<PAGE>
<PAGE>
As filed with the U.S. Securities and Exchange Commission
on February 25, 1997
Securities Act File No. 33-82362
Investment Company Act File No. 811-8686
U.S. 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. 5 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 6 [x]
(Check appropriate box or boxes)
Warburg, Pincus Japan OTC 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 Japan OTC Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
.........................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>
<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, 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 JAPAN OTC FUND, INC.
Calculation of Registration Fee under the Securities Act of 1933
<TABLE>
<CAPTION>
Title of Proposed Proposed
Securities Amount Maximum Maximum Amount of
Being Being Offering Price Aggregate Registration
Registered Registered Per Share (1) Offering Price (1,2) Fee (2)
- ----------- ---------- ------------- -------------------- -------------
<S> <C> <C> <C> <C>
Shares of Common
Stock $.001 par
value per share
1,448,840 $7.08 $8,977,790 $100
</TABLE>
- -------------------
This Post-Effective Amendment No. 5 seeks to register 1,448,840 additional
shares under the 1933 Act.
(1) Computed under Rule 457(d) on the basis of the net asset value per share of
the Registrant's shares at the close of business on February 14, 1997. The
above calculation shall not be deemed a representation of the actual
offering price.
(2) Calculated pursuant to Rule 24e-2 under the 1940 Act.
A. Total number of shares redeemed during
previous fiscal year
29,739,843
B. Total number of shares included in (a)
previously used under Rule 24e-2 this
fiscal year
0
C. Total number of shares included in (a)
previously used under Rule 24f-2(c)
this fiscal year
28,337,613
D. Total number of shares included in (a)
being used to reduce maximum aggregate
offering price in this Post-Effective
Amendment
1,402,230
<PAGE>
<PAGE>
WARBURG, PINCUS JAPAN OTC FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Heading for the Common Shares
Part A and the Advisor Shares
Item No. Prospectuses*
- ------- -------------
1. Cover Page.......................... Cover Page
2. Synopsis............................ The Funds' Expenses
3. Condensed Financial Information..... Financial Highlights
4. General Description of Registrant... Cover Page; Investment
Objectives and Policies;
Portfolio Investments; Risk
Factors and Special
Considerations; Certain
Investment Strategies;
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
10. Cover Page.......................... Cover Page
* With respect to the Advisor Prospectus, all references to "the Funds" in
this cross-reference sheet should be read as "the Fund."
<PAGE>
<PAGE>
11. Table of Contents................... Contents
12. General Information and History..... Management of the Fund; Notes
to Financial Statements; See
Prospectuses--"General
Information"
13. Investment Objectives and Policies.. Investment Objective;
Investment Policies
14. Management of the Registrant........ Management of the Fund
15. Control Persons and Principal Holders
of Securities....................... Management of the Fund;
Miscellaneous; See
Prospectuses--"General
Information"
16. Investment Advisory and
Other Services ..................... Management of the Fund; See
Prospectuses--"Management of
the Funds"
17. Brokerage Allocation ............... Investment Policies; See
Prospectuses -- "Portfolio
Transactions and Turnover
Rate"
18. Capital Stock and Other Securities.. Management of the Fund --
Organization of the Fund; See
Prospectuses--"General
Information"
19. Purchase, Redemption and Pricing of
Securities Being Offered............ Additional Purchase and
Redemption Information; See
Prospectuses -- "How to Open
an Account," "How to Purchase
Shares," "How to Redeem and
Exchange Shares" and "Net
Asset Value"
20. Tax Status.......................... See Prospectuses--"Dividends,
Distributions and Taxes";
2
<PAGE>
<PAGE>
Additional Information
Concerning Taxes
21. Underwriters........................ Investment Policies --
Portfolio Transactions -- See
Prospectuses--"Management of
the Funds" and "Shareholder
Servicing"
22. Calculation of Performance Data..... Determination of Performance
23. Financial Statements................ Report of Independent
Accountants; Financial
Statements
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 25, 1997
WARBURG PINCUS
EMERGING MARKETS FUND
WARBURG PINCUS
INTERNATIONAL EQUITY FUND
WARBURG PINCUS
JAPAN GROWTH FUND
WARBURG PINCUS
JAPAN OTC FUND
[Logo]
<PAGE>
<PAGE>
PROSPECTUS February 25, 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 EMERGING MARKETS FUND seeks growth of capital by investing
primarily in equity securities of non-United States issuers consisting of
companies in emerging securities markets.
WARBURG PINCUS INTERNATIONAL EQUITY FUND seeks long-term capital appreciation by
investing in international equity securities that are considered by the Fund's
investment adviser to have above-average potential for appreciation.
WARBURG PINCUS JAPAN GROWTH FUND seeks long-term growth of capital by investing
principally in equity securities of Japanese issuers.
WARBURG PINCUS JAPAN OTC FUND seeks long-term capital appreciation by investing
in a portfolio of securities traded in the Japanese over-the-counter market.
International investing entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
NO LOAD CLASS OF COMMON SHARES__________________________________________________
Each Fund offers two classes of shares. A class of Common Shares that is 'no
load' is offered by this Prospectus (i) directly from the Funds' distributor,
Counsellors Securities Inc., and (ii) through various brokerage firms including
Charles Schwab & Company, Inc. Mutual Fund OneSource'tm' Program; Fidelity
Brokerage Services, Inc. FundsNetworkTM Program; Jack White & Company, Inc.; and
Waterhouse Securities, Inc.
LOW MINIMUM INVESTMENT__________________________________________________________
The minimum initial investment in each Fund is $2,500 ($500 for an IRA or
Uniform Transfers to Minors Act account) and the minimum subsequent investment
is $100. Through the Automatic Monthly Investment Plan, subsequent investment
minimums may be as low as $50. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about each
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC'). 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 Statement of Additional Information is available to investors without charge
by calling Warburg Pincus Funds at (800) 927-2874. Information regarding the
status of shareholder accounts may be obtained by calling Warburg Pincus Funds
at the same number. The Statement of Additional Information, as amended or
supplemented from time to time, bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER 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>
THE FUNDS' EXPENSES_____________________________________________________________
Each of Warburg, Pincus Emerging Markets Fund, International Equity Fund,
Japan Growth Fund and Japan OTC Fund (the 'Funds') currently offers two separate
classes of shares: Common Shares and Advisor Shares. For a description of
Advisor Shares see 'General Information.' Common Shares of the Emerging Markets
Fund, the Japan Growth Fund and the Japan OTC Fund pay the Funds' distributor a
12b-1 fee. See 'Management of the Funds -- Distributor.'
<TABLE>
<CAPTION>
Emerging International Japan Japan
Markets Fund Equity Fund Growth Fund OTC 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............................... .53% 1.00% .80% .99%
12b-1 Fees.................................... .25% 0 .25% .25%
Other Expenses................................ .83% .37% .70% .51%
---- ---- ---- ----
Total Fund Operating Expenses (after fee
waivers)*................................... 1.61% 1.37% 1.75% 1.75%
---- ---- ---- ----
---- ---- ---- ----
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:
1 year........................................ $ 16 $ 14 $ 18 $ 18
3 years....................................... $ 51 $ 43 $ 55 $ 55
5 years....................................... $ 88 $ 75 $ 95 $ 95
10 years...................................... $191 $ 165 $ 206 $206
</TABLE>
- --------------------------------------------------------------------------------
* Management Fees, Other Expenses and Total Fund Operating Expenses for the
Funds are based on actual expenses for the fiscal year or period ended
October 31, 1996, net of any fee waivers or expense reimbursements. Without
such waivers and/or reimbursements, Management Fees for the Emerging Markets,
International Equity, Japan Growth and Japan OTC Funds would have equalled
1.25%, 1.00%, 1.25% and 1.25%, respectively; Other Expenses would have
equalled .93%, .38%, .75% and .54%, respectively; and Total Fund Operating
Expenses would have equalled 2.43%, 1.38%, 2.25% and 2.04%, respectively. The
investment adviser and co-administrator are under no obligation to continue
these waivers.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. Certain broker-
dealers and financial institutions also may charge their clients fees in
connection with investments in a Fund's Common Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, each Fund's
actual performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of the Emerging Markets Fund, the Japan Growth Fund or
the Japan OTC Fund may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers, Inc. (the 'NASD').
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS____________________________________________________________
(FOR A COMMON SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the four fiscal years or period 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 Statement of Additional Information. For the International
Equity Fund, 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.
EMERGING MARKETS FUND
<TABLE>
<CAPTION>
For the Period
December 30, 1994
For the (Commencement of
Year Ended Operations) through
October 31, 1996 October 31, 1995
---------------- -------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period..... $11.28 $ 10.00
----- -----
Income from Investment
Operations
Net Investment Income... .07 .08
Net Gain from Securities
and Foreign Currency
Related Items
(both realized and
unrealized)........... .99 1.25
----- -----
Total from Investment
Operations............ 1.06 1.33
----- -----
Less Distributions
Dividends (from net
investment income).... (.08) (.05)
Distributions (from
capital gains)........ (.07) .00
----- -----
Total Distributions..... (.15) (.05)
----- -----
Net Asset Value, End of
Period.................. $12.19 $ 11.28
----- -----
----- -----
Total Return............. 9.46% 13.33%`D'
Ratios/Supplemental Data
Net Assets, End of Period
(000s).................. $218,421 $ 6,780
Ratios to Average Daily
Net Assets:
Operating expenses...... 1.61% 1.00%*
Net investment income... .31% 1.25%*
Decrease reflected in
above operating
expense ratio due to
waivers/reimbursements... .78% 11.08%*
Portfolio Turnover
Rate.................... 61.84% 57.76%`D'
Average Commission
Rate#................... $.0135 --
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
`D' Non-annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
<PAGE>
<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
For the
Period
May 2, 1989
(Commencement
of
Operations)
For the Year Ended October 31, through
------------------------------------------------------------------------- October 31,
1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $19.30 $20.51 $17.00 $12.22 $13.66 $11.81 $11.35 $10.00
------ ------ ------ ------ ------ ------ ------ -----
Income from Investment
Operations
Net Investment Income.... .22 .12 .09 .09 .15 .19 .13 .05
Net Gain (Loss) from
Securities and Foreign
Currency Related Items
(both realized and
unrealized)............ 1.73 (.67) 3.51 4.84 (1.28) 2.03 .55 1.30
------ ------ ------ ------ ------ ------ ------ -----
Total from Investment
Operations............. 1.95 (.55) 3.60 4.93 (1.13) 2.22 .68 1.35
------ ------ ------ ------ ------ ------ ------ -----
Less Distributions
Dividends (from net
investment income)..... (.56) (.13) (.04) (.02) (.16) (.33) (.10) .00
Distributions in excess
of net investment
income................. .00 .00 (.01) .00 .00 .00 .00 .00
Distributions (from
capital gains)......... .00 (.53) (.04) (.13) (.15) (.04) (.12) .00
------ ------ ------ ------ ------ ------ ------ -----
Total Distributions...... (.56) (.66) (.09) (.15) (.31) (.37) (.22) .00
------ ------ ------ ------ ------ ------ ------ -----
Net Asset Value, End of
Period................... $20.69 $19.30 $20.51 $17.00 $12.22 $13.66 $11.81 $11.35
------ ------ ------ ------ ------ ------ ------ -----
------ ------ ------ ------ ------ ------ ------ -----
Total Return............. 10.35% (2.55%) 21.22% 40.68% (8.44%) 19.42% 5.92% 28.73%*
Ratios/Supplemental Data
Net Assets, End of Period
(000s).................. $2,885,453 $2,068,207 $1,533,872 $378,661 $101,763 $72,553 $38,946 $13,260
Ratios to Average Daily
Net Assets:
Operating expenses...... 1.37% 1.39% 1.44% 1.48% 1.49% 1.50% 1.46% 1.50%*
Net investment income... .62% .69% .19% .38% .88% 1.19% 1.58% 1.33%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements.. .01% .00% .00% .00% .07% .17% .38% .89%*
Portfolio Turnover
Rate.................... 32.49% 39.24% 17.02% 22.60% 53.29% 54.95% 66.12% 27.32%
Average Commission
Rate#................... $.0170 -- -- -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
4
<PAGE>
<PAGE>
JAPAN GROWTH FUND
<TABLE>
<CAPTION>
For the Period
December 29, 1995
(Commencement of
Operations) through
October 31, 1996
-------------------
<S> <C>
Net Asset Value, Beginning of Period.................................... $ 10.00
-----
Income from Investment Operations
Net Investment Loss.................................................... (.06)
Net Loss on Securities and Foreign Currency Related Items (both
realized and unrealized)............................................. (.09)
-----
Total from Investment Operations....................................... (.15)
-----
Less Distributions
Dividends (from net investment income)................................. .00
Distributions (from capital gains)..................................... .00
-----
Total Distributions.................................................... .00
-----
Net Asset Value, End of Period.......................................... $ 9.85
-----
-----
Total Return............................................................ (1.50%)*
Ratios/Supplemental Data
Net Assets, End of Period (000s)........................................ $20,157
Ratios to Average Daily Net Assets:
Operating expenses..................................................... 1.75%`D'
Net investment loss.................................................... (1.03%)`D'
Decrease reflected in above operating expense ratio due to
waivers/reimbursements............................................... 1.80%`D'
Portfolio Turnover Rate................................................. 51.72%*
Average Commission Rate#................................................ $ .0717
</TABLE>
- --------------------------------------------------------------------------------
* Non-annualized.
`D' Annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased or sold during the period for which there was a commission
charged.
JAPAN OTC FUND
<TABLE>
<CAPTION>
For the Period
For the Year Ended September 30, 1994
October 31, (Commencement
------------------ of Operations) through
1996 1995 October 31, 1994
----- ----- ----------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $9.09 $9.85 $10.00
----- ----- -----
Income from Investment
Operations
Net Investment Loss..... (.23) .00 .00
Net Gain (Loss) from
Securities and Foreign
Currency Related Items
(both realized and
unrealized)........... (.01) (.76) (.15)
----- ----- -----
Total from Investment
Operations............ (.24) (.76) (.15)
----- ----- -----
Less Distributions
Dividends (from net
investment income).... (.38) .00 .00
Distributions (from
capital gains)........ .00 .00 .00
----- ----- -----
Total Distributions..... (.38) .00 .00
----- ----- -----
Net Asset Value, End of
Period.................. $8.47 $9.09 $ 9.85
----- ----- -----
----- ----- -----
Total Return............. (2.79%) (7.72%) (1.50%)`D'
Ratios/Supplemental Data
Net Assets, End of Period
(000s).................. $154,460 $178,568 $19,878
Ratios to Average Daily
Net Assets:
Operating expenses...... 1.75% 1.41% 1.00%*
Net investment income
(loss)................ (1.22%) (.15%) .49%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements.. .30% 1.35% 4.96%*
Portfolio Turnover
Rate.................... 95.23% 82.98% .00%
Average Commission
Rate#................... $.0968 -- --
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
`D' Non-annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
5
<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.
EMERGING MARKETS FUND
The Emerging Markets Fund seeks growth of capital. The Fund is a non-
diversified management investment company that pursues its investment objective
by investing primarily in equity securities of non-United States issuers
consisting of companies in emerging securities markets. An investment in the
Fund may involve a greater degree of risk than investment in other mutual funds
that seek capital appreciation by investing in larger, more developed markets.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Fund intends to acquire securities of many issuers located in a
number of foreign countries. The Fund will not necessarily seek to diversify
investments on a geographical basis or on the basis of the level of economic
development of any particular country and the Emerging Markets in which the Fund
invests will vary from time to time. However, the Fund will at all times, except
during defensive periods, maintain investments in at least three countries
outside the United States. An equity security of an issuer in an Emerging Market
is defined as common stock and preferred stock (including convertible preferred
stock); bonds, notes and debentures convertible into common or preferred stock;
stock purchase warrants and rights; equity interests in trusts and partnerships;
and depositary receipts of an issuer: (i) the principal securities trading
market for which is in an Emerging Market; (ii) which derives at least 50% of
its revenues or earnings, either alone or on a consolidated basis, from goods
produced or sold, investments made or services performed in an Emerging Market,
or which has at least 50% of its total or net assets situated in one or more
Emerging Markets; or (iii) that is organized under the laws of, and with a
principal office in, an Emerging Market. Determinations as to whether an issuer
is an Emerging Markets issuer will be made by the Fund's investment adviser
based on publicly available information and inquiries made to the issuers.
As used in this Prospectus, an Emerging Market is any country (i) which is
generally considered to be an emerging or developing country by the World Bank
and the International Finance Corporation (the 'IFC') or by the United Nations,
(ii) which is included in the IFC Investable Index or the Morgan Stanley Capital
International Emerging Markets Index or (iii) which has a gross national product
('GNP') per capita of $2,000 or less, in each case at the time of the Fund's
investment. Among the countries which Warburg, Pincus Counsellors, Inc., the
Fund's investment adviser ('Warburg'), currently
6
<PAGE>
<PAGE>
considers to be Emerging Markets are the following: Algeria, Angola, Antigua,
Argentina, Armenia, Azerbaijan, Bangladesh, Barbuda, Barbados, Belarus, Belize,
Bhutan, Bolivia, Botswana, Brazil, Bulgaria, Cambodia, Chile, People's Republic
of China, Republic of China (Taiwan), Colombia, Cyprus, Czech Republic,
Dominica, Ecuador, Egypt, Estonia, Georgia, Ghana, Greece, Grenada, Guyana, Hong
Kong, Hungary, India, Indonesia, Israel, Ivory Coast, Jamaica, Jordan,
Kazakhstan, Kenya, Republic of Korea (South Korea), Latvia, Lebanon, Lithuania,
Malawi, Malaysia, Mauritius, Mexico, Moldova, Mongolia, Montserrat, Morocco,
Mozambique, Myanmar (Burma), Namibia, Nepal, Nigeria, Pakistan, Panama, Papua
New Guinea, Paraguay, Peru, Philippines, Poland, Portugal, Romania, Russia,
Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Sri Lanka, St. Kitts
and Nevis, St. Lucia, St. Vincent and the Grenadines, Swaziland, Tanzania,
Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine,
Uruguay, Uzbekistan, Venezuela, Vietnam, Yugoslavia, Zambia and Zimbabwe. Among
the countries that will not be considered Emerging Markets are: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, Luxembourg, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland,
United Kingdom and the United States.
The Fund may invest in securities of companies of any size, whether traded on
or off a national securities exchange. Fund holdings may include emerging growth
companies, which are small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects for achieving
profit and gain in a relatively short period of time.
In appropriate circumstances, such as when a direct investment by the Fund in
the securities of a particular country cannot be made or when the securities of
an investment company are more liquid than the underlying portfolio securities,
the Fund may, consistent with the provisions of the Investment Company Act of
1940, as amended (the '1940 Act'), invest in the securities of closed-end
investment companies that invest in foreign securities. As a shareholder in a
closed-end investment company, the Fund will bear its ratable share of the
investment company's expenses, including management fees, and will remain
subject to payment of the Fund's administration fees and other expenses with
respect to assets so invested.
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks long-term capital appreciation. The Fund
is a diversified management investment company that pursues its investment
objective by investing primarily in a broadly diversified portfolio of equity
securities of companies, wherever organized, that in Warburg's judgment, have
their principal business activities and interests outside of the United States.
The Fund will ordinarily invest substantially all of its assets -- but no less
than 65% of its total assets -- in common stocks, warrants and securities
convertible into or exchangeable for common stocks. Ordinarily the Fund will
hold no less than 65% of its total assets in at least three countries other than
the United States. The Fund intends to be widely diversified across
7
<PAGE>
<PAGE>
securities of many corporations located in a number of foreign countries.
Warburg anticipates, however, that the Fund may from time to time invest a
significant portion of its assets in a single country such as Japan, which may
involve special risks. See 'Risk Factors and Special Considerations -- Japanese
Investments' below. In appropriate circumstances, such as when a direct
investment by the International Equity Fund in the securities of a particular
country cannot be made or when the securities of an investment company are more
liquid than the underlying portfolio securities, the Fund may, consistent with
the provisions of the 1940 Act, invest in the securities of closed-end
investment companies that invest in foreign securities.
The Fund intends to invest principally in the securities of financially
strong companies with opportunities for growth within growing international
economies and markets through increased earning power and improved utilization
or recognition of assets. Investment may be made in equity securities of
companies of any size, whether traded on or off a national securities exchange.
JAPAN GROWTH FUND
The Japan Growth Fund seeks long-term growth of capital. The Fund is a
non-diversified management investment company that pursues its objective by
investing primarily in equity securities of Japanese issuers that present
attractive opportunities for growth. Under current market conditions the Fund
intends to invest at least 80% of its total assets -- but will invest no less
than 65% of its assets under normal market conditions -- in common and preferred
stocks, warrants and other rights, securities convertible into or exchangeable
for common stocks and American Depository Receipts ('ADRs') of Japanese issuers.
Warburg believes that Japanese industry is in the process of deregulation and
restructuring. The Fund is designed to provide an opportunity to participate in
the dynamic structural changes in the Japanese industrial system through
investment in higher growth companies that can be expected to benefit from these
changes. The Fund will seek to identify and invest in Japanese issuers that are
showing or are expected to show a rapid or high rate of growth, based on
comparisons with Japanese or non-Japanese companies in the same industry or
other considerations. The Fund will also invest in Japanese companies that
Warburg believes are undervalued based on price/earnings ratios, comparisons
with Japanese or non-Japanese companies or other factors.
Unlike the Warburg Pincus Japan OTC Fund, which invests primarily in
over-the-counter securities, the Fund may invest in companies of any size,
whether traded on an exchange or over-the-counter. Currently, there are eight
exchanges in Japan -- the Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka,
Niigata and Sapporo exchanges -- and two over-the-counter markets -- JASDAQ and
the Japanese Second Section OTC Market (the 'Frontier Market'). The Fund
considers Japanese issuers to be (i) companies (A) organized under the laws of
Japan, or (B) whose principal business
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activities are conducted in Japan and which derive at least 50% of their
revenues or profits from goods produced or sold, investments made, or services
performed in Japan, or have at least 50% of their assets in one or more such
countries, or (C) which have issued securities which are traded principally in
Japan, and (ii) Japanese governmental entities or political subdivisions.
Determinations as to the eligibility of issuers under the foregoing definition
will be made by Warburg based on publicly available information and inquiries
made to the companies. The portion of the Fund's assets not invested in Japanese
issuers may be invested in securities of other Asian issuers. The Fund does not,
except during temporary defensive periods, intend to invest in securities of
non-Asian issuers. From time to time, the Fund may hedge part or all of its
exposure to the Japanese yen, thereby reducing or substantially eliminating any
favorable or unfavorable impact of changes in the value of the yen in relation
to the U.S. dollar.
JAPAN OTC FUND
The Japan OTC Fund seeks long-term capital appreciation. The Fund is a
non-diversified management investment company that pursues its investment
objective by investing in a portfolio of securities traded in the Japanese
over-the-counter market. The Fund is designed to provide an opportunity to
participate in the dynamic structural changes in the Japanese industrial system
through investment in less-established, higher growth companies that can be
expected to benefit from these changes. At all times, except during temporary
defensive periods, the Fund will maintain at least 65% of its total assets in
securities of companies traded through JASDAQ, the primary Japanese
over-the-counter market, or the Frontier Market. The portion of the Fund's
assets that is not invested through JASDAQ or the Frontier Market may be
invested in securities of Japanese issuers that are not traded through JASDAQ or
the Frontier Market or exchange-traded and over-the-counter securities of
issuers in other Asian markets, in addition to the other instruments described
below. The Fund may invest up to 35% of its total assets in securities of other
Asian issuers, with no more than 10% invested in any one country. The Fund will
not invest in securities of non-Asian issuers, except that the Fund may, for
defensive purposes, invest in U.S. debt securities and money market obligations.
