New York, New York
10017-3147.
Warburg or its affiliates may, at their own expense, provide promotional
incentives 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/Trustees
and officers of each Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information of each Fund.
HOW TO OPEN AN ACCOUNT
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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
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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)
927-2874 or write to Warburg Pincus Funds at the address set forth above.
Investors should consult their own tax advisers about the establishment of
retirement plans and UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874.
HOW TO PURCHASE SHARES
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Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire. The minimum initial investment in a Fund is
$2,500 and the minimum subsequent investment is $100, except that subsequent
minimum investments can be as low as $50 under the Automatic Monthly Investment
Plan described below. 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 Warburg or
its affiliates or persons with whom Warburg has entered into an investment
advisory agreement. Existing investors will be given 15 days' notice by mail of
any increase in investment minimum requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined below. Wire
payments for initial and subsequent investments should be preceded by an order
placed with a Fund and should clearly indicate the investor's account number and
the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Fund
are not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check
or money order made payable to the Fund or Warburg Pincus Funds (in U.S.
currency) should be sent along with a completed account application to Warburg
Pincus Funds through its distributor, Counsellors Securities, at
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the address set forth above. Checks payable to the investor and endorsed to the
order of the Fund or Warburg Pincus Funds will not be accepted as payment and
will be returned to the sender. If payment is received in proper form by the
close of regular trading on the New York Stock Exchange (the 'NYSE') (currently
4:00 p.m., Eastern time) on a day that the Fund calculates its net asset value
(a 'business day'), the purchase will be made at the Fund's net asset value
calculated at the end of that day. If payment is received after the close of
regular trading on the NYSE, the purchase will be effected at the Fund's net
asset value determined for the next business day after payment has been
received. Checks or money orders that are not in proper form or that are not
accompanied or preceded by a complete account application will be returned to
the sender. Shares purchased by check or money order are entitled to receive
dividends and distributions beginning on the day after payment has been
received. Checks or money orders in payment for shares of more than one Warburg
Pincus Fund should be made payable to Warburg Pincus Funds and should be
accompanied by a breakdown of amounts to be invested in each fund. If a check
used for purchase does not clear, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred. For a description of the
manner of calculating the Fund's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase Common Shares in a Fund by wiring funds
from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 927-2874. Federal funds may be wired to
Counsellors Securities 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
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order is received after the close of regular trading on the NYSE, the payment
will be held uninvested until the order is effected at the close of business on
the next business day. Payment for orders that are not accepted will be returned
to the prospective investor after prompt inquiry. If a telephone order is placed
and payment by wire is not received on the same day, the Fund will cancel the
purchase and the investor may be liable for losses or fees incurred.
PURCHASES THROUGH INTERMEDIARIES. Common Shares of each Fund are available
through the Charles Schwab & Company, Inc. Mutual Fund OneSourceTM Program;
Fidelity Brokerage Services, Inc. FundsNetworkTM Program; Jack White & Company,
Inc.; and Waterhouse Securities Inc. Generally, these programs do not require
customers to pay a transaction fee in connection with purchases or redemptions.
The Funds are also available through certain broker-dealers, financial
institutions and other industry professionals (including the programs described
above, collectively, 'Service Organizations'). Certain features of the Funds,
such as the initial and subsequent investment minimums, redemption fees and
certain trading restrictions, may be modified or waived by Service
Organizations. Service Organizations may impose transaction or administrative
charges or other direct fees, which charges or fees would not be imposed if Fund
shares are purchased directly from the Fund. Therefore, a client or customer
should contact the Service Organization acting on his behalf concerning the fees
(if any) charged in connection with a purchase or redemption of Fund shares and
should read this Prospectus in light of the terms governing his accounts with
the Service Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Fund in
accordance with their agreements with the Fund and with clients or customers.
Service Organizations 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 Fund's pricing on the following
business day. If payment is not received by such time, the Service Organization
could be held liable for resulting fees or losses.
For administration, subaccounting, transfer agency and/or other services,
Warburg, Counsellors Securities or their affiliates may pay Service
Organizations and certain recordkeeping organizations a fee of up to .35% (the
'Service Fee') of the average annual value of accounts with a Fund maintained by
such Service Organizations or recordkeepers. A portion of the Service Fee may be
borne by the Fund as a transfer agency fee. In addition, a Service Organization
or recordkeeper may directly or indirectly pay a portion of its Service Fee to
the Fund's custodian or transfer agent for costs related to accounts of its
clients or customers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of services provided, the operations processing requirements of the
relationship and the standardized fee schedule of the Service Organization or
recordkeeper.
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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 calender 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 automatic clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information, or
contact Warburg Pincus Funds at (800) 927-2874 for information or to modify or
terminate the program. Investors should allow a period of up to 30 days in order
to implement an Automatic Investment Program. The failure to provide complete
information could result in further delays.
GENERAL. Each Fund reserves the right to reject any specific purchase order.
The Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective(s). In such event, however, it is
anticipated that existing shareholders would be permitted to continue to
authorize investment in the Fund and to reinvest any dividends or capital gains
distributions.
HOW TO REDEEM AND EXCHANGE SHARES
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REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Common Shares of the Funds may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an investor desires to redeem
his shares by mail, a written request for redemption should be sent to Warburg
Pincus Funds at the address indicated above under 'How to Open an Account.' An
investor should be sure that the redemption request identifies the Fund, the
number of shares to be redeemed and the investor's account number. In order to
change the bank account or address designated to receive the redemption
proceeds, the investor must send a written request (with signature guarantee of
all investors listed on the account when such a change is made in conjunction
with a redemption request) to Warburg Pincus Funds. Each mail redemption request
must be signed by the registered owner(s) (or his legal representative(s))
exactly as the shares are registered. If an investor has applied for the
telephone redemption feature on his account application, he may redeem his
shares by calling Warburg Pincus Funds at (800) 927-2874 between 9:00 a.m. and
4:00 p.m. (Eastern time) on any business day. An investor making a telephone
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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 or through the Automatic Investment Program
before the funds or check clear, payments of the redemption proceeds will be
delayed for five days (for funds received through the Automatic Investment
Program) or 10 days (for check purchases) from the date of purchase. Investors
should consider purchasing shares using a certified or bank check or money order
if they anticipate an immediate need for redemption proceeds.
If a redemption order is received by a Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received 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
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have 60 days to make an additional investment before a redemption will be
processed by the Fund.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither a
Fund nor its agents will be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. Reasonable procedures will
be employed on behalf of each Fund to confirm that instructions communicated by
telephone are genuine. Such procedures include providing written confirmation of
telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for
Common Shares of another Fund or for Common Shares of another Warburg Pincus
Fund at their respective net asset values. Exchanges may be effected by mail or
by telephone in the manner described under 'Redemption of Shares' above. If an
exchange request is received by Warburg Pincus Funds or its agent prior to the
close of regular trading on the NYSE, the exchange will be made at each Fund's
net asset value determined at the end of that business day. Exchanges may be
effected without a sales charge but must satisfy the minimum dollar amount
necessary for new purchases. Due to the costs involved in effecting exchanges,
each Fund reserves the right to refuse to honor more than three exchange
requests by a shareholder in any 30-day period. The exchange privilege may be
modified or terminated at any time upon 60 days' notice to shareholders.
Currently, exchanges may be made among the Funds and with the following other
funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
WARBURG PINCUS TAX FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of captial;
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WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term growth
of capital and income and a reasonable current return;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing principally in equity securities of
medium-sized domestic companies;
WARBURG PINCUS STRATEGIC VALUE FUND -- an equity fund seeking capital
appreciation by investing in undervalued companies and market sectors;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
WARBURG PINCUS SMALL COMPANY GROWTH FUND -- an equity fund seeking capital
growth by investing in equity securities of small sized domestic companies;
WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;
WARBURG PINCUS POST-VENTURE CAPITAL FUND -- a fund seeking long-term growth of
capital by investing primarily in equity securities of issuers in their
post-venture capital stage of development and pursuing an aggressive investment
strategy;
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing primarily in equity securities of U.S.
and foreign issuers in their post-venture capital stage of development;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of non-United
States issuers;
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets;
WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term growth of
capital by investing primarily in equity securities of Japanese issuers; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the Japanese
over-the-counter market.
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an
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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
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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 (which
includes amortization of market discount) less amortization of market premium
and applicable expenses. The Fixed Income Fund, the Intermediate Government Fund
and the New York Municipal Fund each declares its dividends from its net
investment income daily and pays those dividends monthly in the calendar year in
which they are declared. The Global Fixed Income Fund declares dividends from
its net investment income quarterly. Net investment income earned on weekends
and when the NYSE is not opened will be computed as of the next business day.
Distributions of net realized long-term and short-term capital gains are
declared annually and will be paid in the calendar year in which they are
declared, generally in November or December. Unless an investor instructs a Fund
to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Common Shares of the relevant Fund at
net asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Funds at the
address set forth under 'How to Open an Account' or by calling Warburg Pincus
Funds at (800) 888-6878.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
Special Distribution Matters Relating to the New York Municipal Fund. If, for
any full fiscal year, the New York Municipal Fund's total distributions exceed
net investment income and net realized capital gains, the excess distributions
may be treated as a taxable dividend or a tax-free return of capital (up to the
amount of the shareholder's tax basis in his shares). The amount treated as a
tax-free return of capital will reduce a shareholder's adjusted basis in his
shares. Pursuant to the requirements of the 1940 Act and other applicable laws,
a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net realized capital gains, such distributions
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may have the effect of decreasing the Fund's total assets, which may increase
the Fund's expense ratio.
TAXES. Each Fund intends to continue to qualify each year as a 'regulated
investment company' within the meaning of the Code. Each Fund, if it qualifies
as a regulated investment company, will be subject to a 4% non-deductible excise
tax measured with respect to certain undistributed amounts of ordinary income
and capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
The investments by the Funds in zero coupon securities may create special tax
consequences. Zero coupon securities do not make interest payments, although a
portion of the difference between a zero coupon security's maturity value and
its purchase price is imputed as income to the Funds each year even though the
Funds receive no cash distribution until maturity. Under the U.S. federal tax
laws applicable to mutual funds, the Funds will not be subject to tax on this
income if they pay dividends to their shareholders substantially equal to all
the income received from, or imputed with respect to, their investments during
the year, including their zero coupon securities. These dividends ordinarily
will constitute taxable income to the shareholders of the Funds.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be a long-term capital gain or loss if he
has held his shares for more than one year and will be a short-term capital gain
or loss if he has held his shares for one year or less. However, any loss
realized upon the sale or redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
any amounts treated as distributions of long-term capital gain during such
six-month period with respect to such shares. In the case of the New York
Municipal Fund, any loss realized by a shareholder on the sale or redemption of
a Fund share held by the shareholder for six months or less will be disallowed
to the extent of the amount of any exempt-interest dividend received by the
shareholder with respect to such share. The portion of such loss not disallowed
as described in the preceding sentence shall be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions or
deemed distributions of long-term capital gains received by the shareholder with
respect to such share. An investor in the New York Municipal Fund who redeems
his shares prior to the declaration of a dividend may lose tax-exempt status on
accrued income attributable to tax-exempt Municipal Obligations. Investors may
be proportionately liable for taxes on income and gains of the Funds, but
investors not subject to tax on
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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 may qualify for the dividends received deduction for corporations to
the extent they are derived from dividends attributable to certain types of
stock issued by U.S. domestic corporations.
Dividends and interest received by a Fund with respect to its foreign
investments may be subject to withholding and other taxes imposed by foreign
countries. However, tax conventions between certain countries and the United
States may reduce or eliminate such taxes. If either of the Fixed Income Fund or
the Global Fixed Income Fund qualifies as a regulated investment company, if
certain asset and distribution requirements are satisfied and if more than 50%
of the respective Fund's total assets at the close of its fiscal year consists
of stock or securities of foreign corporations, that Fund may elect for U.S.
income tax purposes to treat foreign income taxes paid by it as paid by its
shareholders. The Fixed Income Fund or the Global Fixed Income Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. As a result, shareholders of the Fund would be required to include their
pro rata portions of such foreign taxes in computing their taxable incomes and
then treat an amount equal to those foreign taxes as a U.S. federal income tax
deduction or as a foreign tax credit against their U.S. federal income taxes.
Shortly after any year for which it makes such an election, each Fund will
report to its shareholders the amount per share of such foreign tax that must be
included in each shareholder's gross income and the amount which will be
available for the deduction or credit. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Special Tax Matters Relating to the Intermediate Government Fund. Investors
in the Intermediate Government Fund do not have to pay state and local income
taxes with respect to interest income on most types of Government Securities if
the investors are the tax owners of these Government Securities. Furthermore,
some states, if certain requirements are satisfied, permit investors to treat
the portion of their regulated investment company dividends that is attributable
to interest income on these Government Securities as tax-exempt income for state
or local income tax purposes. Other states treat all of these dividends as
subject to state and local income taxation. Investors in the Fund should consult
their own tax advisers to assess the consequences of investing in the Fund under
state and local laws generally and to determine whether dividends paid by the
Fund that represent interest derived from Government Securities are exempt from
any applicable state or local taxes.
Special Tax Matters Relating to the New York Municipal Fund and the Fixed
Income Fund. As a regulated investment company, the New York Municipal
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Fund will designate and pay exempt-interest dividends derived from interest
earned on qualifying Municipal Obligations. Such exempt-interest dividends may
be excluded by investors of the Fund from their gross income for federal income
tax purposes although (i) all or a portion of such exempt-interest dividends
will be a specific tax-preference item for purposes of the federal individual
and corporate alternative minimum taxes to the extent they are derived from
certain types of private activity bonds issued after August 7, 1986 and (ii) all
exempt-interest dividends will be a component of the 'current earnings'
adjustment item for purposes of the federal corporate alternative minimum tax.
Moreover, dividends paid by the Fund will be subject to a branch profits tax of
up to 30% when received by certain foreign corporate investors. Dividends
derived from interest on qualifying New York Municipal Obligations will be
exempt from New York State and New York City personal income (but not corporate
franchise) taxes.
The Fixed Income Fund does not expect to meet the tax requirements that would
enable it to pay exempt-interest dividends with respect to income derived from
its holdings of Municipal Obligations.
Special Tax Matters Relating to the Fixed Income Fund, the Global Fixed
Income Fund and the Intermediate Government 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 close
the short sale. The Fund's use of short sales may also affect the holding
periods of certain securities held by the Fund if such securities are
'substantially identical' to securities used by the Fund to close the short
sale. The Fund's short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. In the case of the New York Municipal Fund,
these statements set forth the dollar amount of income excluded or exempt from
federal income or New York State and New York City personal income taxes and the
dollar amount, if any, subject to federal taxation. These statements also
designate the amount of exempt-interest dividends that is a specific preference
item for purposes of the federal individual and corporate alternative minimum
taxes. Each investor will also receive, if applicable, various written notices
after the close of a Fund's prior taxable year with respect to certain dividends
and distributions which were received from the Fund during the Fund's prior
taxable year. Investors should consult their own tax advisers with specific
reference to their own tax situations, including their state and local tax
liabilities.
NET ASSET VALUE
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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
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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 the Common Shares and then dividing the result by the
total number of outstanding Common Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Board determines that
using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
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The Funds quote the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, each Fund may advertise yield and average annual total return of its
Common Shares over various periods of time. The yield refers to net investment
income generated by the Common Shares over a specified thirty-day period, which
is then annualized. That is, the amount of net investment income generated by
the Common Shares during that thirty-day period is assumed to be generated over
a 12-month period and is shown as a percentage of the investment. In addition,
advertisements concerning the Intermediate Government Fund and the New York
Municipal Fund may describe a tax equivalent yield. The tax equivalent yield
demonstrates the yield on a taxable investment necessary to produce an after-tax
yield equal to the Common Shares' tax-free yield. It is calculated by increasing
the yield shown for the Common Shares to the extent necessary to reflect the
payment of specified tax rates. Thus, the tax equivalent yield will always
exceed a Fund's Common Shares' yield. Total return figures show the average
percentage change in value of an investment in the Common Shares from the
beginning of the 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
41
<PAGE>
<PAGE>
the period were reinvested in Common Shares of the Fund. Total return will be
shown for recent one-, five- and ten-year periods, and may be shown for other
periods as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that a Fund's annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that each Fund seeks long-term appreciation and
that such return may not be representative of any Fund's return over a longer
market cycle. Each Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares for the specific period (again reflecting
changes in the Fund's share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that yield, tax-equivalent yield and total return
figures are based on historical earnings and are not intended to indicate future
performance. The Funds' Statement of Additional Information describes the method
used to determine the yield and total return. Current performance figures may be
obtained by calling Warburg Pincus Funds at (800) 927-2874.
In reports or other communications to investors or in advertising material, a
Fund may describe general economic and market conditions affecting the Fund. A
Fund may compare its performance with (i) that of other mutual funds as listed
in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) in the case of the Fixed Income Fund,
with the Lehman Bond Index (an unmanaged index of government and corporate bonds
calculated by Lehman Brothers); in the case of the Global Fixed Income Fund,
with the J.P. Morgan Traded Index (an index of non-U.S. dollar bonds of ten
countries with active bond markets), the Salomon Brothers World Government Bond
Index (a hedged, market-capitalization weighted index designed to track major
government debt markets) and the Lipper General World Income Average (an average
of funds that invest primarily in non-U.S. dollar and U.S. dollar debt
instruments); in the case of the Intermediate Government Fund, with the Lehman
Intermediate Government Bond Index (an unmanaged index of government bonds
calculated by Lehman Brothers); and in the case of the New York Municipal Fund,
with the Bond Buyer Index (the 'BBI') (an unmanaged index of 20 General
Obligation issues of 20-year maturity from various municipalities across the
nation published by the American Banker) and the Lipper New York Intermediate
Municipal Debt Funds Average (an
42
<PAGE>
<PAGE>
unmanaged index of 61 Intermediate Municipal Debt Funds calculated by Lipper
Analytical Services); or (iii) other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The Fund
may also include evaluations of each Fund published by nationally recognized
ranking services and by financial publications that are nationally recognized,
such as Barron's, Business Week, Financial Times, Forbes, Fortune, Inc.,
Institutional Investor, Investor's Business Daily, Money, Morningstar, Inc.,
Mutual Fund Magazine, SmartMoney and The Wall Street Journal.
In reports or other communications to investors or in advertising, each Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings 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 its expense ratio of its Common Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Fixed Income Fund and the New York Municipal Fund were
organized under the laws of The Commonwealth of Massachusetts as Massachusetts
business trusts in 1987 and 1986, respectively. In 1992, these Funds changed
their names from 'Counsellors Fixed Income Fund' and 'Counsellors New York
Municipal Bond Fund' to 'Warburg, Pincus Fixed Income Fund' and 'Warburg, Pincus
New York Municipal Bond Fund,' respectively. On February 28, 1995, the New York
Municipal Fund changed its name to 'Warburg, Pincus New York Intermediate
Municipal Fund.' The Global Fixed Income Fund and the Intermediate Government
Fund were incorporated under the laws of the State of Maryland in 1990 and 1988,
respectively, under the names 'Counsellors Global Fixed Income Fund, Inc.' and
'Counsellors Intermediate Maturity Government Fund, Inc.,' respectively. On
October 27, 1995 and February 16, 1996, the Funds amended their respective
charters to change their names to 'Warburg, Pincus Global Fixed Income Fund,
Inc.' and 'Warburg, Pincus Intermediate Maturity Government Fund, Inc.'
The Agreement and Declaration of Trust of each of the Fixed Income Fund and
the New York Municipal Fund authorizes each Fund's Board to issue an unlimited
number of full and fractional shares of beneficial interest, $.001 par
43
<PAGE>
<PAGE>
value per share, of which one billion shares are classified as Common Shares and
two billion shares are classified as Advisor Shares. The charters of the Global
Fixed Income Fund and the Intermediate Government Fund authorize each Fund's
Board to issue three billion full and fractional shares of capital stock, $.001
par value per share, of which one billion shares are designated Common Shares
and two billion shares are designated Advisor Shares. Under each Fund's charter
documents, the Board has the power to classify or reclassify any unissued shares
of the Fund into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board of a Fund may similarly classify or reclassify any class
of its shares into one or more series and, without shareholder approval, may
increase the number of authorized shares of the Fund.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Global Fixed Income Fund or the
Intermediate Government Fund may be removed by the shareholders at any time by a
vote of a majority of the votes entitled to be cast for the election of
Directors. Investors of record of no less than two-thirds of the outstanding
shares of the Fixed Income Fund or the New York Municipal Fund may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. A meeting will be called for the purpose
of voting on the removal of a governing Board member at the written request of
holders of 10% of the outstanding shares of a Fund. Lionel I. Pincus may be
deemed to be a controlling person of each Fund because he may be deemed to
possess or share investment power over shares owned by clients of Warburg.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). Each Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by a Fund, as well as
certain statistical characteristics of the Fund, may be obtained by calling
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
44
<PAGE>
<PAGE>
for a misstatement, inaccuracy or omission in this Prospectus with regard to
another Fund.
---------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ANY FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
45
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 7
Portfolio Investments................................................... 10
Risk Factors and Special Considerations................................. 14
Portfolio Transactions and Turnover Rate................................ 17
Certain Investment Strategies........................................... 18
Investment Guidelines................................................... 27
Management of the Funds................................................. 27
How to Open an Account.................................................. 29
How to Purchase Shares.................................................. 30
How to Redeem and Exchange Shares....................................... 33
Dividends, Distributions and Taxes...................................... 37
Net Asset Value......................................................... 40
Performance............................................................. 41
General Information..................................................... 43
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPBDF-1-0297
<PAGE>
<PAGE>
PROSPECTUS
WARBURG PINCUS ADVISOR FUNDS FEBRUARY 11, 1997
FIXED INCOME FUND
GLOBAL FIXED INCOME FUND
INTERMEDIATE MATURITY GOVERNMENT FUND
NEW YORK INTERMEDIATE MUNICIPAL FUND
B
BONDS FUNDS
[LOGO]
INVESTMENTS
<PAGE>
<PAGE>
PROSPECTUS February 11, 1997
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. Four Advisor Funds are described in this
Prospectus:
WARBURG PINCUS FIXED INCOME FUND is a bond fund seeking high current income
consistent with reasonable risk and, secondarily, capital appreciation. The Fund
will pursue its objectives by investing in a diversified portfolio of fixed
income securities.
WARBURG PINCUS GLOBAL FIXED INCOME FUND is a bond fund seeking to maximize total
investment return consistent with prudent investment management, consisting of a
combination of interest income, currency gains and capital appreciation. The
Fund will pursue its objective by investing in a portfolio principally
consisting of investment grade fixed income securities of governmental and
corporate issuers denominated in various currencies, including U.S. dollars.
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND is an intermediate-term
bond fund seeking as high a level of current income as is consistent with the
preservation of capital. The Fund will pursue its objective by investing in
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND is an intermediate-term
municipal bond fund designed for New York investors seeking to maximize current
interest income exempt from federal income tax and New York State and New York
City personal income taxes to the extent consistent with prudent investment and
the preservation of capital.
The Funds currently offer two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Funds,
as well as Advisor Shares of certain other Warburg Pincus-advised funds, are
sold under the name 'Warburg Pincus Advisor Funds.' Individual investors may
purchase Advisor Shares only through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of .25% (in the case of the Global Fixed Income Fund, .50%)
per annum, which is the economic equivalent of a sales charge. The Funds' Common
Shares are available for purchase by individuals directly and are offered by a
separate prospectus.
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about each
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC'). The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Funds.
The Statements of Additional Information are also available upon request and
without charge by calling Warburg Pincus Advisor Funds at (800) 369-2728.
Information regarding the status of shareholder accounts may be obtained by
calling the Funds at the same number. The Statements of Additional Information,
as amended or supplemented from time to time, bear the same date as this
Prospectus and are incorporated by reference in their entirety into this
Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK AND SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENTS IN SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
NO MINIMUM INVESTMENT
- --------------------------------------------------------------------------------
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
Each of Warburg Pincus Fixed Income Fund (the 'Fixed Income Fund'), Warburg
Pincus Global Fixed Income Fund (the 'Global Fixed Income Fund'), Warburg Pincus
Intermediate Maturity Government Fund (the 'Intermediate Government Fund') and
Warburg Pincus New York Intermediate Municipal Fund (the 'New York Municipal
Fund') (collectively, the 'Funds') currently offers two separate classes of
shares: Common Shares and Advisor Shares. See 'General Information.' Because of
the higher fees paid by Advisor Shares, the total return on such shares can be
expected to be lower than the total return on Common Shares.
<TABLE>
<CAPTION>
Global Intermediate New York
Fixed Income Fixed Income Government Municipal
Fund Fund Fund Fund
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on
Purchases
(as a percentage of offering
price)........................ 0 0 0 0
Annual Fund Operating Expenses
(as a percentage of average net
assets)
Management Fees................. .37% .50% .11% .27%
12b-1 Fees...................... .25%* .50%* .25%* .25%*
Other Expenses.................. .38% .45% .49% .33%
--- --- --- ---
Total Fund Operating Expenses
(after fee waivers)`D'........ 1.00% 1.45% .85% .85%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end
of each time period:
1 year.......................... $ 10 $ 15 $ 9 $ 9
3 years......................... $ 32 $ 46 $ 27 $ 27
</TABLE>
- --------------------------------------------------------------------------------
* Current 12b-1 fees are .25% per annum for the Fixed Income, Intermediate
Government and New York Municipal Funds and .50% per annum for the Global
Fixed Income Fund, in each case out of a maximum .75% authorized under the
Advisor Shares' Distribution Plans. At least a portion of these fees should
be considered by the investor to be the economic equivalent of a sales
charge.
`D' Absent the waiver of fees by the Funds' investment adviser and
co-administrator, Management Fees for the Fixed Income, Global Fixed Income,
Intermediate Government and New York Municipal Funds would have equalled
.50%, 1.00%, .50%, and .40%, respectively; Other Expenses would have
equalled .41%, .51%, .57% and .38%, respectively; and Total Fund Operating
Expenses would have equalled 1.16%, 2.01%, 1.32% and 1.03%, respectively.
Other Expenses for the Funds are based on annualized estimates for the
fiscal year ended October 31, 1996, net of any fee waivers or expense
reimbursements. The investment adviser and co-administrator are under no
obligation to continue these waivers.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of each Fund. Certain broker-dealers and
financial institutions also may charge their clients fees in connection with
investments in Fund shares, which fees are not reflected in the table. The
Example should not be considered a representation of past or future expenses;
actual Fund expenses may be greater or less than those shown. Moreover, while
the Example assumes a 5% annual return, each Fund's actual performance will vary
and may result in a return greater or less than 5%. Long-term holders of Advisor
Shares may pay more than the economic equivalent of the maximum front-end sales
charges permitted by the National Association of Securities Dealers, Inc. (the
'NASD').
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The information regarding the Fixed Income, Global Fixed Income and New York
Intermediate Muncipal Funds for the fiscal year ended October 31, 1996 has been
derived from information audited by Cooper & Lybrand L.L.P., independent
accountants, whose report dated October 18, 1996 is incorporated by reference in
the relevant Fund's Statement of Additional Information. Further information
about the performance of the Funds is contained in the Funds' annual report,
dated October 31, 1996, copies of which may be obtained without charge by
calling Warburg Pincus Advisor Funds at (800) 369-2728.
FIXED INCOME FUND
<TABLE>
<CAPTION>
For the Period
July 3, 1996
(Commencement of
Operations) through
October 31, 1996
--------------------
<S> <C>
Net Asset Value, Beginning of Period....................................... $ 9.90
------
Income from Investment Operations:
Net Investment Income..................................................... .19
Net Gains on Securities (both realized and unrealized).................... .20
------
Total from Investment Operations.......................................... .39
------
Less Distributions:
Dividends (from net investment income).................................... (.19)
Distributions (from capital gains)........................................ .00
------
Total Distributions....................................................... (.19)
------
Net Asset Value, End of Period............................................. $ 10.10
------
------
Total Return............................................................... 3.93%`D'
Ratios/Supplemental Data:
Net Assets, End of Period (000s).......................................... $ 911
Ratios to Average Daily Net Assets:
Operating expenses........................................................ 1.00%*
Net investment income..................................................... 5.85%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements.................................................. .11%*
Portfolio turnover rate.................................................... 194.23%`D'
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-Annualized
* Annualized
GLOBAL FIXED INCOME FUND
<TABLE>
<CAPTION>
For the Period
August 12, 1996
(Commencement of
Operations) through
October 31, 1996
--------------------
<S> <C>
Net Asset Value, Beginning of Period....................................... $ 10.90
------
Income from Investment Operations:
Net Investment Income..................................................... .10
Net Gains on Securities and Foreign Currency Related Items (both realized
and unrealized)......................................................... .27
------
Total from Investment Operations.......................................... .37
------
Less Distributions:
Dividends (from net investment income).................................... (.10)
Distributions (from capital gains)........................................ .00
------
Total Distributions....................................................... (.10)
------
Net Asset Value, End of Period............................................. $ 11.17
------
------
Total Return............................................................... 3.41%`D'
Ratios/Supplemental Data:
Net Assets, End of Period (000s).......................................... $ 39
Ratios to Average Daily Net Assets:
Operating expenses........................................................ 1.45%*
Net investment income..................................................... 5.69%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements.................................................. .21%*
Portfolio turnover rate.................................................... 123.90%`D'
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-Annualized
* Annualized
3
<PAGE>
<PAGE>
NEW YORK INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
For the Period
August 5, 1996
(Commencement of
Operations) through
October 31, 1996
--------------------
<S> <C>
Net Asset Value, Beginning of Period....................................... $ 10.34
------
Income from Investment Operations:
Net Investment Income..................................................... .09
Net Gains on Securities (both realized and unrealized).................... .00
------
Total from Investment Operations.......................................... .09
------
Less Distributions:
Dividends (from net investment income).................................... (.09)
Distributions (from capital gains)........................................ .00
------
Total Distributions....................................................... (.09)
------
Net Asset Value, End of Period............................................. $ 10.34
------
------
Total Return............................................................... .88%`D'
Ratios/Supplemental Data:
Net Assets, End of Period (000s).......................................... $ 1
Ratios to Average Daily Net Assets:
Operating expenses........................................................ .63%*
Net investment income..................................................... 3.88%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements.................................................. .01%*
Portfolio turnover rate.................................................... 69.23%`D'
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-Annualized
* Annualized
4
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Fund's objective is a fundamental policy and may not be amended without
first obtaining the approval of a majority of the outstanding shares of that
Fund. Any investment involves risk and, therefore, there can be no assurance
that any Fund will achieve its investment objective. See 'Portfolio Investments'
and 'Certain Investment Strategies' for descriptions of certain types of
investments the Funds may make.