The Fund intends its portfolio to consist principally of equity securities
(common stock, warrants and securities convertible into common stock), which may
include shares of closed-end investment companies investing in Asia. The Japan
OTC Fund may involve a greater degree of risk than an investment in other mutual
funds that seek capital appreciation by investing in better-known, larger
companies. From time to time, the Fund may hedge part or all of its exposure to
the Japanese yen, thereby reducing or substantially eliminating any favorable or
unfavorable impact of changes in the value of the yen in relation to the U.S.
dollar.
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PORTFOLIO INVESTMENTS___________________________________________________________
DEBT SECURITIES. The International Equity Fund, the Japan Growth Fund and the
Japan OTC Fund may each invest up to 35% of its total assets in investment grade
debt securities (other than money market obligations) and, in the case of the
International Equity and Japan OTC Funds, preferred stocks that are not
convertible into common stock for the purpose of seeking capital appreciation.
The Emerging Markets Fund may invest up to 35% of its total assets in debt
securities (other than money market obligations) for the purpose of seeking
growth of capital. The interest income to be derived may be considered as one
factor in selecting debt securities for investment by Warburg. Because the
market value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt obligations may provide an
opportunity for capital appreciation when interest rates are expected to
decline. The success of such a strategy is dependent upon Warburg's ability to
forecast accurately changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ('Moody's') or Standard &
Poor's Ratings Services ('S&P') or, if unrated, is determined to be of
comparable quality by Warburg. Bonds rated in the fourth highest grade have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by a Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require sale of such securities, although Warburg will
consider such event in its determination of whether the Fund should continue to
hold the securities. The Japan Growth Fund does not currently intend during the
coming year to hold more than 5% of its net assets in securities rated below
investment grade, including convertible and non-convertible debt securities
downgraded below investment grade subsequent to acquisition by the Fund. The
Japan OTC Fund does not currently intend during the coming year to hold more
than 5% of its net assets in securities downgraded below investment grade
subsequent to acquisition by the Fund.
When Warburg believes that a defensive posture is warranted, each Fund other
than the Japan OTC Fund may invest temporarily without limit in U.S. and foreign
investment grade debt obligations, other securities of U.S. companies and in
domestic and foreign money market obligations, including repurchase agreements.
The Japan OTC Fund may, for temporary defensive purposes, invest without limit
in U.S. debt securities and money market obligations.
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ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. In addition to each Fund's
authority to invest in money market securities, the Japan Growth Fund and the
Japan OTC Fund may each invest up to 5% of its net assets, and the Emerging
Markets Fund may invest up to 35% of its net assets, in each of asset-backed and
mortgage-backed securities.
Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle has not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The Funds may purchase
asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perception of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
EMERGING MARKETS FUND. The Fund may invest or hold up to 35% of its net
assets in fixed-income securities (including convertible bonds) rated below
investment grade (commonly referred to as 'junk bonds') and as low as C by
Moody's or D by S&P, or in unrated securities considered to be of equivalent
quality. Securities that are rated C by Moody's are the lowest rated class and
can be regarded as having extremely poor prospects of ever attaining any real
investment standing. Debt rated D by S&P is in default or is expected to default
upon maturity or payment date.
Among the types of debt securities in which the Emerging Markets Fund may
invest are Brady Bonds, loan participations and assignments, asset-backed
securities and mortgage-backed securities:
Brady Bonds are collateralized or uncollateralized securities created through
the exchange of existing commercial bank loans to public and private Latin
American entities for new bonds in connection with certain debt restructurings.
Brady Bonds have been issued only recently and therefore do not have a long
payment history. However, in light of the history of commercial bank loan
defaults by Latin American public and private entities, investments in Brady
Bonds may be viewed as speculative.
Loan Participations and Assignments of fixed and floating rate loans arranged
through private negotiations between a foreign government as borrower and one or
more financial institutions as lenders will typically result in the Fund having
a contractual relationship only with the lender, in the case of a
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participation, or the borrower, in the case of an assignment. The Fund may not
directly benefit from any collateral supporting a participation, and in the
event of the insolvency of a lender will be treated as a general creditor of the
lender. As a result, the Fund assumes the risk of both the borrower and the
lender of a participation. The Fund's rights and obligations as the purchaser of
an assignment may differ from, and be more limited than, those held by the
assigning lender. The lack of a liquid secondary market for both participations
and assignments will have an adverse impact on the value of such securities and
on the Fund's ability to dispose of participations or assignments.
SWAPS. The Funds may enter into swaps relating to indexes, currencies and
equity interests of foreign issuers without limit. Index swaps involve the
exchange by the Funds with another party of the respective amounts payable with
respect to a notional principal amount related to one or more indexes. Currency
swaps involve the exchange of cash flows on a notional amount of two or more
currencies based on their relative future values. An equity swap is an agreement
to exchange streams of payments computed by reference to a notional amount based
on the performance of a basket of stocks or a single stock. Each Fund may enter
into these transactions to preserve a return or spread on a particular
investment or portion of its assets, to protect against currency fluctuations,
as a duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The Funds
may also use these transactions for speculative purposes, such as to obtain the
price performance of a security without actually purchasing the security in
circumstances where, for example, the subject security is illiquid, is
unavailable for direct investment or available only on less attractive terms.
Swaps have risks associated with them including possible default by the other
party to the transaction, illiquidity and, where swaps are used as hedges, the
risk that the use of a swap could result in losses greater than if the swap had
not been employed.
The Funds will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. Index swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to index swaps is limited to the net amount of
interest payment that a Fund is contractually obligated to make. If the other
party to an index swap defaults, the Fund's risk of loss consists of the net
amount of interest payments that a Fund is contractually entitled to receive.
Where swaps are entered into for good faith hedging purposes, Warburg believes
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions. The Funds will accrue the net amount of the excess, if any, of its
obligations over its entitlements with respect to each swap on a
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daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess.
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations and for temporary
defensive purposes may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, its agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Funds may invest in repurchase agreement
transactions with 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
Fund's Board of Directors (the 'governing Board' or 'Board'), monitors the
creditworthiness of those bank and non-bank dealers with which each Fund enters
into repurchase agreements to evaluate this risk. A repurchase agreement is
considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity,
each Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg, the Funds' co-administrator,
PFPC Inc. ('PFPC'), or, in the case of the Japan OTC Fund, the sub-investment
adviser (each investment adviser and sub-investment
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adviser referred to individually as an 'Adviser'). As a shareholder in any
mutual fund, a Fund will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to payment of the Fund's
administration fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which a Fund may
invest include: direct obligations of the U.S. Treasury, and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which a Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by a Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.
WARRANTS. Each Fund may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
RISK FACTORS AND SPECIAL CONSIDERATIONS_________________________________________
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to each Fund's investments, see 'Portfolio
Investments' beginning at page 10 and 'Certain Investment Strategies' beginning
at page 20.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described below associated with investing in foreign securities generally. In
addition, because the Japan Growth Fund and the Japan OTC Fund invest primarily
in Japan and the International Equity Fund may from time to time have a large
position in Japanese securities, these Funds will be subject to general economic
and political conditions in Japan. The Japan Growth Fund and the Japan OTC Fund
should each be considered a vehicle for diversification, but the Funds
themselves are not diversified.
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Securities in Japan are denominated and quoted in 'yen.' Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of each
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S. dollars. As a result, in the absence of a successful currency hedge, the
value of each Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by fluctuations in the value of Japanese yen relative
to the U.S. dollar.
A significant portion of the Japan OTC Fund's assets will be and assets of
the Japan Growth Fund may be invested in securities traded through JASDAQ.
JASDAQ traded securities can be volatile, which may result in a Fund's net asset
value fluctuating in response. Trading of equity securities through the JASDAQ
market is conducted by securities firms in Japan, primarily through an
organization which acts as a 'matching agent,' as opposed to a recognized stock
exchange. Consequently, securities traded through JASDAQ may, from time to time,
and especially in falling markets, become illiquid and experience short-term
price volatility and wide spreads between bid and offer prices. This combination
of limited liquidity and price volatility may have an adverse effect on the
investment performance of a Fund. In periods of rapid price increases, the
limited liquidity of JASDAQ restricts the Fund's ability to adjust its portfolio
quickly in order to take full advantage of a significant market increase, and
conversely, during periods of rapid price declines, it restricts the ability of
the Fund to dispose of securities quickly in order to realize gains previously
made or to limit losses on securities held in its portfolio. In addition,
although JASDAQ has generally experienced sustained growth in aggregate market
capitalization and trading volume, there have been periods in which aggregate
market capitalization and trading volume have declined. The Frontier Market is
expected to present greater liquidity, volatility and trading considerations
than JASDAQ.
At November 30, 1996, 761 issues were traded through JASDAQ, having an
aggregate market capitalization in excess of 15 trillion yen (approximately $121
billion as of February 14, 1997). The entry requirements for JASDAQ generally
require a minimum of 2 million shares outstanding at the time of registration, a
minimum of 200 shareholders, minimum pre-tax profits of 10 yen per share
(approximately $.08 per share as of February 14, 1997) over the prior fiscal
year and net worth of 200 million yen (approximately $1.61 million as of
February 14, 1997). JASDAQ has generally attracted small growth companies or
companies whose major shareholders wish to sell only a small portion of the
company's equity.
The Frontier Market is a second over-the-counter market and is under the
jurisdiction of JASDAQ, which is overseen by the Japanese Securities and
Exchange Commission. The Frontier Market has less stringent entry requirements
than those described above for JASDAQ and is designed to
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enable early stage companies access to capital markets. Frontier Market
companies need not have a history of earnings, provided their spending on
research and development equals at least 3% of net sales. In addition, companies
traded through the Frontier Market are not required to have 2 million shares
outstanding at the time of registration. As a result, investments in companies
traded through the Frontier Market may involve a greater degree of risk than
investments in companies traded through JASDAQ. The Frontier Market was created
in July 1995, and as of the date of this Prospectus, a limited number of issues
were traded through this market.
The decline in the Japanese securities markets since 1989 has contributed to
a weakness in the Japanese economy, and the impact of a further decline cannot
be ascertained. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios in comparison with those in the United States,
even after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
Japan has a parliamentary form of government. In 1993, a coalition government
was formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leadership
in Japan. What, if any, effect the current political situation will have on
prospective regulatory reforms on the economy in Japan cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect the Funds investing there. For
additional information, see 'Japan and its Securities Markets' in the Statement
of Additional Information.
EMERGING MARKETS. The Funds may invest in securities of issuers located in
less developed countries considered to be 'emerging markets.' Investing in
securities of issuers located in emerging markets involves not only the risks
described below, with respect to investing in foreign securities, but also other
risks, including exposure to economic structures that are generally less diverse
and mature than, and to political systems that can be expected to have less
stability than, those of developed countries. Other characteristics of emerging
markets that may affect investment there include certain national policies that
may restrict investment by foreigners in issuers or industries deemed sensitive
to relevant national interests and the absence of developed legal structures
governing private and foreign investments and private
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property. The typically small size of the markets for securities of issuers
located in emerging markets and the possibility of a low or nonexistent volume
of trading in those securities may also result in a lack of liquidity and in
price volatility of those securities.
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of emerging
growth and small-sized companies, which may include JASDAQ and Frontier Market
securities, may involve greater risks than investing in larger, more established
issuers since these securities may have limited marketability and, thus, may be
more volatile than securities of larger, more established companies or the
market averages in general. Because small- and medium-sized companies normally
have fewer shares outstanding than larger companies, it may be more difficult
for a Fund to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. Small-sized companies may have limited
product lines, markets or financial resources and may lack management depth. In
addition, small- and medium-sized companies are typically subject to a greater
degree of changes in earnings and business prospects than are larger, more
established companies. There is typically less publicly available information
concerning small- and medium-sized companies than for larger, more established
ones. Securities of issuers in 'special situations' also may be more volatile,
since the market value of these securities may decline in value if the
anticipated benefits do not materialize. Companies in 'special situations'
include, but are not limited to, companies involved in an acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the companies' securities; or a change in
corporate control. Although investing in securities of emerging growth companies
or 'special situations' offers potential for above-average returns if the
companies are successful, the risk exists that the companies will not succeed
and the prices of the companies' shares could significantly decline in value.
Therefore, an investment in the Emerging Markets Fund, the Japan Growth Fund or
the Japan OTC Fund may involve a greater degree of risk than an investment in
other mutual funds that seek capital appreciation by investing in better-known,
larger companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to each Fund's limitation on the purchase of illiquid securities, unless
(except for the Japan OTC Fund) the Fund's governing Board determines on an
ongoing basis that an adequate trading market exists for the security. In
addition to an adequate trading market, the Board will also consider factors
such as trading activity, availability of reliable price
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information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Funds to the extent that qualified institutional
buyers become uninterested for a time in purchasing Rule 144A Securities. The
Board of each Fund will carefully monitor any investments by the Fund in Rule
144A Securities. The Boards may adopt guidelines and delegate to an Adviser the
daily function of determining and monitoring the liquidity of Rule 144A
Securities, although each Board will retain ultimate responsibility for any
determination regarding liquidity. In the case of the Japan OTC Fund, all Rule
144A Securities will be limited to 10% of the Fund's net assets, included within
the Fund's limit on illiquid securities.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and a Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. A Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Emerging Markets Fund, the Japan Growth Fund and
the Japan OTC Fund are classified as non-diversified investment companies under
the 1940 Act, which means that each Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. Each Fund will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the 'Code'), for
qualification as a regulated investment company. As a non-diversified investment
company, each Fund may invest a greater proportion of its assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that a Fund
assumes large positions in the securities of a small number of issuers, its
return may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
LOWER-RATED SECURITIES. Lower-rated and comparable unrated securities
(commonly referred to as 'junk bonds') (i) will likely have some quality and
protective characteristics that, in the judgment of the rating organizations,
are outweighed by large uncertainties or major risk exposures to adverse
conditions and (ii) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of
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the obligation. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-quality securities. In addition, medium- and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by such issuers is significantly
greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
The market value of securities in lower rating categories is more volatile
than that of higher quality securities. In addition, a Fund may have difficulty
disposing of certain of these securities because there may be a thin trading
market. The lack of a liquid secondary market for certain securities may have an
adverse impact on the Fund's ability to dispose of particular issues and may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing the Fund and calculating its net asset value.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE________________________________________
A Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever an
Adviser believes it to be in the best interests of the relevant Fund. A Fund
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. High portfolio
turnover rates (100% or more) may result in dealer mark ups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See 'Dividends,
Distributions and Taxes -- Taxes' below and 'Investment Policies -- Portfolio
Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of a Fund are
placed by an Adviser with broker-dealers that it selects, including Counsellors
Securities Inc., the Funds' distributor ('Counsellors Securities'). A Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction
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does not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES___________________________________________________
Although there is no intention of doing so during the coming year, each Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery, (ii) lending portfolio securities and (iii) except for the
International Equity Fund, entering into reverse repurchase agreements and
dollar rolls. The Emerging Markets, Japan Growth and Japan OTC Funds may also
invest in zero coupon securities, although each Fund currently anticipates that
during the coming year zero coupon securities will not exceed 5% of net assets.
The Emerging Markets Fund may invest in stand-by commitments, although the Fund
currently anticipates that during the coming year stand-by commitments will not
exceed 5% of net assets. Detailed information concerning each Fund's strategies
and related risks is contained below and in the Fund's Statement of Additional
Information.
STRATEGIES AVAILABLE TO ALL FUNDS
FOREIGN SECURITIES. Each Fund will ordinarily hold no less than 65% of its
total assets in foreign securities. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in domestic investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, the lack of uniform accounting, auditing and financial
reporting standards and other regulatory practices and requirements that are
often generally less rigorous than those applied in the United States. Moreover,
securities of many foreign companies may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. In addition, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Funds, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that would reduce the net yield on
such securities. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher valuation
and
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communications costs and the expense of maintaining securities with foreign
custodians. The risks associated with investing in securities of non-U.S.
issuers are generally heightened for investments in securities of issuers in
Emerging Markets. Certain of the above risks may be involved with American
Depositary Receipts ('ADRs') and European Depositary Receipts ('EDRs'),
instruments that evidence ownership in underlying securities issued by a foreign
corporation. ADRs and EDRs may not necessarily be denominated in the same
currency as the securities whose ownership they represent. ADRs are typically
issued by a U.S. bank or trust company and EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in Europe, typically by non-U.S.
banks and trust companies.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of the
Advisers, each Fund may, but is not required to, engage in a number of
strategies involving options, futures and forward currency contracts. These
strategies, commonly referred to as 'derivatives,' may be used (i) for the
purpose of hedging against a decline in value of the Fund's current or
anticipated portfolio holdings, (ii) as a substitute for purchasing or selling
portfolio securities or (iii) to seek to generate income to offset expenses or
increase return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE
CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE A FUND'S INVESTMENT RISK.
Transaction costs and any premiums associated with these strategies, and any
losses incurred, will affect a Fund's net asset value and performance.
Therefore, an investment in a Fund may involve a greater risk than an investment
in other mutual funds that do not utilize these strategies. The Funds' use of
these strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the NASD and by the Code.
Securities and Stock Index Options. The International Equity, Japan Growth
and Japan OTC Funds may each write covered call options, and the Japan Growth
and Japan OTC Funds may write put options, on up to 25% of the net asset value
of the stock and debt securities in its portfolio and will realize fees
(referred to as 'premiums') for granting the rights evidenced by the options.
Each Fund may also utilize up to 10% of its assets to purchase options on stocks
and debt securities that are traded on U.S. and foreign exchanges, as well as
over-the-counter ('OTC') options. The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option 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 utilize up to 10% of its total assets
(15% in the case of the Emerging Markets Fund) to purchase exchange-listed and
OTC put and call options on stock indexes, and may also write such options. A
stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index.
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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 foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Funds are limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Funds will conduct their currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) in the case
of the Emerging Markets, Japan Growth and Japan OTC Funds, by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events. The International Equity Fund may
only enter into forward currency contracts for hedging purposes.
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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 an Adviser, and successful
use of hedging transactions will depend on the Adviser's ability to correctly
predict movements in the hedge and the hedged position and the correlation
between them, which could prove to be inaccurate. Even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
trends.
Additional Considerations. To the extent that a Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities and indexes; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts. The use of these strategies may require that the Fund maintain cash
or liquid securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise 'covered' through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
STRATEGY AVAILABLE TO THE EMERGING MARKETS FUND AND THE JAPAN GROWTH FUND
SHORT SALES AGAINST THE BOX. Each Fund may enter into a short sale of
securities such that when the short position is open the Fund owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one 'against the box,' may be entered into
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by a Fund, for example, to 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 Funds may make short sales may be limited by Code
requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
INVESTMENT GUIDELINES___________________________________________________________
The Emerging Markets Fund and the Japan OTC Fund may each invest up to 15% of
its net assets; the International Equity Fund may invest up to 10% of its total
assets; and the Japan Growth Fund may invest up to 10% of its net assets, in
securities with contractual or other restrictions on resale and other
instruments that are not readily marketable ('illiquid securities'), including
(i) securities issued as part of a privately negotiated transaction between an
issuer and one or more purchasers; (ii) repurchase agreements with maturities
greater than seven days; (iii) time deposits maturing in more than seven
calendar days; and (iv) certain Rule 144A Securities. Each Fund may borrow from
banks for temporary or emergency purposes, such as meeting anticipated
redemption requests, provided that reverse repurchase agreements and any other
borrowing by the Fund may not exceed 30% of total assets, and may pledge its
assets to the extent necessary to secure permitted borrowings (up to 10% of its
assets in the case of the International Equity Fund). Whenever borrowings
(including reverse repurchase agreements) exceed 5% of a Fund's assets, the Fund
will not make any investments (including roll-overs). Except for the limitations
on borrowing, the investment guidelines set forth in this paragraph may be
changed at any time without shareholder consent by vote of the governing Board
of each Fund, subject to the limitations contained in the 1940 Act. A complete
list of investment restrictions that each Fund has adopted identifying
additional restrictions that cannot be changed without the approval of the
majority of the Fund's outstanding shares is contained in the Statement of
Additional Information.
MANAGEMENT OF THE FUNDS_________________________________________________________
INVESTMENT ADVISERS. Each Fund employs Warburg as investment adviser to the
Fund. The Japan OTC Fund employs SPARX Investment & Research, USA, Inc. ('SPARX
USA') as its sub-investment adviser. With respect to each Fund other than the
Japan OTC Fund, Warburg, subject to the control of each Fund's officers and the
Board, manages the investment and reinvestment of the assets of the Funds in
accordance with each Fund's investment objective
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and stated investment policies. Warburg makes investment decisions for each Fund
and places orders to purchase or sell securities on behalf of each such Fund.
With respect to the Japan OTC Fund, Warburg has general oversight for the
day-to-day management of the Fund, manages the Fund's U.S. investments and
investments in debt securities, determines the country allocation and industry
allocation of Fund assets, monitors Fund expenses and evaluates the services
provided by the sub-investment adviser to the Fund. Warburg also employs a
support staff of management personnel to provide services to the Funds and
furnishes each Fund with office space, furnishings and equipment. SPARX USA, in
accordance with the investment objective and policies of the Japan OTC Fund and
under the supervision of Warburg and the Fund's governing Board, makes
investment decisions for the Fund involving Japanese and other Asian equity
securities, places orders to buy and sell such securities on behalf of the Fund
and provides research to the Fund relating to Japanese and other Asian companies
and securities markets.
For the services provided by Warburg, the Emerging Markets Fund, the Japan
Growth Fund and the Japan OTC Fund each pay Warburg a fee calculated at an
annual rate of 1.25% of the Fund's average daily net assets, and the
International Equity Fund pays Warburg an advisory fee calculated at an annual
rate of 1.00% of the Fund's average daily net assets. Warburg pays SPARX USA a
fee of .625% out of Warburg's advisory fee. Warburg, SPARX USA and each Fund's
co-administrators may voluntarily waive a portion of their fees from time to
time and temporarily limit the expenses to be borne 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.
SPARX USA, a Delaware corporation, is a wholly owned subsidiary of SPARX.
SPARX USA, which has not previously acted as adviser to a U.S. investment
company, is registered as an investment adviser under the U.S. Investment
Advisers Act of 1940. SPARX is an independent investment advisory company, which
is owned by Shuhei Abe. The predecessor of SPARX was incorporated in Tokyo in
July 1988 and was registered as an investment adviser under the Investment
Advisory Act of 1986 of Japan.
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SPARX has no business other than providing investment advisory services, and as
of December 31, 1996, SPARX had approximately $774 million in assets under
management. SPARX USA's address is 413 Seaside Avenue, Honolulu, Hawaii 96815.
PORTFOLIO MANAGERS. Emerging Markets Fund. Richard H. King and Nicholas P.W.
Horsley are co-portfolio managers of the Fund, and Harold W. Ehrlich and Vincent
J. McBride are associate portfolio managers and research analysts.
International Equity Fund. Richard H. King is portfolio manager of the Fund,
and Nicholas P.W. Horsley, P. Nicholas Edwards, Harold W. Ehrlich and Vincent J.
McBride are associate portfolio managers and research analysts.
Japan Growth Fund. P. Nicholas Edwards is portfolio manager of the Fund.
Japan OTC Fund. Richard H. King, Nicholas P.W. Horsley and Shuhei Abe are
co-portfolio managers of the Fund, and Toshikatsu Kimura is an associate
portfolio manager.
Mr. King, a managing director of Warburg since 1989, has been a portfolio
manager of each Fund other than the Japan Growth Fund since its inception. From
1984 until 1988 he was chief investment officer and a director at Fiduciary
Trust Company International S.A. in London, with responsibility for all
international equity management and investment strategy. From 1982 to 1984 he
was a director in charge of Far East equity investments at N.M. Rothschild
International Asset Management, a London merchant bank.
Mr. Edwards is a managing director of Warburg and has been with Warburg since
August 1995, before which time he was a director at Jardine Fleming Investment
Advisers, Tokyo. He was a vice president of Robert Fleming Inc. in New York City
from 1988 to 1991. Mr. Horsley has been a co-portfolio manager of the Emerging
Markets and Japan OTC Funds since their inception. Mr. Horsley is a senior vice
president of Warburg and has been with Warburg since 1993, before which time he
was a director, portfolio manager and analyst at Barclays deZoete Wedd in New
York City. Mr. Ehrlich is a managing director of Warburg and has been with
Warburg and the Funds since February 1995, before which time he was a senior
vice president, portfolio manager and analyst at Templeton Investment Counsel
Inc. Mr. McBride is a senior vice president of Warburg and has been with Warburg
and the Funds since 1994. Prior to joining Warburg, Mr. McBride was an
international equity analyst at Smith Barney Inc. from 1993 to 1994 and at
General Electric Investment Corporation from 1992 to 1993. From 1989 to 1992 he
was a portfolio manager/analyst at United Jersey Bank.
Shuhei Abe of SPARX USA, a co-portfolio manager of the Japan OTC Fund since
its inception, is the founder and president of SPARX Asset Management Company
Ltd. ('SPARX'), the parent company of SPARX USA. Prior to founding SPARX in 1989
(by assuming control of a predecessor company), Mr. Abe worked for Soros Fund
Management and Credit Suisse Trust Bank as an independent adviser. Toshikatsu
Kimura has been an associate portfolio
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manager of the Japan OTC Fund since its inception. Mr. Kimura has been a
portfolio manager and analyst at SPARX since 1992, before which time he was a
warrant trader and portfolio manager, respectively, at Sanyo Securities and
Sanyo Investment Management from 1986 to 1990, and at Funai Capital from 1990 to
1992.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Funds. As
compensation, each Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of the Fund's average daily net assets.
Each Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation, the Funds each pay
PFPC a fee calculated at an annual rate of .12% of each Fund's first $250
million in average daily net assets, .10% of the next $250 million in average
daily net assets, .08% of the next $250 million in average daily net assets, and
.05% of average daily net assets over $750 million, subject in each case to a
minimum annual fee and exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. State Street Bank and Trust Company ('State Street') serves as
custodian of the Emerging Markets Fund's and the Japan OTC Fund's assets.
Fiduciary Trust Company International ('Fiduciary') serves as custodian of the
International Equity Fund's assets. Fiduciary serves as custodian of the Japan
Growth Fund's non-U.S. assets, and PNC Bank, National Association ('PNC'),
serves as custodian of the Fund's U.S. assets. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110. Fiduciary's
principal business address is Two World Trade Center, New York, New York 10048.
Like PFPC, PNC is a subsidiary of PNC Bank Corp. and its principal business
address is 1600 Market Street, Philadelphia, Pennsylvania 19103.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Funds. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ('BFDS'),
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responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Funds. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the International Equity Fund to Counsellors Securities for
distribution services. Counsellors Securities receives a fee at an annual rate
equal to .25% of the average daily net assets of each of the Emerging Markets,
Japan Growth and Japan OTC Fund's Common Shares for distribution services,
pursuant to a shareholder servicing and distribution plan (the '12b-1 Plan')
adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act. Amounts paid to
Counsellors Securities under a 12b-1 Plan may be used by Counsellors Securities
to cover expenses that are primarily intended to result in, or that are
primarily attributable to, (i) the sale of the Common Shares, (ii) ongoing
servicing and/or maintenance of the accounts of Common Shareholders of the Fund
and (iii) sub-transfer agency services, subaccounting services or administrative
services related to the sale of the Common Shares, all as set forth in the 12b-1
Plans. Payments under the 12b-1 Plans are not tied exclusively to the
distribution expenses actually incurred by Counsellors Securities and the
payments may exceed distribution expenses actually incurred. The Boards of the
Emerging Markets Fund, the Japan Growth Fund and the Japan OTC Fund evaluate the
appropriateness of the 12b-1 Plans on a continuing basis and in doing so
consider all relevant factors, including expenses borne by Counsellors
Securities and amounts received under the 12b-1 Plans.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Funds, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to the Board. The Boards set broad
policies for each Fund and choose its officers. A list of the Directors and
officers of each Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information of each Fund.
HOW TO OPEN AN ACCOUNT__________________________________________________________
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone
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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 UTMA 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 Transfers to Minors Act ('UTMA') account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874 or write to
Warburg Pincus Funds at the address set forth above. Investors should consult
their own tax advisers about the establishment of retirement plans and UTMA
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__________________________________________________________
Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire.
The minimum initial investment in each Fund is $2,500 and the minimum
subsequent investment is $100, except that subsequent minimum investments can be
as low as $50 under the Automatic Monthly Investment Plan described below. For
retirement plans and UTMA 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 the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. The Fund reserves
the right to suspend the offering of shares for a period of time or to reject
any specific purchase order. In the interest of economy and convenience,
physical certificates representing shares in the Funds are not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check
or money order made payable to the Fund or Warburg Pincus Funds (in U.S.
currency) should be sent along with the completed account
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application to Warburg Pincus Funds through its distributor, Counsellors
Securities at the address set forth above. Checks payable to the investor and
endorsed to the order of the Fund or Warburg Pincus Funds will not be accepted
as payment and will be returned to the sender. If payment is received in proper
form 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
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day. However, if a wire in proper form that is not preceded by a telephone order
is received after the close of regular trading on the NYSE, the payment will be
held uninvested until the order is effected at the close of business on the next
business day. Payment for orders that are not accepted will be returned to the
prospective investor after prompt inquiry. If a telephone order is placed and
payment by wire is not received on the same day, the Fund will cancel the
purchase and the investor may be liable for losses or fees incurred.
PURCHASES THROUGH INTERMEDIARIES. Common Shares of each Fund are available
through the Charles Schwab & Company, Inc. Mutual Fund OneSourceTM Program;
Fidelity Brokerage Services, Inc. Funds-NetworkTM Program; Jack White & Company,
Inc.; and Waterhouse Securities, Inc. Generally, these programs do not require
customers to pay a transaction fee in connection with purchases. The Funds are
also available through certain broker-dealers, financial institutions and other
industry professionals, (including the programs described above, collectively,
'Service Organizations'), which may impose certain conditions on their clients
or customers that invest in the Funds, which are in addition to or different
than those described in this Prospectus, and may charge their clients or
customers direct fees. Certain features of the Funds, such as the initial and
subsequent investment minimums, redemption fees and certain trading
restrictions, may be modified or waived by Service Organizations. Service
Organizations may impose transaction or administrative charges or other direct
fees, which charges and fees would not be imposed if Fund shares are purchased
directly from the Funds. 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 Funds in
accordance with their agreements with the Funds 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 Funds' 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,
Counsellors Securities or its 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 the Funds maintained by such Service
Organizations or recordkeepers. A portion of the Service Fee may be borne by the
Funds 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
Funds' custodian or transfer agent for costs related to accounts of its clients
or customers. The Service Fee payable to any one
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Service Organization 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.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders
to authorize a Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account applications and include a voided, unsigned check from the bank
account to be debited. Only an account maintained at a domestic financial
institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information, or
contact Warburg Pincus Funds at (800) 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.
A Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect that 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 such Fund and to reinvest any dividends or capital gains
distributions.
HOW TO REDEEM AND EXCHANGE SHARES_______________________________________________
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Common Shares of the Funds may either be redeemed by mail or by telephone.
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
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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. An investor making a telephone withdrawal should
state (i) the name of the Fund, (ii) the account number of the Fund, (iii) the
name of the investor(s) appearing on the Fund's records, (iv) the amount to be
withdrawn and (v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although each Fund will
redeem shares purchased by check or through the Automatic Investment Program
before the check or funds clear, payments of the redemption proceeds will be
delayed for five days (for funds received through the Automatic Investment
Program) or ten days (for check purchases) from the date of purchase. Investors
should consider purchasing shares using a certified or bank check or money order
if they anticipate an immediate need for redemption proceeds.
If a redemption order is received by the Funds or their 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 UTMA account), each
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Fund reserves the right to redeem the shares in that account at net asset value.
Prior to any redemption, the Fund will notify an investor in writing that this
account has a value of less than the minimum. The investor will then have 60
days to make an additional investment before a redemption will be processed by
the Fund.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither a
Fund nor its agents will be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. Reasonable procedures will
be employed on behalf of each Fund to confirm that instructions communicated by
telephone are genuine. Such procedures include providing written confirmation of
telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
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 their 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;
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WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
WARBURG PINCUS TAX FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of capital;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income and,
secondarily, capital appreciation by investing in a diversified portfolio of
fixed-income securities;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed-income securities of
governmental and corporate issuers denominated in various currencies, including
U.S. dollars;
WARBURG PINCUS BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term
growth of capital and income and a reasonable current return;
WARBURG PINCUS 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 long-term
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 -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development; and
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing principally in equity
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securities of U.S. and foreign issuers in their post-venture capital stage of
development.
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.
DIVIDENDS, DISTRIBUTIONS AND TAXES______________________________________________
DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. Each Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs a
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Common Shares of the relevant Fund at
net asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Funds at the
address set forth under 'How to Open an Account' or by calling Warburg Pincus
Funds at (800) 927-2874.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are
taxable to investors as long-term capital gains, in each case regardless of how
long the shareholder has held Fund shares and whether received in cash or
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reinvested in additional Fund shares. As a general rule, an investor's gain or
loss on a sale or redemption of his Fund shares will be a long-term capital gain
or loss if he has held his shares for more than one year and will be a
short-term capital gain or loss if he has held his shares for one year or less.
However, any loss realized upon the sale or redemption of shares within six
months from the date of their purchase will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gain during such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Funds, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities, including short sales of
securities, will not result in unrelated business taxable income to a tax-exempt
investor. A Fund's dividends 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.
Certain provisions of the Code may require that a gain recognized by the
Funds upon the closing of a short sale be treated as a short-term capital gain,
and that a loss recognized by the Funds upon the closing of a short sale be
treated as a long-term capital loss, regardless of the amount of time that the
Funds held the securities used to close the short sale. The Funds' use of short
sales may also affect the holding periods of certain securities held by the
Funds if such securities are 'substantially identical' to securities used by the
Funds to close the short sale. The Funds' short selling activities will not
result in unrelated business taxable income to a tax-exempt investor.
Dividends and interest received by the Funds may be subject to withholding
and other taxes imposed by foreign countries. However, tax conventions between
certain countries and the United States may reduce or eliminate such taxes. If a
Fund qualifies as a regulated investment company, if certain asset and
distribution requirements are satisfied and if more than 50% of the Fund's total
assets at the close of its fiscal year consists of stock or securities of
foreign corporations, the Fund may elect for U.S. income tax purposes to treat
foreign income taxes paid by it as paid by its shareholders. A Fund may qualify
for and make this election in some, but not necessarily all, of its taxable
years. If a Fund were to make an election, shareholders of the Fund would be
required to take into account an amount equal to their pro rata portions of such
foreign taxes in computing their taxable income and then treat an amount equal
to those foreign taxes as a U.S. federal income tax deduction or as a foreign
tax credit against their U.S. federal income taxes. Shortly after any year for
which it makes such an election, each Fund will report to its shareholders the
amount per share of such foreign income tax that must be included in each
shareholder's gross income and the amount which will be available for the
deduction or credit. No deduction for foreign taxes may be claimed by a
shareholder who does not itemize deductions.
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Certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
Special Tax Matters Relating to the Emerging Markets Fund and the Japan
Growth Fund. Certain provisions of the Code may require that a gain recognized
by a Fund upon the closing of a short sale be treated as a short-term capital
gain, and that a loss recognized by the Fund upon the closing of a short sale be
treated as a long-term capital loss, regardless of the amount of time that the
Fund held the securities used to close the short sale. A Fund's use of short
sales may also affect the holding periods of certain securities held by the Fund
if such securities are 'substantially identical' to securities used by the Fund
to close the short sale. The Funds' short selling activities will not result in
unrelated business taxable income to a tax-exempt investor.
Special Tax Matters Relating to the Japan Growth Fund and the Japan OTC Fund.
In the opinion of Japanese counsel for the Funds, the operations of the Funds
will not subject a Fund to any Japanese income, capital gains or other taxes
except for withholding taxes on interest and dividends paid to the Fund by
Japanese corporations and securities transaction taxes payable in the event of
sales of portfolio securities in Japan. In the opinion of such counsel, under
the tax convention between the United States and Japan (the 'Convention') as
currently in force, a Japanese withholding tax at a rate of 15% is, with certain
exceptions, imposed upon dividends paid by Japanese corporations to the Fund.
Pursuant to the present terms of the Convention, interest received by a Fund
from sources within Japan is subject to a Japanese withholding tax at a rate of
10%.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of a Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
NET ASSET VALUE_________________________________________________________________
Each Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of each Fund generally changes each day.
The net asset value per Common Share of each Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the
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liabilities specifically allocated to Common Shares and then dividing the result
by the total number of outstanding Common Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Board determines that
using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE_____________________________________________________________________
The Funds quote the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, each Fund may advertise the average annual total return of its Common
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Common Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Common Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Common Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that each Fund seeks long-term appreciation and
that such return may not be representative of any Fund's return over a longer
market cycle. Each Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Funds'
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Statement of Additional Information describes the method used to determine the
total return. Current total return figures may be obtained by calling Warburg
Pincus Funds at (800) 927-2874.
In reports or other communications to investors or in advertising material, a
Fund may describe general economic and market conditions affecting the Fund. The
Fund may compare its performance with (i) that of other mutual funds as listed
in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) in the case of the Emerging Markets Fund,
with the IFC Emerging Market Free Index, the IFC Investible Index or the Morgan
Stanley Capital International Emerging Markets Index; in the case of the
International Equity Fund, the Morgan Stanley Capital International Europe,
Australasia and Far East ('EAFE') Index, the Salomon Russell Global Equity
Index, the FT-Actuaries World Indices (jointly compiled by The Financial Times,
Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.) and the S&P 500 Index;
and in the case of the Japan Growth Fund and the Japan OTC Fund, the indexes
noted above for the International Equity Fund, as well as the Nikkei
over-the-counter average, the JASDAQ Index, the Nikkei 225 and 300 Stock Indexes
and the Topix Index; all of which are unmanaged indexes of common stocks; or
(iii) other appropriate indexes of investment securities or with data developed
by Warburg derived from such indexes. A Fund may include evaluations of the Fund
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as 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 the expense ratio of its Common Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
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GENERAL INFORMATION_____________________________________________________________
ORGANIZATION. The Emerging Markets Fund was incorporated on December 23, 1993
under the laws of the State of Maryland under the name 'Warburg, Pincus Emerging
Markets Fund, Inc.' The International Equity Fund was incorporated on February
9, 1989 under the laws of the State of Maryland under the name 'Counsellors
International Equity Fund, Inc.' On October 27, 1995 the Fund amended its
charter to change its name to 'Warburg, Pincus International Equity Fund, Inc.'
The Japan Growth Fund was incorporated on October 10, 1995 under the laws of the
State of Maryland under the name 'Warburg, Pincus Japan Growth Fund, Inc.,' and
the Japan OTC Fund was incorporated on July 26, 1994 under the laws of the State
of Maryland under the name 'Warburg, Pincus Japan OTC Fund, Inc.'
Each Fund's charter authorizes its Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and two billion shares are
designated Advisor Shares. Under each Fund's charter documents, the Board has
the power to classify or reclassify any unissued shares of the Fund into one or
more additional classes by setting or changing in any one or more respects their
relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board of a Fund may
similarly classify or reclassify any class of its shares into one or more series
and, without shareholder approval, may increase the number of authorized shares
of the Fund.
MULTI-CLASS STRUCTURE. Each Fund offers a separate class of shares, the
Advisor Shares, pursuant to a separate prospectus. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries. Shares of each class represent equal pro
rata interests in the respective Fund and accrue dividends and calculate net
asset value and performance quotations in the same manner. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Advisor Shares from their investment professional or
by calling Counsellors Securities at (800) 369-2728.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of a Fund may be removed from office
upon the vote of shareholders holding at least a majority of the relevant Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of
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a Board member at the written request of holders of 10% of the outstanding
shares of a Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). Each Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by the Fund, 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
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, THE FUNDS'
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EACH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 6
Portfolio Investments................................................... 10
Risk Factors and Special Considerations................................. 14
Portfolio Transactions and Turnover Rate................................ 19
Certain Investment Strategies........................................... 20
Investment Guidelines................................................... 24
Management of the Funds................................................. 25
How to Open an Account.................................................. 29
How to Purchase Shares.................................................. 29
How to Redeem and Exchange Shares....................................... 32
Dividends, Distributions and Taxes...................................... 36
Net Asset Value......................................................... 38
Performance............................................................. 39
General Information..................................................... 41
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPISF-1-0297
<PAGE>
<PAGE>
PROSPECTUS
WARBURG PINCUS ADVISOR FUNDS FEBRUARY 25, 1997
[Logo]
Japan OTC Fund
[Logo]
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PROSPECTUS February 25, 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. One Advisor Fund is described in this
Prospectus:
WARBURG PINCUS JAPAN OTC FUND seeks long-term capital appreciation by investing
in a portfolio of securities traded in the Japanese over-the-counter market.
International investing entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
The Fund currently offers two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Fund,
as well as Advisor Shares of certain other Warburg Pincus-advised funds, are
sold under the name 'Warburg Pincus Advisor Funds.' Individual investors may
purchase Advisor Shares only through institutional shareholder of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of .50% per annum, which is the economic equivalent of a
sales charge. The Fund's Common Shares are available for purchase by individuals
directly and are offered by a separate prospectus.
NO MINIMUM INVESTMENT-----------------------------------------------------------
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC'). 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 Fund. The
Statement of Additional Information is also available to investors without
charge by calling the Fund at (800) 369-2728. Information regarding the status
of shareholder accounts may also be obtained by calling the Fund at the same
number. The Statement of Additional Information, as amended or supplemented from
time to time, bears the same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF 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>
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THE FUND'S EXPENSES-------------------------------------------------------------
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information.' Because of the higher fees paid by
Advisor Shares, the total return on such shares can be expected to be lower than
the total return on Common Shares.
<TABLE>
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Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................................... 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees........................................................... .99%
12b-1 Fees................................................................ .50%*
Other Expenses............................................................ .51%
Total Fund Operating Expenses (after fee waivers)`D'...................... 2.00%
--------
--------
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.................................................................... $ 20
3 years................................................................... $ 63
5 years................................................................... $108
10 years.................................................................. $233
</TABLE>
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* Current 12b-1 fees are .50% out of a maximum .75% authorized under the Advisor
Shares' Distribution Plan. At least a portion of these fees should be
considered by the investor to be the economic equivalent of a sales charge.
`D' Absent the waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees would have equalled 1.25%, Other Expenses
would have equalled .54%, and Total Fund Operating Expenses would have
equalled 2.29%. 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 an Advisor Shareholder of the Fund. Institutions also
may charge their clients fees in connection with investments in the Advisor
Shares, which fees are not reflected in the table. The Example should not be
considered a representation of past or future expenses; actual Fund expenses may
be greater or less than those shown. Moreover, while the Example assumes a 5%
annual return, the Fund's actual performance will vary and may result in a
return greater or less than 5%. Long-term shareholders 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').
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FINANCIAL HIGHLIGHTS------------------------------------------------------------
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following information regarding the Fund for the two fiscal years and the
fiscal period ended October 31, 1996 has been derived from information audited
by Coopers & Lybrand L.L.P., independent accountants, whose report dated
December 18, 1996 is incorporated by reference in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the annual report, dated October 31, 1996, copies of which may be obtained
without charge by calling the Fund at (800) 369-2728.
<TABLE>
<CAPTION>
For the Period
For the Year September 30, 1994
Ended October 31, (Commencement of
------------------ Operations) through
1996 1995 October 31, 1994
------ ------ -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 9.08 $ 9.85 $ 10.00
------ ------ -----
Income from Investment Operations
Net Investment Loss........................... (.13) (.02) .00
Net Loss on Securities and Foreign Currency
Related Items (both realized and
unrealized)................................. (.14) (.75) (.15)
------ ------ -----
Total from Investment Operations.............. (.27) .77 (.15)
------ ------ -----
Less Distributions
Dividends (from net investment income)........ (.36) .00 .00
Distributions (from capital gains)............ .00 .00 .00
------ ------ -----
Total Distributions........................... (.36) .00 .00
------ ------ -----
Net Asset Value, End of Period................... $ 8.45 $ 9.08 $ 9.85
------ ------ -----
------ ------ -----
Total Return..................................... (3.17%) (7.82%) (1.50%)`D'
Ratios/Supplemental Data
Net Assets, End of Period (000s)................. $ 1 $ 1 $ 1
Ratios to average daily net assets:
Operating expenses............................ 2.00% 1.31% 1.18%*
Net investment income (loss).................. (1.57%) (.19%) .12%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements........ .29% 1.83% 4.74%*
Portfolio Turnover Rate.......................... 95.23% 82.98% .00%
Average Commission Rate#......................... $.0968 -- --
</TABLE>
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* Annualized.
`D' Non-annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
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INVESTMENT OBJECTIVE AND POLICIES-----------------------------------------------
The Fund seeks long-term capital appreciation. This objective is a
fundamental policy and may not be amended without first obtaining the approval
of a majority of the outstanding shares of the Fund. Any investment involves
risk and, therefore, there can be no assurance that the Fund will achieve its
investment objective. See 'Portfolio Investments' and 'Certain Investment
Strategies' for descriptions of certain types of investments the Fund may make.
The Fund is a non-diversified management investment company that pursues its
investment objective by investing in a portfolio of securities traded in the
Japanese over-the-counter market. The Fund is designed to provide an opportunity
to participate in the dynamic structural changes in the Japanese industrial
system through investment in less-established, higher growth companies that can
be expected to benefit from these changes. At all times, except during temporary
defensive periods, the Fund will maintain at least 65% of its total assets in
securities of companies traded through JASDAQ, the primary Japanese
over-the-counter market, or the Japanese Second Section OTC Market (the
'Frontier Market'). The portion of the Fund's assets that is not invested
through JASDAQ or the Frontier Market may be invested in securities of Japanese
issuers that are not traded through JASDAQ or the Frontier Market or
exchange-traded and over-the-counter securities of issuers in other Asian
markets, in addition to the other instruments described below. The Fund may
invest up to 35% of its total assets in securities of other Asian issuers, with
no more than 10% invested in any one country. The Fund will not invest in
securities of non-Asian issuers, except that the Fund may, for defensive
purposes, invest in U.S. debt securities and money market obligations. The Fund
intends its portfolio to consist principally of equity securities (common stock,
warrants and securities convertible into common stock), which may include shares
of closed-end investment companies investing in Asia. The Fund may involve a
greater degree of risk than an investment in other mutual funds that seek
capital appreciation by investing in better-known, larger companies. From time
to time, the Fund may hedge part or all of its exposure to the Japanese yen,
thereby reducing or substantially eliminating any favorable or unfavorable
impact of changes in the value of the yen in relation to the U.S. dollar.