FIXED INCOME FUND
The Fixed Income Fund seeks to generate high current income consistent with
reasonable risk and, secondarily, capital appreciation. The Fund is a
diversified management investment company which pursues its investment
objectives by investing, under normal market conditions, at least 65% of its
total assets in fixed income securities, such as corporate bonds, debentures and
notes, convertible debt securities, preferred stocks, government obligations,
Municipal Obligations (as described below under 'New York Municipal Fund') and
repurchase agreements with respect to portfolio securities. Under normal market
conditions, the Fund intends that its portfolio of fixed income securities will
have a weighted average remaining maturity not exceeding 10 years. The Fund may
invest without limit in U.S. dollar-denominated, investment grade foreign
securities, but limits to 35% of its assets the portion that may be invested in
securities of foreign issuers that either are rated below investment grade or
are denominated in a currency other than U.S. dollars.
Under normal market conditions, at least 65% of all of the fixed income
securities in the Fund will be rated investment grade. A security will be
considered investment grade if it is rated at the time of purchase within the
four highest grades assigned by Moody's Investors Service, Inc. ('Moody's') or
Standard & Poor's Ratings Services ('S&P'). The Fund may hold up to 35% of its
net assets in fixed income securities rated below investment grade and as low as
C by Moody's or D by S&P at the time of purchase or may be unrated securities
considered to be of equivalent quality.
GLOBAL FIXED INCOME FUND
The Global Fixed Income Fund seeks to maximize total investment return
consistent with prudent investment management, consisting of a combination of
interest income, currency gains and capital appreciation. The Fund is a
non-diversified management investment company which seeks to achieve its
objective by investing, under normal market conditions, at least 65% of its
total assets in fixed income obligations of governmental and corporate issuers
denominated in various currencies (including U.S. dollars, or in multinational
currency units such as European Currency Units ('ECUs')), including convertible
debt securities and preferred stock. Issuers of these securities will be located
in at least three countries and issuers located in any one country (other than
the United States) will not represent more than 40% of the Fund's total assets.
In addition, the Fund will not invest 25% or more of its assets in
5
<PAGE>
<PAGE>
the securities issued by any one foreign government, its agencies,
instrumentalities or political subdivisions. The Fund may invest up to 20% of
its total assets in equity securities, including common stock, warrants and
rights. For temporary defensive purposes or during times of international
political or economic uncertainty, all of the Fund's investments may be made
temporarily in the United States or denominated in U.S. dollars.
The Fund may invest in a wide variety of fixed income obligations issued
anywhere in the world, including the United States. The Fund may purchase debt
obligations issued or guaranteed by the United States or foreign governments,
their agencies, instrumentalities or political subdivisions, as well as
supranational entities organized or supported by several national governments,
such as the International Bank for Reconstruction and Development (the 'World
Bank') or the European Investment Bank. The Fund may also purchase fixed income
obligations of foreign corporations that are issued in a currency other than
U.S. dollars. Because of fluctuating currency values, the Fund may engage in
certain currency transactions, as described under 'Certain Investment
Strategies -- Options, Futures and Currency Transactions' below.
Under normal economic and market conditions, the dollar-weighted average
maturity of the Fund's portfolio of fixed income securities will be between 3
and 10 years, using for purposes of this calculation the maturity of a security
on its date of purchase. Individual issues may have maturities shorter or longer
than 3 to 10 years.
Warburg, Pincus Counsellors, Inc., each Fund's investment adviser
('Warburg'), will allocate investments among securities of particular issuers on
the basis of its views as to the best values then currently available in the
marketplace. Such values are a function of yield, maturity, issue classification
and quality characteristics, coupled with expectations regarding the economy,
movements in the general level and term of interest rates, currency values,
political developments and variations in the supply of funds available for
investment in the world bond market relative to the demands placed upon it.
Fixed income securities denominated in currencies other than the U.S. dollar or
in multinational currency units are evaluated on the strength of the particular
currency against the U.S. dollar as well as on the current and expected levels
of interest rates in the country or countries. Currencies generally are
evaluated on the basis of fundamental economic criteria (e.g., relative
inflation and interest rate levels and trends, growth rate forecasts, balance of
payments status and economic policies) as well as technical and political data.
In addition to the foregoing, the Fund may seek to take advantage of differences
in relative values of fixed income securities among various countries.
The Fund may hold up to 35% of its net assets in fixed income securities
rated below investment grade, or in unrated securities considered to be of
equivalent quality.
6
<PAGE>
<PAGE>
INTERMEDIATE GOVERNMENT FUND
The Intermediate Government Fund seeks to achieve as high a level of current
income as is consistent with the preservation of capital. The Fund is a
diversified management investment company which pursues its investment objective
by investing, under normal market conditions, at least 65% of its total assets
in obligations issued or guaranteed by the United States government, its
agencies or instrumentalities ('Government Securities'). Under normal market
conditions, the Fund will maintain a weighted average portfolio maturity of
between 3 and 10 years. Investments by the Fund in repurchase agreements on
Government Securities are not included in determining the percentage of assets
invested in Government Securities.
The Fund may invest in Government Trust Certificates. Each Certificate
evidences an undivided fractional interest in a Government Trust (each, a
'Trust'). The assets of each Trust consist of a promissory note, payable in U.S.
Dollars (the 'Loan Note'), representing a loan made by the Trust to the
government of Israel (the 'Borrower'), backed by a full faith and credit
guaranty issued by the United States of America, acting through the Defense
Security Assistance Agency of the Department of Defense (the 'Guaranty'), of the
due and punctual payment of 90% of payments of principal and interest due on the
Loan Note and a security interest in collateral, consisting of non-callable
securities issued or guaranteed by the United States government, or derivatives
thereof, such as trust receipts or other securities evidencing an interest in
such United States government securities, sufficient to pay the remaining 10% of
all payments of principal and interest due on the Loan Notes. Each Certificate
issued by a Trust represents the right to receive a portion of the payments due
on the Loan Note held by that Trust. The Certificates are not subject to
prepayment or acceleration. Each Guaranty is entitled to the full faith and
credit of the United States of America. A Certificateholder's right to receive
any payments with respect to the Guaranty will be subject to termination if such
holder breaches the terms of its Certificate.
Certificates are not considered by the Fund to be Government Securities. The
Certificates represent undivided fractional interests in the Loan Notes, but the
Certificates are not direct obligations of, and are not guaranteed by, the
Borrower. Thus, in the event of a failure to pay principal and/or interest when
due, the Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation of the Borrower.
NEW YORK MUNICIPAL FUND
The New York Municipal Fund seeks to maximize current interest income exempt
from federal income tax and New York State and New York City personal income
taxes to the extent consistent with prudent investment and the preservation of
capital. The Fund is a non-diversified management investment company which
pursues its investment objective by investing, under normal market conditions,
at least 65% of its total assets in investment
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grade 'New York Municipal Obligations.' New York Municipal Obligations are debt
obligations (other than short-term securities), the interest on which is
excluded from gross income for federal income tax purposes and exempt from New
York State and New York City personal income tax. Under normal market
conditions, the Fund will maintain a weighted average portfolio maturity of
between 3 and 10 years. If Warburg believes that suitable New York Municipal
Obligations are not available, the Fund may for temporary defensive reasons
invest without limit in (i) municipal obligations that pay interest which is
excluded from gross income for federal income tax purposes but which is not
exempt from New York State and New York City personal income taxes and (ii)
taxable or tax-exempt money market obligations. It is a fundamental policy of
the Fund that, except during temporary defensive periods, the Fund will have at
least 80% of its assets invested in obligations issued by or on behalf of states
(including the State of New York), territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities ('Municipal Obligations'). This fundamental policy may not
be amended without first obtaining the approval of holders of a majority of the
outstanding shares of the Fund. The Fund may invest up to 20% of its total
assets in debt obligations other than Municipal Obligations. The Fund may invest
in unrated issues that are believed by Warburg to have financial characteristics
that are comparable and that are otherwise similar in quality to the rated
issues it purchases. Investors should be aware that ratings are relative and
subjective and are not absolute standards of quality.
PORTFOLIO INVESTMENTS
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MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal
conditions, up to 35% of its total assets in short-term money market obligations
having remaining maturities of less than one year at the time of purchase. These
short-term instruments consist of Government Securities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; in the case of the Fixed Income Fund and the
Global Fixed Income Fund, obligations of foreign governments, their agencies or
instrumentalities; and repurchase agreements with respect to portfolio
securities. The short-term money market obligations in which the New York
Municipal Fund is authorized to invest generally will be tax-exempt obligations;
however, the Fund may invest in taxable obligations when suitable tax-exempt
obligations are unavailable or to maintain liquidity for meeting anticipated
redemptions and paying operating expenses. Tax-exempt money market obligations
in which the New York Municipal Fund may invest consist of investment grade
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tax-exempt notes and tax-exempt commercial paper rated no lower than A-2 by S&P
or Prime-2 by Moody's or the equivalent from another major rating service or, if
not rated, of municipal issuers having an issue of outstanding Municipal
Obligations rated within the three highest grades by Moody's or S&P.
For temporary defensive purposes or, in the case of the Global Fixed Income
Fund, during times of international political or economic uncertainty, each Fund
other than the Intermediate Government Fund may invest without limit in
short-term money market obligations, and the Intermediate Government Fund may
invest without limit in short-term Government Securities.
Repurchase Agreements. Under normal market conditions, each Fund may invest
up to 20% of its total assets in repurchase agreement transactions with member
banks of the Federal Reserve System and certain non-bank dealers. Repurchase
agreements are contracts under which the buyer of a security simultaneously
commits to resell the security to the seller at an agreed-upon price and date.
Under the terms of a typical repurchase agreement, a Fund would acquire any
underlying security for a relatively short period (usually not more than one
week) subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Fund's holding
period. The value of the underlying securities will at all times be at least
equal to the total amount of the purchase obligation, including interest. The
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations or becomes bankrupt and the Fund is
delayed or prevented from exercising its right to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which the Fund seeks to assert this
right. Warburg, acting under the supervision of the governing Board of each Fund
(the 'governing Board' or 'Board'), monitors the creditworthiness of those bank
and non-bank dealers with which each Fund enters into repurchase agreements to
evaluate this risk. A repurchase agreement is considered to be a loan under the
Investment Company Act of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity,
each Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg or the Funds'
co-administrator, PFPC Inc. ('PFPC'). A money market mutual fund is an
investment company that invests in short-term high quality money market
instruments. A money market mutual fund generally does not purchase securities
with a remaining maturity of more than one year. The Intermediate Government
Fund and the New York Municipal Fund would invest in money market mutual funds
that invest in Government Securities
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and tax-exempt securities, respectively. As a shareholder in any mutual fund, a
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S GOVERNMENT SECURITIES. The obligations issued or guaranteed by the U.S.
government in which a Fund may invest include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association ('GNMA')); instruments that are supported by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and instruments that are supported by the credit of the instrumentality
(such as Federal National Mortgage Association ('FNMA') and Federal Home Loan
Mortgage Corporation ('FHLMC') bonds).
CONVERTIBLE SECURITIES. Convertible securities in which the Fixed Income and
Global Fixed Income Funds may invest, including both convertible debt and
convertible preferred stock, may be converted at either a stated price or stated
rate into underlying shares of common stock. Because of this feature,
convertible securities enable an investor to benefit from increases in the
market price of the underlying common stock. Convertible securities provide
higher yields than the underlying equity securities, but generally offer lower
yields than non-convertible securities of similar quality. The value of
convertible securities fluctuates in relation to changes in interest rates like
bonds and, in addition, fluctuates in relation to the underlying common stock.
STRUCTURED SECURITIES. The Funds may purchase any type of publicly traded or
privately negotiated fixed income security, including mortgage-backed
securities; structured notes, bonds or debentures; and assignments of and
participations in loans.
Mortgage-Backed Securities. Mortgage-backed securities are collateralized by
mortgages or interests in mortgages and may be issued by government or
non-government entities. Mortgage-backed securities issued by GNMA, FNMA or
FHLMC provide a monthly payment consisting of interest and principal payments,
and additional payments will be made out of unscheduled prepayments of
principal. Neither the value of nor the yield on these mortgage-backed
securities or shares of the Funds is guaranteed by the U.S. government.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be
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subject to greater price fluctuations. The value of mortgaged-backed securities
may change due to shifts in the market's perceptions of issuers, and regulatory
or tax changes may adversely affect the mortgage securities market as a whole.
Foreclosures and prepayments, which occur when unscheduled or early payments are
made on the underlying mortgages, may shorten the effective maturities on these
securities. The Funds' yield may be affected by reinvestment of prepayments at
higher or lower rates than the original investment. Prepayments may tend to
increase due to refinancing of mortgages as interest rates decline. In addition,
like other debt securities, the values of mortgage-backed securities will
generally fluctuate in response to interest rates.
Structured Notes, Bonds or Debentures. Typically, the value of the principal
and/or interest on these instruments is determined by reference to changes in
the value of specific currencies, interest rates, commodities, indexes or other
financial indicators (the 'Reference') or the relevant change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in the loss of a Fund's entire investment. The value of structured securities
may move in the same or the opposite direction as the value of the Reference, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference so that the security may be more or less
volatile than the Reference, depending on the multiple. Consequently, structured
securities may entail a greater degree of market risk and volatility than other
types of debt obligations.
Assignments and Participations. Each Fund may invest in assignments of and
participations in loans issued by banks and other financial institutions.
When a Fund purchases assignments from lending financial institutions, the
Fund will acquire direct rights against the borrower on the loan. However, since
assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by a Fund as the purchaser of an assignment may differ from, and be more limited
than, those held by the assigning lender.
Participations in loans will typically result in a Fund having a contractual
relationship with the lending financial institution, not the borrower. A Fund
would have the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender of the payments from the borrower. In
connection with purchasing a participation, a Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan, nor any rights of set-off against the borrower, and the
Fund may not benefit directly from any collateral supporting the loan in which
it has purchased a participation. As a result, a
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Fund purchasing a participation will assume the credit risk of both the borrower
and the lender selling the participation. In the event of the insolvency of the
lender selling the participation, the Fund may be treated as a general creditor
of the lender and may not benefit from any set-off between the lender and the
borrower.
A Fund may have difficulty disposing of assignments and participations
because there is no liquid market for such securities. The lack of a liquid
secondary market will have an adverse impact on the value of such securities and
on a Fund's ability to dispose of particular assignments or participations when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid market for assignments and participations also may make it
more difficult for a Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
With respect to the New York Municipal Fund, income derived from
participations or assignments may not be tax-exempt, depending on the structure
of the particular securities. To the extent such income is not tax-exempt it
will be subject to the New York Municipal Fund's 20% limit on investing in
non-municipal securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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For certain additional risks related to each Fund's investments, see
'Portfolio Investments' beginning at page 8 and 'Certain Investment Strategies'
beginning at page 16.
Among the factors that may be considered in deciding whether to invest in a
security are the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history and the ability of the issuer's
management. Bond prices generally vary inversely in relation to changes in the
level of interest rates, as well as in response to other market factors and
changes in the creditworthiness of the issuers of the securities. Government
Securities are considered to be of the highest credit quality available.
Government Securities, however, will be affected by general changes in interest
rates. The price volatility of a Fund's shares where the Fund invests in
intermediate maturity bonds will be substantially less than that of long-term
bonds. An intermediate maturity bond will generally have a lower yield than that
of a long-term bond. Longer-term securities in which the Funds may invest
generally offer a higher current yield than is offered by shorter-term
securities, but also generally involve greater volatility of price and risk of
capital than shorter-term securities.
NEW YORK MUNICIPAL OBLIGATIONS. The New York Municipal Fund's ability to
achieve its investment objective is dependent upon the ability of the issuers of
New York Municipal Obligations to meet their continuing obligations for the
payment of principal and interest. New York State and New York City face
long-term economic problems that could seriously affect their ability and that
of other issuers of New York Municipal Obligations to meet their financial
obligations. Certain substantial issuers of New York
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Municipal Obligations (including issuers whose obligations may be acquired by
the Fund) have experienced serious financial difficulties in recent years. These
difficulties have at times jeopardized the credit standing and impaired the
borrowing abilities of all New York issuers and have generally contributed to
higher interest costs for their borrowings and fewer markets for their
outstanding debt obligations. In recent years, several different issues of
municipal securities of New York State and its agencies and instrumentalities
and of New York City have been downgraded by S&P and Moody's. On the other hand,
strong demand for New York Municipal Obligations has at times had the effect of
permitting New York Municipal Obligations to be issued with yields relatively
lower, and after issuance, to trade in the market at prices relatively higher
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by certain
issuers of New York Municipal Obligations could result in defaults or declines
in the market values of those issuers' existing obligations and, possibly, in
the obligations of other issuers of New York Municipal Obligations. Although as
of the date of this Prospectus, no issuers of New York Municipal Obligations are
in default with respect to the payment of their municipal obligations, the
occurrence of any such default could affect adversely the market values and
marketability of all New York Municipal Obligations and, consequently, the net
asset value of the New York Municipal Fund's portfolio. Other considerations
affecting the New York Municipal Fund's investments in New York Municipal
Obligations are summarized in the Fund's Statement of Additional Information.
NON-DIVERSIFIED STATUS. The Global Fixed Income Fund and the New York
Municipal Fund are each classified as a non-diversified investment company under
the 1940 Act, which means that the Funds are not limited by the 1940 Act in the
proportion of their assets that they may invest in the obligations of a single
issuer. The Funds will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the 'Code'), for
qualification as a regulated investment company. As non-diversified investment
companies, the Funds may invest a greater proportion of their assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that the Funds
assume large positions in the securities of a small number of issuers, their
return may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
LOWER-RATED SECURITIES. There are certain risk factors associated with
lower-rated securities. Securities rated in the fourth highest grade have
speculative characteristics, and securities rated B have speculative elements
and a greater vulnerability to default than higher-rated securities. Investors
should be aware that ratings are relative and subjective and are not absolute
standards of quality. Subsequent to its purchase by a Fund, an issue of
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securities may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities by the Fund, although Warburg will consider such event in its
determination of whether the Fund should continue to hold the securities.
The Fixed Income Fund and the Global Fixed Income Fund may invest in
securities rated as low as C by Moody's or D by S&P and in unrated securities
considered to be of equivalent quality. Securities that are rated C by Moody's
are the lowest rated class and can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Debt rated D by S&P is
in default or is expected to default upon maturity or payment date.
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 organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, 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-rated categories is more volatile
than that of higher quality securities. In addition, the Fixed Income Fund and
the Global Fixed Income Fund may have difficulty disposing of certain of these
securities because there may be a thin trading market. The lack of a liquid
secondary market for certain securities may have an adverse impact on the Funds'
ability to dispose of particular issues and may make it more difficult for the
Fixed Income Fund and the Global Fixed Income Fund to obtain accurate market
quotations for purposes of valuing the Funds and calculating their respective
net asset values.
For a complete description of the rating systems of Moody's and S&P, see the
Appendix to the Statement of Additional Information of the Fixed Income and
Global Fixed Income Funds.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
A Rule 144A Security will be considered illiquid and therefore subject to each
Fund's limitation on the purchase of illiquid securities, unless the Fund's
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,
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availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Funds to the
extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board of each Fund will carefully monitor
any investments by the Fund in Rule 144A Securities. The Boards may adopt
guidelines and delegate to Warburg the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although each Board will
retain ultimate responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and a Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly traded. A Fund's investment in illiquid securities is subject to the
risk that should the Fund desire to sell any of these securities when a ready
buyer is not available at a price that is deemed to be representative of their
value, the value of the Fund's net assets could be adversely affected.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
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A Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the relevant Fund. In addition, to
the extent it is consistent with a Fund's investment objective, the Fund also
may engage in short-term trading. A Fund will not consider portfolio turnover
rate a limiting factor in making investment decisions consistent with its
investment objective and policies. This investment approach and use of certain
of the investment strategies described below may result in a high portfolio
turnover rate. High portfolio turnover rates (100% or more) may result in dealer
mark ups or underwriting commissions as well as other transaction costs,
including correspondingly higher brokerage commissions. In addition, short-term
gains realized from portfolio transactions are taxable to shareholders as
ordinary income. See 'Dividends, Distributions and Taxes -- Taxes' below and
'Investment Policies -- Portfolio Transactions' in each Fund's Statement of
Additional Information.
Newly issued Government Securities normally are purchased by a Fund directly
from the issuer or from an underwriter acting as a principal. Other purchases
and sales usually are placed by the Fund with those dealers which Warburg
determines offer the best price and execution. The purchase price paid by the
Fund to underwriters of newly issued securities usually includes
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a concession paid by the issuer to the underwriter, and purchases of securities
from a dealer in the after market normally are executed at a price between the
bid and asked prices.
All orders for transactions in securities or options on behalf of a Fund are
placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Funds' distributor ('Counsellors Securities'). A Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
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Although there is no intention of doing so during the coming year, each Fund
may enter into reverse repurchase agreements and dollar rolls. Detailed
information concerning each Fund's strategies and related risks is contained
below and in the Fund's Statement of Additional Information.
STRATEGIES AVAILABLE TO ALL FUNDS
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg,
each Fund may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of the Fund's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE A FUND'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect a Fund's net asset value and performance. Therefore, an
investment in a Fund may involve a greater risk than an investment in other
mutual funds that do not utilize these strategies. The Funds' use of these
strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the NASD and by the Code.
Securities and Index Options. The Funds may purchase and write covered put
and call options traded on U.S. and foreign exchanges as well as over-the-
counter ('OTC') without limit on the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as 'premiums')
for granting the rights evidenced by the options. The purchaser of a put option
on a security has the right to compel the purchase by the writer of the
underlying security, while the purchaser of a call option on a security has the
right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, each Fund may also purchase and
write without limit exchange-listed and OTC put and call options on securities
indexes. A securities index measures the movement of a certain
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group of securities by assigning relative values to the securities included in
the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. Each Fund may enter into interest
rate, securities index and, in the case of the Fixed Income and Global Fixed
Income Funds, currency futures contracts and purchase and write (sell) related
options that are traded on an exchange designated by the Commodity Futures
Trading Commission (the 'CFTC') or, if consistent with CFTC regulations, on
foreign exchanges. These futures contracts are standardized contracts for the
future delivery of foreign currency or an interest rate sensitive security or,
in the case of securities index and certain other futures contracts, are settled
in cash with reference to a specified multiplier times the change in the
specified interest rate, index or exchange rate. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Funds are limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fixed Income and Global Fixed Income
Funds may conduct currency exchange transactions either (i) on a spot (i.e.,
cash) basis at the rate prevailing in the currency exchange market, (ii) through
entering into futures contracts or options on futures contracts (as described
above), (iii) through entering into forward contracts to purchase or sell
currency or (iv) by purchasing and writing exchange-traded and OTC currency
options. A forward currency contract involves an obligation to purchase or sell
a specific currency at a future date at a price set at the time of the contract.
An option on a foreign currency operates similarly to an option on a security.
Risks associated with currency forward contracts and purchasing currency options
are similar to those described in this Prospectus for futures contracts and
securities index options. In addition, the use of currency transactions could
result in losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
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Hedging Considerations. The Funds may engage in options, futures and currency
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedge position. As a result,
the use of options, futures contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in value of the
position hedged. In addition, the movement in the portfolio position hedged may
not be of the same magnitude as movement in the hedge. A Fund will engage in
hedging transactions only when deemed advisable by Warburg, and successful use
of hedging transactions will depend on Warburg's ability to correctly predict
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that a Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities, indexes and currencies; interest rate, index and
currency futures contracts and options on these futures contracts; and forward
currency contracts. The use of these strategies may require that the Fund
maintain cash or liquid securities in a segregated account with its custodian or
a designated sub-custodian to the extent the Fund's obligations with respect to
these strategies are not otherwise 'covered' through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
ZERO COUPON SECURITIES. Each Fund may invest without limit in 'zero coupon
securities.' Zero coupon securities pay no cash income to their holders until
they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the values of
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securities that distribute income regularly and may be more speculative than
such other securities. Accordingly, the values of these securities may be highly
volatile as interest rates rise or fall. Redemption of shares of a Fund that
require it to sell zero coupon securities prior to maturity may result in
capital gains or losses that may be substantial. In addition, a Fund's
investments in zero coupon securities will result in special tax consequences,
which are described below under 'Dividends, Distributions and Taxes -- Taxes.'
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fixed Income
Fund, the Global Fixed Income Fund and the Intermediate Government Fund may each
utilize up to 20% of its total assets to purchase securities on a when-issued
basis and purchase or sell securities on a delayed-delivery basis. The New York
Municipal Fund may without limit purchase Municipal Obligations on a when-issued
basis. In these transactions, payment for and delivery of the securities occur
beyond the regular settlement dates, normally within 30-45 days after the
transaction. A Fund will not enter into a when-issued or delayed-delivery
transaction for the purpose of leverage, but may sell the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive securities in a delayed-delivery transaction if Warburg deems it
advantageous to do so. The payment obligation and the interest rate that will be
received in when-issued and delayed-delivery transactions are fixed at the time
the buyer enters into the commitment. Due to fluctuations in the value of
securities purchased 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-issued securities may include securities purchased on a
'when, as and if issued' basis under which the issuance of the security depends
on the occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. A Fund will establish a segregated account
with its custodian consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
and delayed-delivery purchase commitments, and will segregate the securities
underlying commitments to sell securities for delayed delivery.
INTEREST RATE, INDEX, MORTGAGE AND CURRENCY SWAPS; INTEREST RATE CAPS, FLOORS
AND COLLARS. Each Fund may enter into interest rate index and mortgage swaps and
interest rate caps, floors and collars for hedging purposes or to seek to
increase total return; the Fixed Income and Global Fixed Income Funds may enter
into currency swaps for hedging purposes. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Index swaps involve the exchange by the Fund with another party
of the respective amounts payable with respect to a notional principal amount
related to one or more indexes. Mortgage swaps are similar to interest rate
swaps in that they represent
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commitments to pay and receive interest. The notional principal amount, however,
is tied to a reference pool or pools of mortgages. Currency swaps involve the
exchange of cash flows or a notional amount of two or more currencies based on
their relative future values. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payment of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
A Fund will enter into interest rate, index and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate, index and mortgage swaps is limited to the net
amount of interest payments that the Fund is contractually obligated to make. If
the other party to an interest rate, index or mortgage swap defaults, the Fund's
risk of loss consists of the net amount of interest payments that the Fund is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of a gross payment stream in one designated currency in exchange
for the gross payment stream in another designated currency. Therefore, the
entire payment stream under a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations. To
the extent that the net amount payable by the Fund under an interest rate, index
or mortgage swap and the entire amount of the payment stream payable by the Fund
under a currency swap or an interest rate cap, floor cap or collar are held in a
segregated account consisting of cash or liquid securities, the Funds and
Warburg believe that swaps do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to each Fund's
borrowing restriction.
The Fund will not enter into interest rate, index, mortgage or currency
swaps, or interest rate cap, floor or collar transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party is
rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's or, if
unrated by such rating organizations, determined to be of comparable quality by
Warburg.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND, THE GLOBAL FIXED INCOME FUND AND
THE INTERMEDIATE GOVERNMENT FUND
SHORT SALES AGAINST THE BOX. The Fixed Income Fund, the Global Fixed Income
Fund and the Intermediate Government Fund may each enter into a short sale of
securities such that when the short position is open the Fund owns an equal
amount of the securities sold short or owns preferred stocks or
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debt securities, convertible or exchangeable without payment of further
consideration, into an equal number of securities sold short. This kind of short
sale, which is referred to as one 'against the box,' may be entered into by a
Fund to, for example, lock in a sale price for a security the Fund does not wish
to sell immediately or to postpone a gain or loss for federal income tax
purposes. The Fund will deposit, in a segregated account with its custodian or a
qualified subcustodian, the securities sold short or convertible or exchangeable
preferred stocks or debt securities in connection with short sales against the
box. Not more than 10% of a Fund's net assets (taken at current value) may be
held as collateral for short sales against the box at any one time. The extent
to which the Fund may make short sales may be limited by Code requirements for
qualification as a regulated investment company. See 'Dividends, Distributions
and Taxes' for other tax considerations applicable to short sales.
STRATEGIES AVAILABLE TO THE FIXED INCOME FUND AND THE GLOBAL FIXED INCOME FUND
FOREIGN SECURITIES. The Fixed Income and Global Fixed Income Funds may invest
in the securities of foreign issuers. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in domestic investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, the lack of uniform accounting, auditing and financial
reporting standards and other regulatory practices and requirements that are
often less rigorous than those applied in the United States. The yield of the
Funds may be adversely affected by fluctuations in the value of one or more
currencies relative to the U.S. dollar. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. Due to the increased exposure of the Funds to market and
foreign exchange fluctuations brought about by such delays and due to the
corresponding negative impact on the Funds' liquidity, the Funds will avoid
investing in countries that are known to experience settlement delays which may
expose the Funds to unreasonable risk of loss. In addition, with respect to
certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Funds, including the withholding of dividends.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities may also result in higher
operating expenses due to the cost of
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converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
REITS. The Fixed Income Fund and the Global Fixed Income Fund may invest in
real estate investment trusts ('REITs'), which are pooled investment vehicles
that invest primarily in income-producing real estate or real estate related
loans or interests. Like regulated investment companies such as the Funds, REITs
are not taxed on income distributed to shareholders provided they comply with
several requirements of the Code. A Fund investing in a REIT will indirectly
bear its proportionate share of any expenses paid by the REIT in addition to the
expenses of the Fund.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, the possibilities of failing to qualify
for the exemption from tax for distributed income under the Code and failing to
maintain their exemptions from the 1940 Act. REITs are also subject to interest
rate risks.
STRATEGY AVAILABLE TO THE FIXED INCOME FUND AND THE INTERMEDIATE GOVERNMENT FUND
LENDING OF PORTFOLIO SECURITIES. The Fixed Income Fund and the Intermediate
Government Fund may lend portfolio securities to brokers, dealers and other
financial organizations. By lending its securities, a Fund can increase its
income by continuing to receive interest and any dividends on the loaned
securities as well as by either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
Government Securities are used as collateral. These loans, if and when made, may
not exceed 20% and 30%, respectively, of the total assets of the Fixed Income
Fund and the Intermediate Government Fund, respectively, taken at value and will
be collateralized by cash, letters of credit or Government Securities, which are
maintained at all times in an amount at least equal to the current market value
of the loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account of
the Fund. From time to time, the Fund may pay a part of the interest earned from
the investment collateral received for securities loaned to the borrower and/or
a third party that is unaffiliated with the Fund and that is acting as a
'finder.' The Fund bears a risk of loss in the event that the other party to the
loan agreement defaults on its obligations or becomes bankrupt and the Fund is
delayed or prevented from exercising its right to retrieve and dispose of the
loaned securities, including the risk of a possible decline in the value of the
loaned securities during the period in which the Fund seeks to assert its
rights.
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STRATEGIES AVAILABLE TO THE FIXED INCOME FUND AND THE NEW YORK MUNICIPAL FUND
NEW YORK MUNICIPAL OBLIGATIONS. New York Municipal Obligations include debt
obligations of the State of New York and its political subdivisions, agencies
and public authorities issued to obtain funds for various public purposes and
debt obligations issued by other governmental entities (such as Puerto Rico) if
such debt obligations generate interest income which is excluded from gross
income for federal taxable income purposes and exempt from New York State and
New York City personal income taxes.
MUNICIPAL OBLIGATIONS. The two principal types of Municipal Obligations, in
terms of the source of payment of debt service on the bonds, are general
obligation bonds and revenue bonds and a Fund may hold both in any proportion.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source but not from the general taxing power. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
A Fund may invest without limit in Municipal Obligations that are repayable
out of revenue streams generated from economically related projects or
facilities or Municipal Obligations whose issuers are located in the same state.
Sizeable investments in such obligations could involve an increased risk to the
Fund should any of such related projects or facilities experience financial
difficulties. Each Fund intends during the coming year to limit investments in
such obligations to less than 25% of its assets.
ALTERNATIVE MINIMUM TAX BONDS. The Funds may invest without limit in
'Alternative Minimum Tax Bonds,' which are certain bonds issued after August 7,
1986 to finance certain non-governmental activities. While the income from
Alternative Minimum Tax Bonds is exempt from regular federal income tax, it is a
tax preference item for purposes of the federal individual and corporate
'alternative minimum tax.' The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments or tax
preference items. Available returns on Alternative Minimum Tax Bonds acquired by
a Fund may be lower than those from other Municipal Obligations acquired by a
Fund due to the possibility of federal, state and local alternative minimum or
minimum income tax liability on Alternative Minimum Tax Bonds. At present, the
Fixed Income Fund does not intend to purchase Alternative Minimum Tax Bonds.
VARIABLE RATE AND MASTER DEMAND NOTES. Municipal Obligations purchased by a
Fund may include variable rate and master demand notes issued by industrial
development authorities and other governmental entities. Variable rate demand
notes are tax-exempt Municipal Obligations that provide for a periodic
adjustment in the interest rate paid on the notes. Master demand notes are
tax-exempt Municipal Obligations that provide for
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a periodic adjustment in the interest rate paid (usually tied to the Treasury
Bill auction rate) and permit daily changes in the amount borrowed. While there
may be no active secondary market with respect to a particular variable rate or
master demand note purchased by a Fund, the Fund may, upon the notice specified
in the note, demand payment of the principal and accrued interest on the note at
any time and may resell the note at any time to a third party. The absence of
such an active secondary market, however, could make it difficult for the Fund
to dispose of the variable rate or master demand note involved in the event the
issuer of the note defaulted on its payment obligations, and a Fund could, for
this or other reasons, suffer a loss to the extent of the default plus any
expenses involved in an attempt to recover the investment.
STAND-BY COMMITMENTS. The Fixed Income Fund and the New York Municipal Fund
may acquire stand-by commitments with respect to Municipal Obligations held in
their respective portfolios. Under a stand-by commitment, which is commonly
known as a 'put', a dealer agrees to purchase, at a Fund's option, specified
Municipal Obligations at a specified price. A Fund may pay for stand-by
commitments either separately in cash or by paying a higher price for the
securities acquired with the commitment, thus increasing the cost of the
securities and reducing the yield otherwise available from them, and will be
valued at zero in determining the Fund's net asset value. A stand-by commitment
is not transferable by a Fund, although the Fund can sell the underlying
Municipal Obligations to a third party at any time. The principal risk of
stand-by commitments is that the writer of a commitment may default on its
obligation to repurchase the securities acquired with it. The Funds intend to
enter into stand-by commitments only with brokers, dealers and banks that, in
the opinion of Warburg, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Warburg will
periodically review relevant financial information concerning the issuer's
assets, liabilities and contingent claims. The Funds will acquire stand-by
commitments only in order to facilitate portfolio liquidity and do not intend to
exercise their rights under stand-by commitments for trading purposes.
STRATEGY AVAILABLE TO THE INTERMEDIATE GOVERNMENT FUND
GOVERNMENT ZERO COUPON SECURITIES. The Intermediate Government Fund may
invest in (i) Government Securities that have been stripped of their unmatured
interest coupons, (ii) the coupons themselves and (iii) receipts or certificates
representing interests in stripped Government Securities and coupons
(collectively referred to as 'Government zero coupon securities'). The market
value of Government zero coupon securities that are considered Government
Securities is used for purposes of determining whether at least 65% of the
Intermediate Government Fund's total assets is invested in Government
Securities. However, receipts or certificates which are underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain notes or bonds
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issued by the U.S. government, its agencies, authorities or instrumentalities
will not be considered Government Securities for purposes of the 65% test. For a
description of zero coupon securities and the tax and other considerations
associated with investing in them, see 'Zero Coupon Securities' above and
'Dividends, Distributions and Taxes -- Taxes' below.
INVESTMENT GUIDELINES
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Each Fund may each invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) with respect to each Fund other than the Intermediate Government Fund,
time deposits maturing in more than seven calendar days; and (iv) certain Rule
144A Securities. Although the Fixed Income Fund and the Global Fixed Income Fund
may each invest up to 10% of its net assets in warrants, neither Fund currently
intends to invest in warrants. Each Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, in an
amount up to 30% of its total assets and may pledge assets to the extent
necessary to secure permitted borrowings. Whenever borrowings (including reverse
repurchase agreements) exceed 5% of the value of a Fund's total assets, the Fund
will not make any investments (including roll-overs). Except for the limitations
on borrowing, the investment guidelines set forth in this paragraph may be
changed at any time without shareholder consent by vote of the 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
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INVESTMENT ADVISER. Each Fund employs Warburg as its investment adviser.
Warburg, subject to the control of each Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Funds in accordance with
each Fund's investment objective and stated investment policies. Warburg makes
investment decisions for each Fund and places orders to purchase or sell
securities on behalf of each such Fund. Warburg also employs a support staff of
management personnel to provide services to the Funds and also furnishes the
Funds with office space, furnishings and equipment.
For the services provided by Warburg, the Fixed Income Fund, the Global Fixed
Income Fund, the Intermediate Government Fund and the New York Municipal Fund
pay Warburg a fee calculated at an annual rate of .50%, 1.00%, .50% and .40%,
respectively, of the Fund's average daily net assets. Warburg and each Fund's
co-administrators may voluntarily waive a portion
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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 January 31,
1997, Warburg managed approximately $17.9 billion of assets, including
approximately $10.7 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership, which itself is controlled by
Warburg, Pincus & Co. ('WP&Co.'), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
PORTFOLIO MANAGERS. Dale C. Christensen is a co-portfolio manager and
president of each of the Funds. Mr. Christensen is a managing director of
Warburg and has been associated with Warburg since 1989, before which time he
was a senior vice president at Citibank, N.A. He has been with each Fund since
January 1992. M. Anthony E. van Daalen is a co-portfolio manager of the Fixed
Income and Intermediate Government Funds. Mr. van Daalen is a senior vice
president of Warburg and has been associated with Warburg since 1992, prior to
which time he was an assistant vice president at Citibank, N.A. Laxmi C.
Bhandari, also a senior vice president of Warburg, is a co-portfolio manager of
the Global Fixed Income Fund. Mr. Bhandari has been a co-portfolio manager of
the Global Fixed Income Fund since joining Warburg in 1993, before which time he
was a vice president at the Paribas Corporation. Sharon B. Parente is a
co-portfolio manager of the New York Municipal Fund. Ms. Parente is a senior
vice president of Warburg and has been a co-portfolio manager of the New York
Municipal Fund since joining Warburg in 1992, before which time she was a vice
president at Citibank, N.A.
CO-ADMINISTRATORS. Each Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds, including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between each Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the governing Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and monitoring and developing compliance procedures
for the Funds. As compensation, each Fund pays Counsellors Service a fee
calculated at an annual rate of .10% of the Fund's average daily net assets.
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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 each Fund and assists in
related aspects of the Fund's operations. As compensation each of the Fixed
Income, Intermediate Maturity Government and New York Municipal Funds pays PFPC
a fee calculated at an annual rate of .05% of its average daily net assets,
subject in each case to a minimum annual fee and exclusive of out-of-pocket
expenses. As compensation the Global Fixed Income Fund pays PFPC a fee
calculated at an annual rate of .12% of its 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 to a minimum annual fee and exclusive of out-
of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
assets of each of the Funds. Fiduciary Trust Company International ('Fiduciary')
also serves as custodian of the Global Fixed Income Fund's assets. Like PFPC,
PNC is a subsidiary of PNC Bank Corp. and its principal business address is
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101. Fiduciary's
principal business address is Two World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') acts as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Funds. It has delegated to Boston Financial Data Services, Inc. ('BFDS'), a
50%-owned subsidiary, responsibility for most shareholder servicing functions.
State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as
distributor of the shares of the Funds. Counsellors Securities is a wholly owned
subsidiary of Warburg and is located at 466 Lexington Avenue, New York, New York
10017-3147.
Warburg or its affiliates may, at their own expense, provide promotional
incentives 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/Trustees
and officers of each Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information of each Fund.
HOW TO PURCHASE SHARES
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Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Funds reserve the right to make Advisor Shares
available to other investors in the future. References in this Prospectus
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to shareholders or investors are generally to Institutions as the record holders
of the Advisor Shares.
Each Institution separately determines the rules applicable to its customers
investing in a Fund, including minimum initial and subsequent investment
requirements and the procedures to be followed to effect purchases, redemptions
and exchanges of Advisor Shares. There is no minimum amount of initial or
subsequent purchases of Advisor Shares imposed on Institutions, although the
Funds reserve the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and sending
payment by wire. After telephoning (800) 369-2728 for instructions, an
Institution should then wire federal funds to Counsellors Securities 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 Advisor
Fund name(s) here]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application has
been received in proper form, and an account number has been established. If a
telephone order is received by the close of regular trading on the New York
Stock Exchange ('NYSE') (currently 4:00 p.m., Eastern time) and payment by wire
is received on the same day in proper form in accordance with instructions set
forth above, the shares will be priced according to the net asset value of the
Fund on that day and are entitled to dividends and distributions beginning on
that day. If payment by wire is received in proper form by the close of the NYSE
without a prior telephone order, the purchase will be priced according to the
net asset value of the relevant Fund on that day and is entitled to dividends
and distributions beginning on that day. However, if a wire in proper form that
is not preceded by a telephone order is received after the close of regular
trading on the NYSE, the payment will be held uninvested until the order is
effected at the close of business on the next business day. Payment for orders
that are not accepted will be returned after prompt inquiry. Certain
organizations or Institutions that have entered into agreements with a Fund or
its agent may enter confirmed purchase orders on behalf of customers, with
payment to follow no later than three business days following the day the order
is
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effected. If payment is not received by such time, the organization could be
held liable for resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the relevant Fund or its agent and should clearly indicate the
investor's account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Funds understand that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients or customers that
invest in a Fund, which are in addition to or different than those described in
this Prospectus, and may charge their clients or customers direct fees. Certain
features of a Fund, such as the initial and subsequent investment minimums,
redemption fees and certain trading restrictions, may be modified or waived in
these programs, and administrative charges may be imposed for the services
rendered. Therefore, a client or customer should contact the organization acting
on his behalf concerning the fees (if any) charged in connection with a purchase
or redemption of Fund shares and should read this Prospectus in light of the
terms governing his account with the organization.
GENERAL. Each Fund reserves the right to reject any specific purchase order.
A Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective. In such event, however, it is anticipated
that existing shareholders would be permitted to continue to authorize
investment in the Fund and to reinvest any dividends or capital gains
distributions.
HOW TO REDEEM AND EXCHANGE SHARES
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REDEMPTION OF SHARES. An investor of a Fund may redeem (sell) shares on any
day that the Fund's net asset value is calculated (see 'Net Asset Value' below).
Requests for the redemption (or exchange) of Advisor Shares are placed with an
Institution by its customers, which is then responsible for the prompt
transmission of this request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 369-2728 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. An investor making a telephone withdrawal should state (i) the
name of the Fund, (ii) the account number of the Fund, (iii) the name of the
investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn and
(v) the name of the person requesting the redemption.
After receipt of the redemption request the redemption proceeds will be wired
to the investor's bank as indicated in the account application previously filled
out by the investor. The Funds do not currently impose a service charge for
effecting wire transfers but reserve the right to do so in the future. During
periods of significant economic or market change, telephone
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redemptions may be difficult to implement. If an investor is unable to contact
Warburg Pincus Advisor Funds by telephone, an investor may deliver the
redemption request to Warburg Pincus Advisor Funds by mail at Warburg Pincus
Advisor Funds, P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received by a Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect a Fund, it
reserves the right to pay the redemption proceeds within seven days after the
redemption order is effected. Furthermore, a Fund may suspend the right of
redemption or postpone the date of payment upon redemption (as well as suspend
or postpone the recordation of an exchange of shares) for such periods as are
permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of a Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds or its agent prior to the close of regular trading on the
NYSE, the exchange will be made at each fund's net asset value determined at the
end of that business day. Exchanges may be effected without a sales charge. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
The exchange privilege is available to shareholders residing in any state in
which Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of a Fund for Advisor Shares in another Warburg Pincus Advisor Fund
should review the prospectus of the other fund prior to making an exchange. For
further information regarding the exchange privilege or to obtain a current
prospectus for another Warburg Pincus Advisor Fund, an investor should contact
Warburg Pincus Advisor Funds at (800) 369-2728.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and
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dividends earned on the Fund's portfolio securities for the applicable period
(which includes amortization of market discount) less amortization of market
premium and applicable expenses. The Fixed Income Fund, the Intermediate
Government Fund and the New York Municipal Fund each declares its dividends from
its net investment income daily and pays those dividends monthly in the calendar
year in which they are declared. The Global Fixed Income Fund declares dividends
from its net investment income quarterly. Net investment income earned on
weekends and when the NYSE is not opened will be computed as of the next
business day. Distributions of net realized long-term and short-term capital
gains are declared annually and will be paid in the calendar year in which they
are declared, generally in November or December. Unless an investor instructs a
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the relevant Fund at
net asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Advisor Funds
at the address set forth under 'How to Open an Account' or by calling Warburg
Pincus Advisor Funds at (800) 369-2728. Dividends are determined in the same
manner and are paid in the same amount for each Fund share, except that Advisor
Shares bear all the expense of fees paid to certain service organizations. See
'Shareholder Servicing.' As a result, at any given time, the average annual
total return on Advisor Shares will be lower than the average annual total
return on Common Shares.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
Special Distribution Matters Relating to the New York Municipal Fund. If, for
any full fiscal year, the New York Municipal Fund's total distributions exceed
net investment income and net realized capital gains, the excess distributions
may be treated as a taxable dividend or a tax-free return of capital (up to the
amount of the shareholder's tax basis in his shares). The amount treated as a
tax-free return of capital will reduce a shareholder's adjusted basis in his
shares. Pursuant to the requirements of the 1940 Act and other applicable laws,
a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net realized capital gains, such distributions may
have the effect of decreasing the Fund's total assets, which may increase the
Fund's expense ratio.
TAXES. Each Fund intends to continue to qualify each year as a 'regulated
investment company' within the meaning of the Code. Each Fund, if it qualifies
as a regulated investment company, will be subject to a 4% non-deductible excise
tax measured with respect to certain undistributed amounts of ordinary income
and capital gain. Each Fund expects to pay such
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additional dividends and to make such additional distributions as are necessary
to avoid the application of this tax.
The investments by the Funds in zero coupon securities may create special tax
consequences. Zero coupon securities do not make interest payments, although a
portion of the difference between a zero coupon security's maturity value and
its purchase price is imputed as income to the Funds each year even though the
Funds receive no cash distribution until maturity. Under the U.S. federal tax
laws applicable to mutual funds, the Funds will not be subject to tax on this
income if they pay dividends to their shareholders substantially equal to all
the income received from, or imputed with respect to, their investments during
the year, including their zero coupon securities. These dividends ordinarily
will constitute taxable income to the shareholders of the Funds.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long the
shareholder has held Fund shares and whether received in cash or reinvested in
additional Fund shares. As a general rule, an investor's gain or loss on a sale
or redemption of his Fund shares will be a long-term capital gain or loss if he
has held his shares for more than one year and will be a short-term capital gain
or loss if he has held his shares for one year or less. However, any loss
realized upon the sale or redemption of shares within six months from the date
of their purchase will be treated as a long-term capital loss to the extent of
any amounts treated as distributions of long-term capital gain during such
six-month period with respect to such shares. In the case of the New York
Municipal Fund, any loss realized by a shareholder on the sale or redemption of
a Fund share held by the shareholder for six months or less will be disallowed
to the extent of the amount of any exempt-interest dividend received by the
shareholder with respect to such share. The portion of such loss not disallowed
as described in the preceding sentence shall be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions or
deemed distributions of long-term capital gains received by the shareholder with
respect to such share. An investor in the New York Municipal Fund who redeems
his shares prior to the declaration of a dividend may lose tax-exempt status on
accrued income attributable to tax-exempt Municipal Obligations. 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 may qualify for the dividends received
deduction for corporations to the extent they are derived from dividends
attributable to certain types of stock issued by U.S. domestic corporations.
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Dividends and interest received by a Fund with respect to its foreign
investments may be subject to withholding and other taxes imposed by foreign
countries. However, tax conventions between certain countries and the United
States may reduce or eliminate such taxes. If either of the Fixed Income Fund or
the Global Fixed Income Fund qualifies as a regulated investment company, if
certain asset and distribution requirements are satisfied and if more than 50%
of the respective Fund's total assets at the close of its fiscal year consists
of stock or securities of foreign corporations, that Fund may elect for U.S.
income tax purposes to treat foreign income taxes paid by it as paid by its
shareholders. The Fixed Income Fund or the Global Fixed Income Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. As a result, shareholders of the Fund would be required to include their
pro rata portions of such foreign taxes in computing their taxable incomes and
then treat an amount equal to those foreign taxes as a U.S. federal income tax
deduction or as a foreign tax credit against their U.S. federal income taxes.
Shortly after any year for which it makes such an election, each Fund will
report to its shareholders the amount per share of such foreign tax that must be
included in each shareholder's gross income and the amount which will be
available for the deduction or credit. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Certain limitations
will be imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Special Tax Matters Relating to the Intermediate Government Fund. Investors
in the Intermediate Government Fund do not have to pay state and local income
taxes with respect to interest income on most types of Government Securities if
the investors are the tax owners of these Government Securities. Furthermore,
some states, if certain requirements are satisfied, permit investors to treat
the portion of their regulated investment company dividends that is attributable
to interest income on these Government Securities as tax-exempt income for state
or local income tax purposes. Other states treat all of these dividends as
subject to state and local income taxation. Investors in the Fund should consult
their own tax advisers to assess the consequences of investing in the Fund under
state and local laws generally and to determine whether dividends paid by the
Fund that represent interest derived from Government Securities are exempt from
any applicable state or local taxes.
Special Tax Matters Relating to the New York Municipal Fund and the Fixed
Income Fund. As a regulated investment company, the New York Municipal Fund will
designate and pay exempt-interest dividends derived from interest earned on
qualifying Municipal Obligations. Such exempt-interest dividends may be excluded
by investors of the Fund from their gross income for federal income tax purposes
although (i) all or a portion of such exempt-interest dividends will be a
specific tax-preference item for purposes of the federal individual and
corporate alternative minimum taxes to the extent they are
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derived from certain types of private activity bonds issued after August 7, 1986
and (ii) all exempt-interest dividends will be a component of the 'current
earnings' adjustment item for purposes of the federal corporate alternative
minimum tax. Moreover, dividends paid by the Fund will be subject to a branch
profits tax of up to 30% when received by certain foreign corporate investors.
Dividends derived from interest on qualifying New York Municipal Obligations
will be exempt from New York State and New York City personal income (but not
corporate franchise) taxes.
The Fixed Income Fund does not expect to meet the tax requirements that would
enable it to pay exempt-interest dividends with respect to income derived from
its holdings of Municipal Obligations.
Special Tax Matters Relating to the Fixed Income Fund, the Global Fixed
Income Fund and the Intermediate Government 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 close
the short sale. The Fund's use of short sales may also affect the holding
periods of certain securities held by the Fund if such securities are
'substantially identical' to securities used by the Fund to close the short
sale. The Fund's short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. In the case of the New York Municipal Fund,
these statements set forth the dollar amount of income excluded or exempt from
federal income or New York State and New York City personal income taxes and the
dollar amount, if any, subject to federal taxation. These statements also
designate the amount of exempt-interest dividends that is a specific preference
item for purposes of the federal individual and corporate alternative minimum
taxes. Each investor will also receive, if applicable, various written notices
after the close of a Fund's prior taxable year with respect to certain dividends
and distributions which were received from the Fund during the Fund's prior
taxable year. Investors should consult their own tax advisers with specific
reference to their own tax situations, including their state and local tax
liabilities.
NET ASSET VALUE
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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.
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The net asset value per Advisor Share of each Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Board determines that
using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
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Each Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading Warburg Pincus Advisor Funds. From
time to time, each Fund may advertise yield and average annual total return of
its Advisor Shares over various periods of time. The yield of a Fund refers to
net investment income generated by the Advisor Shares over a specified
thirty-day period, which is then annualized. That is, the amount of net
investment income generated by the Advisor Shares during that thirty-day period
is assumed to be generated over a 12-month period and is shown as a percentage
of the investment. In addition, advertisements concerning the Intermediate
Government Fund and the New York Municipal Fund may describe a tax equivalent
yield. The tax equivalent yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Advisor Shares' tax-free
yield. It is calculated by increasing the yield shown for the Advisor Shares to
the extent necessary to reflect the payment of specified tax rates. Thus, the
tax equivalent yield will always exceed a Fund's yield. Total return figures
show the average percentage change in value of an investment in the Advisor
Shares from the beginning of the measuring period to the end of the measuring
period. The figures reflect changes in the price of the Advisor Shares assuming
that any income dividends and/or capital gain distributions made by the Fund
during the period were reinvested in Advisor Shares of the Fund. Total return
will be shown for recent one-, five- and ten-year periods, and may be shown for
other periods as well (such as from commencement of the Fund's operations or on
a year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that a Fund's annual total return for one year in
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the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that each Fund seeks long-term appreciation and
that such return may not be representative of any Fund's return over a longer
market cycle. Each Fund may also advertise aggregate total return figures of its
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in the Fund's share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that yield, tax-equivalent yield and total return
figures are based on historical earnings and are not intended to indicate future
performance. The Funds' Statement of Additional Information describes the method
used to determine the yield and total return. Current performance figures may be
obtained by calling Warburg Pincus Funds at (800) 369-2728.
In reports or other communications to investors or in advertising material, a
Fund may describe general economic and market conditions affecting the Fund and
may compare its performance with (i) that of other mutual funds as listed in the
rankings prepared by Lipper Analytical Services, Inc. or similar investment
services that monitor the performance of mutual funds or as set forth in the
publications listed below; (ii) in the case of the Fixed Income Fund, with the
Lehman Bond Index (an unmanaged index of government and corporate bonds
calculated by Lehman Brothers); in the case of the Global Fixed Income Fund,
with the J.P. Morgan Traded Index (an index of non-U.S. dollar bonds of ten
countries with active bond markets), the Salomon Brothers World Government Bond
Index (a hedged, market-capitalization weighted index designed to track major
government debt markets) and the Lipper General World Income Average (an average
of funds that invest primarily in non-U.S. dollar and U.S. dollar debt
instruments); in the case of the Intermediate Government Fund, with the Lehman
Intermediate Government Bond Index (an unmanaged index of government bonds
calculated by Lehman Brothers); and in the case of the New York Municipal Fund,
with the Bond Buyer Index (the 'BBI') (an unmanaged index of 20 General
Obligation issues of 20-year maturity from various municipalities across the
nation published by the American Banker) and the Lipper New York Intermediate
Municipal Debt Funds Average (an unmanaged index of 61 Intermediate Municipal
Debt Funds calculated by Lipper Analytical Services); or (iii) other appropriate
indexes of investment securities or with data developed by Warburg derived from
such indexes. The Fund may also include evaluations of each Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Barron's, Business Week, Financial Times, Forbes,
Fortune, Inc., Institutional
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Investor, Investor's Business Daily, Money, Morningstar, Inc., Mutual Fund
Magazine, SmartMoney and The Wall Street Journal.
In reports or other communications to investors or in advertising, each Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings 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 securities of a portfolio otherwise composed of
domestic securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various periods of time. In addition, each Fund may
from time to time compare its expense ratio to that of investment companies with
similar objectives and policies, based on data generated by Lipper Analytical
Services, Inc. or similar investment services that monitor mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Fixed Income Fund and the New York Municipal Fund were
organized under the laws of The Commonwealth of Massachusetts as Massachusetts
business trusts in 1987 and 1986, respectively. In 1992, these Funds changed
their names from 'Counsellors Fixed Income Fund' and 'Counsellors New York
Municipal Bond Fund' to 'Warburg, Pincus Fixed Income Fund' and 'Warburg, Pincus
New York Municipal Bond Fund,' respectively. On February 28, 1995, the New York
Municipal Fund changed its name to 'Warburg, Pincus New York Intermediate
Municipal Fund.' The Global Fixed Income Fund and the Intermediate Government
Fund were incorporated under the laws of the State of Maryland in 1990 and 1988,
respectively, under the names 'Counsellors Global Fixed Income Fund, Inc.' and
'Counsellors Intermediate Maturity Government Fund, Inc.,' respectively. On
October 27, 1995 and February 16, 1996, the Funds amended their respective
charters to change their names to 'Warburg, Pincus Global Fixed Income Fund,
Inc.' and 'Warburg, Pincus Intermediate Maturity Government Fund, Inc.'
The Agreement and Declaration of Trust of each of the Fixed Income Fund and
the New York Municipal Fund authorizes each Fund's Board to issue an unlimited
number of full and fractional shares of beneficial interest, $.001 par value per
share, of which one billion shares are classified as Common Shares and two
billion shares are classified as Advisor Shares. The charters of the Global
Fixed Income Fund and the Intermediate Government Fund authorize each Fund's
Board to issue three billion full and fractional shares of capital stock, $.001
par value per share, of which one billion shares are designated Common Shares
and two billion shares are designated Advisor Shares. Under
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each Fund's charter documents, the Board has the power to classify or reclassify
any unissued shares of the Fund into one or more additional classes by setting
or changing in any one or more respects their relative rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption. The Board of a Fund may similarly classify or
reclassify any class of its shares into one or more series and, without
shareholder approval, may increase the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. Each Fund offers a separate class of shares, the
Common Shares, directly to individuals pursuant to a separate prospectus. Shares
of each class represent equal pro rata interests in the respective Fund and
accrue dividends and calculate net asset value and performance quotations in the
same manner, except that Advisor Shares bear fees payable by the Fund to
Institutions for services they provide to the beneficial owners of such shares
and enjoy certain exclusive voting rights on matters relating to these fees.
Because of the higher fees paid by the Advisor Shares, the total return on such
shares can be expected to be lower than the total return on Common Shares.
Investors may obtain information concerning the Common Shares from their
investment professional or by calling Counsellors Securities at (800) 927-2874.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of the Global Fixed Income Fund or the
Intermediate Government Fund may be removed by the shareholders at any time by a
vote of a majority of the votes entitled to be cast for the election of
Directors. Investors of record of no less than two-thirds of the outstanding
shares of the Fixed Income Fund or the New York Municipal Fund may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. A meeting will be called for the purpose
of voting on the removal of a governing Board member at the written request of
holders of 10% of the outstanding shares of a Fund. Lionel I. Pincus may be
deemed to be a controlling person of each Fund because he may be deemed to
possess or share investment power over shares owned by clients of Warburg.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions). Each Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement
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of the performance of the Fund. Periodic listings of the investment securities
held by a Fund, as well as certain statistical characteristics of the Fund, may
be obtained by calling Warburg Pincus Advisor Funds at (800) 369-2728. Each
Institution that is the record owner of Advisor Shares on behalf of its
customers will send a statement to those customers periodically showing their
indirect interest in Advisor Shares, as well as providing other information
about the Fund. See 'Shareholder Servicing.'
The 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
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Each Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to them (together, 'Service
Organizations') will enter into agreements ('Agreements') with a Fund and/or
Counsellors Securities pursuant to a Distribution Plan as described below. Such
entities may provide certain distribution, shareholder servicing, administrative
and/or accounting services for its Customers. Distribution services would be
marketing or other services in connection with the promotion and sale of Advisor
Shares. Shareholder services that may be provided include responding to Customer
inquiries, providing information on Customer investments and providing other
shareholder liaison services. Administrative and accounting services related to
the sale of Advisor Shares may include (i) aggregating and processing purchase
and redemption requests from Customers and placing net purchase and redemption
orders with the Fund's transfer agent, (ii) processing dividend payments from
the Fund on behalf of Customers and (iii) providing sub-accounting related to
the sale of Advisor Shares beneficially owned by Customers or the information to
the Fund necessary for sub-accounting. Each Board has approved a Distribution
Plan (the 'Plan') pursuant to Rule 12b-1 under the 1940 Act under which each
participating Service Organization will be paid, out of the assets of the Fund
(either directly or by Counsellors Securities on behalf of the Fund), a
negotiated fee on an annual basis not to exceed .75% (up to a .25% annual
shareholder services fee and a .50% annual distribution and/or administrative
services fee) of the value of the average daily net assets of its Customers
invested in Advisor Shares. The current 12b-1 fee is .25% per annum for the
Fixed Income, Intermediate Government and New York Municipal Funds and .50% per
annum for the Global Fixed Income Fund. The Boards evaluate the appropriateness
of the Plans on a continuing basis and in doing so consider all relevant
factors.
To offset start-up costs and expenses associated with certain qualified
retirement plans making Advisor Shares available to plan participants,
Counsellors Securities may pay CIGNA Financial Advisors, Inc., a registered
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broker-dealer which is the broker of record for Connecticut General Life
Insurance Company, a one-time fee of .25% of the average aggregate account
balances of plan participants during the first year of implementation.