PORTFOLIO INVESTMENTS-----------------------------------------------------------
INVESTMENT GRADE DEBT. The Fund may invest up to 35% of its total assets in
investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by Warburg,
Pincus Counsellors, Inc., the Fund's investment adviser ('Warburg'). Because the
market value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt
4
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obligations may provide an opportunity for capital appreciation when interest
rates are expected to decline. The success of such a strategy is dependent upon
Warburg's ability to accurately forecast changes in interest rates. The market
value of debt obligations may also be expected to vary depending upon, among
other factors, the ability of the issuer to repay principal and interest, any
change in investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ('Moody's') or Standard &
Poor's Ratings Services ('S&P') or, if unrated, is determined to be of
comparable quality by Warburg. Bonds rated in the fourth highest grade have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require sale of such securities, although Warburg will
consider such event in its determination of whether the Fund should continue to
hold the securities. The Fund does not currently intend during the coming year
to hold more than 5% of its net assets in securities that have been downgraded
below investment grade.
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in U.S. debt securities and in domestic and
foreign money market obligations, including repurchase agreements.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. In addition to the Fund's
authority to invest in money market securities, the Fund may invest up to 5% of
its net assets in each of asset-backed and mortgage-backed securities.
Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle has not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The Fund may purchase
asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-governmental entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perception of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
5
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SWAPS. The Fund may enter into swaps relating to indexes, currencies and
equity interests of foreign issuers without limit. 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. Currency
swaps involve the exchange of cash flows on a notional amount of two or more
currencies based on their relative future values. An equity swap is an agreement
to exchange streams of payments computed by reference to a notional amount based
on the performance of a basket of stocks or a single stock. The Fund may enter
into these transactions to preserve a return or spread on a particular
investment or portion of its assets, to protect against currency fluctuations,
as a duration management technique or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date. The Fund
may also use these transactions for speculative purposes, such as to obtain the
price performance of a security without actually purchasing the security in
circumstances where, for example, the subject security is illiquid, is
unavailable for direct investment or available only on less attractive terms.
Swaps have risks associated with them including possible default by the other
party to the transaction, illiquidity and, where swaps are used as hedges, the
risk that the use of a swap could result in losses greater than if the swap had
not been employed.
The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Index swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to index swaps is limited to the net amount of
interest payment that a Fund is contractually obligated to make. If the other
party to an index swap defaults, the Fund's risk of loss consists of the net
amount of interest payments that a Fund is contractually entitled to receive.
Where swaps are entered into for good faith hedging purposes, Warburg believes
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions. The Fund will accrue the net amount of the excess, if any, of its
obligations over its entitlements with respect to each swap on a daily basis and
will segregate an amount of cash or liquid securities having a value equal to
the accrued excess.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
circumstances, up to 20% of its total assets in domestic and foreign short-term
(one year or less to maturity) or medium-term (five years or less remaining to
maturity) money market obligations and for temporary defensive purposes may
invest in these securities without limit. These instruments consist of
obligations issued or guaranteed by the U.S. government or a foreign government,
its agencies or instrumentalities; bank obligations (including certificates of
deposit, time deposits and bankers' acceptances of domestic or foreign banks,
domestic savings and loans and
6
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similar institutions) that are high quality investments or, if unrated, deemed
by Warburg to be high quality investments; commercial paper rated no lower than
A-2 by S&P or Prime-2 by Moody's or the equivalent from another major rating
service or, if unrated, of an issuer having an outstanding, unsecured debt issue
then rated within the three highest rating categories; and repurchase agreements
with respect to the foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
or becomes bankrupt and the Fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board of Directors (the 'Board'), monitors the creditworthiness of those
bank and non-bank dealers with which the Fund enters into repurchase agreements
to evaluate this risk. A repurchase agreement is considered to be a loan under
the Investment Company Act of 1940, as amended (the '1940 Act').
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund, Warburg, PFPC Inc. ('PFPC'), the
Fund's co-administrator, or SPARX Investment & Research, USA, Inc., the Fund's
sub-investment adviser ('SPARX USA') (each of Warburg and SPARX USA referred to
individually as an 'Adviser'). As a shareholder in any mutual fund, the Fund
will bear its ratable share of the mutual fund's expenses, including management
fees, and will remain subject to payment of the Fund's administration fees and
other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to
7
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<PAGE>
borrow from the U.S. Treasury and instruments that are supported by the credit
of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by the Fund, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities. The Fund will invest
only in convertible securities rated investment grade at the time of purchase or
deemed to be of equivalent quality. The Fund does not currently intend during
the coming year to hold more than 5% of its net assets in the aggregate of
investment grade convertible securities and investment grade debt downgraded
below investment grade subsequent to acquisition by the Fund.
WARRANTS. The Fund may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
RISK FACTORS AND SPECIAL CONSIDERATIONS-----------------------------------------
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, see 'Portfolio
Investments' beginning at page 4 and 'Certain Investment Strategies' beginning
at page 12.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described below associated with investing in foreign securities generally. In
addition, because the Fund invests primarily in Japan, the Fund will be subject
to general economic and political conditions in Japan. The Fund should be
considered a vehicle for diversification, but the Fund itself is not
diversified.
Securities in Japan are denominated and quoted in 'yen.' Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of the
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
8
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U.S. dollars. As a result, in the absence of a successful currency hedge, the
value of the Fund's assets as measured in U.S. dollars may be affected favorably
or unfavorably by fluctuations in the value of Japanese yen relative to the U.S.
dollar.
JASDAQ traded securities can be volatile, which may result in the Fund's net
asset value fluctuating in response. Trading of equity securities through the
JASDAQ market is conducted by securities firms in Japan, primarily through an
organization which acts as a 'matching agent,' as opposed to a recognized stock
exchange. Consequently, securities traded through JASDAQ may, from time to time,
and especially in falling markets, become illiquid and experience short-term
price volatility and wide spreads between bid and offer prices. This combination
of limited liquidity and price volatility may have an adverse effect on the
investment performance of the Fund. In periods of rapid price increases, the
limited liquidity of JASDAQ restricts the Fund's ability to adjust its portfolio
quickly in order to take full advantage of a significant market increase, and
conversely, during periods of rapid price declines, it restricts the ability of
the Fund to dispose of securities quickly in order to realize gains previously
made or to limit losses on securities held in its portfolio. In addition,
although JASDAQ has generally experienced sustained growth in aggregate market
capitalization and trading volume, there have been periods in which aggregate
market capitalization and trading volume have declined. The Frontier Market is
expected to present greater liquidity, volatility and trading considerations
than JASDAQ.
At November 30, 1996, 761 issues were traded through JASDAQ, having an
aggregate market capitalization of approximately 15 trillion yen (approximately
$121 billion as of February 14, 1997). The entry requirements for JASDAQ
generally require a minimum of 2 million shares outstanding at the time of
registration, a minimum of 200 shareholders, minimum pre-tax profits of 10 yen
per share (approximately $.08 per share as of February 14, 1997) over the prior
fiscal year and net worth of 200 million yen (approximately $1.61 million as of
February 14, 1997). JASDAQ has generally attracted small growth companies or
companies whose major shareholders wish to sell only a small portion of the
company's equity.
The Frontier Market is a second over-the-counter market and is under the
jurisdiction of JASDAQ, which is overseen by the Japanese Securities and
Exchange Commission. The Frontier Market has less stringent entry requirements
than those described above for JASDAQ and is designed to enable early stage
companies access to capital markets. Frontier Market companies need not have a
history of earnings, provided their spending on research and development equals
at least 3% of net sales. In addition, companies traded through the Frontier
Market are not required to have 2 million shares outstanding at the time of
registration. As a result, investments in companies traded through the Frontier
Market may involve a greater degree of risk than companies traded through
JASDAQ. The Frontier Market
9
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was created in July 1995, and as of the date of this Prospectus, a limited
number of issues were traded through this market.
The decline in the Japanese securities markets since 1989 has contributed to
a weakness in the Japanese economy, and the impact of a further decline cannot
be ascertained. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios in comparison with those in the United States,
even after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
Japan has a parliamentary form of government. In 1993, a coalition government
was formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leadership
in Japan. What, if any, effect the current political situation will have on
prospective regulatory reforms on the economy in Japan cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may lead
to changes in policy that might adversely affect the Fund. For additional
information, see 'Japan and its Securities Markets' in the Statement of
Additional Information.
EMERGING MARKETS. The Fund may invest in securities of issuers located in
less developed countries considered to be 'emerging markets.' Investing in
securities of issuers located in emerging markets involves not only the risks
described below with respect to investing in foreign securities, but also other
risks, including exposure to economic structures that are gener-ally less
diverse and mature than, and to political systems that can be expected to have
less stability than, those of developed countries. Other characteristics of
emerging markets that may affect investment there include certain national
policies that may restrict investment by foreigners in issuers or industries
deemed sensitive to relevant national interests and the absence of developed
legal structures governing private and foreign investments and private property.
The typically small size of the markets for securities of issuers located in
emerging markets and the possibility of a low or nonexistent volume of trading
in those securities may also result in a lack of liquidity and in price
volatility of those securities.
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of emerging
growth and small-sized companies, which may include JASDAQ and Frontier Market
securities, may involve greater risks than investing in
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larger, more established issuers since these securities may have limited
marketability and, thus, may be more volatile than securities of larger, more
established companies or the market averages in general. Because smaller
companies normally have fewer shares outstanding than larger companies, it may
be more difficult for the Fund to buy or sell significant amounts of such shares
without an unfavorable impact on prevailing prices. Small-sized companies may
have limited product lines, markets or financial resources and may lack
management depth. In addition, small- and medium-sized companies are typically
subject to a greater degree of changes in earnings and business prospects than
are larger, more established companies. There is typically less publicly
available information concerning smaller companies than for larger, more
established ones. Although investing in securities of emerging growth companies
offers potential for above-average returns if the companies are successful, the
risk exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in the
Fund may involve a greater degree of risk than an investment in other mutual
funds that seek capital appreciation by investing in better-known, larger
companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
The Board will carefully monitor any investments by the Fund in Rule 144A
Securities, which will be included within the Fund's limit on illiquid
securities.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Fund is classified as a non-diversified
investment company under the 1940 Act, which means that the Fund is not limited
by the 1940 Act in the proportion of its assets that it may invest in the
obligations of a single issuer. The Fund will, however, comply with
diversification requirements imposed by the Internal Revenue Code of 1986,
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as amended (the 'Code'), for qualification as a regulated investment company. As
a non-diversified investment company, the Fund may invest a greater proportion
of its assets in the obligations of a small number of issuers and, as a result,
may be subject to greater risk with respect to portfolio securities. To the
extent that the Fund assumes large positions in the securities of a small number
of issuers, its return may fluctuate to a greater extent than that of a
diversified company as a result of changes in the financial condition or in the
market's assessment of the issuers.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss in the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE----------------------------------------
The Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever an
Adviser believes it to be in the best interests of the Fund. The Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. High portfolio
turnover rates (100% or more) may result in dealer mark ups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See 'Dividends,
Distributions and Taxes -- Taxes' below and 'Investment Policies -- Portfolio
Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by an Adviser with broker-dealers that it selects, including
Counsellors Securities Inc., the Fund's distributor ('Counsellors Securities').
The Fund may utilize Counsellors Securities in connection with a purchase or
sale of securities when Warburg believes that the charge for the transaction
does not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES---------------------------------------------------
Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed delivery, (ii) lending portfolio securities and
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(iii) entering into reverse repurchase agreements and dollar rolls. The Fund may
also invest in zero coupon securities, although the Fund currently anticipates
that during the coming year zero coupon securities will not exceed 5% of net
assets. Detailed information concerning the Fund's strategies and related risks
is contained below and in the Fund's Statement of Additional Information.
FOREIGN SECURITIES. The Fund will ordinarily hold no less than 65% of its
total assets in foreign securities. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in domestic investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, the lack of uniform accounting, auditing and financial
reporting standards and other regulatory practices and requirements that are
often generally less rigorous than those applied in the United States. Moreover,
securities of many foreign companies may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. In addition, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Fund, including the withholding of dividends. Foreign securities
may be subject to foreign government taxes that would reduce the net yield on
such securities. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher valuation
and communications costs and the expense of maintaining securities with foreign
custodians. Certain of the above risks may be involved with American Depositary
Receipts ('ADRs') and European Depositary Receipts ('EDRs'), instruments that
evidence ownership in underlying securities issued by a foreign corporation.
ADRs and EDRs may not necessarily be denominated in the same currency as the
securities whose ownership they represent. ADRs are typically issued by a U.S.
bank or trust company and EDRs (sometimes referred to as Continental Depositary
Receipts) are issued in Europe, typically by non-U.S. banks and trust companies.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of the
Advisers, the Fund may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These
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strategies, commonly referred to as 'derivatives,' may be used (i) for the
purpose of hedging against a decline in value of the Fund's current or
anticipated portfolio holdings, (ii) as a substitute for purchasing or selling
portfolio securities or (iii) to seek to generate income to offset expenses or
increase return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE
CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE THE FUND'S INVESTMENT RISK.
Transaction costs and any premiums associated with these strategies, and any
losses incurred, will affect the Fund's net asset value and performance.
Therefore, an investment in the Fund may involve a greater risk than an
investment in other mutual funds that do not utilize these strategies. The
Fund's use of these strategies may be limited by position and exercise limits
established by securities and commodities exchanges and the NASD and by the
Code.
Securities and Stock Index Options. The Fund may write put and call options
on up to 25% of the net asset value of the stock and debt securities in its
portfolio and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options; the Fund may also utilize up to 10% of its
assets to purchase options on stocks and debt securities that are traded on U.S.
and foreign exchanges, as well as over-the-counter ('OTC') options. The
purchaser of a put option on a security has the right to compel the purchase by
the writer of the underlying security, while the purchaser of a call option on a
security has the right to purchase the underlying security from the writer. In
addition to purchasing and writing options on securities, the Fund may also
utilize up to 10% of its total assets to purchase exchange-listed and OTC put
and call options on stock indexes, and may also write such options. A stock
index measures the movement of a certain group of stocks by assigning relative
values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An
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option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities and stock index options. In
addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. The Fund may engage in options, futures and currency
transactions for, among other reasons, hedging purposes. A hedge is designed to
offset a loss on a portfolio position with a gain in the hedge position; at the
same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedge position. As a result,
the use of options, futures contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in value of the
position hedged. In addition, the movement in the portfolio position hedged may
not be of the same magnitude as movement in the hedge. The Fund will engage in
hedging transactions only when deemed advisable by an Adviser, and successful
use of hedging transactions will depend on the Adviser's ability to correctly
predict movements in the hedge and the hedged position and the correlation
between them, which could prove to be inaccurate. Even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
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Asset Coverage. The Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by the Fund on securities and indexes; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts. The use of these strategies may require that the Fund maintain cash
or liquid securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with respect to these
strategies are not otherwise 'covered' through 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.
INVESTMENT GUIDELINES-----------------------------------------------------------
The Fund may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable, including (i) securities issued as part of a privately
negotiated transaction between an issuer and one or more purchasers; (ii)
repurchase agreements with maturities greater than seven days; (iii) time
deposits maturing in more than seven calendar days; and (iv) Rule 144A
Securities. The Fund may borrow from banks for temporary or emergency purposes,
such as meeting anticipated redemption requests, provided that borrowings by the
Fund may not exceed 30% of its total assets, and may pledge its assets to the
extent necessary to secure permitted borrowings. Whenever borrowings (including
reverse repurchase agreements) exceed 5% of the value of the Fund's net assets,
the Fund will not make any investments (including roll-overs). Except for the
limitations on borrowing, the investment guidelines set forth in this paragraph
may be changed at any time without shareholder consent by vote of the Board,
subject to the limitations contained in the 1940 Act. A complete list of
investment restrictions that the Fund has adopted identifying additional
restrictions that cannot be changed without the approval of the majority of the
Fund's outstanding shares is contained in the Statement of Additional
Information.
MANAGEMENT OF THE FUND----------------------------------------------------------
INVESTMENT ADVISERS. The Fund employs Warburg as its investment adviser and
SPARX USA as its sub-investment adviser. Warburg has general oversight for the
day-to-day management of the Fund, manages the Fund's U.S. investments and
investments in debt securities, determines the country allocation and industry
allocation of Fund assets, monitors Fund expenses and evaluates the services
provided by the sub-investment adviser to the Fund. Warburg also employs a
support staff of management personnel to provide services to the Fund and
furnishes the Fund with office space,
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furnishings and equipment. SPARX USA, in accordance with the investment
objective and policies of the Fund and under the supervision of Warburg and the
Board, makes investment decisions for the Fund involving Japanese and other
Asian equity securities, places orders to buy and sell such securities on behalf
of the Fund and provides research to the Fund relating to Japanese and other
Asian companies and securities markets.
The Fund pays Warburg an advisory fee calculated at an annual rate of 1.25%
of the Fund's average daily net assets, out of which Warburg pays SPARX USA a
fee of .625%. Warburg, SPARX USA and the Fund's co-administrators may
voluntarily waive a portion of their fees from time to time and temporarily
limit the expenses to be borne 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.
SPARX USA, a Delaware corporation, is a wholly owned subsidiary of SPARX.
SPARX USA, which has not previously acted as adviser to a U.S. investment
company, is registered as an investment adviser under the U.S. Investment
Advisers Act of 1940. SPARX is an independent investment advisory company, which
is owned by Shuhei Abe. The predecessor of SPARX was incorporated in Tokyo in
July 1988 and was registered as an investment adviser under the Investment
Advisory Act of 1986 of Japan. SPARX has no business other than providing
investment advisory services, and as of December 31, 1996, SPARX had
approximately $774 million in assets under management.
PORTFOLIO MANAGERS. Richard H. King, Nicholas P.W. Horsley and Shuhei Abe of
SPARX USA are co-portfolio managers of the Fund, and Toshikatsu Kimura is an
associate portfolio manager. Mr. King, Mr. Horsley and Mr. Abe have been
co-portfolio managers since the Fund's inception.
Mr. King, president of the Fund, has been a managing director of Warburg
since 1989. From 1984 until 1988 he was chief investment officer and a director
at Fiduciary Trust Company International S.A. in London, with responsibility for
all international equity management and investment strategy. From 1982 to 1984
he was a director in charge of Far East equity investments at N.M. Rothschild
International Asset Management, a London merchant bank. Mr. Horsley is a senior
vice president of Warburg and has
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been with Warburg since 1993, before which time he was a director, portfolio
manager and analyst at Barclays de Zoete Wedd in New York City.
Shuhei Abe of SPARX USA is the founder and president of SPARX Asset
Management Company Ltd. ('SPARX'), the parent company of SPARX USA. Prior to
founding SPARX in 1989 (by assuming control of a predecessor company), Mr. Abe
worked for Soros Fund Management and Credit Suisse Trust Bank as an independent
adviser. Toshikatsu Kimura has been an associate portfolio manager of the Fund
since its inception. Mr. Kimura has been a portfolio manager and analyst at
SPARX since 1992, before which time he was a warrant trader and portfolio
manager, respectively, at Sanyo Securities and Sanyo Investment Management from
1986 to 1990, and at Funai Capital from 1990 to 1992.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Fund. As
compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of its average daily net assets.
The Fund employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the Fund's
net asset value, provides all accounting services for the Fund and assists in
related aspects of the Fund's operations. As compensation, the Fund pays to PFPC
a fee calculated at an annual rate of .12% of the Fund's first $250 million in
average daily net assets, .10% of the next $250 million in average daily net
assets, .08% of the next $250 million in average daily net assets, and .05% of
average daily net assets over $750 million, subject to a minimum annual fee and
exclusive of out-of-pocket expenses. PFPC has its principal offices at 400
Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company ('State
Street') serves as custodian for the Fund's assets and acts as shareholder
servicing agent, transfer agent and dividend disbursing agent for the Fund. It
has delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
('BFDS'), responsibility for most shareholder servicing functions. State
Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
North Quincy, Massachusetts 02171.
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DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Advisor Shares to Counsellors Securities for distribution
services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE SHARES----------------------------------------------------------
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future. References in this Prospectus to
shareholders or investors also include Institutions which may act as the record
holders of the Advisor Shares.
Each Institution separately determines the rules applicable to its customers
investing in the Fund, including minimum initial and subsequent investment
requirements and the procedures to be followed to effect purchases, redemptions
and exchanges of Advisor Shares. There is no minimum amount of initial or
subsequent purchases of Advisor Shares imposed on Institutions, although the
Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and sending
payment by wire. After telephoning (800) 369-2728 for instructions, an
Institution should then wire federal funds to Counsellors Securities using the
following wire address:
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State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Japan OTC Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application has
been received in proper form, and an account number has been established. If a
telephone order is received by the close of regular trading on the New York
Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment by
wire is received on the same day in proper form in accordance with instructions
set forth above, the shares will be priced according to the net asset value of
the Fund on that day and are entitled to dividends and distributions beginning
on that day. If payment by wire is received in proper form by the close of the
NYSE without a prior telephone order, the purchase will be priced according to
the net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is received after the close of regular trading
on the NYSE, the payment will be held uninvested until the order is effected at
the close of business on the next business day. Payment for orders that are not
accepted will be returned after prompt inquiry. Certain organizations or
Institutions that have entered into agreements with the Fund or its agent may
enter confirmed purchase orders on behalf of customers, with payment to follow
no later than three business days following the day the order is effected. If
payment is not received by such time, the organization could be held liable for
resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients or customers that
invest in the Fund, which are in addition to or different than those described
in this Prospectus, and may charge their clients or customers direct fees.
Certain features of the Fund, such as 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
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organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his accounts with the organization.
The 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. In such event, however, it is anticipated that
existing shareholders would be permitted to continue to authorize investment in
the Fund and to reinvest any dividends or capital gains distributions.
HOW TO REDEEM AND EXCHANGE SHARES-----------------------------------------------
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that
the Fund's net asset value is calculated (see 'Net Asset Value' below). Requests
for the redemption (or exchange) of Advisor Shares are placed with an
Institution by its customers, which is then responsible for the prompt
transmission of the request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling the Fund at (800) 369-2728.
An investor making a telephone withdrawal should state (i) the name of the Fund,
(ii) the account number of the Fund, (iii) the name of the investor(s) appearing
on the Fund's records, (iv) the amount to be withdrawn and (v) the name of the
person requesting the redemption.
After receipt of the redemption request, the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received by the Fund or its agent prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect the Fund, the
Fund reserves the right to pay the redemption proceeds within seven days after
the redemption order is effected. Furthermore, the Fund may suspend the right of
redemption or postpone the date of payment upon redemption (as well as suspend
or postpone the recordation of an exchange of shares) for such periods as are
permitted under the 1940 Act.
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The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund
for Advisor Shares of the other Warburg Pincus Advisor Funds at their respective
net asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds or their 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 the 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 the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact the Fund at
(800) 369-2728.
DIVIDENDS, DISTRIBUTIONS AND TAXES----------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs the
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the Fund at net
asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Advisor Funds
at the address set forth under 'How to Redeem and Exchange Shares' or by calling
the Fund at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications,
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or who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. The Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains will be taxable
to investors as long-term capital gains, in each case regardless of how long
investors have held Advisor Shares or whether received in cash or reinvested in
additional Advisor Shares. As a general rule, an investor's gain or loss on a
sale or redemption of its Fund shares will be a long-term capital gain or loss
if it has held its shares for more than one year and will be a short-term
capital gain or loss if it has held its shares for one year or less. However,
any loss realized upon the sale or redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gain during
such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Fund, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities will not result in
unrelated business taxable income to a tax-exempt investor. The Fund's dividends
will not qualify for the dividends received deduction for corporations.
Dividends and interest received by the Fund 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
the Fund qualifies as a regulated investment company, if certain asset and
distribution requirements are satisfied and if more than 50% of the Fund's total
assets at the close of its fiscal year consist of stock or securities of foreign
corporations, the Fund may elect for U.S. income tax purposes to treat foreign
income taxes paid by it as paid by its shareholders. The Fund may qualify for
and make this election in some, but not necessarily all, of its taxable years.