Warburg, Counsellors Securities or their affiliates may, from time to time,
at their own expense, provide compensation to Service Organizations. To the
extent they do so, such compensation does not represent an additional expense to
the Fund or its shareholders. In addition, Warburg, Counsellors Securities or
their affiliates may, from time to time, at their own expense, pay certain Fund
transfer agent fees and expenses related to accounts of Customers. A Service
Organization may use a portion of the fees paid pursuant to a Plan to compensate
the Fund's custodian or transfer agent for costs related to accounts of its
Customers.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ANY FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 5
Portfolio Investments................................................... 8
Risk Factors and Special Considerations................................. 12
Portfolio Transactions and Turnover Rate................................ 15
Certain Investment Strategies........................................... 16
Investment Guidelines................................................... 25
Management of the Funds................................................. 25
How to Purchase Shares.................................................. 27
How to Redeem and Exchange Shares....................................... 29
Dividends, Distributions and Taxes...................................... 30
Net Asset Value......................................................... 34
Performance............................................................. 35
General Information..................................................... 37
Shareholder Servicing................................................... 39
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADBDF-1-0297
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STATEMENT OF ADDITIONAL INFORMATION
February 11, 1997
WARBURG PINCUS FIXED INCOME FUND
WARBURG PINCUS GLOBAL FIXED INCOME FUND
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call 800-WARBURG
CONTENTS
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Investment Objectives........................................................................2
Investment Policies..........................................................................2
Special Considerations Relating to New York Municipal Obligations...........................36
Management of the Funds.....................................................................49
Additional Purchase and Redemption Information..............................................58
Exchange Privilege..........................................................................58
Additional Information Concerning Taxes.....................................................59
Determination of Performance................................................................65
Independent Accountants and Counsel.........................................................67
Miscellaneous...............................................................................67
Financial Statements........................................................................68
Appendix - Description of Ratings..........................................................A-1
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg Pincus
Fixed Income Fund (the "Fixed Income Fund"), Warburg Pincus Intermediate
Maturity Government Fund (the "Intermediate Maturity Government Fund"),
Warburg Pincus New York Intermediate Municipal Fund (the "New York Municipal
Fund") and Warburg Pincus Global Fixed Income Fund (the "Global Fixed Income
Fund") (each a "Fund" and collectively, the "Funds"), and with the Prospectus
for the Advisor Shares of the Funds, each dated February 11, 1997, as amended or
supplemented from time to time, and is incorporated by reference in its entirety
into those Prospectuses. Because this Statement of Additional Information is
not itself a prospectus, no investment in shares of the Fund should be made
solely upon the information contained herein. Copies of the Funds' Prospectuses
and information regarding each Fund's current performance may be obtained by
calling the Fund at (800) 927-2874. Information regarding the status of
shareholder accounts may also be obtained by calling a Fund at the same number
or by writing to the Fund, P.O. Box 9030, Boston, Massachusetts 02205-9030.
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INVESTMENT OBJECTIVES
The investment objectives of the Fixed Income Fund are to
generate high current income consistent with reasonable risk and, secondarily,
capital appreciation.
The investment objective of the Global Fixed Income Fund is to
maximize total investment return consistent with prudent investment management,
consisting of a combination of interest income, currency gains and capital
appreciation.
The investment objective of the Intermediate Maturity Government
Fund is to achieve as high a level of current income as is consistent with the
preservation of capital.
The investment objective of the New York Municipal Fund is to
maximize current interest income exempt from federal income tax and New York
State and New York City personal income taxes to the extent consistent with
prudent investment management and the preservation of capital.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objectives and policies in the Prospectuses.
Options, Futures and Currency Exchange Transactions
Securities Options. The Funds may write covered put and call
options on stock and debt securities and may purchase such options that are
traded on foreign and U.S. exchanges, as well as over-the-counter ("OTC").
A Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the options it has written. A put option embodies the right
of its purchaser to compel the writer of the option to purchase from the option
holder an underlying security at a specified price for a specified time period
or at a specified time. In contrast, a call option embodies the right of its
purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.
The principal reason for writing covered options on a security is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Fund as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Fund as a put or call writer retains the risk of a decline in the price of
the underlying security. The size of the premiums that a Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
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If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
In the case of options written by a Fund that are deemed covered
by virtue of the Fund's holding convertible or exchangeable preferred stock or
debt securities, the time required to convert or exchange and obtain physical
delivery of the underlying securities with respect to which the Fund has written
options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, a Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
Additional risks exist with respect to certain of the securities
for which a Fund may write covered call options. For example, if the Fund writes
covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Options written by a Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. A Fund may write (i) in-the-money call options
when Warburg, Pincus Counsellors, Inc., each Fund's investment adviser
("Warburg"), expects that the price of the underlying security will remain flat
or decline moderately during the option period, (ii) at-the-money call options
when Warburg expects that the price of the underlying security will remain flat
or advance moderately during the option period and (iii) out-of-the-money call
options when Warburg expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, the Fund will be required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing
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Corporation (the "Clearing Corporation") and of the securities exchange on which
the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by a Fund prior to the
exercise of options that it has purchased or written, respectively, of options
of the same series) in which the Fund may realize a profit or loss from the
sale. An option position may be closed out only where there exists a secondary
market for an option of the same series on a recognized securities exchange or
in the over-the-counter market. When a Fund has purchased an option and engages
in a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where a Fund has written an
option, it will realize a profit if the cost of the closing purchase transaction
is less than the premium received upon writing the original option and will
incur a loss if the cost of the closing purchase transaction exceeds the premium
received upon writing the original option. The Fund may engage in a closing
purchase transaction to realize a profit, to prevent an underlying security with
respect to which it has written an option from being called or put or, in the
case of a call option, to unfreeze an underlying security (thereby permitting
its sale or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of a Fund under an option it has written
would be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as a result of the transaction. So long as the
obligation of the Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice.
There is no assurance that sufficient trading interest will exist
to create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, a Fund's ability to
terminate options positions established in the over-the-counter market may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in over-the-counter transactions would fail to
meet their obligations to the Fund. The Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as determined
by Warburg, are considered to be investment grade. If, as a covered call option
writer, a Fund is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers
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the underlying security upon exercise. In either case, the Fund would continue
to be at market risk on the security and could face higher transaction costs,
including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that a Fund
and other clients of Warburg and certain of its affiliates may be considered to
be such a group. A securities exchange may order the liquidation of positions
found to be in violation of these limits and it may impose certain other
sanctions. These limits may restrict the number of options the Fund will be able
to purchase on a particular security.
Securities Index Options. A Fund may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Securities
index options may be based on a broad or narrow market index or on a particular
industry or market segment.
Options on securities indexes are similar to options on
securities except that (i) the expiration cycles of securities index options are
monthly, while those of securities options are currently quarterly, and (ii) the
delivery requirements are different. Instead of giving the right to take or make
delivery of securities at a specified price, an option on a securities index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the index and the exercise price of the option times a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Index options may be offset by entering into closing
transactions as described above for securities options.
OTC Options. A Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Fund were
to purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by a Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
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Listed options generally have a continuous liquid market while
dealer options have none. Consequently, a Fund will generally be able to realize
the value of a dealer option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when the Fund writes a dealer option,
it generally will be able to close out the option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which the
Fund originally wrote the option. Although the Fund will seek to enter into
dealer options only with dealers who will agree to and that are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option at a favorable
price at any time prior to expiration. The inability to enter into a closing
transaction may result in material losses to a Fund. Until the Fund, as a
covered OTC call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
to cover the written option until the option expires or is exercised. This
requirement may impair the Fund's ability to sell portfolio securities or, with
respect to currency options, currencies at a time when such sale might be
advantageous. In the event of insolvency of the other party, the Fund may be
unable to liquidate a dealer option.
Futures Activities. A Fund may enter into foreign currency,
interest rate and securities index futures contracts and purchase and write
(sell) related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return.
A Fund will not enter into futures contracts and related options
for which the aggregate initial margin and premiums (discussed below) required
to establish positions other than those considered to be "bona fide hedging" by
the CFTC exceed 5% of the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. Although a Fund is limited in the amount of assets it may invest in
futures transactions (as described above and in the Prospectuses), there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities. 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. (The Intermediate Maturity Government and New
York Municipal Funds may not engage in foreign currency futures transactions.) A
foreign currency futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified non-U.S.
currency at a specified price, date, time and place. An interest rate futures
contract provides for the future sale by one party and the purchase by the other
party of a certain amount of a specific interest rate sensitive financial
instrument (debt security) at a specified price, date, time and place.
Securities indexes are capitalization weighted indexes which
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reflect the market value of the securities listed on the indexes. A securities
index futures contract is an agreement to be settled by delivery of an amount of
cash equal to a specified multiplier times the difference between the value of
the index at the close of the last trading day on the contract and the price at
which the agreement is made.
No consideration is paid or received by a Fund upon entering into
a futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or liquid securities acceptable to
the broker equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if a Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." The Fund will also incur brokerage costs in connection with
entering into futures transactions.
At any time prior to the expiration of a futures contract, a Fund
may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist at
any particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting a Fund to substantial losses. In such event, and in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such situations, if the fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances
the Fund may realize a loss on a futures contract or option that is not offset
by an increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect the Fund's
performance.
Options on Futures Contracts. (The Intermediate Maturity
Government and New York Municipal Funds may not purchase or write options on
foreign currency.) A Fund may purchase and write put and call options on foreign
currency, interest rate and securities index futures contracts and may enter
into closing transactions with respect to such options to terminate existing
positions. There is
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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 securities index
futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time prior
to the expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of a
Fund.
Currency Exchange Transactions. (Fixed Income and Global Fixed
Income Funds only) The value in U.S. dollars of the assets of a Fund that are
invested in foreign securities may be affected favorably or unfavorably by
changes in exchange control regulations, and the Fund may incur costs in
connection with conversion between various currencies. Currency exchange
transactions may be from any non-U.S. currency into U.S. dollars or into other
appropriate currencies. A Fund will conduct its currency exchange transactions
(i) on a spot (i.e., cash) basis at the rate prevailing in the currency exchange
market, (ii) through entering into futures contracts or options on such
contracts (as described above), (iii) through entering into forward contracts to
purchase or sell currency or (iv) by purchasing and writing exchange-traded
currency options.
Forward Currency Contracts. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract as agreed upon by
the parties, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
At or before the maturity of a forward contract, a Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Fund retains the portfolio security and engages in
an offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
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Currency Options. A Fund may purchase and write exchange-traded
put and call options on foreign currencies. Put options convey the right to sell
the underlying currency at a price which is anticipated to be higher than the
spot price of the currency at the time the option is exercised. Call options
convey the right to buy the underlying currency at a price which is expected to
be lower than the spot price of the currency at the time the option is
exercised.
Currency Hedging. A Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. A Fund
may not position hedge to an extent greater than the aggregate market value (at
the time of entering into the hedge) of the hedged securities.
A decline in the U.S. dollar value of a foreign currency in which
a Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of securities it holds, a Fund may purchase currency put options.
If the value of the currency does decline, the Fund will have the right to sell
the currency for a fixed amount in dollars and will thereby offset, in whole or
in part, the adverse effect on the U.S. dollar value of its securities that
otherwise would have resulted. Conversely, if a rise in the U.S. dollar value of
a currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, a Fund may purchase
call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange
rates. The benefit to the Fund derived from purchases of currency options, like
the benefit derived from other types of options, will be reduced by premiums and
other transaction costs. Because transactions in currency exchange are generally
conducted on a principal basis, no fees or commissions are generally involved.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Although currency hedges limit the risk
of loss due to a decline in the value of a hedged currency, at the same time,
they also limit any potential gain that might result should the value of the
currency increase. If a devaluation is generally anticipated, the Fund may not
be able to contract to sell a currency at a price above the devaluation level it
anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of a Fund's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.
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Hedging. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, a Fund may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of its portfolio position.
A hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by a Fund, an
increase in the value of the futures contracts could only mitigate, but not
totally offset, the decline in the value of the Fund's assets.
In hedging transactions based on an index, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in the price of a particular security. The risk of imperfect
correlation increases as the composition of the Fund's portfolio varies from the
composition of the index. In an effort to compensate for imperfect correlation
of relative movements in the hedged position and the hedge, the Fund's hedge
positions may be in a greater or lesser dollar amount than the dollar amount of
the hedged position. Such "over hedging" or "under hedging" may adversely affect
a Fund's net investment results if market movements are not as anticipated when
the hedge is established. Securities index futures transactions may be subject
to additional correlation risks. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in an index and
movements in the price of index futures, a correct forecast of general market
trends by Warburg still may not result in a successful hedging transaction.
A Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to correctly predict
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect the
Fund's performance.
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Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. As described in the Prospectuses, a Fund will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Fund on securities, indexes and currencies; and currency, interest rate
and index futures contracts and options on these futures contracts. These
guidelines may, in certain instances, require segregation by the Fund of cash or
certain liquid securities that are acceptable as collateral to the appropriate
regulatory authority.
For example, a call option written by a Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
a Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures or forward contract, the Fund could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. The Fund may enter
into fully or partially offsetting transactions so that its net position,
coupled with any segregated assets (equal to any remaining obligation), equals
its net obligation. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.
Additional Information on Investment Practices
Foreign Investments. (Fixed Income and Global Fixed Income Funds
only) Investors should recognize that investing in foreign companies involves
certain risks, including those discussed below, which are not typically
associated with investing in United States issuers.
Foreign Currency Exchange. Since a Fund may invest in securities
denominated in currencies other than the U.S. dollar, and since the Fund may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, the Fund may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rate
between such currencies and the dollar. A change in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of the Fund assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholder by the Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. If particular
importance are rates of inflation, interest rate levels, the balance of
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payments and the extent of government surpluses or deficits in the United States
and the particular foreign country, all of which are in turn sensitive to the
monetary, fiscal and trade policies pursued by the governments of the United
States and other foreign countries important to international trade and finance.
Governmental intervention may also play a significant role. National governments
rarely voluntarily allow their currencies to float freely in response to
economic forces. Sovereign governments use a variety of techniques, such as
intervention by a country's central bank or imposition of regulatory controls or
taxes, to affect the exchange rates of their currencies. A Fund may use hedging
techniques with the objective of protecting against loss through the fluctuation
of the value of foreign currencies against the U.S. dollar, particularly the
forward market in foreign exchange, currency options and currency futures. See
"Currency Transactions" and "Futures Transactions" above.
Many of the foreign securities held by a Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information about
such securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign companies are
generally not subject to uniform financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies. In addition, with
respect to some foreign countries, there is the possibility of expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or domestic developments which could
affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments positions. A Fund may invest in securities of foreign
governments (or agencies or instrumentalities thereof), and many, if not all, of
the foregoing considerations apply to such investments as well.
Delays. Securities of some foreign companies are less liquid and
their prices more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
of a Fund to market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on Fund liquidity, the Fund
will avoid investing in countries which are known to experience settlement
delays which may expose the Fund to unreasonable risk of loss.
Increased Expenses. The operating expenses of a Fund, to the
extent it invests in foreign securities, may be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Fund, such as custodial costs, valuation costs and communication costs,
may be higher than those costs incurred by investment companies not investing in
foreign securities.
Foreign Debt Securities. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those countries
and the effect of gains and losses in the denominated currencies against the
U.S. dollar, which have had a substantial impact on investment in foreign fixed
income securities. The relative performance of various
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countries' fixed income markets historically has reflected wide variations
relating to the unique characteristics of each country's economy. Year-to-year
fluctuations in certain markets have been significant, and negative returns have
been experienced in various markets from time to time.
The foreign government securities in which a Fund may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated,
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
U.S. Government Securities. A Fund may invest in debt obligations
of varying maturities issued or guaranteed by the United States Government, its
agencies or instrumentalities ("U.S. government securities"). Direct obligations
of the U.S. Treasury include a variety of securities that differ in their
interest rates, maturities and dates of issuance. U.S. government securities
also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal
Land Banks, Federal National Mortgage Association ("FNMA"), Federal Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. A Fund may also invest in instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality. Because
the United States Government is not obligated by law to provide support to an
instrumentality it sponsors, the Fund will invest in obligations issued by such
an instrumentality only if Warburg determines that the credit risk with respect
to the instrumentality does not make its securities unsuitable for investment by
the Fund.
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Loan Participations and Assignments. A Fund may invest in fixed
and floating rate loans ("Loans") arranged through private negotiations between
a foreign government (a "Borrower") and one or more financial institutions
("Lenders"). The majority of the Fund's investments in Loans are expected to be
in the form of participations in Loans ("Participations") and assignments of
portions of Loans from third parties ("Assignments"). Participations typically
will result in the Fund having a contractual relationship only with the Lender,
not with the Borrower. A Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the Borrower. In connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the Borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the Borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund will assume the credit risk of both the Borrower and the Lender that is
selling the Participation. In the event of the insolvency of the Lender selling
a Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the Borrower. The Fund
will acquire Participations only if the Lender interpositioned between the Fund
and the Borrower is determined by Warburg to be creditworthy.
When a Fund purchases Assignments from Lenders, the Fund will
acquire direct rights against the Borrower on the Loan. However, since
Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Fund as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
There are risks involved in investing in Participations and
Assignments. A Fund may have difficulty disposing of them because there is no
liquid market for such securities. The lack of a liquid secondary market will
have an adverse impact on the value of such securities and on the Fund's ability
to dispose of particular Participations or Assignments when necessary to meet
the Fund's liquidity needs or in response to a specific economic event, such as
a deterioration in the creditworthiness of the Borrower. The lack of a liquid
market for Participations and Assignments also may make it more difficult for a
Fund to assign a value to these securities for purposes of valuing the Fund's
portfolio and calculating its net asset value.
Mortgaged-Backed Securities. A Fund may invest in mortgage-backed
securities, such as those issued by the GNMA, FNMA, FHLMC or certain foreign
issuers. Mortgage-backed securities represent direct or indirect participations
in, or are secured by and payable from, mortgage loans secured by real property.
The mortgages backing these securities include, among other mortgage
instruments, conventional 30-year fixed-rate mortgages, 15-year fixed-rate
mortgages, graduated payment mortgages and adjustable rate mortgages. The
government or the issuing agency typically guarantees the payment of interest
and principal of these securities. However, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Fund's shares. These securities generally are
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"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees.
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the Fund's
yield.
The rate of interest on mortgage-backed securities is lower than
the interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield to
the holder of such securities.
Municipal Obligations. (Fixed Income and New York Municipal Funds
only) Under normal circumstances, at least 80% of the Municipal Fund's assets
will be invested in "Municipal Obligations." Municipal Obligations are debt
obligations issued by or on behalf of states (including the state of New York),
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities.
Except for temporary defensive purposes, the New York Municipal
Fund will invest no less than 65% of its assets in intermediate and long term
obligations with interest which is excluded from gross income for federal income
tax purposes and which is exempt from New York State and New York City personal
income taxes ("New York Municipal Obligations") and intends to invest
substantially all of its assets in those obligations. New York Municipal
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Obligations include obligations issued by or on the behalf of the State of New
York, its political subdivisions, agencies and instrumentalities.
Municipal Obligations are issued by governmental entities to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Obligations if the interest paid thereon
is exempt from federal income tax.
The two principal types of Municipal Obligations, in terms of the
source of payment of debt service on the bonds, consist of "general obligation"
and "revenue" issues. General obligation bonds are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenues derived from a
particular facility or class of facilities or in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Consequently, the credit quality of revenue bonds is
usually directly related to the credit standing of the user of the facility
involved.
There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard & Poors
Ratings Services ("S&P") represent their opinions as to the quality of Municipal
Obligations. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and Municipal Obligations with the same
maturity, interest rate and rating may have different yields while Municipal
Obligations of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to its purchase by a Fund, an issue of Municipal
Obligations may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Fund's investment adviser will
consider such an event in determining whether the Fund should continue to hold
the obligation. See the Appendix attached hereto for further information
concerning the ratings of Moody's and S&P and their significance.
Among other instruments, a Fund may purchase short term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short term loans. Such notes are issued with a short term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
The yields on Municipal Obligations are dependent upon a variety
of factors, including general economic and monetary conditions, money market
factors, conditions of the municipal bond market, size of a particular offering,
maturity of the obligation offered and rating of the issue.
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Municipal Obligations are also subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. There
is also the possibility that as a result of litigation or other conditions, the
power or ability of any one or more issuers to pay, when due, principal of and
interest on its, or their, Municipal Obligations may be materially affected.
Securities of Other Investment Companies. A Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Fund's total assets and (iii)
when added to all other investment company securities held by the Fund, do not
exceed 10% of the value of the Fund's total assets.
Below Investment Grade Securities. (Fixed Income and Global Fixed
Income Funds only) A Fund may invest in fixed income securities rated below
investment grade and as low as C by Moody's or D by S&P, and in comparable
unrated securities. While the market values of medium and lower-rated securities
and unrated securities of comparable quality tend to react less to fluctuations
in interest rate levels than do those of higher-rated securities, the market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
Issuers of medium and lower-rated securities and unrated securities are often
highly leveraged and may not have more traditional methods of financing
available to them so that their ability to service their debt obligations during
an economic downturn or during sustained periods of rising interest rates may be
impaired. The risk of loss due to default by such issuers is significantly
greater because medium and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
The market for medium and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
A Fund may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the Fund
anticipates that these securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market for
these securities does exist, it generally is not as liquid as the secondary
market for higher-rated securities. The lack of a liquid secondary market, as
well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and the Fund's ability to
dispose of particular issues when necessary to meet the Fund's
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liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund and
calculating its net asset value.
The market value of securities in lower-rated categories is more
volatile than that of higher quality securities. Factors adversely impacting the
market value of these securities will adversely impact a Fund's net asset value.
A Fund will rely on the judgment, analysis and experience of Warburg in
evaluating the creditworthiness of an issuer. In this evaluation, Warburg will
take into consideration, among other things, the issuer's financial resources,
its sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. Normally, medium- and
lower-rated and comparable unrated securities are not intended for short-term
investment. The Fund may incur additional expenses to the extent it is required
to seek recovery upon a default in the payment of principal or interest on its
portfolio holdings of such securities. Recent adverse publicity regarding
lower-rated bonds may have depressed the prices for such securities to some
extent. Whether investor perceptions will continue to have a negative effect on
the price of such securities is uncertain.
Lending of Portfolio Securities. (Fixed Income and Intermediate
Maturity Government Funds only) A Fund may lend portfolio securities to brokers,
dealers and other financial organizations that meet capital and other credit
requirements or other criteria established by a Fund's Board of
Directors/Trustees (the "Board"). These loans, if and when made, may not exceed
20% of a Fund's total assets taken at value (30% in the case of the Intermediate
Maturity Government Fund). The Fund will not lend portfolio securities to
Warburg or its affiliates unless it has applied for and received specific
authority to do so from the SEC. Loans of portfolio securities will be
collateralized by cash, letters of credit or U.S. government securities, which
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Fund. From time to time, a Fund may return a part of the
interest earned from the investment of collateral received for securities loaned
to the borrower and/or a third party that is unaffiliated with the Fund and that
is acting as a "finder."
By lending its securities, a Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. The Fund will
adhere to the following conditions whenever its portfolio securities are loaned:
(i) the Fund must receive at least 100% cash collateral or equivalent securities
of the type discussed in the preceding paragraph from the borrower; (ii) the
borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (iii) the Fund must be able
to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
on the loaned securities and any increase in market value; (v) the Fund may pay
only reasonable custodian fees in connection with the loan; and (vi) voting
rights on the loaned securities may
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pass to the borrower, provided, however, that if a material event adversely
affecting the investment occurs, the Board of a Fund must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Fund's ability to recover the loaned securities
or dispose of the collateral for the loan.
Reverse Repurchase Agreements and Dollar Rolls. A Fund may enter
into reverse repurchase agreements with the same parties with whom it may enter
into repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by a Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or liquid
securities having a value not less than the repurchase price (including accrued
interest). The assets contained in the segregated account will be
marked-to-market daily and additional assets will be placed in such account on
any day in which the assets fall below the repurchase price (plus accrued
interest). The Fund's liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale may decline below the price of
the securities the Fund has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce a Fund's obligation
to repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
A Fund also may enter into "dollar rolls," in which the Fund
sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Fund would forego principal and interest paid on such securities. A
Fund would be compensated by the difference between the current sales price and
the forward price for the future purchase, as well as by the interest earned on
the cash proceeds of the initial sale. At the time the Fund enters into a dollar
roll transaction, it will place in a segregated account maintained with an
approved custodian cash or liquid securities having a value not less than the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that its value is maintained. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act.
Zero Coupon Securities. A Fund may invest in "zero coupon" U.S.
Treasury, foreign government and U.S. and foreign corporate convertible and
nonconvertible debt securities, which are bills, notes and bonds that have been
stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representation interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities that make current distributions of interest. The Fund
anticipates that it will not normally hold zero coupon securities to
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maturity. Federal tax law requires that a holder of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year, even though the holder receives no interest payment on the security
during the year. Such accrued discount will be includible in determining the
amount of dividends the Fund must pay each year and, in order to generate cash
necessary to pay such dividends, the Fund may liquidate portfolio securities at
a time when it would not otherwise have done so. At present, the U.S. Treasury
and certain U.S. agencies issue stripped Government Securities. In addition, in
the recent past, a number of banks and brokerage firms have separated the
principal portions from the coupon portions of U.S. Treasury bonds and notes and
sold them separately in the form of receipts or certificates representing
undivided interests in these instruments.
Short Sales. (Fixed Income, Global Fixed Income and Intermediate
Maturity Government Funds only) In a short sale, a Fund sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
If the Fund engages in a short sale, the collateral for the short position
will be maintained by the Fund's custodian or qualified sub-custodian. While the
short sale is open, the Fund will maintain in a segregated account an amount of
securities equal in value to the securities sold short.
While a short sale is made by selling a security a Fund does not
own, a short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. A Fund does not intend to engage in short sales
against the box for investment purposes. The Fund may, however, make a short
sale as a hedge, when it believes that the price of a security may decline,
causing a decline in the value of a security owned by the Fund (or a security
convertible or exchangeable for such security), or when the Fund wants to sell
the security at an attractive current price, but also wishes to defer
recognition of gain or loss for U.S. federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in the Fund's long
position should be offset by a gain in the short position and, conversely, any
gain in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Fund owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Fund will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.
Variable Rate and Master Demand Notes. (Fixed Income and New York
Municipal Funds only) Variable rate demand notes ("VRDNs") are obligations
issued by corporate or governmental entities which contain a floating or
variable interest rate adjustment formula and an unconditional right of demand
to receive payment of the unpaid principal balance plus accrued interest upon a
short notice period not to exceed seven days. The interest rates are adjustable
at intervals ranging from daily to up to every six months to some prevailing
market rate for similar investments, such adjustment formula being calculated to
maintain the market value of the VRDN at approximately the par value of the VRDN
upon the adjustment date. The adjustments are typically based upon the prime
rate of a bank or some other appropriate interest rate adjustment index.
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Master demand notes are notes which provide for a periodic
adjustment in the interest rate paid (usually tied to the Treasury Bill auction
rate) and permit daily changes in the principal amount borrowed. While there may
be no active secondary market with respect to a particular VRDN purchased by a
Fund, the Fund may, upon the notice specified in the note, demand payment of the
principal of and accrued interest on the note at any time and may resell the
note at any time to a third party. The absence of such an active secondary
market, however, could make it difficult for the Fund to dispose of the VRDN
involved in the event the issuer of the note defaulted on its payment
obligations, and the Fund could, for this or other reasons, suffer a loss to the
extent of the default.
When-Issued Securities and Delayed-Delivery Transactions. A Fund
may utilize its assets to purchase securities on a "when-issued" basis or
purchase or sell securities for delayed delivery (i.e., payment or delivery
occur beyond the normal settlement date at a stated price and yield).
When-issued transactions normally settle within 30-45 days. The Fund will enter
into a when-issued transaction for the purpose of acquiring portfolio securities
and not for the purpose of leverage, but may sell the securities before the
settlement date if Warburg deems it advantageous to do so. The payment
obligation and the interest rate that will be received on when-issued securities
are fixed at the time the buyer enters into the commitment. Due to fluctuations
in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the yields obtained on such securities may be higher or
lower than the yields available in the market on the dates when the investments
are actually delivered to the buyers.
When a Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or certain liquid securities that
are acceptable as collateral to the appropriate regulatory authority equal to
the amount of the commitment in a segregated account. Normally, the custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case the Fund may be required subsequently to place additional assets in
the segregated account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that the Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
a Fund engages in when-issued or delayed-delivery transactions, it relies on the
other party to consummate the trade. Failure of the seller to do so may result
in the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-By Commitment Agreements. (Fixed Income and New York
Municipal Funds only) A Fund may acquire "stand-by commitments" with respect to
securities held in its portfolio. Under a stand-by commitment, a dealer agrees
to purchase at the Fund's option specified securities at a specified price. The
Fund's right to exercise stand-by commitments is unconditional and unqualified.
Stand-by commitments acquired by the Fund may also be referred to as "put"
options. A stand-by commitment is not transferable by the Fund, although the
Fund can sell the underlying securities to a third party at any time.
The principal risk of stand-by commitments is that the writer of
a commitment may default on its obligation to repurchase the securities acquired
with it. A Fund intends to
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enter into stand-by commitments only with brokers, dealers and banks that, in
the opinion of Warburg, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Warburg will
periodically review relevant financial information concerning the issuer's
assets, liabilities and contingent claims. The Fund will acquire stand-by
commitments only in order to facilitate portfolio liquidity and does not intend
to exercise its rights under stand-by commitments for trading purposes.
The amount payable to a Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the securities
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.
A Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Fund's portfolio will
not exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.
A Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying securities. Stand-by commitments
acquired by the Fund would be valued at zero in determining net asset value.
Where the Fund paid any consideration directly or indirectly for a stand-by
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund. Stand-by commitments
would not affect the average weighted maturity of a Fund's portfolio.
The Internal Revenue Service has issued a revenue ruling to the
effect that a registered investment company will be treated for federal income
tax purposes as the owner of the Municipal Obligations acquired subject to a
stand-by commitment and the interest on the Municipal Obligations will be tax
exempt to a Fund.
American, European and Continental Depositary Receipts. (Fixed
Income and Global Fixed Income Funds only) A assets of a Fund may be invested in
the securities of foreign issuers in the form of American Depositary Receipts
("ADRs") and European Depositary Receipts ("EDRs"). These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by a U.S. bank or
trust company which evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), are receipts issued in Europe typically by
non-U.S. banks and trust companies that evidence ownership of either foreign or
domestic securities. Generally, ADRs in registered form are designed for use in
U.S. securities
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markets and EDRs and CDRs in bearer form are designed for use in European
securities markets.