If the Fund were to make an election, shareholders of the Fund would be required
to take into account an amount equal to their pro rata portions of such foreign
taxes in computing their taxable income and then treat an amount equal to those
foreign taxes as a U.S. federal income tax deduction or as a foreign tax credit
against their U.S. federal income taxes. Shortly after any year for which it
makes such an election, the Fund will report to its shareholders the amount per
share of such foreign income tax that must be included in each shareholder's
gross income and the amount
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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.
In the opinion of Japanese counsel for the Fund, the operations of the Fund
will not subject the Fund to any Japanese income, capital gains or other taxes
except for withholding taxes on interest and dividends paid to the Fund by
Japanese corporations and securities transaction taxes payable in the event of
sales of portfolio securities in Japan. In the opinion of such counsel, under
the tax convention between the United States and Japan (the 'Convention') as
currently in force, a Japanese withholding tax at a rate of 15% is, with certain
exceptions, imposed upon dividends paid by Japanese corporations to the Fund.
Pursuant to the present terms of the Convention, interest received by the Fund
from sources within Japan is subject to a Japanese withholding tax at a rate of
10%.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.
NET ASSET VALUE-----------------------------------------------------------------
The Fund's net asset value per share is calculated as of the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern time) on each business day,
Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the
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valuation date are valued on the basis of amortized cost, unless the Board
determines that using this valuation method would not reflect the investments'
value. Securities, options and futures contracts for which market quotations are
not readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE---------------------------------------------------------------------
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading Warburg Pincus Advisor Funds. From
time to time, the Fund may advertise the average annual total return of Advisor
Shares over various periods of time. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as on a year-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the 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 the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs, and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling the Fund at (800)
369-2728.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance with (i) that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or
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similar investment services that monitor the performance of mutual funds or as
set forth in the publications listed below; (ii) the Morgan Stanley Capital
International Europe, Australasia and Far East ('EAFE') Index; the Salomon
Russell Global Equity Index; the FT-Actuaries World Indices (jointly compiled by
The Financial Times, Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.);
the S&P 500; the Nikkei over-the-counter average; the JASDAQ Index; the Nikkei
225 and 300 Stock Indexes and the Topix Index, all of which are unmanaged
indexes of common stocks; or (iii) other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The Fund
may also include evaluations of the Fund published by nationally recognized
ranking services and by financial publications that are nationally recognized,
such as 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, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country credit quality
and other characteristics. The Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign stocks on a portfolio otherwise composed of domestic
securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, the Fund may from
time to time compare the expense ratio of Advisor Shares to that of investment
companies with similar objectives and policies, based on data generated by
Lipper Analytical Services, Inc. or similar investment services that monitor
mutual funds.
GENERAL INFORMATION-------------------------------------------------------------
ORGANIZATION. The Fund was incorporated on July 26, 1994 under the laws of
the State of Maryland under the name 'Warburg, Pincus Japan OTC Fund, Inc.' The
Fund's charter authorizes the Board to issue three billion full and fractional
shares of capital stock, $.001 par value per share, of which one billion shares
are designated Common Shares and two billion shares are designated Advisor
Shares. Under the Fund's charter documents, the Board has the power to classify
or reclassify any unissued shares of the Fund into one or more additional
classes by setting or changing in any one or more respects their relative
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption. The Board may similarly classify or
reclassify any class of its shares into one or more
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series and, without shareholder approval, may increase the number of authorized
shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 927-2874.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the governing Board
unless and until such time as less than a majority of the members holding office
have been elected by investors. Any Director may be removed from office upon the
vote of shareholders holding at least a majority of the Fund's outstanding
shares, at a meeting called for that purpose. A meeting will be called for the
purpose of voting on the removal of a Board member at the written request of
holders of 10% of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of its account, as well as a statement of its account after any transaction that
affects its share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Periodic listings of the investment securities held by the Fund, as
well as certain statistical characteristics of the Fund, may be obtained by
calling the Fund 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.'
SHAREHOLDER SERVICING-----------------------------------------------------------
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
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'Service Organizations') will enter into agreements ('Agreements') with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may provide certain distribution, shareholder servicing,
administrative and/or accounting services for 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. The Board
has approved a Distribution Plan (the 'Plan') pursuant to Rule 12b-1 under the
1940 Act under which each participating Service Organization will be paid, out
of the assets of the Fund (either directly 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 .50% per annum.
The Board evaluates the appropriateness of the Plan on a continuing basis and in
doing so considers 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 pays CIGNA Financial Advisors, Inc., a registered
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 directly or indirectly pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of Customers.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund's Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objective and Policies....................................... 4
Portfolio Investments................................................... 4
Risk Factors and Special Considerations................................. 8
Portfolio Transactions and Turnover Rate................................ 12
Certain Investment Strategies........................................... 12
Investment Guidelines................................................... 16
Management of the Fund.................................................. 16
How to Purchase Shares.................................................. 19
How to Redeem and Exchange Shares....................................... 21
Dividends, Distributions and Taxes...................................... 22
Net Asset Value......................................................... 24
Performance............................................................. 25
General Information..................................................... 26
Shareholder Servicing................................................... 27
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADOTC-1-0297
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 25, 1997
------------------------
WARBURG PINCUS EMERGING MARKETS FUND
WARBURG PINCUS INTERNATIONAL EQUITY FUND
WARBURG PINCUS JAPAN GROWTH FUND
WARBURG PINCUS JAPAN OTC FUND
P.O Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) WARBURG
------------------------
Contents
Page
----
Investment Objectives.......................................................2
Investment Policies.........................................................2
Japan and Its Securities Markets............................................35
Management of the Funds.....................................................44
Additional Purchase and Redemption Information..............................53
Exchange Privilege..........................................................54
Additional Information Concerning Taxes.....................................54
Determination of Performance................................................57
Independent Accountants and Counsel.........................................60
Miscellaneous...............................................................60
Financial Statements........................................................63
Appendix - Description of Ratings..........................................A-1
This combined Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg Pincus
Emerging Markets Fund ("Emerging Markets Fund"), Warburg Pincus International
Equity Fund ("International Equity Fund"), Warburg Pincus Japan Growth Fund
("Japan Growth Fund") and Warburg Pincus Japan OTC Fund ("Japan OTC Fund," and
collectively, the "Funds"), and with the Prospectus for the Advisor Shares of
each Fund, each dated February 25, 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 a Fund should be made solely upon the information
contained herein. Copies of the Funds' Prospectuses and information regarding
the Funds' current performance may be obtained by calling the Funds at (800)
927-2874. Information regarding the status of shareholder accounts may also be
obtained by calling the Funds at the same number or by writing to the Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES
The investment objective of the Emerging Markets Fund is growth of capital.
The investment objective of each of the International Equity Fund and the Japan
OTC Fund is long-term capital appreciation. The investment objective of the
Japan Growth Fund is long-term growth of capital.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Funds' investment
objectives and policies in the Prospectuses.
Asian Securities
As described in their respective Prospectuses, the Japan Growth Fund will
maintain at least 65% of its total assets in equity securities of Japanese
issuers and the Japan OTC Fund will maintain at least 65% of its total assets in
securities of companies traded in the Japanese over-the-counter market
("JASDAQ"), including the Frontier Market. In addition, the Japan OTC Fund may
invest up to 35% of its total assets in securities of other Asian issuers. Asian
issuers are (i) companies (A) organized under the laws of an Asian country or
its predecessors, or (B) whose principal business activities are conducted in
one or more Asian countries, and which derive at least 50% of their revenues or
profits from goods produced or sold, investments made, or services performed in
one or more Asian countries, or have at least 50% of their assets in one or more
such countries, or (C) which have issued securities which are traded principally
in an Asian country, and (ii) governments, governmental entities or political
subdivisions of Asian countries. Determinations as to the eligibility of issuers
under the foregoing definition will be made by the investment advisers based on
publicly available information and inquiries made to the companies. The Japan
OTC Fund considers Asia to be comprised of the contiguous eastern Eurasian land
mass and adjacent islands, including, without limitation, the countries of
Taiwan, Korea, Indonesia, China, Hong Kong, Turkey, India, Pakistan, the
Philippines, Sri Lanka, Singapore and Thailand. For purposes of applying the
foregoing limitations, if a company meets the definition of an Asian issuer as a
result of relationships with respect to more than one Asian country, the Japan
OTC Fund may consider the company to be associated with any of such countries.
Due to the rapidly evolving nature of Asian markets, the Japan OTC Fund reserves
the ability to consider additional countries to be included in Asia if market
conditions should develop so as to warrant such a change in investment policy,
and to modify its 10% limitation on investments relating to any one Asian
country (other than Japan).
Options, Futures and Currency Exchange Transactions
Securities Options. The International Equity Fund may write covered call
options on stock and debt securities, and the Japan Growth Fund and the Japan
OTC Fund may write covered put and call options on stock and debt securities.
The Funds may purchase covered put and call options that are traded on foreign
and U.S. exchanges, as well as over-the-counter ("OTC").
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The Funds which can write put and call options on securities realize 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,
a Fund as a put or call writer retains the risk of a decline in the price of the
underlying security. The size of the premiums that the Funds may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
In the case of options written by 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 common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, 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,"
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"at-the-money" and "out-of-the-money," respectively. Each Fund that can write
put and call options on securities may write (i) in-the-money call options when
Warburg, Pincus Counsellors, Inc., the Funds' 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, each Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of 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 a 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
OTC 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. A 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 a
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. A 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
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anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Options Clearing Corporation
(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 OTC market may be more limited than for exchange-traded
options and may also involve the risk that securities dealers participating in
OTC transactions would fail to meet their obligations to the Fund. The Funds,
however, intend to purchase OTC 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 the underlying security upon
exercise. In either case, the Fund would continue to be at market risk on the
security and could face higher transaction costs, including brokerage
commissions.
Securities exchanges generally have established limitations governing the
maximum number of calls and puts of each class which may be held or written, or
exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the Funds 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 Funds will be able to
purchase on a particular security.
Stock Index Options. Each Fund may purchase and write exchange-listed and
OTC put and call options on stock indexes. A stock index measures the movement
of a certain group of stocks by assigning relative values to the common stocks
included in the index, fluctuating with changes in the market values of the
stocks included in the index. Some stock index options are based on a broad
market index, such as the NYSE Composite Index, or a narrower market index such
as the Standard & Poor's 100. Indexes may also be based on a particular industry
or market segment. For example, the Japan Growth Fund or the Japan OTC Fund
might utilize stock options on indexes such as the Nikkei 225 Index, the Nikkei
300 Index, the OTC (JASDAQ) Index and the Topix Index.
Options on stock indexes are similar to options on stock except that (i)
the expiration cycles of stock index options are monthly, while those of stock
options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (b) a fixed "index multiplier." Receipt
of this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the index and the exercise
price of the option times a specified multiple. The writer of the option is
obligated, in return for the premium
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received, to make delivery of this amount. Stock index options may be offset by
entering into closing transactions as described above for securities options.
OTC Options. Each Fund may purchase OTC or dealer options or sell covered
OTC options. Unlike exchange-listed options where an intermediary or clearing
corporation, such as the Clearing Corporation, assures that all transactions in
such options are properly executed, the responsibility for performing all
transactions with respect to OTC options rests solely with the writer and the
holder of those options. A listed call option writer, for example, is obligated
to deliver the underlying stock to the clearing organization if the option is
exercised, and the clearing organization is then obligated to pay the writer the
exercise price of the option. If a Fund were to purchase a dealer option,
however, it would rely on the dealer from whom it purchased the option to
perform if the option were exercised. If the dealer fails to honor the exercise
of the option by the Fund, the Fund would lose the premium it paid for the
option and the expected benefit of the transaction.
Listed options generally have a continuous liquid market while dealer
options have none. Consequently, 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 a 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 each 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 Funds will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. The inability to enter into a closing transaction
may result in material losses to the Funds. Until a 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 Funds'
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 Funds may be unable to liquidate a dealer
option.
Futures Activities. Each Fund may enter into foreign currency, interest
rate and stock index futures contracts and purchase and write (sell) related
options traded on exchanges designated by the Commodity Futures Trading
Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return.
No Fund will 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. Each
Fund reserves the right to engage in transactions involving futures contracts
and options on futures contracts to the extent allowed by CFTC regulations in
effect from time to time and in accordance with the Fund's policies. There is no
overall limit
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on the percentage of Fund assets that may be at risk with respect to futures
activities. The ability of the Funds to trade in futures contracts and options
on futures contracts may be limited by the requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), applicable to a regulated investment
company.
Futures Contracts. A foreign currency futures contract provides for the
future sale by one party and the purchase by the other party of a certain amount
of a specified non-U.S. currency at a specified price, date, time and place. An
interest rate futures contract provides for the future sale by one party and the
purchase by the other party of a certain amount of a specific interest rate
sensitive financial instrument (debt security) at a specified price, date, time
and place. Stock indexes are capitalization weighted indexes which reflect the
market value of the stock listed on the indexes. A stock index futures contract
is an agreement to be settled by delivery of an amount of cash equal to a
specified multiplier times the difference between the value of the index at the
close of the last trading day on the contract and the price at which the
agreement is made.
No consideration is paid or received by 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 the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or stock index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." A 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 each Fund
intends to enter into futures contracts only if there is an active market for
such contracts, there is no assurance that an active market will exist at any
particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting the Fund to substantial losses. In such event, and in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such situations, if a 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
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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 a Fund's performance.
Options on Futures Contracts. Each Fund may purchase and write put and call
options on foreign currency, interest rate and stock index futures contracts and
may enter into closing transactions with respect to such options to terminate
existing positions. There is no guarantee that such closing transactions can be
effected; the ability to establish and close out positions on such options will
be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration date
of the option. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of an option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because the
value of the option is fixed at the point of sale, there are no daily cash
payments by the purchaser to 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 each Fund.
Currency Exchange Transactions. The value in U.S. dollars of the assets of
the Funds that are invested in foreign securities may be affected favorably or
unfavorably by changes in exchange control regulations, and the Funds 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. Each 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) except for the
International Equity Fund, by purchasing exchange-traded currency options.
Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
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At or before the maturity of a forward contract, the Funds 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 a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices.
Currency Options. With the exception of the International Equity Fund, the
Funds may purchase exchange-traded put and call options on foreign currencies.
Put options convey the right to sell the underlying currency at a price which is
anticipated to be higher than the spot price of the currency at the time the
option is exercised. Call options convey the right to buy the underlying
currency at a price which is expected to be lower than the spot price of the
currency at the time the option is exercised.
Currency Hedging. Each 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 a 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. No Fund may
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, the Fund may purchase
call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange
rates. The benefit to a 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, a 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
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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.
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, each Fund may enter into these transactions
as hedges to reduce investment risk, generally by making an investment expected
to move in the opposite direction of a portfolio position. A hedge is designed
to offset a loss in a portfolio position with a gain in the hedged position; at
the same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedged position. As a result,
the use of options, futures, contracts and currency exchange transactions for
hedging purposes could limit any potential gain from an increase in the value of
the position hedged. In addition, the movement in the portfolio position hedged
may not be of the same magnitude as movement in the hedge. With respect to
futures contracts, since the value of portfolio securities will far exceed the
value of the futures contracts sold by 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 stock prices in the stock market generally or, in the
case of certain indexes, in an industry or market segment, rather than movements
in the price of a particular stock. The risk of imperfect correlation increases
as the composition of a 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, a Fund's hedge positions may be
in a greater or lesser dollar amount than the dollar amount of the hedged
position. Such "over hedging" or "under hedging" may adversely affect the Fund's
net investment results if market movements are not as anticipated when the hedge
is established. Stock index futures transactions may be subject to additional
correlation risks. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by Warburg still may not result in a successful hedging
transaction.
Each 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
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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 a Fund's
performance.
Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectuses, each 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 a Fund on
currencies, securities, if applicable, and indexes; and currency, interest rate
and index futures contracts and options on these futures contracts. These
guidelines may, in certain instances, require segregation by a Fund of cash or
liquid high-grade debt securities or other securities that are acceptable as
collateral to the appropriate regulatory authority.
For example, a call option written by 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 a 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. Each 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 a 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. Each Fund may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
Additional Information on Other Investment Practices
Foreign Investments. Investors should recognize that investing in foreign
companies involves certain risks, including those discussed below, which are not
typically associated with investing in U.S. issuers. See "Japan and Its
Securities Markets" for a discussion of factors relating to Japanese investments
specifically.
Foreign Currency Exchange. Since the Funds will be investing in securities
denominated in currencies of non-U.S. countries, and since the Funds may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, the Funds may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rate
between such currencies and the dollar. A change in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of the Fund assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Fund. The rate of exchange between the U.S. dollar and
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other currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Of particular
importance are rates of inflation, interest rate levels, the balance of payments
and the extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of the United States and
foreign countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. See "Japan and Its Securities
Markets -- Economic Background -- Currency Fluctuation" below. The Funds may use
hedging techniques with the objective of protecting against loss through the
fluctuation of the value of the yen against the U.S. dollar, particularly the
forward market in foreign exchange, currency options and currency futures. See
"Currency Transactions" and "Futures Activities" above.
Information. The majority of the securities held by the Funds will not be
registered with, nor will the issuers thereof be subject to reporting
requirements of the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Foreign companies are generally not subject to uniform financial reporting
standards, practices and requirements comparable to those applicable to U.S.
companies.
Political Instability. With respect to some foreign countries, there is the
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Funds, political or social instability,
or domestic developments which could affect U.S. investments in those and
neighboring countries.
Delays. Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
of the Funds to market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on Fund liquidity, the
Funds will avoid investing in countries which are known to experience settlement
delays which may expose the Funds to unreasonable risk of loss.
Foreign Taxes and Increased Expenses. The operating expenses of the Funds
can be expected to be higher than that of an investment company investing
exclusively in U.S. securities, since the expenses of the Funds, such as
custodial costs, valuation costs and communication costs, as well as the rate of
the investment advisory fees, though similar to such expense of some other
international funds, are higher than those costs incurred by other investment
companies.
General. In general, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate
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of inflation, capital reinvestment, resource self-sufficiency, and balance of
payments positions. The Funds 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.
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 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 each of the Funds may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
Brady Bonds. The Emerging Markets Fund may invest in so-called "Brady
Bonds," which have been issued by Costa Rica, Mexico, Uruguay and Venezuela and
which may be issued by other Latin American countries. Brady Bonds are issued as
part of a debt restructuring in which the bonds are issued in exchange for cash
and certain of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the OTC secondary market
for debt of Latin American issuers.
U.S. Government Securities. Each of the Funds 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
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issuance. U.S. Government Securities also include securities issued or
guaranteed by the Federal Housing Administration, Farmers Home Loan
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("GNMA"), General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association ("FNMA"), Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board and Student Loan Marketing
Association. The Funds may also invest in instruments that are supported by the
right of the issuer to borrow from the U.S. Treasury and instruments that are
supported by the credit of the instrumentality. Because the U.S. government is
not obligated by law to provide support to an instrumentality it sponsors, the
Funds 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 Funds.
Below Investment Grade Securities. The Emerging Markets Fund may invest in
below investment grade debt securities and each Fund may hold such securities
that are downgraded below investment grade subsequent to acquisition by the
Funds. While the market values of medium- and lower-rated securities and unrated
securities of comparable quality tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities, the market values of
certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
The market for medium- and lower-rated and unrated securities is relatively
new and has not weathered a major economic recession. Any such recession could
disrupt severely the market for such securities and may adversely affect the
value of such securities and the ability of the issuers of such securities to
repay principal and pay interest thereon.
The Funds 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 Funds anticipate 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 a Fund's ability to dispose of
particular issues when necessary to meet a Fund's liquidity needs or in response
to a specific economic event such as a deterioration in the creditworthiness of
the issuer. The lack of a liquid secondary market for certain securities also
may make it more difficult for the Funds to obtain accurate market quotations
for purposes of valuing the Funds and calculating net asset value.
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The market value of securities in medium- and lower-rated categories is
more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact a Fund's
net asset value. The Funds 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 Funds may incur additional expenses to
the extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings of such securities. Recent
adverse publicity regarding lower-rated securities may have depressed the prices
for such securities to some extent. Whether investor perceptions will continue
to have a negative effect on the price of such securities is uncertain.
Mortgage-Backed Securities. Each of the Emerging Markets Fund, the Japan
Growth Fund and the Japan OTC Fund may invest in U.S. and foreign governmental
and private mortgage-backed securities; the International Equity Fund may invest
in mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, such as those issued by GNMA, FNMA and FHLMC.
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 Funds' shares.
These securities generally are "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
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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 Funds' 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.
Asset-Backed Securities. Each of the Emerging Markets Fund, the Japan
Growth Fund and the Japan OTC Fund may invest in U.S. and foreign governmental
and private asset-backed securities; the International Equity Fund may invest in
asset-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, such as those issued by the Student Loan
Marketing Association. Asset-backed securities represent participations in, or
are secured by and payable from, assets such as motor vehicle installment sales,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. Such
assets are securitized through the use of trusts and special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation.
Asset-backed securities present certain risks that are not presented by
other securities in which these Funds may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Because asset-backed securities are relatively new, the market
experience in these securities is limited, and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
Zero Coupon Securities. Each of the Emerging Markets Fund, the Japan Growth
Fund and the Japan OTC Fund may invest in "zero coupon" U.S. Treasury, foreign
government and U.S. and foreign corporate debt securities, which are bills,
notes and bonds
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that have been stripped of their unmatured interest coupons and
custodial receipts or certificates of participation representing interests in
such stripped debt obligations and coupons. The Japan Growth Fund and the Japan
OTC Fund currently anticipate that during the coming year, zero coupon
securities will not exceed 5% of their respective net assets. 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. Each Fund anticipates that it will not normally hold
zero coupon securities to maturity. Federal tax law requires that a holder of a
zero coupon security accrue a portion of the discount at which the security was
purchased as income each year, even though the holder receives no interest
payment on the security during the year. Such accrued discount will be included
in determining the amount of dividends the Funds must pay each year and, in
order to generate cash necessary to pay such dividends, the Funds may liquidate
portfolio securities at a time when it would not otherwise have done so.
Convertible Securities. Convertible securities in which each Fund may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. Like bonds, the value of convertible securities fluctuates in
relation to changes in interest rates and, in addition, also fluctuates in
relation to the underlying common stock.
Securities of Other Investment Companies. Each 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, each Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Fund's total assets and (iii)
when added to all other investment company securities held by the Fund, do not
exceed 10% of the value of the Fund's total assets.
Lending of Portfolio Securities. Each Fund may lend portfolio securities to
brokers, dealers and other financial organizations that meet capital and other
credit requirements or other criteria established by the Fund's Board of
Directors (the "Board"). These loans, if and when made, may not exceed 20% of
the Funds' total assets taken at value. The Funds will not lend portfolio
securities to affiliates of Warburg unless it has applied for and received
specific authority to do so from the SEC. Loans of portfolio securities will be
collateralized by cash, letters of credit or U.S. government securities, which
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be for
the account of the Funds. From time to time, the Funds 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 Funds and
that is acting as a "finder."
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By lending its securities, each Fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as by
either investing the collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
U.S. government securities are used as collateral. Although the generation of
income is not an investment objective of any of the Funds, income received could
be used to pay the Funds' expenses and would increase an investor's total
return. Each Fund will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Fund must receive at least 100% cash collateral
or equivalent securities of the type discussed in the preceding paragraph from
the borrower; (ii) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral; (iii)
the Fund must be able to terminate the loan at any time; (iv) the Fund must
receive reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting the investment
occurs, the Board must terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in the event of default or
insolvency of the other party including possible delays or restrictions upon a
Fund's ability to recover the loaned securities or dispose of the collateral for
the loan.