Warrants. (Fixed Income and Global Fixed Income Funds only) A
Fund may purchase warrants issued by domestic and foreign companies to purchase
newly created equity securities consisting of common and preferred stock. The
equity security underlying a warrant is outstanding at the time the warrant is
issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit
or loss than an equivalent investment in the underlying security, and, thus, can
be a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
Non-Publicly Traded and Illiquid Securities. A Fund may not
invest more than 15% of its net assets in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market, repurchase agreements which have a maturity of longer
than seven days, VRDNs and master demand notes providing for settlement upon
more than seven days notice by the Fund, and time deposits maturing in more than
seven calendar days. Securities that have legal or contractual restrictions on
resale but have a readily available market are not considered illiquid for
purposes of this limitation. Repurchase agreements subject to demand are deemed
to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The
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fact that there are contractual or legal restrictions on resale to the general
public or to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted
by the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to a Fund's limit on the purchase of illiquid securities
unless the Fund's Board of Directors/Trustees or its delegates determines that
the Rule 144A Securities are liquid. In reaching liquidity decisions, Warburg
may consider, inter alia, the following factors: (i) the unregistered nature of
the security; (ii) the frequency of trades and quotes for the security; (iii)
the number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (iv) dealer undertakings to make a market in the
security; and (v) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Borrowing. A Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Fund's net assets.
Although the principal of such borrowings will be fixed, a Fund's assets may
change in value during the time the borrowing is outstanding. The Fund expects
that some of its borrowings may be made on a secured basis. In such situations,
either the custodian will segregate the pledged assets for the benefit of the
lender or arrangements will be made with a suitable subcustodian, which may
include the lender.
Non-Diversified Status. (Global Fixed Income and Municipal Funds
only) The Funds are classified as non-diversified within the meaning of the 1940
Act, which means that they are not limited by such Act in the proportion of its
assets that it may invest in securities of a single issuer. A Fund's investments
will be limited, however, in order to qualify as a "regulated investment
company" for purposes of the Code. See "Additional Information Concerning
Taxes." To qualify, a Fund will comply with certain requirements, including
limiting its investments so that at the close of each quarter of the taxable
year (i) not more than 25% of the market value of its total assets will be
invested in the securities of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer and the
Fund will not own more than 10% of the outstanding voting securities of a single
issuer.
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Taxable Investments. (New York Municipal Fund only) Because the
Fund's purpose is to provide income exempt from federal income tax and New York
State and New York City personal income tax, the Fund generally will invest in
taxable obligations only if and when the Fund's investment adviser believes it
would be in the best interests of the Fund's investors to do so. Situations in
which the Fund may invest up to 20% of its total assets in taxable securities
include: (i) pending investment of proceeds of sales of Fund shares or portfolio
securities or (ii) when the Fund requires highly liquid securities in order to
meet anticipated redemptions. The Fund may temporarily invest more than 20% of
its total assets in taxable securities to maintain a "defensive" posture when
the Fund's investment adviser determines that it is advisable to do so because
of adverse market conditions affecting the market for Municipal Obligations
generally.
Among the taxable investments in which the Fund may invest are
repurchase agreements and time deposits maturing in not more than seven days.
The Fund may engage in repurchase agreement transactions on U.S. government
securities with member banks of the Federal Reserve System or with certain
dealers listed on the Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. A repurchase agreement
is considered to be a loan under the 1940 Act. The value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
and the Fund is delayed or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the value
of the underlying securities during the period while the Fund seeks to assert
these rights. The Fund's investment adviser, acting under the supervision of the
Board, reviews on an ongoing basis, the creditworthiness and the values of the
collateral of those banks and dealers with which the Fund enters into repurchase
agreements to evaluate potential risks.
Other Investment Limitations
Fixed Income Fund. The investment limitations numbered 1 through
12 may not be changed without the affirmative vote of the holders of a majority
of the Fixed Income Fund's outstanding shares. Such majority is defined as the
lesser of (i) 67% or more of the shares present at the meeting, if the holders
of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.
Investment limitations 13 through 15 may be changed by a vote of the Board at
any time.
The Fixed Income Fund may not:
1. Borrow money except that the Fund may (i) borrow from banks
for temporary or emergency purposes, and (ii) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the
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value of the Fund's total assets. For purposes of this restriction, short sales,
the entry into currency transactions, options, futures contracts, options on
futures contracts, forward commitment transactions and dollar roll transactions
that are not accounted for as financings (and the segregation of assets in
connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Make loans except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities; lend portfolio securities; and enter into repurchase
agreements.
4. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs or oil, gas and mineral leases, except that
the Fund may invest in (a) securities secured by real estate, mortgages or
interests therein and (b) securities of companies that invest in or sponsor oil,
gas or mineral exploration or development programs.
6. Make short sales of securities or maintain a short position,
except the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and make short sales
"against the box."
7. Purchase more than 10% of the voting securities of any one
issuer; provided that this limitation shall not apply to investments in U.S.
government securities.
8. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
9. Invest in commodities, except that the Fund may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
10. Issue any senior security except as permitted in these
Investment Restrictions.
11. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that
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this 5% limitation does not apply to U.S. government securities and except that
up to 25% of the value of the Fund's total assets may be invested without regard
to this 5% limitation.
12. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange or as otherwise permitted under the 1940 Act.
13. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
14. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, (a) repurchase agreements with maturities
greater than seven days, (b) VRDNs and master demand notes providing for
settlement upon more than seven days notice by the Fund and (c) time deposits
maturing in more than seven calendar days shall be considered illiquid
securities.
15. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
Global Fixed Income Fund. The investment limitations numbered 1
through 10 may not be changed without the affirmative vote of the holders of a
majority (as defined above) of the Global Fixed Income Fund's outstanding
shares. Investment limitations 11 through 13 may be changed by a vote of the
Board at any time.
The Global Fixed Income Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
government securities.
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3. Make loans, except that the Fund may purchase or hold
fixed-income securities, including loan participations and assignments and
structured securities; lend portfolio securities; and enter into repurchase
agreements.
4. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
5. Purchase or sell real estate or invest in real estate limited
partnerships, oil, gas or mineral exploration or development programs or oil,
gas and mineral leases, except that the Fund may invest in (a) securities
secured by real estate, mortgages or interests therein and (b) securities of
companies that invest in or sponsor oil, gas or mineral exploration or
development programs.
6. Make short sales of securities or maintain a short position,
except the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and make short sales
"against the box."
7. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
8. Invest in commodities, except that the Fund may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
9. Issue any senior security except as permitted in these
Investment Restrictions.
10. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
12. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation,
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repurchase agreements with maturities greater than seven days shall be
considered illiquid securities.
13. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
Intermediate Maturity Government Fund. The investment limitations
numbered 1 through 12 may not be changed without the affirmative vote of the
holders of a majority (as defined above) of the Government Fund's outstanding
shares. Investment limitations 13 through 15 may be changed by a vote of the
Board at any time.
The Intermediate Maturity Government Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of Government
Securities.
3. Make loans except that the Fund may purchase or hold fixed
income securities, including loan participations, assignments and structured
securities; lend portfolio securities and enter into repurchase agreements.
4. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
5. Purchase or sell real estate, real estate investment trust
securities or invest in oil, gas or mineral exploration or development programs,
except that the Fund may invest in securities secured by real estate, mortgages
or interests therein.
6. Make short sales of securities or maintain a short position,
except the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and make short sales
"against the box".
7. Purchase more than 10% of the voting securities of any one
issuer; provided that this limitation shall not apply to investments in
Government Securities.
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8. Purchase securities on margin, except that the Fund may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
9. Invest in commodities, except that the Fund may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
10. Issue any senior security except as permitted in these
Investment Restrictions.
11. Purchase the securities of any issuer if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to
Government Securities and except that up to 25% of the value of the Fund's total
assets may be invested without regard to this 5% limitation.
12. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange or as permitted under the 1940 Act.
13. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
14. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
15. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
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New York Municipal Fund. The investment limitations numbered 1
through 10 may not be changed without the affirmative vote of the holders of a
majority (as defined above) of the Municipal Fund's outstanding shares.
Investment limitations 11 and 14 may be changed by a vote of the Board at any
time.
The New York Municipal Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets. For purposes of this restriction, short sales, the entry into
currency transactions, options, futures contracts, options on futures contracts,
forward commitment transactions and dollar roll transactions that are not
accounted for as financings (and the segregation of assets in connection with
any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of (a) U.S.
government securities, (b) certificates of deposit issued by United States
branches of United States banks or (c) Municipal Obligations. For purposes of
this restriction, private purpose bonds ultimately payable by companies within
the same industry are treated as if they were issued by issuers in the same
industry.
3. Make loans except that the Fund may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, and enter into repurchase agreements in accordance with
its investment objective, policies and limitations.
4. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Fund's investment objective, policies and limitations may
be deemed to be underwriting.
5. Purchase or sell real estate, real estate investment trust
securities or invest in oil, gas or mineral exploration or development programs,
except that the Fund may invest in securities secured by real estate, mortgages
or interests therein.
6. Make short sales of securities or maintain a short position,
except the Fund may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts.
7. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
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8. Invest in commodities, except that the Fund may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities or indexes, and purchase
and sell currencies or securities on a forward commitment or delayed-delivery
basis.
9. Issue any senior security except as permitted in these
Investment Restrictions.
10. Purchase securities of other investment companies except (a)
in connection with a merger, consolidation, acquisition or reorganization or (b)
as permitted under the 1940 Act.
11. Invest less than 80% of its assets in securities the interest
on which is exempt from federal income tax, except during temporary defensive
periods or under unusual market conditions, as determined by the Fund's
investment adviser.
12. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchased securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
13. Invest more than 15% of the value of the Fund's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, (a) repurchase agreements with maturities
greater than seven days, (b) variable rate and master demand notes providing for
settlement upon more than seven days' notice by the Fund and (c) time deposits
maturing in more than seven calendar days shall be considered illiquid
securities.
14. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
If a percentage restriction (other than the percentage limitation
set forth in each of No. 1 above) is adhered to at the time of an investment, a
later increase or decrease in the percentage of assets resulting from a change
in the values of portfolio securities or in the amount of a Fund's assets will
not constitute a violation of such restriction.
Portfolio Valuation
The Prospectuses discuss the time at which the net asset value of
a Fund is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is
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made or, in the absence of sales, at the mean between the bid and asked
quotations. If there are no such quotations, the value of the securities will be
taken to be the highest bid quotation on the exchange or market. Options or
futures contracts will be valued similarly. A security which is listed or traded
on more than one exchange is valued at the quotation on the exchange determined
to be the primary market for such security. Short-term obligations with
maturities of 60 days or less are valued at amortized cost, which constitutes
fair value as determined by the Board. Amortized cost involves valuing a
portfolio instrument at its initial cost and thereafter assuming a constant
amortization to maturity of any discount or premium. The amortized cost method
of valuation may also be used with respect to other debt obligations with 60
days or less remaining to maturity. Notwithstanding the foregoing, in
determining the market value of portfolio investments, the Fund may employ
outside organizations (a "Pricing Service") which may use a matrix or formula
method that takes into consideration market indexes, matrices, yield curves and
other specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of the Fund under the general supervision and
responsibility of the Board, which may replace any such Pricing Service at any
time. Securities, options and futures contracts for which market quotations are
not available and certain other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. In addition, the Board or its delegates may value a security at
fair value if it determines that such security's value determined by the
methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed
at various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which a Fund's net asset value is not calculated. As a result,
calculation of the Fund's net asset value may not take place contemporaneously
with the determination of the prices of certain portfolio securities used in
such calculation. 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 of its delegates deems that the event would materially affect
net asset value, in which case an adjustment may be made. All assets and
liabilities initially expressed in foreign currency values will be converted
into U.S. dollar values at the prevailing rate as quoted by a Pricing Service.
If such quotations are not available, the rate of exchange will be determined in
good faith pursuant to consistently applied procedures established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying a Fund's investment program to achieve its investment
objectives. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid
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by a Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality. No brokerage commissions are typically paid on
purchases and sales of U.S. government securities.
Warburg will select specific portfolio investments and effect
transactions for a Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to
the Fund and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction or
of the overall responsibilities of Warburg. Research and other services received
may be useful to Warburg in serving both the Fund and its other clients and,
conversely, research or other services obtained by the placement of business of
other clients may be useful to Warburg in carrying out its obligations to the
Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services; and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Warburg in carrying out its responsibilities. Research received from
brokers or dealers is supplemental to Warburg's own research program. The fees
to
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Warburg under its advisory agreement with a Fund are not reduced by reason of
its receiving any brokerage and research services.
During the fiscal years ended October 31, 1994, October 31, 1995
and October 31, 1996, the Fixed Income Fund paid an aggregate of approximately
$17,350, $14,573 and $31,906, respectively, in such commissions. The increase in
brokerage commissions paid in the most recent fiscal year was due to an increase
in overall assets of the Fund and increased equity investments.
During the fiscal year ended October 31, 1994, the Global Fixed
Income Fund paid an aggregate of approximately $11,288 in commissions to
broker-dealers for execution of portfolio transactions. The Fund did not pay any
such commissions in the fiscal years ended October 31, 1995 and October 31,
1996.
The Intermediate Maturity Government and the New York Municipal
Funds did not pay any such commissions for the fiscal years ended October 31,
1994, October 31, 1995 and October 31, 1996.
Investment decisions for a Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as the
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions are averaged as to price
and available investments allocated as to amount, in a manner which Warburg
believes to be equitable to each client, including the Fund. In some instances,
this investment procedure may adversely affect the price paid or received by a
Fund or the size of the position obtained or sold for the Fund. To the extent
permitted by law, Warburg may aggregate the securities to be sold or purchased
for the Fund with those to be sold or purchased for such other investment
clients in order to obtain best execution.
Any portfolio transaction for a Fund may be executed through
Counsellors Securities, Inc., the Fund's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the Fund a
commission rate consistent with those charged by Counsellors Securities to
comparable unaffiliated customers in similar transactions. All transactions with
affiliated brokers will comply with Rule 17e-1 under the 1940 Act. No portfolio
securities have been executed through Counsellors Securities since the
commencement of the Fund's operations.
In no instance will portfolio securities be purchased from or
sold to Warburg or Counsellors Securities or any affiliated person of such
companies. In addition, a Fund will not give preference to any institutions with
whom the Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services.
Transactions for the Fixed Income and Global Fixed Income Funds
may be effected on foreign securities exchanges. In transactions for securities
not actively traded on a foreign securities exchange, a Fund will deal directly
with the dealers who make a market in
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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.
A Fund may participate, if and when practicable, in bidding for
the purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of such
a group. The Fund will engage in this practice, however, only when Warburg, in
its sole discretion, believes such practice to be otherwise in the Fund's
interest.
Portfolio Turnover
A Fund's portfolio turnover rate is calculated by dividing the
lesser of purchases or sales of its portfolio securities for the year by the
monthly average value of the portfolio securities. Securities with remaining
maturities of one year or less at the date of acquisition are excluded from the
calculation.
A 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. Certain practices that may be
employed by the Fund could result in high portfolio turnover. For example,
portfolio securities may be sold in anticipation of a rise in interest rates
(market decline) or purchased in anticipation of a decline in interest rates
(market rise) and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage of
what Warburg believes to be a temporary disparity in the normal yield
relationship between the two securities. These yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for, or supply of, various types of securities. In addition, options on
securities may be sold in anticipation of a decline in the price of the
underlying security (market decline) or purchased in anticipation of a rise in
the price of the underlying security (market rise) and later sold.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL
OBLIGATIONS
Some of the significant financial considerations relating to the
New York Municipal Fund's investments in New York Municipal Obligations are
summarized below. This summary information is not intended to be a complete
description and is principally derived from official statements relating to
issues of New York Municipal Obligations that were available prior to the date
of this Statement of Additional Information. The accuracy and completeness of
the information contained in those official statements have not been
independently verified.
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State Economy.
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries. New York City (the "City"), which is the most populous city
in the State and nation and is the center of the nation's largest metropolitan
area, accounts for a large portion of the State's population and personal
income.
The State has historically been one of the wealthiest states in
the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic position.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1996-97 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. State per capita income for 1994 was estimated at $25,999, which
was 19.2% above the 1994 estimated national average of $21,809. Between 1975 and
1990 total employment grew by 21.3 percent while the labor force grew only by
15.7 percent, unemployment fell from 9.5 percent to 5.2 percent of the labor
force. In 1991 and 1992, however, total employment in the State fell by 5.5
percent. As a result, the unemployment rate rose to 8.5 percent reflecting a
recession that has had a particularly strong impact on the entire Northeast.
Calendar years 1993 and 1994 saw only a partial recovery.
State Budget.
The State Constitution requires the governor (the "Governor") to
submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
The Governor presented his 1996-97 Executive Budget to the
Legislature on December 15, 1995, and subsequently amended it.
The Governor's Executive Budget projected balance on a cash basis
in the General Fund. It reflected a continuing strategy of substantially reduced
State spending,
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including program restructurings, reductions in social welfare spending, and
efficiency and productivity initiatives.
On March 15, 1996, the Governor presented amendments to the
1996-97 Executive Budget to provide for balancing the 1996-97 state financial
plan if the federal government failed to adopt entitlement changes assumed to
produce savings in the State's 1996-97 Executive Budget.
The State's budget for the 1996-97 fiscal year was enacted by the
Legislature on July 13, 1996, more than three months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for all State-supported
debt service. The State Financial Plan for the 1996-97 fiscal year was
formulated on July 25, 1996 and was based on the State's budget as enacted by
the Legislature and signed into law by the Governor, as well as actual results
for the first quarter of the current fiscal year (the "1996-97 State Financial
Plan").
The 1996-97 State Financial Plan was projected to be balanced on
a cash basis. As compared to the Governor's proposed budget as revised on March
20, 1996, the 1996-97 State Financial Plan increases General Fund spending by
$842 million, primarily from funding increased for education, special education
and higher education ($563 million). The balance represented funding increases
to a variety of other programs, including community projects and increased
assistance to fiscally distressed cities. Resources used to fund these
additional expenditures include $540 million in increased revenues projected for
1996-97 based on higher-than-projected tax collections during the first half of
calendar 1996, $110 million in projected receipts from a new State tax amnesty
program, and other resources including certain non-recurring resources.
The State issued its first update to the 1996-97 State Financial
Plan (the "Mid-Year Update") on October 25, 1996. Revisions have been made to
estimates of both receipts and disbursements based on: (1) updated economic
forecasts for both the nation and the State, (2) an analysis of actual receipts
and disbursements through the first six months of the fiscal year, and (3) an
assessment of changing program requirements. The Mid-Year Update reflected a
balanced 1996-97 State Financial Plan, with a reserve for contingencies in the
General Fund of $300 million. This reserve will be utilized to help offset a
variety of potential risks and other unexpected contingencies that the State may
face during the balance of the 1996-97 fiscal year.
Although revisions to the 1996-97 State Financial Plan contained
in the Mid-Year Update are favorable, the State faces certain risks which could
potentially cost the State up to one-half billion dollars. The Division of the
Budget believes these risks are balanced by reserves in the 1996-97 State
Financial Plan, including the $300 million reserve created in the Mid-Year
Update. However, there can be no assurance that these reserves will fully offset
litigation or other risks to the 1996-97 State Financial Plan.
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One major uncertainty to the 1996-97 State Financial Plan
continues to be risks related to the economy and tax collections, which could
produce either favorable or unfavorable variances during the balance of the
year. An additional risk to the 1996-97 State Financial Plan arises from the
potential impact of certain litigation now pending against the State, which
could produce adverse effects on the State's projections of receipts and
disbursements.
Similarly, certain litigation which by itself did not produce a
material judgment against the State could have an adverse impact on the 1996-97
State Financial Plan because of the precedential nature of the court's decision.
Specifically, the State Court of Appeals has denied a motion to appeal a lower
court decision in the so-called "GTE Spacenet" case, in which the court ruled
that GTE Spacenet was not subject to the 3.5 percent tax on gross receipts
imposed under section 186-a of the tax law. The court decision is limited to
provisions of section 186-a as it existed prior to the 1995 amendments, and has
little prospective effect. While this litigation in and of itself carries only a
small judgment in favor of GTE Spacenet and similar companies, the consequences
of the ruling could eventually entail refunds to other taxpayers of several
hundred million dollars. Refund claims of over $300 million have been filed
which, with interest and assuming a similar exposure for open years for which
claims have yet to be filed, could approach $600 million in potential claims.
On August 13, 1996, the State Comptroller released a report in
which he identified several risks to the 1996-97 State Financial Plan and
estimated that the State faces a potential imbalance in receipts and
disbursements of approximately $3 billion for the State's 1997-98 fiscal year
and approximately $3.2 billion for the State's 1998-99 fiscal year.
The Governor is required to submit a balanced budget to the State
Legislature and has indicated he will close any potential imbalance in the
1997-98 State Financial Plan primarily through General Fund expenditure
reductions and without increases in taxes or deferrals of scheduled tax
reductions. It is expected that the 1997-98 State Financial Plan will reflect a
continuing strategy of substantially reduced State spending, including agency
consolidations, reductions in the State workforce, and efficiency and
productivity initiatives.
On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. This federal
legislation fundamentally changed the programmatic and fiscal responsibilities
for administration of welfare programs at the federal, state and local levels.
The new law abolishes the federal Aid to Families with Dependent Children
program (AFDC), and creates a new Temporary Assistance to Needy Families program
(TANF) funded with a fixed federal block grant to states. The new law also
imposes (with certain exceptions) a five-year durational limit on TANF
recipients, requires that virtually all recipients be engaged in work or
community service activities within two years of receiving benefits, and limits
assistance provided to certain immigrants and other classes of individuals.
States are required to meet work activity participation targets for their TANF
caseload; these requirements are phased in over time. States that fail to meet
these federally mandated job participation rates, or that fail to conform with
certain other federal standards, face potential sanctions in the form of a
reduced federal block grant.
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On October 16, 1996, the Governor submitted the State's TANF
implementation plan to the federal government as required under the new federal
welfare law. Submission of this plan to the federal government requires New York
State to begin compliance with certain time limits on welfare benefits and
permits the State to become eligible for approximately $2.36 billion in federal
block grant funding. Legislation will be required to implement the State's TANF
plan. The Governor has indicated that he plans to introduce legislation
necessary to conform with federal law shortly, and that he may submit amendments
to the State plan if necessary.
States are required to comply with the new federal welfare reform
law no later than July 1, 1997. Given the size and scope of the changes required
under federal law, it is likely that these proposals will produce extensive
public discussions. There can be no assurances that the State Legislature will
enact welfare reform proposals as submitted by the Governor and as required
under federal law.
The economic and financial condition of the State may be affected
by various financial, social, economic and political factors. Those factors can
be very complex, may vary from fiscal year to fiscal year, and are frequently
the result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, the 1996-97 State Financial
Plan is based upon forecasts of national and State economic activity. Economic
forecasts have frequently failed to predict accurately the timing and magnitude
of changes in the national and the State economies. The Division of Budget
believes that its projections of receipts and disbursements relating to the
current State Financial Plan, and the assumptions on which they are based, are
reasonable. Actual results, however, could differ materially and adversely from
the projections set therein, and those projections may be changed materially and
adversely from time to time. There are also risks and uncertainties concerning
the future-year impact of actions taken in the 1996-97 budget.
In the State's 1997 fiscal year and in certain recent fiscal
years, the State has failed to enact a budget prior to the beginning of the
State's fiscal year.
Recent Financial Results.
The General Fund is the principal operating fund of the State and
is used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
The General Fund is projected to be balanced on a cash basis for
the 1996-97 fiscal year. Total receipts and transfers from other funds are
projected to be $33.17 billion, an increase of $365 million from the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected to be $33.12 billion, an increase of $444 million from the total in
the prior fiscal year.
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Total revenues for 1994-95 were $31.455 billion. Revenues
decreased by $173 million over the prior fiscal year, a decrease of less than
one percent. Total expenditures for 1994-95 totaled $33.079 billion, an increase
of $2.083 billion, or 6.7 percent over the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1995 showed an accumulated deficit
in its combined governmental funds of $1.666 billion, reflecting liabilities of
$14.778 billion and assets of $13.112 billion.
Debt Limits and Outstanding Debt.
There are a number of methods by which the State of New York may
incur debt. Under the State Constitution, the State may not, with limited
exceptions for emergencies, undertake long-term general obligation borrowing
(i.e., borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved by
the voters. There is no limitation on the amount of long-term general obligation
debt that may be so authorized and subsequently incurred by the State.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the Local Government
Assistance Corporation ("LGAC") in an effort to restructure the way the State
makes certain local aid payments.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund
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certain payments to local governments traditionally funded through New York
State's annual seasonal borrowing. The legislation empowered LGAC to issue its
bonds and notes in an amount not in excess of $4.7 billion (exclusive of certain
refunding bonds) plus certain other amounts. Over a period of years, the
issuance of these long-term obligations, which are to be amortized over no more
than 30 years, was expected to eliminate the need for continued short-term
seasonal borrowing. The legislation also dedicated revenues equal to one-quarter
of the four cent State sales and use tax to pay debt service on these bonds. The
legislation also imposed a cap on the annual seasonal borrowing of the State at
$4.7 billion, less net proceeds of bonds issued by LGAC and bonds issued to
provide for capitalized interest, except in cases where the Governor and the
legislative leaders have certified the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap is
thus permitted in any fiscal year, it is required by law to be reduced to the
cap by the fourth fiscal year after the limit was first exceeded. As of June
1995, LGAC had issued bonds to provide net proceeds of $4.7 billion, completing
the program. The impact of LGAC's borrowing is that the State is able to meet
its cash flow needs in the first quarter of the fiscal year without relying on
short-term seasonal borrowings.
In June 1994, the Legislature passed a proposed constitutional
amendment that would significantly change the long-term financing practices of
the State and its public authorities. The proposed amendment would permit the
State, within a formula-based cap, to issue revenue bonds, which would be debt
of the State secured solely by a pledge of certain State tax receipts (including
those allocated to State funds dedicated for transportation purposes), and not
by the full faith and credit of the State. In addition, the proposed amendment
would (i) permit multiple purpose general obligation bond proposals to be
proposed on the same ballot, (ii) require that State debt be incurred only for
capital projects included in a multi-year capital financing plan, and (iii)
prohibit, after its effective date, lease-purchase and contractual-obligation
financing mechanisms for State facilities.
Before the approved constitutional amendment could be presented
to the voters for their consideration, it had to be passed by a separately
elected legislature. The amendment was passed by the Senate and Assembly in June
1995. The Amendment was thereafter submitted to voters in November 1995, where
it was defeated.
On January 13, 1992, S&P reduced its ratings on the State's
general obligation bonds from A to A- and, in addition, reduced its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. S&P also continued its negative rating outlook assessment on
State general obligation debt. On April 26, 1993, S&P revised the rating outlook
assessment to stable. On February 14, 1994, S&P raised its outlook to positive
and, on February 28, 1994, confirmed its A- rating. On January 6, 1992, Moody's
reduced its ratings on outstanding limited-liability State lease purchase and
contractual obligations from A to Baa1. On February 28, 1994, Moody's
reconfirmed its A rating on the State's general obligation long-term
indebtedness.
The State anticipated that its capital programs would be
financed, in part, by State and public authorities borrowings in 1996-97. The
State expected to issue $411 million in general obligation bonds (including
$153.6 million for purposes of redeeming outstanding
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bond anticipation notes) and $154 million in general obligation commercial
paper. The Legislature had also authorized the issuance of up to $101 million in
certificates of participation during the State's 1996-97 fiscal year for
equipment purchases. The projection of the State regarding its borrowings for
the 1996-97 fiscal year may change if circumstances require.
In the 1996 legislative session, the Legislature approved the
Governor's proposal to present to the voters in November 1996 a $1.75 billion
State general obligation bond referendum to finance various environmental
improvement and remediation projects. The Clean Water, Clean Air Bond Act was
approved by the voters in November 1996. As a result, the amount of general
obligation bonds issued during the 1996-97 fiscal year may increase above the
$411 million currently included in the 1996-97 borrowing plan to finance a
portion of this new program.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes were $735 million for the 1995-96
fiscal year, and were estimated to be $719 million for the 1996-97 fiscal year.
Principal and interest payments on fixed rate and variable rate bonds issued by
LGAC were $340 million for the 1995-96 fiscal year, and were estimated to be
$323 million for 1996-97.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
Litigation.
Certain litigation pending against New York State or its officers
or employees could have a substantial or long-term adverse effect on New York
State finances. Among the more significant of these cases are those that involve
(1) the validity of agreements and treaties by which various Indian tribes
transferred title to New York State of certain land in central and upstate New
York; (2) certain aspects of New York State's Medicaid policies, including its
rates, regulations and procedures; (3) action against New York State and New
York City officials alleging inadequate shelter allowances to maintain proper
housing; (4) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (5)
alleged responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (6) challenges by commercial insurers,
employee welfare benefit plans, and health maintenance organizations to the
imposition of 13%, 11% and 9% surcharges on inpatient hospital bills; (7)
challenges to certain aspects of petroleum business taxes; (8) action alleging
damages resulting from the failure by the State's Department of Environmental
Conservation to timely provide certain data; (9) a challenge to the
constitutionality of a State lottery game; and (10) an action seeking
reimbursement from the State for certain costs arising out of the provision of
pre-school services and programs for children with handicapped conditions.
43
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<PAGE>
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision in
the case of State of Delaware v. State of New York, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State. Adverse
developments in these proceedings or the initiation of new proceedings could
affect the ability of the State to maintain a balanced 1996-97 State Financial
Plan. An adverse decision in any of these proceedings could exceed the amount of
the 1996-97 State Financial Plan reserve for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1996-97
State Financial Plan. In its audited financial statements for the fiscal year
ended March 31, 1996, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $474 million.
Although other litigation is pending against New York State,
except as described herein, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
Authorities.
The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that are
State-supported or State-related. As of September 30, 1995, date of the latest
data available,
44
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<PAGE>
there were 17 Authorities that had outstanding debt of $100 million or more. The
aggregate outstanding debt, including refunding bonds, of these 17 Authorities
was $73.45 billion.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the 18 Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
New York City and Other Localities.
The fiscal health of the State of New York may also be impacted
by the fiscal health of its localities, particularly the City of New York, which
has required and continues to require significant financial assistance from New
York State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. The City has achieved balanced
operating results for each of its fiscal years since 1981 as reported in
accordance with the then-applicable GAAP.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from S&P. On July 2, 1985, S&P revised its
rating of City bonds upward to BBB+ and on November 19, 1987, to A-. On July 2,
1993, S&P reconfirmed its A- rating of City bonds, continued its negative rating
outlook assessment and stated that maintenance of such rating depended upon the
City's making further progress towards reducing budget gaps in the outlying
years. Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On July 10, 1995, S&P
downgraded its rating on the City's $23 billion of outstanding general
obligation bonds to "BBB+" from "A-", citing to the City's chronic structural
budget problems and weak economic outlook. S&P stated that New York City's
reliance on one-time revenue measures to close annual budget gaps, a dependence
on unrealized labor savings, overly optimistic estimates of revenues and state
and federal aid and the City's continued high debt levels also contributed to
its decision to lower the rating. Moody's currently has the City's rating under
review for a possible downgrade.
45
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<PAGE>
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid revenues below a specified level are included among the events of default in
the resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do not
constitute an enforceable obligation or debt of either the State or the City. As
of December 31, 1995, MAC had outstanding an aggregate of approximately $4.684
billion of its bonds. MAC is authorized to issue bonds and notes to refunds its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to the Transit
Authority and the New York City School Construction Authority for the 1992
through 1997 fiscal years in the event the City fails to provide such financing.
The City and MAC have reached an agreement in principle under
which MAC will develop and implement a debt restructuring program which will
provide the City with $125 million in budget relief in fiscal year 1996, in
addition to the $20 million of additional budget relief provided by MAC to the
City since January 1996. The City has agreed with MAC that it will reduce
certain expenditures by $125 million in each of the four fiscal years starting
in fiscal year 1997. The proposed refinancing, which must satisfy MAC
refinancing criteria, is subject to market conditions.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
From time to time, the Control Board staff, OSDC, the City
comptroller and others issue reports and make public statements regarding the
City's financial condition,
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<PAGE>
commenting on, among other matters, the City's financial plans, projected
revenues and expenditures and actions by the City to eliminate projected
operating deficits. Some of these reports and statements have warned that the
City may have underestimated certain expenditures and overestimated certain
revenues and have suggested that the City may not have adequately provided for
future contingencies. Certain of these reports have analyzed the City's future
economic and social conditions and have questioned whether the City has the
capacity to generate sufficient revenues in the future to meet the costs of its
expenditure increases and to provide necessary services.
On January 31, 1996, the City published the financial plan for
the 1996-1999 fiscal years (the "City Financial Plan"), which is a modification
to a financial plan submitted to the Control Board on July 11, 1995. The City
Financial Plan set forth proposed actions by the City for the 1996 fiscal year
to close substantial projected budget gaps resulting from lower than projected
tax receipts and other revenues and greater than projected expenditures. In
addition to substantial proposed agency expenditure reductions, the City
Financial Plan reflected a strategy to substantially reduce spending for
entitlements for the 1996 and subsequent fiscal years, and to decrease the
City's costs for Medicaid in the 1997 fiscal year and thereafter by increasing
the federal share of Medicaid costs otherwise paid by the City. This strategy
has been the subject of substantial debate, and implementation of this strategy
will be significantly affected by State and federal budget proposals currently
being considered. It is likely that the City Financial Plan will be changed
significantly in connection with the preparation of the Executive Budget for the
1997 fiscal year as a result of the status of State and federal budget proposals
and other factors.
The City Financial Plan also set forth projections for the 1997
through 1999 fiscal years and outlined a proposed gap-closing program to
eliminate a projected gap of $2.0 billion for the 1997 fiscal year, and to
reduce projected gaps of $3.3 billion and $4.1 billion for the 1998 and 1999
fiscal years, respectively, assuming successful implementation of the
gap-closing program for the 1996 fiscal year.
The proposed gap-closing actions for the 1997 through 1999 fiscal
years included: (i) additional agency actions, totaling between $643 million and
$691 million in each of the 1997 through 1999 fiscal years; (ii) additional
savings resulting from State and federal aid and cost containment in entitlement
programs to reduce City expenditures and increase revenues by $650 million in
the 1997 fiscal year and by $727 million in each of the 1998 and 1999 fiscal
years; (iii) additional proposed federal aid of $50 million in the 1997 fiscal
year and State aid of $100 million in each of the 1997 through 1999 fiscal
years; (iv) the receipt of $300 million in the 1997 fiscal year from
privatization or other initiatives, certain of which actions is expected to
require legislative action by the City Council; and (v) the assumed receipt of
revenues relating to rent payments for the City's airports, totaling $244
million, $226 million and $70 million in the 1997 through 1999 fiscal years,
respectively, which are currently the subject of a dispute with the Port
Authority and the collection of which may depend on the successful completion of
negotiations with the Port Authority or the enforcement of the City's remedies
under the leases through pending legal actions. The City was also preparing an
additional contingency gap-closing program for the 1997 fiscal year to be
comprised of $200 million in additional agency actions.
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<PAGE>
The federal and State budgets, when adopted, may result in
substantial reductions in revenues for the City, as well as a reduction in
projected expenditures in entitlement programs, including Medicare, Medicaid and
welfare programs. The nature and extent of the impact on the City of the federal
and State budgets, when adopted, is uncertain, and no assurance can be given
that federal or State actions included in the federal and State adopted budgets
may not have a significant adverse impact on the City's budget and the City
Financial Plan.
The projections for the 1996 through 1999 fiscal years reflected
the costs of the proposed settlement with the teachers union and the recent
settlement with a coalition of municipal unions, and assumed that the City will
reach agreement with its remaining municipal unions under terms which are
generally consistent with such settlements.
The City's financial plans have been the subject of extensive
public comment and criticism. The City comptroller has issued reports
identifying risks ranging between $440 million and $560 million in the 1996
fiscal year before taking into account the availability of $160 million in the
general reserve, and between $2.05 billion and $2.15 billion in the 1997 fiscal
year after implementation of the City's proposed gap-closing actions. With
respect to the 1997 fiscal year, the report noted that the City Financial Plan
assumed the implementation of highly uncertain State and federal actions, most
of which are unlikely to be implemented, that would provide between $1.2 billion
and $1.4 billion in relief to the City, and identified additional risks. The
report concluded that the magnitude of the budget risk for the 1997 fiscal year,
after two years of large agency cutbacks and workforce reductions, indicated the
seriousness of the City's continuing budget difficulties, and that the City
Financial Plan would require substantial revision in order to provide a credible
program for dealing with the large projected budget gap for the 1997 fiscal
year.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. The City has issued $2.4 billion of short-term
obligations in fiscal year 1996 to finance the City's current estimate of its
seasonal cash flow needs for the 1996 fiscal year. Seasonal financing
requirements for the 1995 fiscal year increased to $2.2 billion from $1.75
billion and $1.4 billion in the 1994 and 1993 fiscal years, respectively.
Certain localities, in addition to the City, could have financial
problems leading to requests for additional New York State assistance. The
potential impact on the State of such requests by localities was not included in
the State's projections of its receipts and disbursements.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor or the Legislature to assist Yonkers could result in allocation of
New York State resources in amounts that cannot yet be determined.
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Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.
Seventeen municipalities received extraordinary assistance during
the 1996 legislative session through $50 million in special appropriations
targeted for distressed cities.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1994, the total indebtedness of all
localities in New York State other than New York City was approximately $17.7
billion. A small portion (approximately $82.9 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Seventeen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1994.
From time to time, federal expenditure reductions could reduce,
or in some cases eliminate, federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If New York State, New York City or any of the Authorities
were to suffer serious financial difficulties jeopardizing their respective
access to the public credit markets, the marketability of notes and bonds issued
by localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
New York State assistance in the future.
MANAGEMENT OF THE FUNDS
Officers and Boards of Directors/Trustees
The names (and ages) of the Funds' Directors/Trustees and
officers, their addresses, present positions and principal occupations during
the past five years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard N. Cooper (62) Director/Trustee
Harvard University Professor at Harvard University; National
1737 Cambridge Street Intelligence Counsel from June 1995 until
Cambridge, Massachusetts 02138 January 1997; Director or Trustee of
CircuitCity Stores, Inc. (retail
electronics and appliances) and Phoenix
Home Life Mutual Insurance Company.
</TABLE>
49
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<PAGE>
<TABLE>
<S> <C>
Donald J. Donahue (72) Director/Trustee
27 Signal Rd. Chairman of Magma Copper from December 1987
Stamford, Connecticut 06902 until December 1995; Director of Chase
Brass Industries, Inc. Since December 1994;
Director of Pioneer Companies, Inc.
(chlor-alkali chemicals) and predecessor
companies since 1990 and Vice Chairman
since December 1995.
Jack W. Fritz (69) Director/Trustee
2425 North Fish Creek Road Private investor; Consultant and Director
P.O. Box 483 of Fritz Broadcasting, Inc. and Fritz
Wilson, Wyoming 83014 Communications (developers and operators of
radio stations); Director of Advo, Inc.
(direct mail advertising).
John L. Furth* (66) Director/Trustee and Chief Executive
466 Lexington Avenue Officer
New York, New York 10017-3147 Vice Chairman and Director of Warburg;
Associated with Warburg since 1970; Chairman of
the Board and officer of other investment
companies advised by Warburg.
Thomas A. Melfe (64) Director/Trustee
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure
New York, New York 10112 Newton & Irvine; Chairman of the Board,
Municipal Fund for New York Investors, Inc.
Arnold M. Reichman* (48) Director/Trustee and Executive Vice
466 Lexington Avenue President
New York, New York 10017-3147 Managing Director and Assistant Secretary
of Warburg; Associated with Warburg since
1984; Senior Vice President, Secretary and
Chief Operating Officer of Counsellors
Securities; Officer of other investment
companies advised by Warburg.
</TABLE>
- --------------------------------
* Indicates a Director/Trustee who is an "interested person" of the Fund
as defined in the 1940 Act.
50
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<PAGE>
<TABLE>
<S> <C>
Alexander B. Trowbridge (67) Director/Trustee
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990-
November 1996; President of the
National Association of
Manufacturers from 1980-1990;
Director or Trustee of New
England Mutual Life Insurance
Co., ICOS Corporation
(biopharmaceuticals), WMX
Technologies Inc. (solid and
hazardous waste collection and
disposal), The Rouse Company
(real estate development),
Harris Corp. (electronics and
communications equipment), The
Gillette Co. (personal care
products) and Sun Company Inc.
(petroleum refining and
marketing).
Eugene L. Podsiadlo (39) Senior Vice President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1991; Vice President of
Citibank, N.A. from 1987-1991;
Senior Vice President of
Counsellors Securities and
officer of other investment
companies advised by Warburg.
Stephen Distler (43) Vice President
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of Warburg; Associated with
Warburg since 1984; Treasurer of
Counsellors Securities; Vice
President of other investment
companies advised by Warburg.
</TABLE>
51
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<PAGE>
<TABLE>
<S> <C>
Eugene P. Grace (45) Vice President and Secretary
466 Lexington Avenue Associated with Warburg 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 and Assistant Secretary
of Counsellors Securities; Vice
President and Secretary of other
investment companies advised by
Warburg.
Howard Conroy (42) Vice President and Chief Financial Officer
466 Lexington Avenue Associated with Warburg since 1992;
New York, New York 10017-3147 Associated with Martin Geller, C.P.A. from
1990-1992; Vice President, Finance with
Gabelli/Rosenthal & Partners, L.P. until
1990; Vice President and Chief
Financial Officer of other investment
companies advised by Warburg
Daniel S. Madden, CPA (31) Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial
Management, Inc. from September
1994 to October 1996; Associated
with BEA Associates from April
1993 to September 1994;
Associated with Ernst & Young
LLP from 1990 to 1993. Treasurer
and Chief Accounting Officer of
other investment companies
advised by Warburg.
Janna Manes, Esq. (29) Assistant Secretary
466 Lexington Avenue Associated with Warburg since 1996;
New York, New York 10017-3147 Associated with the law firm of Willkie
Farr & Gallagher from 1993-1996;
Assistant Secretary of other
investment companies advised by
Warburg.
</TABLE>
No employee of Warburg or PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund for
acting as an officer or director/trustee of a Fund. Each Director/Trustee who is
not a director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and
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$250 for each meeting of the Board attended by him for his services as
Director/Trustee and is reimbursed for expenses incurred in connection with his
attendance at Board meetings.
Directors'/Trustees' Compensation
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director/Trustee a Fund+ Managed by Warburg+*
- ------------------------ ------- -----------------------
<S> <C> <C>
John L. Furth** None** None**
Arnold M. Reichman** None** None**
Richard N. Cooper $2,000 $42,916
Donald J. Donahue $2,000 $42,916
Jack W. Fritz $2,000 $42,916
Thomas A. Melfe $2,000 $42,916
Alexander B. Trowbridge $2,000 $42,916
</TABLE>
+ Amounts shown are estimates of future payments to be made in the fiscal
year ending October 31, 1998 pursuant to existing arrangements.
* Each Director/Trustee also serves as a Director or Trustee of 22 other
investment companies advised by Warburg.
** Mr. Furth and Mr. Reichman are considered to be interested persons of a
Fund and Warburg, as defined under Section 2(a)(19) of the 1940 Act,
and, accordingly, receive no compensation from the Fund or any other
investment company managed by Warburg.
Mr. Dale C. Christensen, president and co-portfolio manager of
the Funds, earned a B.S. in Agriculture from the University of Alberta and a
B.Ed. in Mathematics from the University of Calgary, both located in Canada. Mr.
Christensen directs the fixed income group at Warburg, which he joined in 1989,
providing portfolio management for Warburg Pincus Funds and institutional
clients around the world. Mr. Christensen was a Vice President in the
International Private Banking division and the domestic pension fund management
division at Citicorp from 1984 to 1989. Prior to that, Mr. Christensen was a
fixed income portfolio manager at CIC Asset Management from 1982 to 1984.
Mr. M. Anthony E. van Daalen, co-portfolio manager of the Fixed
Income Fund and the Intermediate Maturity Government Fund, earned a B.A. degree
from Wesleyan University and a M.B.A. degree from New York University. He has
been with these Funds since joining Warburg in 1992, specializing in government
and high yield bonds. Mr. van Daalen was an Assistant Vice President, Portfolio
Manager at Citibank in the Private Banking Group from 1985 to 1991. Prior to
that Mr. van Daalen was a Retail Banking Manager at The Connecticut
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<PAGE>
Bank and Trust Co. from 1983 to 1985 and an Analyst at Goldstein/Krall Market
Research from 1982 to 1983.
Mr. Laxmi C. Bhandari, co-portfolio manager of the Global Fixed
Income Fund, earned a Ph.D in Finance and a M.B.A. from the University of
Chicago, his P.G.D.M. degree (M.B.A. equivalent) from the Indian Institute of
Management, Ahmedabad, India and B.Com. degree from Rajasthan University, India.
He has been with the Fund since joining Warburg in 1993, specializing in
derivative-based products. Mr. Bhandari was a vice president in charge of
Arbitrage Trading at the Paribas Corporation from 1991 to 1993. Prior to that
Mr. Bhandari was a vice president of Asset Liability Management at Chemical Bank
from 1987 to 1991 and an assistant professor of Advanced Portfolio Management
and Advanced Corporate Finance at the University of Alberta from 1982 to 1987.
Sharon B. Parente, co-portfolio manager of the New York Municipal
Fund, earned a B.S. degree from the University of Virginia. Ms. Parente has
been with the Fund since joining Warburg in 1992, specializing in municipal
bonds and corporate cash. Ms. Parente was a vice president at Citibank, N.A.
in the Private Banking Group from 1985 to 1992. Prior to that, Ms. Parente was
a fixed income portfolio manager at Calvert Group from 1981 to 1985 and a
municipal trader's assistant at Prescott, Ball & Turben from 1979 to 1981.
As of February 4, 1997, the Directors/Trustees and officers of
each of the Fixed Income, Global Fixed Income and Intermediate Maturity
Government Funds as a group owned of record less than 1% of that Fund's
outstanding Common Shares. As of the same date, the Trustees and officers of the
New York Municipal Fund as a group owned 120,845 of the Fund's outstanding
Common Shares. No Directors/Trustees or officers owned of record any Advisor
Shares of a Fund.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Funds, PFPC serves as
co-administrator to the Funds and Counsellors Funds Service, Inc. ("Counsellors
Service") serves as co-administrator to the Funds pursuant to separate written
agreements with each Fund (the "Advisory Agreement," the "PFPC Co-Administration
Agreement" and the "Counsellors Service Co-Administration Agreement,"
respectively). The services provided by, and the fees payable by a Fund to,
Warburg under the Advisory Agreement, PFPC under the PFPC Co-Administration
Agreement and Counsellors Service under the Counsellors Service
Co-Administration Agreement are described in the Prospectuses. See the
Prospectuses, "Management of the Funds." Each class of shares of a Fund bears
its proportionate share of fees payable to Warburg, PFPC and Counsellors Service
in the proportion that its assets bear to the aggregate assets of the Fund at
the time of calculation. Prior to March 1, 1994, PFPC served as administrator to
the Funds and Counsellors Service served as administrative services agent to the
Funds pursuant to separate written agreements.
54
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<PAGE>
Advisory Fees paid to Warburg
(portions of fees waived, if any, are noted in
parenthesis next to the amount earned)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1994 October 31, 1995 October 31, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Fund $449,070 ($125,203) $555,483 ($162,585) $ 648,732 ($163,311)
Global Fixed Income $834,884 ($492,915) $773,318 ($435,848) $ 1,031,630 ($514,200)
Fund
Intermediate Maturity
Government Fund $260,193 ($216,793) $253,734 ($226,320) $ 254,649 ($196,577)
New York Municipal Fund $291,721 ($123,901) $316,050 ($168,856) $ 301,602 ($102,812)
</TABLE>
Co-Administration Fees paid to PFPC
(portions of fees waived, if any, are noted
in parenthesis next to the amount earned)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1994 October 31, 1995 October 31, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Fund $ 90,330 ($36,132) $111,097 ($41,568) $117,711 ($28,629)
Global Fixed Income $105,872 ($52,936) $ 92,798 ($49,312) $109,014 ($58,514)
Fund
Intermediate Maturity
Government Fund $ 52,039 ($ 1,502) $ 51,914 ($41,568) $ 47,013 ($36,869)
New York Municipal Fund $ 72,930 ($22,930) $ 79,012 ($33,063) $ 68,978 ($25,703)
</TABLE>
Co-Administration Fees paid to Counsellors Service
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
October 31, 1994 October 31, 1995 October 31, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Fixed Income Fund $72,277 $111,097 $129,747
Global Fixed Income $69,888 $77,332 $103,163
Fund
Intermediate Maturity
Government Fund $38,171 $50,747 $ 50,930
New York Municipal Fund $57,946 $79,012 $ 75,401
</TABLE>
Custodian and Transfer Agent
PNC Bank, National Association ("PNC") is custodian of the Fixed
Income, Intermediate Maturity Government and New York Municipal Fund's assets
pursuant to a custodian agreement (the "PNC Custodian Agreements"). Fiduciary
Trust Company International ("Fiduciary") is custodian of the Global Fixed
Income Fund's assets pursuant to a custodian agreement (the "Fiduciary Custodian
Agreement") (collectively, the "Custodian Agreements"). Under the Custodian
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Agreements, PNC and Fiduciary each (i) maintain a separate account or accounts
in the name of a Fund, (ii) hold and transfer portfolio securities on account of
the Fund, (iii) make receipts and disbursements of money on behalf of the Fund,
(iv) collect and receive all income and other payments and distributions on
account of the Fund's portfolio securities and (v) make periodic reports to the
Board concerning the Fund's custodial arrangements. PNC and Fiduciary are
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund(s) with which it has contracted, provided
that PNC and Fiduciary each remain responsible for the performance of all their
respective duties under the Custodian Agreements and hold the Fund harmless from
the acts and omissions of any sub-custodian. PNC is an indirect wholly owned
subsidiary of PNC Bank Corp., and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. The principal business
address of Fiduciary is Two World Trade Center, New York, New York 10048.
State Street Bank and Trust Company ("State Street") serves as
the shareholder servicing, transfer and dividend disbursing agent of each Fund
pursuant to separate Transfer Agency and Service Agreements, under which State
Street (i) issues and redeems shares of a Fund, (ii) addresses and mails all
communications by the Fund to record owners of Fund shares, including reports to
shareholders, dividend and distribution notices and proxy material for its
meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts and (iv) makes periodic reports to the Fund's Board
concerning the transfer agent's operations with respect to the Fund. State
Street has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ("BFDS"), responsibility for most shareholder servicing functions.
BFDS's principal business address is 2 Heritage Drive, Boston, Massachusetts
02171. The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110.
Organization of the Funds
The Fixed Income and New York Municipal Fund's Agreement and
Declaration of Trust (the "Trust Agreements") and the Global Fixed Income and
Intermediate Maturity Government Fund's charter authorizes the Board of each
Fund to issue three billion full and fractional shares of common stock, $.001
par value per share ("Common Stock"), of which one billion shares are designated
Common Shares and two billion shares are designated Advisor.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fixed Income
and New York Municipal Funds. However, the Trust Agreements disclaim shareholder
liability for acts or obligations of a Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or a Trustee. The Trust Agreements provide for
indemnification from the Fund's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund would be unable to meet
its obligations, a possibility that Warburg believes is remote and immaterial.
Upon payment of any liability incurred by the Fund, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the Fund.
The
56
<PAGE>
<PAGE>
Trustees intend to conduct the operations of the Fund in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
All shareholders of a Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors/Trustees can elect all Directors/Trustees of a
Fund. Shares are transferable but have no preemptive, conversion or subscription
rights.
Distribution and Shareholder Servicing
A Fund may, in the future, enter into agreements ("Agreements")
with institutional shareholders of record, broker-dealers, financial
institutions, depository institutions, retirement plans and financial
intermediaries ("Institutions") to provide certain distribution, shareholder
servicing, administrative and/or accounting services for their clients or
customers (or participants in the case of retirement plans) ("Customers") who
are beneficial owners of Advisor Shares. 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 a Fund has entered into an Agreement
may charge a Customer one or more of the following types of fees, as agreed upon
by the Institution and the Customer, with respect to the cash management or
other services provided by the Institution: (i) account fees (a fixed amount per
month or per year); (ii) transaction fees (a fixed amount per transaction
processed); (iii) compensation balance requirements (a minimum dollar amount a
Customer must maintain in order to obtain the services offered); or (iv) account
maintenance fees (a periodic charge based upon the percentage of assets in the
account or of the dividend paid on those assets). Services provided by an
Institution to Customers are in addition to, and not duplicative of, the
services to be provided under 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/Trustees who are not interested persons of a Fund and
who have no direct or indirect financial interest in the operation of the
Distribution Plan ("Independent Directors/Trustees"). Any material amendment of
the Distribution Plan would require the approval of the Board in the same
manner. The Distribution 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
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<PAGE>
<PAGE>
vote of a majority of the Independent Directors/Trustees or by a vote of a
majority of the outstanding voting securities of the Advisor Shares of the Fund.
For the fiscal period ended October 31, 1996, the Fixed Income and Global Fixed
Income Funds paid $1,239 and $25, respectively, in 12b-1 fees in connection with
the Fund's Advisor Shares, all of which were spent on advertising and marketing
communications.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of a Fund's shares is equal to the per share
net asset value of the relevant class of shares of the Fund. Information on how
to purchase and redeem Fund shares and how such shares are priced is included in
the Prospectuses under "Net Asset Value."
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (The Funds may also suspend or postpone the recordation of
an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make payment
of redemption proceeds wholly in cash unwise or undesirable, a Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds. The Fund intends to comply with Rule 18f-1 promulgated under the 1940
Act with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of a Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in a Fund, there will be a reduction
in the value of the shareholder's investment and continued withdrawal payments
may reduce the shareholder's investment and ultimately exhaust it. Withdrawal
payments should not be considered as income from investment in the Fund. 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 a Fund. The funds into which exchanges of Common
Shares currently can be
58
<PAGE>
<PAGE>
made are listed in the Common Share Prospectus. Exchanges may also be made
between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares in
a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. This privilege is available
to shareholders residing in any state in which the Common Shares or Advisor
Shares being acquired, as relevant, may legally be sold. Prior to any exchange,
the investor should obtain and review a copy of the current prospectus of the
relevant class of each fund into which an exchange is being considered.
Shareholders may obtain a prospectus of the relevant class of the fund into
which they are contemplating an exchange from Counsellors Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same day,
at a price as described above, in shares of the relevant class of the fund being
acquired. Warburg reserves the right to reject more than three exchange requests
by a shareholder in any 30-day period. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting a Fund and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Individuals are often exempt from state and local personal income
taxes on distributions of tax-exempt interest income derived from obligations of
issuers located in the state in which they reside when these distributions are
received directly from these issuers, but are usually subject to such taxes on
income derived from obligations of issuers located in other jurisdictions.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
As described above and in the New York Municipal Fund's
Prospectus, the New York Municipal Fund is designed to provide investors with
current income which is excluded from gross income for federal income tax
purposes and which is exempt from New York State and New York City personal
income taxes. The Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital gains or maximum
tax-exempt income irrespective of fluctuations in principal. Investment in the
Fund would not be suitable for tax-exempt institutions, individual retirement
plans, employee benefit plans and individual retirement accounts since such
investors would not gain any additional tax benefit from the receipt of
tax-exempt income.
Each of the Funds has previously qualified and intends to
continue to qualify each year as a "regulated investment company" under
Subchapter M of the Code. If a Fund qualifies as a regulated investment company,
the Fund will pay no federal income taxes on its taxable net investment income
(that is, taxable income other than net realized capital gains) and its net
realized capital gains that are distributed to shareholders. To qualify under
Subchapter M, a
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<PAGE>
Fund must, among other things: (i) distribute to its shareholders at least the
sum of 90% of its taxable net investment income (for this purpose consisting of
taxable net investment income and net realized short-term capital gains) plus
90% of its net tax-exempt interest income; (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, forward contracts and
certain other assets held for less than three months; and (iv) diversify its
holdings so that, at the end of each fiscal quarter of the Fund (a) at least
50% of the market value of the Fund's assets is represented by cash, U.S.
government securities and other securities, with those other securities limited,
with respect to any one issuer, to an amount no greater in value than 5% of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer, and (b) not more than 25% of the market value of the
Fund's assets is invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated investment companies) or
of two or more issuers that the Fund controls and that are determined to be in
the same or similar trades or businesses or related trades or businesses. In
meeting these requirements, a 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 Funds'
Prospectuses. As a regulated investment company, a 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 a Fund's taxable
ordinary income for the calendar year and at least 98% of the excess of its
capital gains over capital losses realized during the one-year period ending
October 31 during such year, together with any undistributed, untaxed amounts
of ordinary income and capital gains from the previous calendar year. The Funds
expect to pay the dividends and make the distributions necessary to avoid the
application of this excise tax.
A Fund's 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
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<PAGE>
losses actually occur and (c) the Fund will continue to qualify as a regulated
investment company.
A shareholder of a Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as receiving
a distribution in an amount equal to the amount of money that a shareholder
receiving cash dividends or distributions receives, and should have a cost basis
in the shares received equal to that amount.
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of shares
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution that
will nevertheless be taxable to them. Upon the sale or exchange of shares, a
shareholder will realize a taxable gain or loss depending upon the amount
realized and the basis in the shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands, and, as described in the Prospectuses, will be long-term or short-term
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvestment of
dividends and capital gains distributions in a Fund, within a period of 61 days
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss.
Each shareholder will receive an annual statement as to the
federal income tax status of his dividends and distributions from a Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of a Fund's taxable year
regarding the federal income tax status of certain dividends and distributions
that were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he has provided a correct taxpayer identification number
and that he is not subject to "backup withholding," the shareholder may be
subject to a 31% "backup withholding" tax with respect to (i) taxable dividends
and distributions and (ii) the proceeds of any sales or repurchases of shares of
a Fund. An individual's taxpayer identification number is his social security
number. Corporate shareholders and other shareholders specified in the Code are
or may be exempt from backup withholding. In the case of the New York Municipal
Fund, any taxable distributions from the Fund will not be subject to backup
withholding if the Fund reasonably estimates that at least 95% of its
distributions will be exempt-interest dividends. The backup withholding tax is
not an additional tax and may be credited against a taxpayer's federal income
tax liability. Dividends and distributions also may be subject to state and
local taxes depending on each shareholder's particular situation.
Special Tax Considerations Regarding the Municipal Fund. Because
the New York Municipal Fund will distribute exempt-interest dividends, interest
on indebtedness incurred by a shareholder to purchase or carry Fund shares is
not deductible for federal income, New York State and New York City personal
income tax purposes. If a shareholder receives an exempt-interest dividend with
respect to any share of the Fund and if such share is held by the shareholder
for six months or less, then any loss on the sale or exchange of such share,
to the
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extent of such exempt-interest dividend, shall be disallowed. In addition, the
Code may require a shareholder, if he or she receives exempt-interest dividends,
to treat as taxable income a portion of certain otherwise non-taxable social
security and railroad retirement benefit payments. Furthermore, that portion of
any exempt interest dividend paid by the Fund which represents income from
private activity bonds may not retain its tax-exempt status in the hands of a
shareholder who is a "substantial user" (or persons related thereto) of a
facility financed by such bonds. Similar rules apply for purposes of New York
State and New York City personal income tax.
Under the Code, interest on specified private activity bonds
issued after August 7, 1986, although otherwise exempt from federal income tax,
is treated as an item of tax preference for purposes of the alternative minimum
tax on individuals and corporations. If the New York Municipal Fund invests in
such specified "private activity bonds," it will report a portion of the
"exempt-interest dividends" paid to its shareholders as interest on specified
private activity bonds, and hence as a tax preference item. Exempt interest
dividends are included in adjusted current earnings. The amount of the
alternative minimum tax imposed by the Code is the excess, if any, of the
taxpayer's "tentative minimum tax" over the taxpayer's regular tax liability for
the taxable year. The "tentative minimum tax" is equal to (i) 26% of the first
$175,000, and 28% of any amount over $175,000 (for corporations, 20% of the
whole), of the taxpayer's alternative minimum taxable income (defined as regular
taxable income modified by certain adjustments and increased by the taxpayer's
"items of tax preference," including the adjustment for corporate current
earnings and the tax preference for tax-exempt interest on private activity
bonds described above) for the taxable year in excess of the exemption amount,
less (ii) the alternative minimum tax foreign tax credit for the taxable year.
The exemption amount is $40,000 for corporations, $45,000 for those filing joint
returns, lesser amounts for others, and is phased out over certain income
levels. Prospective investors should consult their own tax advisers with respect
to the possible application of the alternative minimum tax to their tax
situations.
In addition, the receipt of New York Municipal Fund dividends and
distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporation shareholder's federal
"excess net passive income" tax liability. Shareholders should consult their own
tax advisers as to whether they are (i) substantial users with respect to a
facility or related to such users within the meaning of the Code or (ii) subject
to a federal alternative minimum tax, any applicable state alternative minimum
tax, the federal branch profit tax, or the federal excess net passive income
tax. Shareholders who are recipients of Social Security benefits should be aware
that tax-exempt interest dividends received from the Fund are included in their
"modified adjusted gross income" for purposes of determining the amount of such
Social Security benefits, if any, that are required to be included in their
gross income.