When-Issued Securities and Delayed-Delivery Transactions. Each Fund may
utilize up to 20% of its total assets to purchase securities on a "when-issued"
basis or purchase or sell securities for delayed delivery (i.e., payment or
delivery occur beyond the normal settlement date at a stated price and yield).
When-issued transactions normally settle within 30-45 days. The Funds 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, U.S. government securities or other liquid
high-grade debt obligations or other securities that are acceptable as
collateral to the appropriate regulatory authority equal to the amount of the
commitment in a segregated account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case a 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 a 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
Funds' incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
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Short Sales "Against the Box". The Emerging Markets Fund and the Japan
Growth Fund may engage in short sales against the box. 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 a Fund engages in a short sale, the collateral for the short
position will be maintained by the Fund's custodian or qualified sub-custodian.
While the short sale is open, the Fund will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Fund's long position.
Each of the Emerging Markets Fund and the Japan Growth Fund may 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 these Funds own. There will be
certain additional transactions costs associated with short sales against the
box, but these Funds will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
Special Situation Companies. With the exception of the International Equity
Fund, certain of each Fund's investments involve considerations that are not
applicable to investing in securities of established, larger-capitalization
issuers, including reduced and less reliable information about issuers and
markets, less stringent accounting standards, illiquidity of securities and
markets, higher brokerage commissions and fees and greater market risk in
general.
These Funds may invest in the securities of "special situation companies"
involved in an actual or prospective acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets; a tender or exchange offer; a breakup or workout of
a holding company; or litigation which, if resolved favorably, would improve the
value of the company's stock. If the actual or prospective situation does not
materialize as anticipated, the market price of the securities of a "special
situation company" may decline significantly. These Funds believe, however, that
if Warburg analyzes "special situation companies" carefully and invests in the
securities of these companies at the appropriate time, the Funds may achieve
growth of capital. There can be no assurance, however, that a special situation
that exists at the time a Fund makes its investment will be consummated under
the terms and within the time period contemplated.
Securities of Smaller Companies and Emerging Growth Companies. The Emerging
Markets Fund, the Japan Growth Fund and the Japan OTC Fund may invest in
securities of small-sized and emerging growth companies. Such investments
involve considerations that are not applicable to investing in securities of
established, larger-
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capitalization issuers, including reduced and less reliable information about
issuers and markets, less stringent financial disclosure requirements,
illiquidity of securities and markets, higher brokerage commissions and fees and
greater market risk in general. In addition, securities of emerging growth and
smaller companies may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile.
American, European and Continental Depositary Receipts. The assets of each
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 markets and EDRs and CDRs in bearer form are
designed for use in European securities markets.
Warrants. Each Fund may invest up to 10% of net assets in warrants to
purchase equity securities consisting of common and preferred stock. The equity
security underlying a warrant is authorized at the time the warrant is issued or
is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or loss
than an equivalent investment in the underlying security, and, thus, can be a
speculative investment. The value of a warrant may decline because of a decline
in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
Non-Publicly Traded and Illiquid Securities. The Emerging Markets Fund and
the Japan OTC Fund may not invest more than 15% of its net assets, and the
International Equity Fund and the Japan Growth Fund may not invest more than 10%
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
and time deposits maturing in more than seven days. Securities that have legal
or contractual restrictions on resale but have a readily available market are
not considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Limitations on resale may have an adverse effect on the
marketability of portfolio securities
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and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days without borrowing. A mutual
fund might also have to register such restricted securities in order to dispose
of them resulting in additional expense and delay. Adverse market conditions
could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by the SEC
allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Funds' limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, the Board or its delegates may
consider, inter alia, the following factors: (i) the unregistered nature of the
security; (ii) the frequency of trades and quotes for the security; (iii) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (iv) dealer undertakings to make a market in the
security and (v) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
Borrowing. Each 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 a 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. Each 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.
Reverse Repurchase Agreements and Dollar Rolls. With the exception of the
International Equity Fund, each of the Funds 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
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to repurchase them at a mutually agreed upon date, price and rate of interest.
At the time a Fund enters into a reverse repurchase agreement, it will establish
and maintain a segregated account with an approved custodian containing cash or
liquid high-grade debt 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). A 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 a Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
With the exception of the International Equity Fund, each of the Funds also
may enter into "dollar rolls," in which a 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 a Fund enters into a dollar roll transaction, it will place in a
segregated account maintained with an approved custodian, cash or other liquid
high-grade debt obligations 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.
Non-Diversified Status. The Emerging Markets Fund, the Japan Growth Fund
and the Japan OTC Fund are classified as non-diversified within the meaning of
the 1940 Act, which means that each of these Funds is not limited by such Act in
the proportion of its assets that it may invest in securities of a single
issuer. The investments of these Funds 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.
Other Investment Practices and Policies of the Emerging Markets Fund
Loan Participations and Assignments. The Emerging Markets 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
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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. The 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 the 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.
The 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
the Fund to assign a value to these securities for purposes of valuing the
Fund's portfolio and calculating its net asset value.
Stand-By Commitments. The Emerging Markets 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. The Fund intends to enter into stand-by commitments only with brokers,
dealers and banks that, in the opinion of Warburg, present minimal credit risks.
In evaluating the creditworthiness of the issuer of a stand-by commitment,
Warburg will periodically review relevant financial information concerning the
issuer's assets, liabilities and contingent claims. The Fund will acquire
stand-by commitments only in order to facilitate portfolio liquidity and does
not intend to exercise its rights under stand-by commitments for trading
purposes.
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The amount payable to the 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.
The 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.
The 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 the Fund's portfolio. The Fund
currently anticipates that it will not invest more than 5% of its net assets in
stand-by commitments.
Other Investment Limitations
All Funds. Certain investment limitations of each Fund may not be changed
without the affirmative vote of the holders of a majority of a Fund's
outstanding shares ("Fundamental Restrictions"). 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.
If a percentage restriction (other than the percentage limitation set forth
in No. 1 of each of the Emerging Markets Fund, the Japan Growth Fund and the
Japan OTC Fund and the percentage limitation set forth in No. 2 of the
International Equity Fund) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in the
values of portfolio securities or in the amount of the Funds' assets will not
constitute a violation of such restriction.
Emerging Markets Fund. The investment limitations numbered 1 through 9 are
Fundamental Restrictions. Investment limitations 10 through 14 may be changed by
a vote of the Board at any time.
The Emerging Markets Fund may not:
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1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of issuers conducting their principal business activities in the same industry;
provided that there shall be no limit on the purchase of U.S. Government
Securities.
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, 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 that
the Fund may maintain short positions in forward currency contracts, options,
futures contracts and options on futures contracts and may enter into 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,
purchase and sell currencies on a forward commitment or delayed-delivery basis
and enter into stand-by commitments.
9. Issue any senior security except as permitted in the Fund's investment
limitations.
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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 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 Fund's net assets in securities which may
be illiquid because of legal or contractual restrictions on resale or securities
for which there are no readily available market quotations. For purposes of this
limitation, repurchase agreements with maturities greater than seven days shall
be considered illiquid securities.
13. Invest in warrants (other than warrants acquired by the Fund as part of
a unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 10% of the
value of the Fund's net assets.
14. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
International Equity Fund. The investment limitations numbered 1 through 11
are Fundamental Restrictions. Investment limitations 12 through 14 may be
changed by a vote of the Board at any time.
The International Equity Fund may not:
1. Purchase the securities of any issuer if as a result more than 5% of the
value of the Fund's total assets would be invested in the securities of such
issuer, except that this 5% limitation does not apply to U.S. Government
Securities and except that up to 25% of the value of the Fund's total assets may
be invested without regard to this 5% limitation.
2. Borrow money or issue senior securities except that the Fund may (a)
borrow from banks for temporary or emergency purposes, and not for leveraging,
and then in amounts not in excess of 30% of the value of the Fund's total assets
at the time of such borrowing and (b) enter into futures contracts; or mortgage,
pledge or hypothecate any assets except in connection with any bank borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of the Fund's total assets at the time of such borrowing. Whenever
borrowings described in (a) exceed 5% of the value of the Fund's total assets,
the Fund will not make any investments (including roll-overs). For purposes of
this restriction, (a) the deposit of assets in escrow in connection with the
purchase of securities on a when-issued or delayed-delivery basis and (b)
collateral arrangements with respect to initial or variation margin for futures
contracts will not be deemed to be pledges of the Fund's assets.
3. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of issuers conducting their principal business activities in the same industry;
provided that there shall be no limit on the purchase of U.S. government
securities.
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4. Make loans, except that the Fund may purchase or hold publicly
distributed fixed-income securities, lend portfolio securities and enter into
repurchase agreements.
5. Underwrite any issue of securities except to the extent that the
investment in restricted securities and the purchase of fixed-income securities
directly from the issuer thereof in accordance with the Fund's investment
objective, policies and limitations may be deemed to be underwriting.
6. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or invest in oil, gas or mineral exploration
or development programs, except that the Fund may invest in (a) fixed-income
securities secured by real estate, mortgages or interests therein, (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs and (c) futures contracts and related
options. The entry into forward foreign currency exchange contracts is not and
shall not be deemed to involve investing in commodities.
7. Make short sales of securities or maintain a short position.
8. Purchase, write or sell puts, calls, straddles, spreads or combinations
thereof, except that the Fund may (a) purchase put and call options on
securities, (b) write covered call options on securities, (c) purchase and write
put and call options on stock indices and (d) enter into options on futures
contracts.
9. Purchase securities of other investment companies except in connection
with a merger, consolidation, acquisition, reorganization or offer of exchange,
or as otherwise permitted under the 1940 Act.
10. Purchase more than 10% of the voting securities of any one issuer, more
than 10% of the securities of any class of any one issuer or more than 10% of
the outstanding debt securities of any one issuer; provided that this limitation
shall not apply to investments in U.S. government securities.
11. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with futures contracts or related options will
not be deemed to be a purchase of securities on margin.
12. Invest more than 10% of the value of the Fund's total assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, (a) repurchase agreements with maturities
greater than seven days and (b) time deposits maturing in more than seven
calendar days shall be considered illiquid securities.
13. Invest in warrants (other than warrants acquired by the Fund as part of
a unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 10% of the
value of the Fund's net assets.
14. Invest in oil, gas, or mineral leases.
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Japan Growth Fund. The investment limitations numbered 1 through 9 are
Fundamental Restrictions. Investment limitations 10 through 14 may be changed by
a vote of the Board at any time.
The Japan Growth Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
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, 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 that
the Fund may maintain short positions in forward currency contracts, options,
futures contracts and options on futures contracts and enter into 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
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies on a forward commitment or delayed-delivery
basis.
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9. Issue any senior security except as permitted in these investment
limitations.
10. Purchase securities of other investment companies except in connection
with a merger, consolidation, acquisition, reorganization or offer of exchange,
or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and 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 10% of the Fund's net assets in securities which may
be illiquid because of legal or contractual restrictions on resale or securities
for which there are no readily available market quotations. For purposes of this
limitation, repurchase agreements with maturities greater than seven days shall
be considered illiquid securities.
13. Invest in warrants (other than warrants acquired by the Fund as part of
a unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 10% of the
value of the Fund's net assets.
14. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
Japan OTC Fund. The investment limitations numbered 1 through 9 are
Fundamental Restrictions. Investment limitations 10 through 14 may be changed by
a vote of the Board at any time.
The Japan OTC Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Fund may not exceed 30% of the value of the Fund's
total assets at the time of such borrowing. For purposes of this restriction,
short sales, the entry into currency transactions, options, futures contracts,
options on futures contracts, forward commitment transactions and dollar roll
transactions that are not accounted for as financings (and the segregation of
assets in connection with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of issuers conducting their principal business activities in the same industry;
provided that there shall be no limit on the purchase of U.S. government
securities.
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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, 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 that
the Fund may maintain short positions in forward currency contracts, options,
futures contracts and options on futures contracts.
7. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
8. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies on a forward commitment or delayed-delivery
basis.
9. Issue any senior security except as permitted in these investment
limitations.
10. Purchase securities of other investment companies except in connection
with a merger, consolidation, acquisition, reorganization or offer of exchange,
or as otherwise permitted under the 1940 Act.
11. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and 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 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. In no event will the Fund's investment in
restricted and illiquid securities exceed 15% of the Fund's assets.
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13. Invest in warrants (other than warrants acquired by the Fund as part of
a unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 10% of the
value of the Fund's net assets.
14. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
Portfolio Valuation
The Prospectuses discuss the time at which the net asset value of each Fund
is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Funds 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 OTC market will be valued at the most recent sale as of the time
the valuation is made or, in the absence of sales, at the mean between the bid
and asked quotations. If there are no such quotations, the value of the
securities will be taken to be the highest bid quotation on the exchange or
market. Options or futures contracts will be valued similarly. A security which
is listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. Short-term
obligations with maturities of 60 days or less are valued at amortized cost,
which constitutes fair value as determined by the Board. Amortized cost involves
valuing a portfolio instrument at its initial cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. The
amortized cost method of valuation may also be used with respect to other debt
obligations with 60 days or less remaining to maturity. In determining the
market value of portfolio investments, the Funds may employ outside
organizations (a "Pricing Service") which may use a matrix, formula or other
objective method that takes into consideration market indexes, matrices, yield
curves and other specific adjustments. The procedures of Pricing Services are
reviewed periodically by the officers of each Fund under the general supervision
and responsibility of the Boards, which may replace a Pricing Service at any
time. Securities, options and futures contracts for which market quotations are
not available and certain other assets of the Funds will be valued at their fair
value as determined in good faith pursuant to consistently applied procedures
established by the Boards. In addition, the Boards or their 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 Japan and certain foreign countries is completed
at various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which the Funds' net asset value is not calculated. As a result,
calculation of the Funds' net asset value does not take place contemporaneously
with the determination of the prices of the majority of the Funds' securities.
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 Funds' calculation of net
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asset value unless the Boards or their delegates deem that the particular event
would materially affect net asset value, in which case an adjustment may be
made. All assets and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values at the prevailing exchange rate as
quoted by a Pricing Service. If such quotations are not available, the rate of
exchange will be determined in good faith pursuant to consistently applied
procedures established by the Boards.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where necessary,
modifying each Fund's investment program to achieve its investment objective.
Purchases and sales of newly issued portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer or
with an underwriter acting as principal. Other purchases and sales may be
effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by 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 OTC markets, but the price of
securities traded in OTC markets includes an undisclosed commission or mark-up.
U.S. government securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. government securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
Warburg, and in the case of the Japan OTC Fund, in conjunction with SPARX
Investment & Research, USA, Inc. ("SPARX USA"), the Japan OTC Fund's
sub-investment adviser, will select specific portfolio investments and effect
transactions for the Funds and in doing so, seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions, the
relevant adviser 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. The relevant adviser 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 Funds and/or other accounts over which the adviser
exercises investment discretion. The relevant adviser 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 the adviser 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 the relevant
adviser in serving both a Fund and its other clients and, conversely, research
or other services obtained by the placement of business of other clients may be
useful to the adviser in carrying out its
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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 the adviser's own
research program. The fees to Warburg and SPARX USA under their agreements with
a Fund are not reduced by reason of its receiving any brokerage and research
services.
The following table details amounts paid by each Fund in commissions to
broker-dealers for execution of portfolio transactions during the indicated
fiscal years or periods ended October 31.
<TABLE>
<CAPTION>
Fund Year Commissions
---- ---- -----------
<S> <C> <C>
Emerging Markets Fund 1995 $31,789
1996 $1,416,683
International Equity Fund 1994 $3,525,445
1995 $5,991,704
1996 $8,400,700
Japan Growth Fund 1996 $172,240
Japan OTC Fund 1994 $89,000
1995 $1,019,865
1996 $1,551,006
</TABLE>
The increase in brokerage commissions paid by the Emerging Markets Fund,
the International Equity Fund and the Japan OTC Fund in the most recent fiscal
year was a result of sharp increases in the volume of share-related activity as
the Funds experienced large inflows or outflows of capital, as the case may be.
Investment decisions for the Funds concerning specific portfolio securities
are made independently from those for other clients advised by Warburg or SPARX
USA, in the case of the Japan OTC Fund. Such other investment clients may invest
in the same securities as the Funds. 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 Funds. In some instances, this investment procedure
may adversely affect the price paid or received by the Funds or the size of the
position obtained or sold for
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the Funds. To the extent permitted by law, Warburg may aggregate the securities
to be sold or purchased for each 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., each Fund's distributor ("Counsellors Securities"), if, in
Warburg's judgment, the use of Counsellors Securities is likely to result in
price and execution at least as favorable as those of other qualified brokers,
and if, in the transaction, Counsellors Securities charges the Fund a commission
rate consistent with those charged by Counsellors Securities to comparable
unaffiliated customers in similar transactions. All transactions with affiliated
brokers will comply with Rule 17e-1 under the 1940 Act. No portfolio
transactions have been executed through Counsellors Securities since the
commencement of the Funds' operations.
In no instance will portfolio securities be purchased from or sold to
Warburg, Counsellors Securities, SPARX USA or any affiliated person of such
companies. In addition, the Funds will not give preference to any institutions
with whom the Funds enter into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services. See the
Prospectuses, "Shareholder Servicing."
Transactions for each of the Funds may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Funds will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
Each 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. A Fund will engage in this practice, however, only when Warburg, in its
sole discretion, believe such practice to be otherwise in the Fund's interest.
Portfolio Turnover
The Funds do not intend to seek profits through short-term trading, but the
rate of turnover will not be a limiting factor when a Fund deems it desirable to
sell or purchase securities. The Funds' portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of its portfolio securities for the
year by the monthly average value of the portfolio securities. Securities with
remaining maturities of one year or less at the date of acquisition are excluded
from the calculation.
Certain practices that may be employed by the Funds could result in high
portfolio turnover. For example, options on securities may be sold in
anticipation of a decline
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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.
JAPAN AND ITS SECURITIES MARKETS
The Japan Growth Fund and the Japan OTC Fund, as well as the International
Equity Fund, which may invest a significant portion of its assets in Japanese
securities, will be subject to general economic and political conditions in
Japan. In addition to the considerations discussed above, these include future
political and economic developments, the possible imposition of, or changes in,
exchange controls or other Japanese governmental laws or restrictions applicable
to such investments, diplomatic developments, political or social unrest and
natural disasters.
The information set forth in this section has been extracted from various
governmental publications and other sources. The Funds make no representation as
to the accuracy of the information, nor have the Funds attempted to verify it.
Furthermore, no representation is made that any correlation exists between Japan
or its economy in general and the performance of each Fund.
Domestic Politics
Japan has a parliamentary form of government. The legislative power is
vested in the Japanese Diet, which consists of a House of Representatives and a
House of Councillors. Members of the House of Representatives are elected for
terms of four years unless the House of Representatives is dissolved prior to
the expiration of their full elected terms. Members of the House of Councillors
are elected for terms of six years with one-half of the membership being elected
every three years. Various political parties are represented in the Diet,
including the conservative Liberal Democratic Party ("LDP"), which until August
1993, had been in power nationally since its formation in 1955. The LDP ceased
to have a majority of the House of Representatives in June 1993, when certain
members of the House of Representatives left the LDP and formed two new
political parties. After an election for the House of Representatives was held
on July 18, 1993 and the LDP failed to secure a majority, seven parties formed a
coalition to control the House of Representatives and chose Morihiro Hosokawa,
the Representative of the Japan New Party, to head their coalition. In April
1994, amid accusations of financial improprieties, Prime Minister Hosokawa
announced that he would resign. Tsutomu Hata succeeded Mr. Hosokawa as prime
minister and formed a new cabinet as a minority coalition government. In June
1994, Mr. Hata yielded to political pressure from opposition parties and
resigned. He was succeeded by Social Democratic Party leader Tomiichi Murayama,
Japan's first Socialist prime minister since 1948, who was chosen by a new and
unstable alliance between left-wing and conservative parties, including the LDP.
On September 18, 1994, 187 opposition politicians founded a new party, the
Reform Party, led by Ichiro Ozawa, to oppose the government of Prime Minister
Murayama in the next elections. Political realignment has continued in 1995, as
the Social Democrats incurred significant losses in the July elections. In
August 1995, the LDP elected Ryutaro Hashimoto, the minister for international
trade and industry, as its new leader, and in January 1996, he became prime
minister. Mr. Hashimoto dissolved the Diet, and called a general election in
October 1996, in which the LDP failed to secure a majority. The LDP formed a new
coalition with the Social Democratic Party, but it will need to attract members
from the main opposition
35
<PAGE>
<PAGE>
party to attain a working majority. The recently formed Democratic Party, which
calls for serious public sector reforms, is likely to have a strong influence on
the future course of political party developments. This continuing political
instability may hamper Japan's ability to establish and maintain effective
economic and fiscal policies, and recent and future political developments may
lead to changes in policy that might adversely affect the Funds' investments.
Economic Background
Over the past 30 years, Japan has experienced significant economic
development. During the era of high economic growth in the 1960's and early
1970's the expansion was based on the development of heavy industries such as
steel and shipbuilding. In the 1970's Japan moved into assembly industries which
employ high levels of technology and consume relatively low quantities of
resources, and since then has become a major producer of electrical and
electronic products and automobiles. Moreover, since the mid-1980's, Japan has
become a major creditor nation. With the exception of the periods associated
with the oil crises of the 1970's, Japan has generally experienced very low
levels of inflation.
The financial sector has experienced serious difficulties continuing
through the end of 1996. Extricating financial institutions from bad loans could
impede the pace of any recovery. There can be no assurance that any recovery
will continue and will not, in fact, be reversed.
Japan is largely dependent upon foreign economies for raw materials. For
instance, almost all of its oil is imported, the majority from the Middle East.
Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970's. Oil prices have declined mainly due to a worldwide easing of demand for
crude oil. The stabilized price of oil contributed to Japan's sizable current
account surplus and stability of wholesale and consumer prices. However, the
recent increase in oil prices has put pressure on both the trade balance and
prices.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Japan's trade surplus
has increased dramatically in recent years, exceeding $100 billion per year
since 1991 and reaching a record high of $145 billion in 1994. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
resulting therefrom, Japan has entered a difficult phase in its relations with
its trading partners, particularly with respect to the United States, with whom
the trade imbalance is the greatest. In 1995, however, the trade surplus has
decreased due to a drop in exports. The reduced exports are due primarily to the
strength of the yen and the shift in production by major manufacturers to
foreign countries, particularly to other parts of Asia. In 1996, the overall
trade surplus declined by 32% from the previous year, although the monthly pace
of decline slowed in late 1996. The declining trade surplus has been accompanied
by changes in the composition of trade and trade partners. The proportion of
finished products has increased, while that of raw materials has decreased, and
trade with other Asian countries rose to comprise 44% and 37% of Japan's exports
and imports, respectively. The U.S. still constitutes Japan's largest trading
partner, accounting for 27% of Japan's exports and 23% of
36
<PAGE>
<PAGE>
its imports. The trade imbalance with the U.S. has caused friction in the past,
and could adversely affect Japan and the performance of the Funds.
The following table sets forth the composition of Japan's trade balance, as
well as other components of its current account, for the years shown.