While the New York Municipal Fund does not expect to realize a
significant amount of net capital gains, any such gains realized will be
distributed annually as described in the Fund's Prospectus. Such distributions
("capital gain dividends"), if any, will be taxable to the shareholders as long-
term capital gains, regardless of how long a shareholder has held the
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Fund's shares, and will be designated as capital gain dividends in a written
notice mailed by the Fund to the shareholders after the close of the Fund's
prior taxable year. If a shareholder receives a capital gain dividend with
respect to any share and if such share is held by the shareholder for six months
or less, then any loss (to the extent not disallowed pursuant to the other six
month rule described above) on the sale or exchange of such share, to the extent
of the capital gain dividend, shall be treated as a long-term capital loss. The
maximum tax rate for individuals imposed on net capital gains is 28% whereas the
maximum marginal income tax rate is 39.6%. Up to the 28% maximum, all capital
gains, whether long-term or short-term, are taxed as ordinary income.
Capital gain distributions by the New York Municipal Fund result
in a reduction in the net asset value of the Fund's shares. Should a
distribution reduce the net asset value below a shareholder's cost basis, such
distribution would nevertheless be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
consider the tax implications of buying shares just prior to a distribution. The
price of shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive a
partial return of capital upon the distribution, which will nevertheless be
taxable to them.
If, for any full fiscal year, the New York Municipal Fund's total
distributions exceed net investment income and net realized capital gains, the
excess distributions may be treated as a taxable dividend or as a tax-free
return of capital (up to the amount of the shareholder's tax basis in his or her
shares). The amount treated as a tax-free return of capital will reduce a
shareholder's adjusted basis in his or her shares. Pursuant to the requirements
of the 1940 Act and other applicable laws, a notice will accompany any
distribution paid from sources other than net investment income. In the event
the Fund distributes amounts in excess of its net investment income and net
realized capital gains, such distributions may have the effect of decreasing the
Fund's total assets, which may increase the Fund's expense ratio.
Dividends derived by the New York Municipal Fund from tax-exempt
interest are designated as tax-exempt in the same percentage of the day's
dividend as the actual tax-exempt income earned on that day. Thus, the
percentage of the dividend designated as tax-exempt may vary from day to day.
Similarly, dividends derived by the Fund from interest on New York State
Municipal Obligations will be designated as exempt from New York's personal
income taxation in the same percentage of the day's dividend as the actual
interest on New York's Municipal Obligations earned on that day.
It should be noted that the portion of any New York Municipal
Fund dividends constituting New York exempt-interest dividends is excludable
from income for New York State and New York City personal income tax purposes
only. Any dividends paid to the Fund's shareholders subject to state or city
franchise or corporate income tax therefore may be taxed as ordinary dividends
to such shareholders, notwithstanding that all or a portion of such dividends is
exempt from state or city personal income tax.
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Potential shareholders in the New York Municipal Fund, including,
in particular, corporate shareholders which may be subject to either New York
franchise tax or New York corporate income tax, should consult their tax
advisers with respect to (i) the application of corporate and franchise taxes to
the receipt of Fund dividends and as to their own state tax situation in
general, and (ii) the application of other state and local taxes to the receipt
of the Fund's dividends and distributions.
Although the New York Municipal Fund expects to be relieved of
all or substantially all federal, New York State and New York City income or
franchise taxes, depending upon the extent of its activities in other states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Fund would reduce the amount of income and gains
available for distribution to shareholders.
Investment in Passive Foreign Investment Companies (Fixed Income and Global
Fixed Income Funds only)
If a Fund purchases shares in certain foreign entities classified
under the Code as "passive foreign investment companies" ("PFICs"), the Fund may
be subject to federal income tax on a portion of an "excess distribution" or
gain from the disposition of the shares, even though the income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
gain on the disposition of shares in a PFIC generally is treated as ordinary
income even though the shares are capital assets in the hands of the Fund.
Certain interest charges may be imposed on either the Fund or its shareholders
with respect to any taxes arising from excess distributions or gains on the
disposition of shares in a PFIC.
A Fund may be eligible to elect to include in its gross income
its share of earnings of a PFIC on a current basis. Generally, the election
would eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did not
make the election. In addition, information required to make such an election
may not be available to the Fund.
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 a 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 a Fund.
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DETERMINATION OF PERFORMANCE
From time to time, a Fund may quote the total return of its
Common Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders.
Performance (Common Shares)
(performance figures calculated without the waiver of fees
by a Fund's service provider(s), if any, are noted in parenthesis)
<TABLE>
<CAPTION>
Period from the
commencement of
One-year period ended Five-year period ended operations and ended
October 31, 1996 October 31, 1996 October 31, 1996
-------------------- ---------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Fund 6.80% (6.64%) 8.03% (7.85%) 8.11% (7.93%)
(commenced operations
on August 17, 1987)
Global Fixed Income
Fund 11.35% (10.77%) 9.20% (8.04%) 8.93% (7.52%)
(commenced operations
on November 1, 1990)
Intermediate Maturity
Government Fund 5.16% (4.68%) 6.85% (6.45%) 8.34% (7.64%)
(commenced operations
on August 22, 1988)
New York Municipal Fund 4.87% (4.69%) 6.23% (5.98%) 6.00% (5.37%)
(commenced operations
on April 1, 1987)
</TABLE>
These figures constitute the average annual total return for the periods listed.
Performance (Advisor Shares)
(performance figures calculated without the waiver of fees
by a Fund's service provider(s), if any, are noted in parenthesis)
<TABLE>
<CAPTION>
Period from the
commencement of
operations and ended
October 31, 1996
--------------------
<S> <C> <C>
Fixed Income Fund 3.93% (3.89%)
(Advisor Class
commenced operations
on July 3, 1996)
Global Fixed Income 3.41% (3.30%)
Fund
(Advisor Class
commenced operations
on August 12, 1996)
</TABLE>
65
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
New York Municipal Fund 0.88% (.88%)
(Advisor Class
commenced operations
on August 5, 1996)
</TABLE>
These figures constitute the non-annualized total return for the period listed.
These figures are calculated by finding the average annual
compounded rates of return for the one-, five- and ten- (or such shorter period
as the relevant class of shares has been offered) year periods that would equate
the initial amount invested to the ending redeemable value according to the
following formula: P (1 + T)n = ERV. For purposes of this formula, "P" is a
hypothetical investment of $1,000; "T" is average annual total return; "n" is
number of years; and "ERV" is the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the one-, five- or ten-year periods (or
fractional portion thereof). Total return or "T" is computed by finding the
average annual change in the value of an initial $1,000 investment over the
period and assumes that all dividends and distributions are reinvested during
the period. Investor should note that the performance may not be representative
of the Fund's total return over longer market cycles.
A Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Fund may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph except
that the relevant measuring period would be the number of months that have
elapsed in the current calendar year or most recent three months, as the case
may be.
Yield is calculated by annualizing the net investment income
generated by a Fund over a specified thirty-day period according to the
following formula:
YIELD = 2[( a-b +1)'pp'6 -1]
----------
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
<TABLE>
<CAPTION>
30-day annualized current yield
Fund (Common and Advisor Shares) as of October 31, 1996
- ---- ----------------------
<S> <C>
Fixed Income Fund 6.09%
Global Fixed Income Fund 5.75%
Intermediate Maturity Government Fund (Common Shares
only) 5.96%
New York Municipal Fund 4.23%
</TABLE>
Tax equivalent yield is calculated over a specified thirty-day
period by dividing that portion of the Fund's yield which is tax-exempt by one
minus a stated income tax rate and
66
<PAGE>
<PAGE>
adding the product to that portion, if any, of the yield of the Municipal Fund
that is not tax-exempt. The New York Municipal Fund's tax-equivalent yield for
the thirty-day period ending October 31, 1996 was 7.54%.
The performance of a class of a Fund shares will vary from time
to time depending upon market conditions, the composition of the Fund's
portfolio and operating expenses allocable to it. As described above, total
return and yield are based on historical earnings and are not intended to
indicate future performance. Consequently, any given performance quotation
should not be considered as representative of performance for any specified
period in the future. Performance information may be useful as a basis for
comparison with other investment alternatives. However, the Fund's performance
will fluctuate, unlike certain bank deposits or other investments which pay a
fixed yield for a stated period of time. Any fees charged by Institutions or
other institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's performance figures
and such fees, if charged, will reduce the actual return received by customers
on their investments.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Funds. The financial statements for the fiscal
years ended October 31, 1994, October 31, 1995 and October 31, 1996 that are
incorporated by reference in this Statement of Additional Information have been
audited by Coopers & Lybrand, whose report thereon appears elsewhere herein and
have been included herein in reliance upon the report of such firm of
independent accountants given upon their authority as experts in accounting and
auditing.
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 accountants, 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 Seventh Avenue, New York, New York 10019.
Willkie Farr & Gallagher serves as counsel for the Funds as well
as counsel to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of December 31, 1996, there were no persons (other than Mr.
Furth, see "Management of the Fund") that owned of record 5% or more of a Fund's
outstanding shares.
<TABLE>
<CAPTION>
Fixed Income Fund Common Shares Advisor Shares
- ----------------- ------------- --------------
<S> <C> <C>
Charles Schwab & Co., Inc. 10.56%
Reinvest Account
Attn.: Mutual Funds
Department
101 Montgomery Street
San Francisco, CA 94104-4122
IN Trust 99.99%
Attn.: Joyce Vega
237 Park Avenue, Suite 910
New York, NY 10017-3140
Nat'l Financial Svcs. Corp. 13.39%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Smith Barney Inc. 7.36%
Book Entry Account
Attn.: Matt Maestri
333 West 34 Street
7th Floor Mutual Funds Dept.
New York, NY 10001-2483
</TABLE>
The Fixed Income Fund believes that these entities are not the
beneficial owner of shares held of record by them. Mr. Lionel I. Pincus,
Chairman of the Board and Chief Executive Officer of Warburg,
67
<PAGE>
<PAGE>
may be deemed to have beneficially owned 39.17% of the Fixed Income Fund's
Common Shares outstanding, including shares owned by clients for which Warburg
has investment discretion and by companies that Warburg may be deemed to
control. Mr. Pincus disclaims ownership of these shares and does not intend to
exercise voting rights with respect to these shares.
<TABLE>
<CAPTION>
Global Fixed Income Fund Common Shares Advisor Shares
- ------------------------ ------------- --------------
<S> <C> <C>
Charles Schwab & Co., Inc. 27.68%
Reinvest Account
Attn.: Mutual Funds
Department
101 Montgomery Street
San Francisco, CA 94104-4122
Charles Schwab & Co., Inc. 6.71%
Cash Account
Attn.: Mutual Funds
Department
101 Montgomery Street
San Francisco, CA 94104-4122
IBJ Funds Distributor Inc. 99.15%
Attn.: P. Fountaine
237 Park Avenue, Suite 910
New York, NY 10017-3140
Nat'l Financial Svcs. Corp. 13.12%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>
The Global Fixed Income 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 Warburg, may be deemed to
have beneficially owned 25.06% of the Global Fixed Income Fund's Common Shares
outstanding, including shares owned by clients for which Warburg has investment
discretion and by companies that Warburg may be deemed to control. Mr. Pincus
disclaims ownership of these shares and does not intend to exercise voting
rights with respect to these shares.
<TABLE>
<CAPTION>
Intermediate Maturity Common Shares Advisor Shares
- --------------------- ------------- --------------
Government Fund
- ---------------
<S> <C> <C>
Charles Schwab & Co., Inc. 20.74%
Reinvest Account
Attn.: Mutual Funds
Department
101 Montgomery Street
San Francisco, CA 94104-4122
Nat'l Financial Svcs. Corp. 7.36%
FBO Customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
</TABLE>
The Government Fund believes that these entities are not the
beneficial owner of shares held of record by them. Mr. Lionel I. Pincus,
Chairman of the Board and Chief Executive Officer of Warburg, may be deemed to
have beneficially owned 33.35% of the Government Fund's Common Shares
outstanding, including shares owned by clients for which Warburg has investment
discretion and by companies that Warburg may be deemed to control. Mr. Pincus
disclaims ownership of these shares and does not intend to exercise voting
rights with respect to these shares.
<TABLE>
<CAPTION>
New York Municipal Fund Common Shares Advisor Shares
- ----------------------- ------------- --------------
<S> <C> <C>
Boston Financial Data 33.65%
Services, Inc.
Corporate Actions Reinvest
Audit Acct #2 FD 37
WP NY Inter Muni Advisor
2 Heritage Drive, 8th Floor
No. Quincy, MA 02171-2144
Boston Financial Data 33.65%
Services, Inc.
Corporate Actions Fiduciary
Audit Acct #4 FD 37
WP NY Inter Muni Advisor
2 Heritage Drive, 8th Floor
No. Quincy, MA 02171-2144
Boston Financial Data 32.70%
Services, Inc.
Corporate Actions Cash
Audit Acct #1 FD 37
WP NY Inter Muni Advisor
2 Heritage Drive, 8th Floor
No. Quincy, MA 02171-2144
Charles Schwab & Co., Inc. 6.36%%
Reinvest Account
Attn.: Mutual Funds
Department
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
Mr. Lionel I. Pincus, Chairman of the Municipal Fund's Board and
Chief Executive Officer of Warburg, may be deemed to have beneficially owned
53.95% of the New York Municipal Fund's Common Shares outstanding, including
shares owned by clients for which Warburg has investment discretion and by
companies that Warburg may be deemed to control. Mr. Pincus disclaims
ownership of these shares and does not intend to exercise voting rights with
respect to these shares.
FINANCIAL STATEMENTS
Each Fund's audited annual report, dated October 31, 1996, which
either accompanies this Statement of Additional Information or has previously
been provided to the investor to whom this Statement of Additional Information
is being sent, is incorporated herein by reference. Each Fund will furnish
without charge a copy of its annual report upon request by calling Warburg
Pincus Funds at (800) 927-2874.
68
<PAGE>
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Although it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominately speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have
A-1
<PAGE>
<PAGE>
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which
no interest is being paid. Such debt is rated between debt rated C and debt
rated D.
To provide more detailed indications of credit quality, the
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
exceptionally stable margin and principal is secure.
A-2
<PAGE>
<PAGE>
While the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
the bonds rated "Aa" through "B". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-3
<PAGE>
<PAGE>
Short-Term Note Ratings
The following summarizes the two highest ratings used by S&P for
short-term notes:
SP-1 - Loans bearing this designation evidence a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus sign
designation.
SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest.
The following summarizes the two highest ratings used by Moody's
for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1 - Obligations bearing these designations are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of high
quality with margins of protection ample although not so large as in the
preceding group.
Municipal Obligations Ratings
The following summarizes the ratings used by S&P for Municipal
Obligations:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Although adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominately speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-4
<PAGE>
<PAGE>
BB - Bonds rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which
no interest is being paid. Such debt is rated between debt rated C and debt
rated D.
To provide more detailed indications of credit quality, the
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the highest four municipal ratings used
by Moody's:
Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
A-5
<PAGE>
<PAGE>
Aa - Bonds which are rated as are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
NOTE: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols Aa1, A1, Baa1, Ba1, and B1.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-6
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements relating to Common Shares.
(1) Financial Statements included in Part A:
(a) Financial Highlights
(2) Financial Statements included in Part B (incorporated by
reference to the Fund's Annual Report dated October 31,
1996):
(a) Report of Coopers & Lybrand L.L.P., Independent
Accountants
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
1(a) Articles of Incorporation.1
(b) Amendment to Articles of Incorporation.1
(c) Articles Supplementary
2 By-Laws.1
3 Not applicable.
4 Form of Stock Certificates. 2
5 Investment Advisory Agreement.1
6 Form of Distribution Agreement.
7 Not applicable.
</TABLE>
- ------------------
1 Incorporated by reference to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A, filed with the Securities and Exchange
Commission on January 16, 1996.
2 Incorporated by reference; material provisions of this exhibit substantially
similar to those of the corresponding exhibit in Pre-Effective Amendment No.
2 to the Registration Statement of Warburg, Pincus Post-Venture Capital Fund,
Inc. filed on September 25, 1995 (Securities Act File No. 33-61225).
C-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
8(a) Form of Custodian Agreement with PNC Bank, as amended.3
(b) Form of Custodian Agreement with Fiduciary Trust Company
International, as amended.3
9(a) Form of Transfer Agency Agreement with State Street Bank &
Trust Company.3
(b) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc.3
(b-1) Form of Co-Administration Agreement with PFPC Inc.3
(c) Forms of Services Agreements.6
10(a) Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Fund.4
(b) Consent of Willkie Farr & Gallagher, counsel to the Fund.
11(a) Consent of Coopers & Lybrand L.L.P., Independent
Accountants.1
(b) Consent of Ernst & Young LLP, Independent Accountants.1
12 Not applicable.
13 Form of Purchase Agreement.3
14 Form of Retirement Plans.5
15(a) Form of Shareholder Services Plan.(7)
</TABLE>
- ------------------
3 Incorporated by reference; material provisions of this exhibit substantially
similar to those of the corresponding exhibit in Pre-Effective Amendment No.
1 to the Registration Statement on Form N-1A of Warburg, Pincus Trust filed
on June 14, 1995 (Securities Act File No. 33-58125).
4 Incorporated by reference to the Fund's filing pursuant to Rule 24f-2 under
the Securities Act of 1933 on December 27, 1996.
5 Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement of Warburg, Pincus Managed Bond Trust, filed on
February 28, 1995 (Securities Act File No. 33-73672).
6 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of Warburg, Pincus Japan Growth Fund, Inc. filed on
December 18, 1995 (Securities Act File No. 33-63653).
7 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A
of Warburg, Pincus Cash Reserve Fund, Inc. filed on June 28, 1995 (Securities
Act File No. 2-94840).
C-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
(b) Form of Distribution Plan.
16 Schedule for Computation of Total Return and Yield
Quotations relating to Common Shares.
17 Financial Data Schedule relating to Common Shares.
18 Form of Rule 18f-3 Plan.
</TABLE>
C-3
<PAGE>
<PAGE>
Item 25.
Persons Controlled by or Under Common Control with Registrant
From time to time, Warburg may be deemed to control the Fund and other
registered investment companies it advises through its beneficial ownership of
more than 25% of the relevant fund's shares on behalf of discretionary advisory
clients. Warburg has four wholly-owned subsidiaries: Counsellors Securities
Inc., a New York corporation; Counsellors Funds Service Inc., a New York
corporation; Counsellors Agency Inc., a New York corporation; and Warburg,
Pincus Investments International (Bermuda), Ltd., a Bermuda corporation.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class As of December 31, 1996
-------------- -----------------------
<S> <C>
Shares of common stock, par value 925
$.001 per share
Shares of common stock - Series 1, 0
par value $.001 per share
Shares of common stock - Series 2 5
("Advisor Shares"), par value $.001
per share
</TABLE>
Item 27. Indemnification
Registrant, officers and directors or trustees of Warburg, of
Counsellors Securities Inc. ("Counsellors Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. These policies provide insurance
for any "Wrongful Act" of an officer, director or trustee. Wrongful Act is
defined as breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer, Director or
Trustee in connection with the operation of Registrant. Insurance coverage does
not extend to (a) conflicts of interest or gaining in fact any profit or
advantage to which one is not legally entitled, (b) intentional non-compliance
with any statue or regulation or (c) commission of dishonest, fraudulent acts or
omissions. Insofar as it relates to Registrant, the coverage is limited in
amount and, in certain circumstances, is subject to a deductible.
C-4
<PAGE>
<PAGE>
Under Article VII of the Registrant's charter, no provision of
the charter shall be effective to protect or purport to protect any director or
officer of the Registrant against any liability to the Registrant or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Under Article V, Sections 1 and 2, of Registrant's By-Laws,
any past or present director or officer of Registrant will be indemnified to the
fullest extent permitted by law against liability and all expenses reasonably
incurred by him in connection with any action, suit or proceeding to which he
may be a part or otherwise involved by reason of his being or having been a
director or officer of Registrant. This provision does not authorize
indemnification when it is determined, in the manner specified in the By-Laws,
that the director or officer would otherwise be liable to Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties ("disqualifying conduct"). Expenses of a
director or officer may be paid by Registrant in advance of the final
disposition of any actions, suit or proceeding upon the satisfaction of certain
conditions including receipt of any undertaking by the director or officer to
repay the expenses to Registrant in the event that it is ultimately determined
that indemnification of the expenses is not authorized under the charter and
upon the satisfaction of any other conditions set forth in Registrant's By-Laws.
Under Article V, Section 6, of Registrant's By-Laws,
Registrant may purchase insurance on behalf of a director, officer, employee or
agent of Registrant against liability arising out of his acting as such or while
serving in similar capacities in other entities at Registrant's request.
Registrant may not obtain insurance for liabilities arising out of disqualifying
conduct.
Registrant's Investment Advisory Agreement with Warburg and
Distribution Agreement with Counsellors Securities contain provisions designed
to protect certain persons from liability, as follows: Section 5 of the
Investment Advisory Agreement provides that Warburg will not be liable for any
error of judgment or mistake of law or for any loss suffered by Registrant in
connection with matters to which the Agreement relates, except that Warburg is
not protected from liability by reason of disqualifying conduct. Section 4 of
the Distribution Agreement provides that Registrant will indemnify Counsellors
Securities and its officers, directors and control persons from liability
arising out of a misstatement or omission in Registrant's Registration
Statement, other than liability arising out of statements made by Counsellors
Securities and liability arising out of disqualifying conduct.
C-5
<PAGE>
<PAGE>
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission ("SEC") such indemnification is against
public policy as expressed in the act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of
Investment Adviser
Warburg, a wholly owned subsidiary of Warburg, Pincus
Counsellors G.P., acts as investment adviser to Registrant. Warburg renders
investment advice to a wide variety of individual and institutional clients. The
list required by this Item 28 of officers and directors of Warburg, together
with information as to their other business, profession, vocation or employment
of a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Warburg (SEC File No. 801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for The RBB
Fund, Inc., Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation
Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund;
Warburg Pincus Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg
Pincus Global Fixed Income Fund; Warburg Pincus Global Post-Venture Capital
Fund; Warburg Pincus Growth & Income Fund; Warburg Pincus Health Sciences Fund;
Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus Japan
Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus New York Intermediate
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus
Post-Venture Capital Fund; Warburg, Pincus Small Company Growth Fund; Warburg
Pincus Small Company Value Fund; Warburg Pincus Strategic Value Fund; Warburg
Pincus Tax Free Fund; Warburg Pincus Trust; and Warburg Pincus Trust II.
C-6
<PAGE>
<PAGE>
(b) For information relating to each director, officer or
partner of Counsellors Securities, reference is made to Form BD (SEC File No.
8-32482) filed by Counsellors Securities under the Securities Exchange Act of
1934.
Item 30. Location of Accounts and Records
<TABLE>
<S> <C>
(1) Warburg, Pincus Global Fixed Income Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, by-laws and minute books)
(2) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent and dividend
disbursing agent)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)
(5) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as custodian)
(6) Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048
(records relating to its functions as custodian)
(7) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(8) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
</TABLE>
C-7
<PAGE>
<PAGE>
<TABLE>
<S> <C>
(9) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusettsz 02171
(records relating to its functions as transfer agent and dividend
disbursing agent)
</TABLE>
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of Registrant's latest annual report
to shareholders, upon request and without charge.
(b) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
director or directors of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to communications with the
shareholders of certain common-law trusts.
C-8
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and the State of New York, on the 11th day of February, 1997.
WARBURG, PINCUS GLOBAL FIXED INCOME FUND, INC.
By: /s/ Dale C. Christensen
---------------------------
Dale C. Christensen
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John L. Furth Chairman of the Board of February 11, 1997
- ------------------------------- Directors
John L. Furth
/s/ Dale C. Christensen President February 11, 1997
- -------------------------------
Dale C. Christensen
/s/ Howard Conroy Vice President and Chief February 11, 1997
- ------------------------------- Financial Officer
Howard Conroy
/s/ Daniel S. Madden Treasurer and Chief Accounting February 11, 1997
- ------------------------------- Officer
Daniel S. Madden
/s/ Richard N. Cooper Director February 11, 1997
- -------------------------------
Richard N. Cooper
/s/ Donald J. Donahue Director February 11, 1997
- -------------------------------
Donald J. Donahue
/s/ Jack W. Fritz Director February 11, 1997
- -------------------------------
Jack W. Fritz
/s/ Thomas A. Melfe Director February 11, 1997
- -------------------------------
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director February 11, 1997
- -------------------------------
Alexander B. Trowbridge
/s/ Arnold M. Reichman Director February 11, 1997
- -------------------------------
Arnold M. Reichman
</TABLE>
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
1(c) Articles Supplementary.
6 Form of Distribution Agreement
10(b) Consent of Willkie Farr & Gallagher, counsel to the Fund.
11(a) Consent of Coopers & Lybrand L.L.P., Independent Accountants.
15(b) Form of Distribution Plan.
16 Schedule for Computation of Total Return and Yield Quotations relating to
Common Shares.
17 Financial Data Schedule relating to Common Shares.
18 Form of Rule 18f-3 Plan.
</TABLE>
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as..................................'tm'
The dagger symbol shall be expressed as ....................................'D'
Characters normally expressed as superscript shall be preceded by.......... 'pp'
<PAGE>
<PAGE>
WARBURG, PINCUS GLOBAL FIXED INCOME FUND, INC.
ARTICLES SUPPLEMENTARY
Warburg, Pincus Global Fixed Income Fund, Inc., a Maryland
corporation having its principal office in Baltimore City, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority of the Board of Directors
contained in the Charter of the Corporation, one billion (1,000,000,000) shares
of authorized but unissued shares of the Corporation's common stock ("Common
Stock") have been duly divided into and classified by the Board of Directors of
the Corporation as a series of Common Stock designated Advisor Shares ("Advisor
Shares").
SECOND: Each Advisor Share will have the same preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as every other
share of Common Stock, except that, subject to the provisions of any governing
order, rule or regulation issued pursuant to the Investment Company Act of 1940,
as amended:
(a) Advisor Shares will share equally with Common Stock other
than Advisor Shares ("Non-Advisor Shares") in the income, earnings and profits
derived from investment and reinvestment of the assets belonging to the
Corporation, and will be charged
<PAGE>
<PAGE>
equally with Non-Advisor Shares except that Advisor Shares will bear the expense
of payments made pursuant to any agreements entered into by the Corporation
pursuant to any shareholder services plan and/or distribution plan adopted by
the Corporation with respect to Advisor Shares;
(b) On any matter submitted to a vote of shareholders of the
Corporation that pertains to the agreements or expenses described in clause 2(a)
above (or to any plan adopted by the Corporation relating to said agreements or
expenses), only Advisor Shares will be entitled to vote, except that if said
matter affects Non-Advisor Shares, Non-Advisor Shares will also be entitled to
vote, and in such case Advisor Shares will be voted in the aggregate together
with such Non-Advisor Shares and not by series except where otherwise required
by law. Advisor Shares will not be entitled to vote on any matter that does not
affect Advisor Shares (except where otherwise required by law) even though the
matter is submitted to a vote of the holders of Non-Advisor Shares; and
(c) The Board of Directors of the Corporation in its sole
discretion may determine whether a matter affects a particular class or series
of Corporation Shares.
THIRD: The classification of authorized but unissued shares as
set forth in these Articles Supplementary does not increase the authorized
capital of the Corporation or the aggregate par value thereof.
-2-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles to
be signed in its name and on its behalf by its Vice President and its corporate
seal to be hereunto affixed and attested by its Assistant Secretary this 19th
day of November, 1996. The undersigned officers acknowledge that these Articles
Supplementary are the act of the Corporation, that to the best of their
knowledge, information and belief all matters and facts set forth herein
relating to the authorization and approval of these Articles are true in all
material respects, and that this statement is made under the penalties of
perjury.
WARBURG, PINCUS GLOBAL FIXED INCOME
FUND, INC.
/s/Eugene P. Grace
____________________________________
Eugene P. Grace
Vice President
ATTEST:
/s/Janna Manes
__________________________________
Janna Manes
Assistant Secretary
-3-
<PAGE>
<PAGE>
DISTRIBUTION AGREEMENT
December 31, 1996
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Warburg Pincus Funds (the "Fund") has
agreed that Counsellors Securities Inc. ("Counsellors Securities") shall be, for
the period of this Agreement, the distributor of shares of common stock of the
Fund, par value $.001 per share. The common stock not designated Advisor Shares
shall be referred to as the "Common Shares"."
1. Services as Distributor
1.1 Counsellors Securities will act as agent for the distribution of
the Common Shares and Advisor Shares covered by the Fund's registration
statement on Form N-1A, under the Securities Act of 1933, as amended (the "1933
Act"), and the Investment Company Act of 1940, as amended (the "1940 Act") (the
registration statement, together with the prospectuses (the "prospectus") and
statement of additional information (the "statement of additional information")
included as part of the registration statement, any amendments to the
registration statement, and any supplements to, or material incorporated by
reference into the prospectus or statement of additional information, being
referred to collectively in this Agreement as the "registration statement").
1.2 Counsellors Securities agrees to use appropriate efforts to
solicit orders for the sale of the Common Shares and Advisor Shares at such
prices and on the terms and conditions set forth in the registration statement
and will undertake such advertising and promotion as it believes is reasonable
in connection with such solicitation.
1.3 All activities by Counsellors Securities as distributor of the
Common Shares and Advisor Shares shall comply with all applicable laws, rules
and regulations, including, without limitation, all rules and regulations made
or adopted by the Securities and Exchange Commission (the "SEC") or by any
securities association registered under the Securities Exchange Act of 1934, as
amended.
<PAGE>
<PAGE>
1.4 Counsellors Securities agrees to (a) provide one or more persons
during normal business hours to respond to telephone questions concerning the
Fund and its performance, (b) provide prospectuses of other funds advised by
Warburg, Pincus Counsellors, Inc. to shareholders considering exercising the
exchange privilege and (c) perform such other services as are described in the
registration statement and in the Shareholder Servicing and Distribution Plan
(with respect to Common Shares, the "12b-1 Plan") and in the Distribution Plan
(with respect to Advisor Shares, the "Distribution Plan"), each adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1") to be performed by
Counsellors Securities, without limitation, distributing and receiving
subscription order forms and receiving written redemption requests.
1.5 Pursuant to the 12b-1 Plan, the Fund will pay Counsellors
Securities on the first business day of each quarter a fee for the previous
quarter calculated at an annual rate of .25% of the average daily net assets of
the Common Shares of the Fund as compensation for the services provided by
Counsellors Securities to the Common Shares pursuant to this Agreement.