CURRENT ACCOUNT
<TABLE>
<CAPTION>
Trade
---------------------------------------------------------------
Percentage Percentage
Change from Change from Trade Current
Year Exports Preceding Year Imports Preceding Year Balance Services Transfers Balance
---- ------- -------------- ------- -------------- ------- -------- --------- -------
(U.S. dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) 92,827 (4,932) (2,050) 85,845
1987 224,605 9.2 128,219 13.7 96,386 (5,702) (3,669) 87,015
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 63,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (3,949) (6,117) 131,448
1994 384,176 9.4 238,232 13.6 145,944 (9,296) (7,508) 129,140
1995 429,482 11.8 297,795 25.0 131,689 (13,154) (7,737) 110,798
1996 435,715 1.5 344,563 15.7 91,152 (67,760) (9,755) 71,806
</TABLE>
Source: Bank of Japan
37
<PAGE>
<PAGE>
Economic Trends. The following table sets forth Japan's gross domestic
product for the years shown. GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>
1996* 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ----
(yen in billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumption
Expenditures
Private ..... 'Y'298,786 'Y'289,045 'Y'277,676.8 'Y'270,919.4 'Y'264,824.1 'Y'255,084.2 'Y'243,628.1 'Y'228,483.2
Government .. 49,106 46,824 46,108.0 44,666.4 43,257.9 41,232.0 38,806.6 36,274.8
Capital
Formation
(incl.
inventories)
Private ..... N/A 70,758 93,111.4 99,180.1 108,727.6 116,638.0 110,871.9 100,130.8
Government .. N/A 41,461 42,227.3 40,295.8 35,110.1 30,062.3 28,182.6 25,724.5
Exports of
Goods and
Services .... 48,773 45,408 44,449.2 44,243.8 47,409.4 46,809.7 45,919.9 42,351.8
Imports of
Goods and
Services ..... 46,127 38,227 34,424.0 33,333.1 36,183.8 38,529.3 42,871.8 36,768.1
GDP (Expendi-
tures) ....... 499,667 480,693 469,148.7 465,972.4 463,145.3 451,296.9 24,537.2 396,197.0
Change in GDP
from
Preceding Year
Nominal terms 3.9% 0.3% 0.7% 0.6% 2.6% 6.3% 7.2% 6.7%
Real Terms .... N/A 0.9% 0.5% -0.2% 1.1% 4.3% 4.8% 4.7%
</TABLE>
Source: Economic Planning Agency, Japan
----------
* Average of the first, second and third quarters of 1996.
The following tables set forth certain economic indicators in Japan for the
years shown.
UNEMPLOYMENT
<TABLE>
<CAPTION>
Labor Productivity
Year Number Unemployed Percent Unemployed Index (Manufacturing)
- ---- ----------------- ------------------ ---------------------
(in millions) (Base Year: 1990)
<C> <C> <C> <C>
1985..................... 1.56 2.6 75.6
1986..................... 1.67 2.8 77.0
1987..................... 1.73 2.8 81.4
1988..................... 1.55 2.5 90.8
1989..................... 1.42 2.3 96.2
1990..................... 1.34 2.1 100.0
1991..................... 1.36 2.1 102.5
1992..................... 1.42 2.2 97.0
1993..................... 1.66 2.5 95.4
1994..................... 1.92 2.9 98.3
1995..................... 2.10 3.2 103.0
1996..................... 2.25 3.4 107.4*
</TABLE>
Source: Japan Productivity Center; Bureau of Statistics Management and
Coordination Agency
----------
* Average of the first, second and third quarters of 1996.
38
<PAGE>
<PAGE>
WHOLESALE PRICE INDEX
(Base Year: 1990)
<TABLE>
<CAPTION>
All Change from
Year Commodities Preceding Year
---- ----------- --------------
<S> <C> <C>
1985 110.4 (1.1)%
1986 100.3 (9.1)
1987 96.5 (3.8)
1988 95.6 (0.9)
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 (2.1)
1995 92.2 (0.9)
1996 92.8 0.7
</TABLE>
Source: Bank of Japan
CONSUMER PRICE INDEX
<TABLE>
<CAPTION>
Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
<S> <C> <C>
1985 93.5 2.0%
1986 94.1 0.6
1987 94.2 0.1
1988 94.9 0.7
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
(Base Year: 1995)
1992 98.2 1.8
1993 99.4 1.2
1994 100.1 0.7
1995 100.0 (0.1)
1996 100.1 0.1
</TABLE>
Source: Bureau of Statistics Management and Coordination Agency
Currency Fluctuation. Investments by the International Equity Fund, the
Japan Growth Fund and the Japan OTC Fund in Japanese securities will be
denominated in yen and most income received by these Funds from such investments
will be in yen. However, the Funds' net asset value will be reported, and
distributions will be made, in U.S. dollars. Therefore, a decline in the value
of the yen relative to the U.S. dollar could have an adverse effect on the value
of the Funds' Japanese investments. The following table presents the average
exchange rates of Japanese yen for U.S. dollars for the years shown:
39
<PAGE>
<PAGE>
CURRENCY EXCHANGE RATES
<TABLE>
<CAPTION>
Year Yen Per U.S. Dollar
---- -------------------
<S> <C> <C>
1985 'Y'238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.62
1993 111.18
1994 102.22
1995 94.07
1996 108.78
</TABLE>
Source: Nikkei (Calendar Year, Closing Average, Inter-Bank Rates in Tokyo, Spot)
On February 14, 1997, the rate of exchange was 124.33 Japanese yen per U.S.
dollar.
Geological Factors. The islands of Japan lie in the western Pacific Ocean,
off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity. The
risks of such phenomena, and the damage resulting therefrom, continue to exist.
On January 17, 1995, the Great Hanshin Earthquake killed over 5,000 people and
severely damaged the port of Kobe, Japan's largest container port. The
government has announced a $5.9 billion plan to repair the port and estimates
damage to the region at approximately $120 billion. However, the long-term
economic effects of the earthquake on the Japanese economy as a whole, and on
the Funds' investments, cannot be predicted.
Securities Markets
There are eight stock exchanges in Japan. Of these, the Tokyo Stock
Exchange is by far the largest, followed by the Osaka Stock Exchange and the
Nagoya Stock Exchange. These exchanges divide the market for domestic stocks
into two sections, with newly listed companies and smaller companies assigned to
the Second Section and larger companies assigned to the First Section.
As of the end of 1996, there were 1,293 domestic companies listed on the
Tokyo Stock Exchange, first section, and 473 listed on the second section.
The following table sets forth the trading volume and value of Japanese
stocks on each of the eight Japanese stock exchanges for the years shown.
40
<PAGE>
<PAGE>
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>
All Exchanges Tokyo Osaka Nagoya
------------------- ------------------- ------------------ -------------------
Year Volume Value Volume Value Volume Value Volume Value
---- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989........ 256,296 'Y'386,395 222,599 'Y'332,617 25,096 'Y'41,679 7,263 'Y'10,395
1990........ 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991........ 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992........ 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993........ 101,172 106,123 86,935 86,889 10,440 14,635 2,780 3,459
1994........ 105,936 114,622 84,514 87,356 14,904 19,349 4,720 5,780
1995........ 120,149 115,840 92,034 83,564 21,094 24,719 5,060 5,462
1996........ 126,496 136,170 100,170 101,893 20,783 27,280 4,104 5,391
</TABLE>
<TABLE>
<CAPTION>
Kyoto Hiroshima Fukuoka Niigata Sapporo
---------------- --------------- ---------------- ---------------- ----------------
Volume Value Volume Value Volume Value Volume Value Volume Value
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989..... 331 'Y'443 190 'Y'235 268 'Y'330 398 'Y'475 151 'Y'221
1990..... 416 770 169 261 203 405 245 334 195 286
1991..... 220 300 125 149 122 174 181 208 113 123
1992..... 225 322 110 136 139 129 163 178 149 129
1993..... 223 340 185 178 229 225 207 226 174 170
1994..... 447 562 256 312 578 669 250 299 267 296
1995..... 641 873 286 306 404 396 295 212 336 308
1996..... 358 600 257 250 300 297 231 196 290 263
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
The following table sets forth the stock trading value of Japanese stocks
on the Tokyo Stock Exchange for the years shown.
TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
<TABLE>
<CAPTION>
Year Total Daily Average High Low Turnover Ratio
---- ----- ------------- ---- --- --------------
(yen in millions)
<S> <C> <C> <C> <C> <C>
1985....................... 'Y' 78,711,048 'Y' 276,179 'Y' 727,316 'Y' 110,512 44.7%
1986....................... 159,836,218 572,890 1,682,060 115,244 67.2
1987....................... 250,736,971 915,098 2,382,114 221,230 80.6
1988....................... 285,521,260 1,045,865 2,768,810 192,704 70.2
1989....................... 332,616,597 1,335,810 2,796,946 392,347 61.1
1990....................... 186,666,820 758,808 1,464,920 218,205 37.7
1991....................... 110,897,491 450,803 1,531,064 151,565 29.3
1992....................... 60,110,391 243,362 686,737 97,616 18.0
1993....................... 86,889,072 353,208 1,422,760 61,747 28.3
1994....................... 87,355,567 353,666 1,114,216 123,904 25.6
1995....................... 83,563,906 335,598 1,337,999 81,884 23.1
1996....................... 101,892,634 412,521 1,362,586 154,643 28.9
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
41
<PAGE>
<PAGE>
OTC Market. Trading of securities on the Japanese OTC market ("OTC Market"
or "JASDAQ") is regulated primarily by the Japan Securities Dealers Association
(the "JSDA"). The JSDA reports the daily high and low selling prices, the last
selling price on each day, trading volumes, market capitalization and the number
of corporate issues registered with the JSDA as traded over-the-counter by the
member firms of the JSDA.
The following table sets forth the number of issues traded in, the market
capitalization of, and the trading value of stocks in, the Japanese OTC market
for the years shown.
JAPANESE OTC MARKET
NUMBER OF ISSUES, MARKET CAPITALIZATION
AND TRADING VALUE
<TABLE>
<CAPTION>
Stock Trading Value
-------------------------------------------
(yen in thousands)
Year No. of Issues Market Capitalization Total Daily Average
- ---- ------------- --------------------- ----- -------------
(yen in millions)
<S> <C> <C> <C> <C>
1985 150 'Y'1,572,308 'Y'195,711,396 'Y'686,706
1986 161 2,138,063 450,081,898 1,642,634
1987 172 2,489,409 400,065,211 1,460,092
1988 216 4,270,830 721,639,214 2,643,367
1989 279 12,508,712 2,085,482,912 8,375,433
1990 357 11,972,160 6,111,700,820 24,844,312
1991 446 13,001,864 5,043,126,216 20,500,513
1992 451 8,008,572 1,091,101,849 4,417,416
1993 491 11,318,446 2,880,539,952 11,709,512
1994 581 14,628,729 5,384,108,058 21,798,008
1995 698 14,604,314 5,889,972,000 23,654,000
1996 779 16,493,446 5,359,604,000* 25,926,000*
</TABLE>
Source: JSDA, 1993 Annual Statistics for the OTC Market; Japan Securities
Research Institute
- ----------
* For the period ended October 31, 1996
42
<PAGE>
<PAGE>
Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a composite
index of all common stocks listed on the First Section of the Tokyo Stock
Exchange. TOPIX reflects the change in the aggregate market value of the common
stocks as compared to the aggregate market value of those stocks as of the close
on January 4, 1968.
The following table sets forth the high, low and year-end TOPIX for the
years shown.
TOPIX (Tokyo Stock Price Index)
(Jan. 4, 1968=100)
<TABLE>
<CAPTION>
Year Year-end High Low
---- -------- ---- ---
<S> <C> <C> <C>
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
1995 1,577.70 1,585.87 1,193.16
1996 1,470.94 1,551.76 1,448.45
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
The Nikkei OTC Average is a price weighted index of the quotations of the
OTC registered stock traded by members of the JSDA. The following table sets
forth the year-end Nikkei OTC Average for the years shown.
NIKKEI OTC AVERAGE
<TABLE>
<CAPTION>
Nikkei OTC
Year Average
---- -------
<S> <C> <C>
1985 814.2
1986 1,056.4
1987 1,107.0
1988 1,313.1
1989 2,597.5
1990 2,175.5
1991 1,946.1
1992 1,227.9
1993 1,447.6
1994 1,776.1
1995 1,448.4
1996 1,330.6
</TABLE>
Sources: The Nihon Keizai Shimbun, Inc.; Bloomberg
Financial Markets; Japan Securities Dealers Association
As these indexes reflect, share prices of companies traded on Japanese
stock exchanges and on the Japanese OTC market reached historical peaks (which
were later referred to as the "bubble") in 1989 and 1990. Afterwards stock
prices in both markets
43
<PAGE>
<PAGE>
decreased significantly, reaching their lowest levels in the second half of
1992. There can be no assurance that additional market corrections will not
occur.
MANAGEMENT OF THE FUNDS
Officers and Board of Directors
The names (and ages) of each Fund's Directors 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
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.
Donald J. Donahue (72) Director
27 Signal Road Chairman of Magma Copper Company from December
Stamford, Connecticut 06902 1987 until December 1995; Chairman and
Director of NAC Holdings from September
1990-June 1993. 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
2425 North Fish Creek Road Private investor; Consultant and Director of
P.O. Box 483 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) Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970; Director
and officer of other investment companies
advised by Warburg.
</TABLE>
- ----------
* Indicates a Director who is an "interested person" of the Funds as defined in
the 1940 Act.
44
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Thomas A. Melfe (65) Director
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.
Alexander B. Trowbridge (67) Director
1317 F Street President of Trowbridge Partners, Inc.
5th Floor (business consulting) from January
Washington, DC 20004 1990-November 1996; President of the National
Association of Manufacturers from 1980 to
1990; Director or Trustee of New England
Mutual Life Insurance Co., ICOS Corporation
(biopharmaceuticals), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), Harris Corp. (electronics and
communications equipment), The Gillette Co.
(personal care products) and Sun Company Inc.
(petroleum refining and marketing).
Arnold M. Reichman* (48) Director and Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary of
New York, New York 10017-3147 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.
Richard H. King (52) President, Portfolio Manager and Co-
466 Lexington Avenue Portfolio
New York, New York 10017-3147 Manager Portfolio Manager of the International
Equity Fund and Co-Portfolio Manager of the
Emerging Markets Fund and the Japan OTC Fund;
Managing Director of Warburg since 1989;
Associated with Warburg since 1989.
Eugene L. Podsiadlo (40) Senior Vice President
466 Lexington Avenue Managing Director of Warburg; Associated with
New York, New York 10017-3147 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.
</TABLE>
- ----------
* Indicates a Director who is an "interested person" of the Funds as defined in
the 1940 Act.
45
<PAGE>
<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 (43) Vice President and Chief Financial Officer
466 Lexington Avenue Associated with Warburg since 1992; Associated
New York, New York 10017-3147 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; Associated
New York, New York 10017-3147 with BlackRock Financial Management, Inc. from
September 1994 to October 1995; Associated
with BEA Associates from April 1993 to
September 1994; Associated with Ernst & Young
LLP from 1990 to 1993; Treasurer and Chief
Accounting Officer of other investment
companies advised by Warburg.
Janna Manes, Esq. (29) Assistant Secretary
466 Lexington Avenue Assistant Vice President of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1996; 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, SPARX USA or PFPC Inc., the Funds' co-administrator
("PFPC"), or any of their affiliates, receives any compensation from the Funds
for acting as an officer or director of a Fund. Each Director who is not a
director, trustee, officer or employee of Warburg, SPARX USA, PFPC or any of
their affiliates receives an annual fee of $500, ($1,000 for the International
Equity Fund), and $250 for each meeting of the Boards attended by him for his
services as Director, and is reimbursed for expenses incurred in connection with
his attendance at Board meetings.
46
<PAGE>
<PAGE>
Directors' Compensation
<TABLE>
<CAPTION>
Total Compensation Total Compensation Total Compensation
Emerging Markets International Equity from all Investment
Fund and Japan Fund and Japan Companies Managed
Name of Director OTC Funds'D' Growth Fund'D' by Warburg'D'*
---------------- ---------- ------------- --------------
<S> <C> <C> <C>
John L. Furth None** None** None**
Arnold M. Reichman None** None** None**
Richard N. Cooper $1,500 $2,000 $42,916
Donald J. Donahue $1,500 $2,000 $42,916
Jack W. Fritz $1,500 $2,000 $42,916
Thomas A. Melfe $1,500 $2,000 $42,916
Alexander B. Trowbridge $1,500 $2,000 $42,916
</TABLE>
- ----------
'D' Amounts shown are estimates of future payments to be made in the fiscal
year ending October 31, 1997 pursuant to existing arrangements.
* Each Director also serves as a Director or Trustee of 22 other investment
companies advised by Warburg.
** Messrs. Furth and Reichman are considered to be interested persons of the
Funds and Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receive no compensation from the Funds or any other investment
company managed by Warburg.
As of February 4, 1997, Directors and officers as a group, owned of record
less than 1% of each Fund's outstanding Common Shares. No Director or officer
owned any of the Funds' outstanding Advisor Shares.
Portfolio Managers
Mr. Richard H. King, president and co-portfolio manager of the Emerging
Markets Fund and the Japan OTC Fund and president and portfolio manager of the
International Equity Fund, earned a B.A. degree from Durham University in
England. Mr. King is also portfolio manager of the International Equity
Portfolios of Warburg, Pincus Institutional Fund, Inc. and Warburg, Pincus
Trust. From 1968 to 1982, he worked at W.I. Carr Sons & Company (Overseas), a
leading international brokerage firm. He resided in the Far East as an
investment analyst from 1970 to 1977, became director, and later relocated to
the U.S. where he became founder and president of W.I. Carr (America), based in
New York. From 1982 to 1984, Mr. King was a director in charge of the Far East
equity investments at N.M. Rothschild International Asset Management, a London
merchant bank. In 1984 Mr. King became chief investment officer and director for
all international investment strategy with Fiduciary Trust Company International
S.A., in London. He managed EAFE mutual fund (FTIT) from 1985 to 1986, which
grew from $3 million to over $100 million during this two-year period.
Mr. Nicholas P.W. Horsley, co-portfolio manager of the Emerging Markets
Fund and the Japan OTC Fund and associate portfolio manager and research analyst
of the International Equity Fund, is also a research analyst and associate
portfolio manager of the
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<PAGE>
International Equity Portfolio of Warburg Pincus Institutional Fund, Inc. and
Warburg Pincus Trust. He joined Warburg in 1993. From 1981 to 1984, Mr. Horsley
was a securities analyst at Barclays Merchant Bank in London, UK and
Johannesburg, RSA. From 1984 to 1986, he was a senior analyst with BZW
Investment Management in London. From 1986 to 1993, he was a director, portfolio
manager and analyst at Barclays deZoete Wedd in New York City. Mr. Horsley
earned B.A. and M.A. degrees with honors from University College, Oxford.
Mr. Harold W. Ehrlich, an associate portfolio manager and research analyst
of the Emerging Markets Fund and the International Equity Fund, is also an
associate portfolio manager and research analyst of the International Equity
Portfolios of Warburg, Pincus Institutional Fund, Inc. and Warburg, Pincus
Trust. Prior to joining Warburg in February 1995, Mr. Ehrlich was a senior vice
president, portfolio manager and analyst at Templeton Investment Counsel Inc.
from 1987 to 1995. He was a research analyst and assistant portfolio manager at
Fundamental Management Corporation from 1985 to 1986, and a research analyst at
First Equity Corporation of Florida from 1983 to 1985. Mr. Ehrlich earned a
B.S.B.A. degree from the University of Florida and earned his Chartered
Financial Analyst designation in 1990.
Mr. Vincent J. McBride, associate portfolio manager and research analyst of
the Emerging Markets Fund and the International Equity Fund, is also an
associate portfolio manager of the International Equity Portfolios of Warburg,
Pincus Institutional Fund, Inc. and Warburg, Pincus Trust. Prior to joining
Warburg in 1994, Mr. McBride was an international equity analyst at Smith Barney
Inc. from 1993 to 1994, and at General Electric Investment Corp. from 1992 to
1993. He was also a portfolio manager/analyst at United Jersey Bank from 1989 to
1992 and a portfolio manager at First Fidelity Bank from 1987 to 1989. Mr.
McBride earned a B.S. degree from the University of Delaware and an M.B.A.
degree from Rutgers University.
Mr. P. Nicholas Edwards, portfolio manager of the Japan Growth Fund and
associate portfolio manager and research analyst of the International Equity
Fund, is also an associate portfolio manager and research analyst of the
International Equity Portfolios of Warburg Pincus Institutional Fund, Inc. and
Warburg Pincus Trust. Prior to joining Warburg in August 1995, Mr. Edwards was a
director at Jardine Fleming Investment Advisers, Tokyo. He was a vice president
of Robert Fleming Inc. in New York City from 1988 to 1991. Mr. Edwards earned
M.A. degrees from Oxford University and Hiroshima University in Japan.
Mr. Shuhei Abe of SPARX USA is also a co-portfolio manager of the Japan OTC
Fund. Mr. Abe is the founder and president of SPARX Asset Management Company,
Ltd. ("SPARX"). Prior to founding SPARX in 1988, Mr. Abe worked for Soros Fund
Management and Credit Suisse Trust Bank as an independent adviser. Mr. Abe began
his career as an analyst at Nomura Research Institute in 1982 and worked in
institutional equity sales at Nomura Securities International (New York).
Mr. Toshikatsu Kimura is an associate portfolio manager of the Japan OTC
Fund. Mr. Kimura has been a portfolio manager and analyst at SPARX since 1992,
before which time he was a warrant trader and portfolio manager, respectively,
at Sanyo Securities and Sanyo Investment Management from 1986 to 1990, and at
Funai Capital from 1990 to 1992.
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<PAGE>
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Funds, Counsellors Funds
Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators to the
Funds pursuant to separate written agreements (the "Advisory Agreement,"
"Counsellors Service Co-Administration Agreement" and the "PFPC
Co-Administration Agreement," respectively). SPARX USA serves as sub-investment
adviser to the Japan OTC Fund pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The services provided by, and the fees payable by the
Funds to, Warburg under the Advisory Agreement, SPARX USA under the Sub-Advisory
Agreement, Counsellors Service under the Counsellors Service Co-Administration
Agreement and PFPC under the PFPC Co-Administration Agreement are described in
the Prospectuses. See the Prospectuses, "Management of the Fund." Each class of
shares of each Fund bears its proportionate share of fees payable to Warburg,
SPARX USA for the Japan OTC Fund, Counsellors Service and PFPC in the proportion
that its assets bear to the aggregate assets of the Fund at the time of
calculation.
Advisory Fees earned by 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>
Emerging Markets Fund --- $29,641 ($29,641) $1,789,738 ($1,031,252)
International Equity Fund $9,879,319 $20,225,631 $30,605,750
Japan Growth Fund --- $23,045 ($22,663) $149,987 ($149,987)
Japan OTC Fund* $13,176 ($13,176) $599,720 ($599,720) $2,721,814 ($573,600)
</TABLE>
- ----------
* From its investment advisory fee, Warburg pays SPARX USA a sub-investment
advisory fee at an annual rate of .625% of the average daily net assets of
the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to SPARX
USA for its sub-investment advisory services.