Counsellors Securities serves without compensation as distributor for the
Advisor Shares pursuant to this Agreement. Amounts paid to Counsellors
Securities under the 12b-1 Plan may be used by Counsellors Securities to cover
expenses that are primarily intended to result in, or that are primarily
attributable to, (a) the sale of the Common Shares, as set forth in the 12b-1
Plan ("Selling Services"), (b) ongoing servicing and/or maintenance of the
accounts of holders of Common Shares, as set forth in the 12b-1 Plan
("Shareholder Services"), and/or (c) sub-transfer agency services, subaccounting
services or administrative services with respect to the Common Shares, as set
forth in the 12b-1 Plan ("Administrative Services" and collectively with Selling
Services and Administrative Services, "Services") including, without limitation,
(i) payments reflecting an allocation of overhead and other office expenses of
Counsellors Securities related to providing Services; (ii) payments made to, and
reimbursement of expenses of, persons who provide support services in connection
with the distribution of the Common Shares including, but not limited to, office
space and equipment, telephone facilities, answering routine inquiries regarding
the Fund, and providing any other Shareholder Services; (iii) payments made to
compensate selected dealers or other authorized persons for providing any
Services; (iv) costs relating to the formulation and implementation of marketing
and promotional activities for the Common Shares, including, but not limited to,
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, and related travel and entertainment expenses; (v) costs of
printing and distributing prospectuses, statements of additional information and
reports of the Fund to prospective holders of Common Shares; and (vi) costs
involved in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities for the
2
<PAGE>
<PAGE>
Common Shares that the Fund may, from time to time, deem advisable.
1.6 Counsellors Securities acknowledges that, whenever in the
judgment of the Fund's officers such action is warranted for any reason,
including, without limitation, market, economic or political conditions, those
officers may decline to accept any orders for, or make any sales of, the Common
Shares or Advisor Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Counsellors Securities will act only on its own behalf as
principal should it choose to enter into selling agreements with selected
dealers or others.
1.8 Counsellors Securities will transmit any orders received by it
for purchase or redemption of the Common Shares and Advisor Shares to State
Street Bank and Trust Company ("State Street"), the Fund's transfer and dividend
disbursing agent, or its successor of which Counsellors Securities is notified
in writing. The Fund will promptly advise Counsellors Securities of the
determination to cease accepting orders or selling Common Shares or Advisor
Shares or to recommence accepting orders or selling Common Shares or Advisor
Shares. The Fund (or its agent) will confirm orders for Common Shares and
Advisor Shares placed through Counsellors Securities upon their receipt, or in
accordance with any exemptive order of the SEC, and will make appropriate book
entries pursuant to the instructions of Counsellors Securities. Counsellors
Securities agrees to cause payment for Common Shares and Advisor Shares and
instructions as to book entries to be delivered promptly to the Fund (or its
agent).
1.9 The outstanding Common Shares and Advisor Shares are subject to
redemption as set forth in the prospectus. The price to be paid to redeem the
Common Shares and Advisor Shares will be determined as set forth in the
prospectus.
1.10 Counsellors Securities will prepare and deliver reports to the
Treasurer of the Fund on a regular, at least quarterly, basis, showing the
distribution expenses incurred pursuant to this Agreement, the 12b-1 Plan and
the Distribution Plan adopted by the Fund pursuant to Rule 12b-1 and the
purposes therefor, as well as any supplemental reports as the Directors from
time to time may reasonably request.
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions that
may be reasonably necessary in connection with the sale of Common Shares and
Advisor Shares in those states that Counsellors Securities may designate.
3
<PAGE>
<PAGE>
2.2 The Fund shall furnish from time to time, for use in connection
with the sale of the Common Shares and Advisor Shares, such informational
reports with respect to the Fund and the Common Shares and Advisor Shares as
Counsellors Securities may reasonably request, all of which shall be signed by
one or more of the Fund's duly authorized officers; and the Fund warrants that
the statements contained in any such reports, when so signed by one or more of
the Fund's officers, shall be true and correct. The Fund shall also furnish
Counsellors Securities upon request with: (a) annual audits of the Fund's books
and accounts made by independent public accountants regularly retained by the
Fund, (b) semiannual unaudited financial statements pertaining to the Fund, (c)
quarterly earnings statements prepared by the Fund, (d) a monthly itemized list
of the securities held by the Fund, (e) monthly balance sheets as soon as
practicable after the end of each month and (f) from time to time such
additional information regarding the Fund's financial condition as Counsellors
Securities may reasonably request.
3. Representations and Warranties
The Fund represents to Counsellors Securities that all registration
statements, prospectuses and statements of additional information filed by the
Fund with the SEC under the 1933 Act and the 1940 Act with respect to the Common
Shares and/or Advisor Shares have been carefully prepared in conformity with the
requirements of the 1933 Act, the 1940 Act and the rules and regulations of the
SEC thereunder. As used in this Agreement the terms "registration statement",
"prospectus" and "statement of additional information" shall mean any
registration statement, prospectus and statement of additional information filed
by the Fund with respect to the Common Shares and/or Advisor Shares with the SEC
and any amendments and supplements thereto which at any time shall have been
filed with the SEC. The Fund represents and warrants to Counsellors Securities
that any registration statement with respect to the Common Shares and/or Advisor
Shares, or prospectus and statement of additional information contained therein,
when such registration statement becomes effective, will include all statements
required to be contained therein in conformity with the 1933 Act, the 1940 Act
and the rules and regulations of the SEC; that all statements of fact contained
in any registration statement with respect to the Common Shares and/or Advisor
Shares, prospectus or statement of additional information will be true and
correct when such registration statement becomes effective; and that neither any
registration statement nor any prospectus or statement of additional information
with respect to the Common Shares and/or Advisor Shares when such registration
statement becomes effective will include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading to a purchaser of the Common Shares
and/or Advisor Shares. Counsellors Securities may, but shall not be obligated
to, propose from time to time
4
<PAGE>
<PAGE>
such amendment or amendments to any registration statement and such supplement
or supplements to any prospectus or statement of additional information as, in
the light of future developments, may, in the opinion of Counsellors Securities'
counsel, be necessary or advisable. If the Fund shall not propose such amendment
or amendments and/or supplement or supplements within fifteen (15) days after
receipt by the Fund of a written request from Counsellors Securities to do so,
Counsellors Securities may, at its option, terminate this Agreement. The Fund
shall not file any amendment to any registration statement or supplement to any
prospectus or statement of additional information without giving Counsellors
Securities reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Fund's right to file at
any time such amendments to any registration statement and/or supplements to any
prospectus or statement of additional information with respect to the Common
Shares and/or Advisor Shares, of whatever character, as the Fund may deem
advisable, such right being in all respects absolute and unconditional.
4. Indemnification
4.1 The Fund agrees to indemnify, defend and hold Counsellors
Securities, its several officers and directors, and any person who controls
Counsellors Securities within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Counsellors Securities, its officers and directors, or any such controlling
person, may incur under the 1933 Act, the 1940 Act or common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement, any prospectus or any
statement of additional information with respect to the Common Shares and/or
Advisor Shares, or arising out of or based upon any omission or alleged omission
to state a material fact required to be stated in any registration statement,
any prospectus or any statement of additional information with respect to the
Common Shares and/or Advisor Shares, or necessary to make the statements in any
of them not misleading; provided, however, that the Fund's agreement to
indemnify Counsellors Securities, its officers or directors, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of or based upon any statements or representations made
by Counsellors Securities or its representatives or agents other than such
statements and representations as are contained in any registration statement,
prospectus or statement of additional information with respect to the Common
Shares and/or Advisor Shares and in such financial and other statements as are
furnished to Counsellors Securities pursuant to paragraph 2.2 hereof; and
further provided that the Fund's agreement to indemnify Counsellors Securities
and the Fund's representations
5
<PAGE>
<PAGE>
and warranties hereinbefore set forth in paragraph 3 shall not be deemed to
cover any liability to the Fund or its shareholders to which Counsellors
Securities would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
Counsellors Securities' reckless disregard of its obligations and duties under
this Agreement. The Fund's agreement to indemnify Counsellors Securities, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Fund's being notified of any action brought
against Counsellors Securities, its officers or directors, or any such
controlling person, such notification to be given by letter or by telegram
addressed to the Fund at its principal office in New York, New York and sent to
the Fund by the person against whom such action is brought, within ten (10) days
after the summons or other first legal process shall have been served. The
failure to so notify the Fund of any such action shall not relieve the Fund from
any liability that the Fund may have to the person against whom such action is
brought by reason of any such untrue or alleged untrue statement or omission or
alleged omission otherwise than on account of the Fund's indemnity agreement
contained in this paragraph 4.1. The Fund's indemnification agreement contained
in this paragraph 4.1 and the Fund's representations and warranties in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of Counsellors Securities, its officers and
directors, or any controlling person, and shall survive the delivery of any of
the Fund's shares. This agreement of indemnity will inure exclusively to
Counsellors Securities' benefit, to the benefit of its several officers and
directors, and their respective estates, and to the benefit of the controlling
persons and their successors. The Fund agrees to notify Counsellors Securities
promptly of the commencement of any litigation or proceedings against the Fund
or any of its officers or directors in connection with the issuance and sale of
any of the Common Shares and/or Advisor Shares.
4.2 Counsellors Securities agrees to indemnify, defend and hold the
Fund, its several officers and directors, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that the Fund, its officers or
directors or any such controlling person may incur under the 1933 Act, the 1940
Act or common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its officers or directors or such controlling
person resulting from such claims or demands shall arise out of or be based upon
(a) any unauthorized sales literature, advertisements, information, statements
or representations or (b) any untrue or alleged untrue statement of a material
fact contained in information furnished in writing by Counsellors Securities to
the Fund specifically for use in the
6
<PAGE>
<PAGE>
registration statement and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the prospectus
or statement of additional information, or shall arise out of or be based upon
any omission or alleged omission to state a material fact in connection with
such information furnished in writing by Counsellors Securities to the Fund and
required to be stated in such answers or necessary to make such information not
misleading. Counsellors Securities' agreement to indemnify the Fund, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon Counsellors Securities' being notified of any action
brought against the Fund, its officers or directors, or any such controlling
person, such notification to be given by letter or telegram addressed to
Counsellors Securities at its principal office in New York, New York and sent to
Counsellors Securities by the person against whom such action is brought, within
ten (10) days after the summons or other first legal process shall have been
served. The failure to so notify Counsellors Securities of any such action shall
not relieve Counsellors Securities from any liability that Counsellors
Securities may have to the Fund, its officers or directors, or to such
controlling person by reason of any such untrue or alleged untrue statement or
omission or alleged omission otherwise than on account of Counsellors
Securities' indemnity agreement contained in this paragraph 4.2. Counsellors
Securities agrees to notify the Fund promptly of the commencement of any
litigation or proceedings against Counsellors Securities or any of its officers
or directors in connection with the issuance and sale of any of the Common
Shares and/or Advisor Shares.
4.3 In case any action shall be brought against any indemnified party
under paragraph 4.1 or 4.2, and it shall timely notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel would be
inappropriate due to actual or potential differing interests between them in the
conduct of the defense of such action.
5. Effectiveness of Registration
7
<PAGE>
<PAGE>
None of the Common Shares or Advisor Shares shall be offered by
either Counsellors Securities or the Fund under any of the provisions of this
Agreement and no orders for the purchase or sale of the Common Shares or Advisor
Shares shall be accepted by the Fund if and so long as the effectiveness of the
registration statement shall be suspended under any of the provisions of the
1933 Act or if and so long as the prospectus is not on file with the SEC;
provided, however, that nothing contained in this paragraph 5 shall in any way
restrict or have an application to or bearing upon the Fund's obligation to
repurchase its shares from any shareholder in accordance with the provisions of
the prospectus or statement of additional information.
6. Notice to Counsellors Securities
The Fund agrees to advise Counsellors Securities immediately in
writing:
(a) of any request by the SEC for amendments to the
registration statement, prospectus or statement of additional
information then in effect with respect to the Common Shares and/or
Advisor Shares or for additional information;
(b) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the registration statement,
prospectus or statement of additional information then in effect with
respect to the Common Shares and/or Advisor Shares or the initiation of
any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement,
prospectus or statement of additional information then in effect with
respect to the Common Shares and/or Advisor Shares or that requires the
making of a change in such registration statement, prospectus or
statement of additional information in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with respect to any
amendment to any registration statement, prospectus or statement of
additional information with respect to the Common Shares or Advisor
Shares which may from time to time be filed with the SEC.
7. Term of Agreement
This Agreement shall continue until April 17, 1998 with respect to
each of the Common Shares and Advisor Shares, and thereafter shall continue
automatically for successive annual periods ending on April 17th of each year,
provided such continuance is specifically approved at least annually by (a) a
8
<PAGE>
<PAGE>
vote of a majority of the Fund's Board of Directors or (b) a vote of a majority
(as defined in the 1940 Act) of each of the outstanding Common Shares and
Advisor Shares, respectively, provided that the continuance is also approved by
a vote of a majority of the Fund's Directors who are not interested persons (as
defined in the 1940 Act) of the Fund and who have no direct or indirect
financial interest in the operation of the 12b-1 Plan or the Distribution Plan,
in this Agreement or in any agreement related to the 12b-1 Plan or Distribution
Plan ("Qualified Directors"), by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable with respect to
the Common Shares or the Advisor Shares without penalty (a) on sixty (60) days'
written notice, by a vote of a majority of the Fund's Qualified Directors or by
vote of a majority (as defined in the 1940 Act) of the outstanding Common Shares
or Advisor Shares, as applicable, or (b) on ninety (90) days' written notice by
Counsellors Securities. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
8. Amendments
This Agreement may not be amended to increase materially the
amount of the fee with respect to the Common Shares described in Section 1.5
above without approval of at least a majority (as defined in the 1940 Act) of
the outstanding Common Shares. In addition, all material amendments to this
Agreement must be approved by vote of the Fund's Board of Directors, and by a
vote of a majority of the Qualified Directors, cast in person at a meeting
called for the purpose of voting on the approval.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
By: ________________________________
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By: ____________________________________
Name:
9
<PAGE>
<PAGE>
CONSENT OF COUNSEL
Warburg, Pincus Global Fixed Income Fund, Inc.
We hereby consent to being named in the Statement of
Additional Information included in Post-Effective Amendment No. 7 (the
"Amendment") to the Registration Statement on Form N-1A (Securities Act File No.
33-36066, Investment Company Act File No. 811-06143) of Warburg, Pincus Global
Fixed Income Fund, Inc. (the "Fund") under the caption "Independent
Accountants and Counsel" and to the Fund's filing a copy of this Consent as an
exhibit to the Amendment.
/s/Willkie Farr & Gallagher
---------------------------
Willkie Farr & Gallagher
February 11, 1997
New York, New York
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 7 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (File No. 33-36066) of our report dated December 18, 1996 on our audit of
the financial statements and financial highlights of Warburg, Pincus Global
Fixed Income Fund, Inc. We also consent to the reference to our Firm under the
heading "Financial Highlights" in the Prospectus and under the heading
"Independent Accountants and Counsel" in the Statement of Additional
Information.
/s/Coopers & Lybrand L.L.P.
- ---------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1997
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
DISTRIBUTION PLAN
This Distribution Plan (the "Plan") is adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), by each of the Warburg Pincus Funds (the "Fund"), subject to the
following terms and conditions:
Section 1. Distribution Agreements; Annual Fee.
Any officer of the Fund or Counsellors Securities Inc., the
Fund's distributor ("Counsellors Securities"), is authorized to execute and
deliver written agreements (the "Agreements") in any form duly approved by the
Board of Directors/Trustees of the Fund (the "Board") with institutional
shareholders of record, broker-dealers, financial institutions, depository
institutions, retirement plans and other financial intermediaries ("Service
Organizations") relating to shares of the Fund's common stock, par value $.001
per share, designated Advisor Shares (the "Advisor Shares"). Pursuant to an
Agreement, Service Organizations will be paid an annual fee out of the assets of
the Fund by the Fund directly or by Counsellors Securities on behalf of the Fund
for providing (a) services primarily intended to result in the sale of Advisor
Shares ("Distribution Services"), (b) shareholder servicing to their customers
or clients who are the record and/or the beneficial owners of Advisor Shares
("Customers") ("Shareholder Services") and/or (c) administrative and accounting
services to Customers ("Administrative Services"). A Service Organization will
be paid an annual fee under the Plan calculated daily and paid monthly at an
annual rate of up to .50% of the average daily net assets of the Advisor Shares
held by or on behalf of its Customers ("Customers' Shares") with respect to
Distribution Services and/or Administrative Services and may be paid an annual
fee of up to .25% of the average daily net assets of Customers' Shares with
respect to Shareholder Services.
Section 2. Services.
The annual fee paid to Service Organizations under Section 1 of
the Plan with respect to Distribution Services, if any, will compensate Service
Organizations to cover certain expenses primarily intended to result in the sale
of Advisor Shares, including, but not limited to: (a) costs of payments made to
employees that engage in the distribution of Advisor Shares; (b) payments made
to, and expenses of, persons who provide support services in connection with the
distribution of Advisor Shares, including, but not limited to, office space and
equipment, telephone facilities, processing shareholder transactions and
providing any other shareholder services not otherwise provided by the Fund's
transfer agent; (c) costs relating to the formulation and implementation of
marketing and
<PAGE>
<PAGE>
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising; (d)
costs of printing and distributing prospectuses, statements of additional
information and reports of the Fund to prospective holders of Advisor Shares;
(e) costs involved in preparing, printing and distributing sales literature
pertaining to the Fund and (f) costs involved in obtaining whatever information,
analyses and reports with respect to marketing and promotional activities that
the Fund may, from time to time, deem advisable.
The annual fee paid to Service Organizations under Section 1 of
the Plan with respect to Shareholder Services, if any, will compensate Service
Organizations for personal service and/or the maintenance of Customer accounts,
including but not limited to (a) responding to Customer inquiries, (b) providing
information on Customer investments and (c) providing other shareholder liaison
services.
The annual fee paid to Service Organizations under Section 1 of
the Plan with respect to Administrative Services, if any, will compensate
Service Organizations for administrative and accounting services to their
Customers, including, but not limited to: (a) aggregating and processing
purchase and redemption requests from Customers and placing net purchase and
redemption orders with the Fund's distributor or transfer agent; (b) providing
Customers with a service that invests the assets of their accounts in Advisor
Shares; (c) processing dividend payments from the Fund on behalf of Customers;
(d) providing information periodically to Customers showing their positions in
Advisor Shares; (e) arranging for bank wires; (f) providing sub-accounting with
respect to Advisor Shares beneficially owned by Customers or the information to
the Fund necessary for sub-accounting; (g) forwarding shareholder communications
from the Fund (for example, proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers,
if required by law and (h) providing other similar services to the extent
permitted under applicable statutes, rules and regulations.
Payments under this Plan are not tied exclusively to the expenses
for shareholder servicing, administration and distribution expenses actually
incurred by any Service Organization, and the payments may exceed expenses
actually incurred by any Service Organization.
Section 3. Additional Payments.
Counsellors Securities, Warburg, Pincus Counsellors, Inc., the
Fund's investment adviser ("Warburg"), Counsellors Funds Service, Inc., the
Fund's co-administrator ("Counsellors Service"), or any affiliate of any of the
foregoing may, from time to time, make payments to Service Organizations for
providing distribution, administrative, accounting and/or other
<PAGE>
<PAGE>
services with respect to holders of Advisor Shares. Counsellors Securities,
Warburg, Counsellors Service or any affiliate thereof may, from time to time, at
their own expense, pay certain Fund transfer agent fees and expenses related to
accounts of Customers of Service Organizations that have entered into
Agreements. A Service Organization may use a portion of the fees paid pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of Customers of the Service Organization that hold Advisor
Shares. Payments by the Fund under this Plan shall not be made to a Service
Organization with respect to services for which the Service Organization is
otherwise compensated by Counsellors Securities, Warburg, Counsellors Service or
any affiliate thereof.
Payments may be made to Service Organizations by Counsellors
Securities, Warburg, Counsellors Service or any affiliate thereof from any such
entity's own resources, which may include a fee it receives from the Fund.
Section 4. Monitoring.
Counsellors Securities shall monitor the arrangements pertaining
to the Fund's Agreements with Service Organizations.
Section 5. Approval by Shareholders.
The Plan is effective, and fees are payable in accordance with
Section 1 of the Plan pursuant to the approval of the Plan by a vote of at least
a majority of the outstanding voting Advisor Shares.
Section 6. Approval by Board Members.
The Plan is effective, and payments under any related agreement
may be made pursuant to the approval of the Plan and such agreement by a
majority vote of both (a) the full Board of the Fund and (b) those
Directors/Trustees ("Board Members") who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to it (the "Qualified Board Members"), cast in
person at a meeting called for the purpose of voting on the Plan and the related
agreements.
Section 7. Continuance of the Plan.
The Plan will continue in effect for so long as its continuance
is specifically approved at least annually by the Fund's Board in the manner
described in Section 5 above.
Section 8. Termination.
The Plan may be terminated at any time by a majority vote of the
Qualified Board Members or by a majority of the outstanding voting Advisor
Shares.
<PAGE>
<PAGE>
Section 9. Amendments.
The Plan may not be amended to increase materially the amount of
the fees described in Section 1 above with respect to the Advisor Shares without
approval of at least a majority of the outstanding voting Advisor Shares. In
addition, all material amendments to the Plan must be approved by the Fund's
Board in the manner described in Section 6 above.
Section 10. Selection of Certain Board Members.
While the Plan is in effect, the selection and nomination of the
Fund's Board Members who are not interested persons of the Fund will be
committed to the discretion of the Board Members then in office who are not
interested persons of the Fund.
Section 11. Written Reports.
In each year during which the Plan remains in effect, Counsellors
Securities will furnish to the Fund's Board, and the Board will review, at least
quarterly, written reports, which set out the amounts expended under the Plan
and the purposes for which those expenditures were made.
Section 12. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating
to the Plan and any report made pursuant to Section 11 above, for a period of
not less than six years (the first two years in an easily accessible place) from
the date of the Plan, agreement or report.
Section 13. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority
of the outstanding voting securities" will be deemed to have the same meanings
that those terms have under the 1940 Act and the rules and regulations
thereunder, subject to any exemption that may be granted to the Fund under the
1940 Act by the Securities and Exchange Commission.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Fund has executed the Plan as of ________
__, 1996.
By:___________________________
Name:
Title:
Acknowledged this
____________ day of ________, 1996
COUNSELLORS SECURITIES INC.
By:_____________________________
Name:
Title:
<PAGE>
<PAGE>
Warburg Pincus Global Fixed Income Fund
Common Shares
1 year Annualized Total Return Without Waivers:
((11,077/10,000)'pp'1/1 -1) = 10.77%
5 year Annualized Total Return Without Waivers:
((14,723/10,000)'pp'1/5 -1) = 8.04%
Annualized Total Return from inception Without Waivers:
((15,459/10,000)'pp'1/6.00548 -1) = 7.52%
Series 2 Shares
Aggregate Total Return from inception Without Waivers:
((10,330-10,000)/10,000) = 3.30%
Annualized Total Return from inception Without Waivers:
((10,330/10,000)'pp'1/.22192 -1) = 15.76%
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> ADVISOR SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 136288985
<INVESTMENTS-AT-VALUE> 137849192
<RECEIVABLES> 5017694
<ASSETS-OTHER> 1823
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14288709
<PAYABLE-FOR-SECURITIES> 9791382
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1966434
<TOTAL-LIABILITIES> 11757816
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129871490
<SHARES-COMMON-STOCK> 11734094
<SHARES-COMMON-PRIOR> 5764344
<ACCUMULATED-NII-CURRENT> 2261835
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1429190)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 406758
<NET-ASSETS> 131110893
<DIVIDEND-INCOME> 344878
<INTEREST-INCOME> 7626884
<OTHER-INCOME> 0
<EXPENSES-NET> 980073
<NET-INVESTMENT-INCOME> 6991689
<REALIZED-GAINS-CURRENT> 2585009
<APPREC-INCREASE-CURRENT> 1114090
<NET-CHANGE-FROM-OPS> 10690788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9128514
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 119701284
<NUMBER-OF-SHARES-REDEEMED> 61338102
<SHARES-REINVESTED> 7544393
<NET-CHANGE-IN-ASSETS> 67469849
<ACCUMULATED-NII-PRIOR> 1917795
<ACCUMULATED-GAINS-PRIOR> (1533335)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1031630
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1552787
<AVERAGE-NET-ASSETS> 23324
<PER-SHARE-NAV-BEGIN> 10.90
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.17
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> COMMON SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 136288985
<INVESTMENTS-AT-VALUE> 137849192
<RECEIVABLES> 5017694
<ASSETS-OTHER> 1823
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 142868709
<PAYABLE-FOR-SECURITIES> 9791382
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1966434
<TOTAL-LIABILITIES> 11757816
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129871490
<SHARES-COMMON-STOCK> 11734094
<SHARES-COMMON-PRIOR> 5764344
<ACCUMULATED-NII-CURRENT> 2261835
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1429190)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 406758
<NET-ASSETS> 131110893
<DIVIDEND-INCOME> 344878
<INTEREST-INCOME> 7626884
<OTHER-INCOME> 0
<EXPENSES-NET> 980073
<NET-INVESTMENT-INCOME> 6991689
<REALIZED-GAINS-CURRENT> 2585009
<APPREC-INCREASE-CURRENT> 1114090
<NET-CHANGE-FROM-OPS> 10690788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9128514
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 119701284
<NUMBER-OF-SHARES-REDEEMED> 61338102
<SHARES-REINVESTED> 7544393
<NET-CHANGE-IN-ASSETS> 67469849
<ACCUMULATED-NII-PRIOR> 1917795
<ACCUMULATED-GAINS-PRIOR> (1533335)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1031630
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1552787
<AVERAGE-NET-ASSETS> 103157940
<PER-SHARE-NAV-BEGIN> 11.04
<PER-SHARE-NII> .62
<PER-SHARE-GAIN-APPREC> .57
<PER-SHARE-DIVIDEND> 1.06
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.17
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
Rule 18f-3 Plan
Rule 18f-3 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), requires that the Board of an investment company
desiring to offer multiple classes pursuant to the Rule adopt a plan setting
forth the separate arrangement and expense allocation of each class (a "Class"),
and any related conversion features or exchange privileges. The differences in
distribution arrangements and expenses among these classes of shares, and the
exchange features of each class, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the governing documents
of each fund that adopts this Plan (the "Fund" and together the "Funds"), by
action of the governing Board of the Fund.
The governing Board, including a majority of the non-interested Board
members, of each Fund, or series thereof, which desires to offer multiple
classes has determined that the following Plan is in the best interests of each
class individually and the Fund as a whole:
1. Class Designation. Shares of a Fund or series of a Fund shall be
divided into Common Shares and Advisor Shares.
2. Differences in Services. Counsellors Securities Inc. ("CSI") will
provide shareholder servicing and distribution services to holders of Common
Shares and Advisor Shares. Institutional shareholders of record may also provide
distribution services, shareholder services and/or administrative and accounting
services to or on behalf of their clients or customers who beneficially own
Advisor Shares.
3. Differences in Distribution Arrangements.
Common Shares. Common Shares are sold to the general public and are not
subject to any annual distribution fee, except for Funds that have adopted a
Shareholder Servicing and Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, which Funds pay CSI .25% per annum for services under that Plan.
Specified minimum initial and subsequent purchase amounts are applicable to the
Common Shares. Common Shares are available through certain organizations that
may or may not charge their customers administrative charges or other direct
fees in connection with investing in Common Shares. CSI may pay certain
financial institutions, broker-dealers and recordkeeping organizations a fee
based on the value of accounts maintained by such organizations in Common Shares
of a Fund.
<PAGE>
<PAGE>
-2-
Advisor Shares. Advisor Shares are available for purchase by financial
institutions, retirement plans, broker-dealers, depository institutions and
other financial intermediaries (collectively, "Institutions"). Advisor Shares
may be charged a shareholder service fee (the "Shareholder Service Fee") payable
at an annual rate of up to .25%, and a distribution fee (the "Distribution
Service Fee") payable at an annual rate of up to .50%, of the average daily net
assets of such Class under a Distribution Plan adopted pursuant to Rule 12b-1
under the 1940 Act. Payments may be made directly out of the assets of the Fund
or by CSI on its behalf. Additional payments may be made by CSI or an affiliate
thereof from time to time to Institutions for providing distribution,
administrative, accounting and/or other services with respect to Advisor Shares.
Payments by the Fund shall not be made to an Institution pursuant to the Plan
with respect to services for which Institutions are otherwise compensated by CSI
or an affiliate thereof. There is no minimum amount of initial or subsequent
purchases of Advisor Shares imposed on Institutions.
General. CSI or an affiliate thereof may pay certain Fund transfer agent
fees and expenses related to accounts of customers of organizations that have
entered into agreements with CSI or the Fund. An organization may use a portion
of the fees paid pursuant to the Plan to compensate the Fund's custodian or
transfer agent for costs related to accounts of customers of the organization
that hold Common Shares or Advisor Shares.
Payments may be made to organizations the customers or clients of which
invest in a Fund's Common Shares or Advisor Shares by CSI or an affiliate
thereof from such entity's own resources, which may include a fee it receives
from the Fund.
4. Expense Allocation. The following expenses shall be allocated, to the
extent practicable, on a Class-by-Class basis: (a) fees under the Shareholder
Servicing and Distribution Plan or Distribution Plan, as applicable; (b)
transfer agent fees identified by the Fund's transfer agent as being
attributable to a specific Class; and (c) expenses incurred in connection with
shareholders' meetings as a result of issues relating to a specific Class.
The distribution, administrative and shareholder servicing fees and
other expenses listed above which are attributable to a particular Class are
charged directly to the net assets of the particular Class and, thus, are borne
on a pro rata basis by the outstanding shares of that Class; provided, however,
that money market funds and other funds making daily distributions of their net
investment income may allocate these items to each share regardless of class or
on the basis of relative net assets (settled shares), applied in each case
consistently.
<PAGE>
<PAGE>
-3-
5. Conversion Features. No Class shall be subject to any automatic
conversion feature.
6. Exchange Privileges. Shares of a Class shall be exchangeable only for
(a) shares of the same Class of other investment companies advised by Warburg,
Pincus Counsellors, Inc. that are part of the same group of investment companies
and (b) shares of certain other investment companies specified from time to
time.
7. Additional Information. This Plan is qualified by and subject to the
terms of the then current prospectus for the applicable Class; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the applicable Fund's multiple class structure.
Dated: November 4, 1996
<PAGE>