49
<PAGE>
<PAGE>
Co-Administration Fees earned by 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>
Emerging Markets Fund --- $2,845 ($2,845) $171,815 ($71,109)
International Equity Fund $851,564 $1,386,283 $1,905,288
Japan Growth Fund --- $2,212 ($2,176) $14,399 ($11,644)
Japan OTC Fund $7,084 $90,701 ($26,746) $260,256 ($53,976)
</TABLE>
Co-Administration Fees earned by 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>
Emerging Markets Fund --- $2,372 $143,179
International Equity Fund $871,165 $2,022,563 $3,060,575
Japan Growth Fund --- $1,844 $11,999
Japan OTC Fund $1,054 $47,978 $217,745
</TABLE>
Custodian and Transfer Agent
State Street Bank and Trust Company ("State Street") serves as custodian of
the Emerging Market Fund's assets, Fiduciary Trust Company International
("Fiduciary") serves as custodian of the International Equity Fund's assets, PNC
Bank, National Association ("PNC") and Fiduciary serve as custodians of the
Japan Growth Fund's U.S. and foreign assets, respectively, and State Street
serves as custodian of the Japan OTC Fund's assets. PNC also provides certain
custodial services to the International Equity Fund, generally in connection
with purchases and sales of the Fund's shares. Pursuant to separate custodian
agreements (the "Custodian Agreements"), State Street, Fiduciary and PNC each
(i) maintain a separate account or accounts in the name of the Funds, (ii) hold
and transfer portfolio securities on account of the Funds, (iii) make receipts
and disbursements of money on behalf of the Funds, (iv) collect and receive all
income and other payments and distributions for the account of the Funds'
portfolio securities and (v) make periodic reports to the Boards concerning the
Funds' custodial arrangements. State Street is authorized to select one or more
foreign or domestic banks or trust companies and securities depositories to
serve as sub-custodian on behalf of the Emerging Markets Fund or the Japan OTC
Fund. Fiduciary is authorized to select one or more foreign or domestic banks or
trust companies and securities depositories to serve as sub-custodian on behalf
of the International Equity Fund, and to select one or more foreign banking
institutions and foreign securities depositories to serve as sub-custodian on
behalf of the Japan Growth Fund. The principal business address of Fiduciary is
Two World Trade Center, New York, New York, 10048. PNC may delegate its duties
under
50
<PAGE>
<PAGE>
its Custodian Agreement with the Japan Growth Fund to a wholly owned direct or
indirect subsidiary of PNC or PNC Bank Corp. upon notice to the Japan Growth
Fund and upon the satisfaction of certain other conditions. PNC is an indirect,
wholly owned subsidiary of PNC Bank Corp., and its principal business address is
1600 Market Street, Philadelphia, Pennsylvania 19103.
State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Funds pursuant to a Transfer Agency and Service
Agreement, under which State Street (i) issues and redeems shares of the Funds,
(ii) addresses and mails all communications by the Funds to record owners of
Fund shares, including reports to shareholders, dividend and distribution
notices and proxy material for meetings of shareholders, (iii) maintains
shareholder accounts and, if requested, sub-accounts and (iv) makes periodic
reports to the Boards concerning the transfer agent's operations with respect to
the Funds. The principal business address of State Street is 225 Franklin
Street, Boston, Massachusetts 02110. State Street has delegated to Boston
Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility
for most shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, North Quincy, Massachusetts 02171.
Organization of the Fund
Each Fund's charter authorizes the Boards to issue three billion full and
fractional shares of common stock, $.001 par value per share ("Common Shares"),
of which one billion shares are designated Common Shares and two billion shares
are designated Advisor Shares ("Advisor Shares"). Only Common Shares and Advisor
Shares have been issued by the Funds.
All shareholders of each Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
Common Shares. The Emerging Markets Fund, the Japan Growth Fund and the
Japan OTC Fund have each entered into a Shareholder Servicing and Distribution
Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under the 1940 Act, pursuant to
which each Fund will pay Counsellors Securities, in consideration for Services
(as defined below), a fee calculated at an annual rate of .25% of the average
daily net assets of the Common Shares of the Fund. Services performed by
Counsellors Securities include (i) the sale of the Common Shares, as set forth
in the 12b-1 Plan ("Selling Services"), (ii) ongoing servicing and/or
maintenance of the accounts of Common Shareholders of the Funds, as set forth in
the 12b-1 Plan ("Shareholder Services"), and (iii) sub-transfer agency services,
subaccounting services or administrative services related to the sale of the
Common Shares, as set forth in the 12b-1 Plan ("Administrative Services" and
collectively with Selling Services and Administrative Services, "Services")
including, without limitation, (a) payments reflecting an allocation of overhead
and other office expenses of Counsellors Securities related to providing
Services; (b) payments made to, and reimbursement of expenses of, persons who
provide support services in
51
<PAGE>
<PAGE>
connection with the distribution of the Common Shares including, but not limited
to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Funds, and providing any other Shareholder Services; (c)
payments made to compensate selected dealers or other authorized persons for
providing any Services; (d) costs relating to the formulation and implementation
of marketing and promotional activities for the Common Shares, including, but
not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, and related travel and entertainment
expenses; (e) costs of printing and distributing prospectuses, statements of
additional information and reports of the Funds to prospective shareholders of
the Funds; and (f) costs involved in obtaining whatever information, analyses
and reports with respect to marketing and promotional activities that the Funds
may, from time to time, deem advisable.
Pursuant to the 12b-1 Plan, Counsellors Securities provides the Boards with
periodic reports of amounts expended under the 12b-1 Plan and the purpose for
which the expenditures were made. The Emerging Markets Fund, the Japan Growth
Fund and the Japan OTC Fund paid Counsellors Securities $357,864, $29,995 and
$544,360, respectively, in the fiscal year ended October 31, 1996, all of which
was expended on advertising and marketing communications.
Advisor Shares. All Funds may 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 purpose for which such expenditures
were made.
The Funds' Advisor Shares paid the following fees for the year ended
October 31, 1996, all of which were paid to Institutions:
Fund Payment
- ---- -------
Emerging Markets Fund $167
International Equity Fund $2,138,703
Japan Growth Fund $0
Japan OTC Fund $0
An Institution with which a Fund has entered into an Agreement with respect
to its Advisor Shares may charge a Customer one or more of the following types
of fees, as agreed upon by the Institution and the Customer, with respect to the
cash management or other services provided by the Institution: (i) account fees
(a fixed amount per month or per year); (ii) transaction fees (a fixed amount
per transaction processed); (iii) compensation balance requirements (a minimum
dollar amount a Customer must maintain in order to obtain the services offered);
or (iv) account maintenance fees (a periodic charge based upon the percentage of
assets in the account or of the dividend paid on those assets). Services
provided by an Institution to Customers are in addition to, and not duplicative
of, the services to be
52
<PAGE>
<PAGE>
provided under a Fund's co-administration and distribution and shareholder
servicing arrangements. A Customer of an Institution should read the relevant
Prospectus and this Statement of Additional Information in conjunction with the
Agreement and other literature describing the services and related fees that
would be provided by the Institution to its Customers prior to any purchase of
any Fund's shares. Prospectuses are available from each Fund's distributor upon
request. No preference will be shown in the selection of Fund portfolio
investments for the instruments of Institutions.
General. The Distribution Plans and the 12b-1 Plans will continue in effect
for so long as their continuance is specifically approved at least annually by
the Boards, including a majority of the Directors who are not interested persons
of the Funds and who have no direct or indirect financial interest in the
operation of the Distribution Plans or the 12b-1 Plans, as the case may be
("Independent Directors"). Any material amendment of a Distribution Plan or a
12b-1 Plan would require the approval of the Boards in the same manner. Neither
the Distribution Plans nor the 12b-1 Plans may be amended to increase materially
the amount to be spent thereunder without shareholder approval of the relevant
class of shares. Each Distribution Plan or 12b-1 Plan may be terminated at any
time, without penalty, by vote of a majority of the Independent Directors or by
a vote of a majority of the outstanding voting securities of the relevant class
of shares of each Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of each 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. (A Fund may also suspend or postpone the recordation of an exchange
of its shares upon the occurrence of any of the foregoing conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, each 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. Each Fund will comply with Rule 18f-1 promulgated under the 1940 Act
with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan (the
"Plan") is available to shareholders who wish to receive specific amounts of
cash periodically. Withdrawals may be made under the Plan by redeeming as many
shares of the relevant Fund
53
<PAGE>
<PAGE>
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 a Fund. All dividends and
distributions on shares in the Plan are automatically reinvested at net asset
value in additional shares of the relevant Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Warburg is
available to investors in any Fund. The funds into which exchanges of Common
Shares currently can be made are listed in each Fund's 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 each
Fund and its shareholders is intended to be only a summary and is not intended
as a substitute for careful tax planning by prospective shareholders.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
Each Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Code. If it qualifies as a regulated investment
company, a 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 Fund must, among other things: (i) distribute to its
shareholders the sum of at least 90% of its taxable net investment income (for
this purpose consisting of taxable net investment income and net realized
short-term capital gains) plus at least 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
54
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<PAGE>
the sale or other disposition of securities or foreign currencies, 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 such
securities or currencies; (iii) derive less than 30% of its annual gross income
from the sale or other disposition of securities, options, futures, forward
contracts or 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 it for less than three months and in the
utilization of certain of the investment techniques described above and in the
Fund's Prospectuses. As a regulated investment company, each 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.
The Funds' transactions, if any, in foreign currencies, forward contracts,
options and futures contracts (including options, futures contracts 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 Funds (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Funds, defer Fund losses
and cause the Funds 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 each Fund to
mark-to-market certain types of its positions (i.e., treat them as if they were
closed out) and (ii) may cause a 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. Each
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 a Fund nor its shareholders will be treated as
receiving a materially greater amount of capital gains or distributions than
actually realized or received, (b) a Fund will be able to use substantially all
of its losses for the fiscal years in which the losses actually occur and (c) a
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
55
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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.
Investments by the Emerging Markets Fund, the Japan Growth Fund and the
Japan OTC Fund 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 face value and its purchase price is
imputed as income to these Funds each year even though the Funds receive no cash
distribution until maturity. Under the U.S. federal tax laws, these Funds will
not be subject to tax on this income if they pay dividends to its shareholders
substantially equal to all the income received from, or imputed with respect to,
its investments during the year, including its zero coupon securities. These
dividends ordinarily will constitute taxable income to the shareholders of the
Funds.
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 the relevant Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of each 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 the Funds. An
individual's taxpayer identification number is his social security number.
Corporate shareholders and other shareholders specified in the Code are or may
be exempt from backup withholding. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's federal income tax
liability. Dividends and distributions also may be subject to state and local
taxes depending on each shareholder's particular situation.
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Investment in Passive Foreign Investment Companies
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 a 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 a 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 a 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 the 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.
DETERMINATION OF PERFORMANCE
From time to time, a Fund may quote the total return of its Common Shares
and/or Advisor Shares in advertisements or in reports and other communications
to shareholders. With respect to the Funds' Common Shares, the average annual
total return for the periods ended October 31, 1996 were as follows (performance
figures calculated without the waiver of fees by a Fund's service provider(s),
if any, are noted in parentheses):
<TABLE>
<CAPTION>
One-Year Five-Year Since Inception (Date)
-------- --------- ----------------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund 9.46% (8.63%) --- 12.42% (11.38%)
(12/30/94)
International Equity Fund 10.35% 10.92% 12.44%
(5/2/89)
Japan Growth Fund --- --- -1.50%* (-2.50%*)
(12/29/95)
Japan OTC Fund -2.79% (-3.19%) --- -5.74% (-6.09%)
(9/30/94)
</TABLE>
- ----------
* Non-annualized.
57
<PAGE>
<PAGE>
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)'pp'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. Investors should note that this performance may not be
representative of the Fund's total returns in longer market cycles.
With respect to the Funds' Advisor Shares, the average annual total return
for the periods ended October 31, 1996 were as follows (performance figures
calculated without the waiver of fees by a Fund's service provider(s), if any,
are noted in parentheses):
<TABLE>
<CAPTION>
One-Year Five-Year Since Inception (Date)
-------- --------- ----------------------
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund 9.20% (8.79%) --- 12.25% (11.67%)
(12/30/94)
International Equity Fund 9.89% 10.44% 10.16%
(4/5/91)
Japan Growth Fund --- --- -1.70%* (-5.10%*)
(12/29/95)
Japan OTC Fund -3.17% (-3.05%) --- -5.97% (-6.87%)
(9/30/94)
</TABLE>
- ----------
* Non-annualized.
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. A Fund may advertise average annual
calendar year-to-date and calendar quarter returns, which are calculated
according to the formula set forth in the preceding paragraph, except that the
relevant measuring period would be the number of months that have elapsed in the
current calendar year or most recent three months, as the case may be. Investors
should note that this performance may not be representative of the Fund's total
return in longer market cycles.
The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of a Fund's portfolio and
operating expenses allocable to it. As described above, total return is based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a 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
58
<PAGE>
<PAGE>
with investments in Fund shares are not reflected in a Fund's total return, and
such fees, if charged, will reduce the actual return received by customers on
their investments.
Warburg believes that a diversified portfolio of international equity
securities, when combined with a similarly diversified portfolio of domestic
equity securities, tends to have a lower volatility than a portfolio composed
entirely of domestic securities. Furthermore, international equities have been
shown to reduce volatility in single asset portfolios regardless of whether the
investments are in all domestic equities or all domestic fixed-income
instruments, and research indicates that volatility can be significantly
decreased when international equities are added.
To illustrate this point, the performance of international equity
securities, as measured by the Morgan Stanley Capital International (EAFE)
Europe, Australasia and Far East Index (the "EAFE Index"), has equalled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S & P 500 Index") in 14 of the last 25
years. The following table compares annual total returns of the EAFE Index and
the S & P 500 Index for the calendar years shown.
EAFE Index vs. S&P 500 Index
1972-1996
Annual Total Return+
<TABLE>
<CAPTION>
Year EAFE Index S&P 500 Index
---- ---------- -------------
<S> <C> <C>
1972* 33.28 15.63
1973* -16.82 -17.37
1974* -25.60 -29.72
1975 31.21 31.55
1976 -.36 19.15
1977* 14.61 -11.50
1978* 28.91 1.06
1979 1.82 12.31
1980 19.01 25.77
1981* -4.85 -9.73
1982 -4.63 14.76
1983* 20.91 17.27
1984* 5.02 1.40
1985* 52.97 26.33
1986* 66.80 14.62
1987* 23.18 2.03
1988* 26.66 12.40
1989 9.22 27.25
1990 -24.71 -6.56
1991 10.19 26.31
1992 -13.89 4.46
1993* 30.49 7.06
1994* 6.24 -1.54
1995 9.42 20.26
1996 4.40 34.11
</TABLE>
59
<PAGE>
<PAGE>
The quoted performance information shown above is not intended to indicate
the future performance of the Funds.
Advertising or supplemental sales literature relating to the International
Equity Fund, the Japan Growth Fund and The Japan OTC Fund may describe the
percentage decline from all-time high levels for certain foreign stock markets.
It may also describe how such Funds differ from the EAFE Index in composition.
The Japan Growth Fund and the Japan OTC Fund may also discuss in advertising and
sales literature the history of Japanese stock markets, including the Tokyo
Stock Exchange and OTC market. Sales literature and advertising may also discuss
trends in the economy and corporate structure in Japan, including the contrast
between the sales growth, profit growth, price/earnings ratios, and return on
equity (ROE) of companies; it may discuss the cultural changes taking place
among consumers in Japan, including increasing cost-consciousness and
accumulation of purchasing power and wealth among Japanese consumers, and the
ability of new companies to take advantage of these trends. The sales literature
for these Funds may also discuss current statistics and projections of the
volume, market capitalization, sector weightings and number of issues traded on
Japanese exchanges and in Japanese OTC markets, and may include graphs of such
statistics in advertising and other sales literature.
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 each Fund. The financial statements that are incorporated by
reference in this Statement of Additional Information have been audited by
Coopers & Lybrand, 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
International Equity Fund through October 31, 1992 have been audited by Ernst &
Young LLP ("Ernst & Young"), independent auditors, as set forth in their report
and have been included in reliance on such report and upon the authority of such
firm as experts in accounting and auditing. Ernst & Young's address is 787 7th
Avenue, New York, New York 10019.
Willkie Farr & Gallagher serves as counsel for the Funds as well as counsel
to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of January 31, 1997, the name, address and percentage of ownership of
each person that owns of record 5% or more of a class of each Fund's outstanding
shares were as follows:
60
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Emerging Markets Fund
- ---------------------
Common Shares Charles Schwab & Co., Inc. 36.92%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corporation 11.37%
FBO Customers
PO Box 3908
Church Street Station
New York, NY 10008-3908
Advisor Shares Mesirow Financial, Inc. 75.78%
Sidney Lieberstein IRA #88520319
Attn: No Load Mutual Funds
350 North Clark Street
Chicago, IL 60610-4712
Montgomery Securities 5.37%
112-36433-12
Attn Mutual Funds: 4th Floor
600 Montgomery Street
San Francisco, CA 94111-2777
International Equity Fund
- -------------------------
Common Shares Charles Schwab & Co., Inc. 32.38%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corporation 10.81%
FBO Customers
PO Box 3908
Church Street Station
New York, NY 10008-3908
Advisor Shares Connecticut General Life Ins. Co. 99.84%
On behalf of its separate accounts
55F c/o Melissa Spencer M110
CIGNA Corp. PO Box 2975
Hartford, CT 06104-2975
</TABLE>
61
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Japan Growth Fund
- -----------------
Common Shares Charles Schwab & Co., Inc. 46.64%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corporation 9.63%
FBO Customers
PO Box 3908
Church Street Station
New York, NY 10008-3908
Warburg, Pincus Counsellors, Inc. 7.08%
Attn: Stephen Distler
466 Lexington Avenue
New York, NY 10017-3140
Advisor Shares Warburg, Pincus Counsellors, Inc. 83.79%
Attn: Stephen Distler
466 Lexington Avenue
New York, NY 10017-3140
Japan OTC Fund
- --------------
Common Shares Charles Schwab & Co., Inc. 42.22%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corporation 24.58%
FBO Customers
PO Box 3908
Church Street Station
New York, NY 10008-3908
Advisor Shares Warburg, Pincus Counsellors, Inc. 83.19%
Attn: Stephen Distler
466 Lexington Avenue
New York, NY 10017-3140
</TABLE>
The Funds believe that these entities are not the beneficial owners of
shares held of record by it. Mr. Lionel I. Pincus, Chairman of the Board and
Chief Executive Officer of Warburg, may be deemed to have beneficially owned
12.83%, 6.94% and 6.00% of the outstanding shares of the Emerging Markets Fund,
the International Equity Fund and the Japan Growth Fund, respectively, including
shares owned by clients for which Warburg has investment discretion and by
companies that Warburg may be deemed
62
<PAGE>
<PAGE>
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 financial 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.
63
<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 it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB - This is the lowest investment grade. Debt rated BBB is regarded as
having an adequate capacity to pay interest and repay principal. Although it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in higher
rated categories.
BB, B and CCC - Debt rated BB and B are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB represents a lower
degree of speculation than B, and CCC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-1
<PAGE>
<PAGE>
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces 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 has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC - This rating is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt rated
D.
To provide more detailed indications of credit quality, the ratings may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The following summarizes the ratings used by Moody's for corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest 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-2
<PAGE>
<PAGE>
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 comprise 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>
PART C
OTHER INFORMATION
WARBURG, PINCUS JAPAN OTC FUND, INC.
Item 24. Financial Statements and Exhibits
----------------------------------
(a) Financial Statements:
(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 Assets and Liabilities
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- -----------------------
1 (a) Articles of Incorporation.(1)
(b) Articles Supplementary.(1)
(c) Articles of Amendments.
(d) Articles Supplementary.
2 (a) By-Laws.(1)
(b) Amendment to By-Laws.(1)
3 Not applicable.
4 Forms of Share Certificates.(3)
- ----------------------
(1) Incorporated by reference to Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on September 22, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A, filed with the Securities and Exchange
Commission on December 29, 1995.
C-1
<PAGE>
<PAGE>
5 (a) Form of Investment Advisory Agreement.(1)
(b) Form of Sub-Investment Advisory Agreement.(1)
6 Form of Distribution Agreement.
7 Not applicable.
8 Form of Custodian Agreement, as amended.(2)
9 (a) Form of Transfer Agency Agreement.(4)
(b) Form of Counsellors Service Co-Administration
Agreement.(4)
(c) Form of PFPC Co-Administration Agreement.(5)
(d) Forms of Services Agreements.
10 (a) Opinion of Willkie Farr & Gallagher, counsel to the
Fund.
(b) Consent of Willkie Farr & Gallagher, counsel to the
Fund.
11 (a) Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
(b) Consent of Hamada & Matsumoto, Japanese counsel to
the Fund.
- ------------------
(3) Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-1A of Warburg, Pincus
Post-Venture Capital Fund, Inc. filed on September 25, 1995 (Securities Act
File No. 33-61225).
(4) 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).
(5) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A
of Warburg, Pincus International Equity Fund, Inc. filed on September 22,
1995 (Securities Act File No. 33-27031).
C-2
<PAGE>
<PAGE>
Exhibit No. Description of Exhibit
12 Not applicable.
13 Form of Purchase Agreement.(1)
14 Retirement Plans.(6)
15(a) Form of Shareholder Servicing and Distribution
Plan.
(b) Form of Shareholder Services Plan.(5)
(c) Form of Distribution Plan.
16 Schedule for Computation of Total Return
Performance Quotation.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
18 Form of Rule 18f-3 Plan.
- ---------------
(6) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A for Warburg, Pincus Managed Bond Trust,
filed on February 28, 1995 (Securities Act File No. 33-73672).
C-3
<PAGE>
<PAGE>
Item 25. Persons Controlled by or Under Common Control with
Registrant
From time to time, Counsellors 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. Counsellors 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
Number of Record Holders
Title of Class as of December 31, 1996
--------------- --------------------------
Shares of beneficial interest,
par value $.001 per share 2,143
Shares of beneficial interest,
par value $.001 per share
- Series 1 0
Shares of beneficial interest,
par value $.001 per share
- Series 2 (Advisor Shares) 7
Item 27. Indemnification
Registrant, officers and directors 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. Discussion of this coverage is incorporated by
reference to Item 27 of Part C of the Registration Statement of Warburg, Pincus
Post-Venture Capital Fund, Inc., filed on July 21, 1995.
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
C-4
<PAGE>
<PAGE>
reference to Schedules A and D of Form ADV filed by Warburg (SEC File No.
801-07321).
C-5
<PAGE>
<PAGE>
SPARX Investment & Research, USA, Inc. ("SPARX"), a wholly owned
subsidiary of SPARX Asset Management Co., Ltd. ("SPARX Management"), acts as
sub-investment adviser to Registrant. SPARX is an independent investment
advisory company owned by its president and founder, Shuhei Abe. The list
required by this Item 28 of officers and directors of SPARX, 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 SPARX (SEC File No. 801-47433).
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 Inc; 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.
(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, as
amended.
Item 30. Location of Accounts and Records
---------------------------------
(1) Warburg, Pincus Japan OTC Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation,
by-laws and minute books)
(2) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions
as co-administrator)
C-6
<PAGE>
<PAGE>
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions
as co-administrator)
(4) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions
as distributor)
(5) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions
as investment adviser)
(6) SPARX Investment & Research, USA, Inc.
413 Seaside Avenue
Honolulu, Hawaii 96815
(records relating to its function
as sub-investment adviser)
(7) State Street Bank and Trust Company 225 Franklin Street
Boston, Massachusetts 02110 (records relating to its
functions as custodian, transfer agent and dividend
disbursing agent)
(8) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as
transfer agent and dividend disbursing agent)
Item 31. Management Services
--------------------
Not applicable.
Item 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.
C-7
<PAGE>
<PAGE>
(b) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
director or directors of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to communications with the
shareholders of certain common-law trusts.
C-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, there unto duly authorized, in the City of New York and the State
of New York, on the 25th day of February, 1997.
WARBURG, PINCUS JAPAN OTC FUND, INC.
By: /s/Richard H. King
------------------------
Richard H. King
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
/s/ John L. Furth Chairman of the February 25, 1997
- -------------------- Board and Director
John L. Furth
/s/ Richard H. King President February 25, 1997
- --------------------
Richard H. King
/s/ Howard Conroy Vice President and February 25, 1997
- -------------------- Chief Financial
Howard Conroy Officer
/s/ Daniel S. Madden Treasurer and February 25, 1997
- -------------------- Chief Accounting
Daniel S. Madden Officer
/s/ Richard N. Cooper Director February 25, 1997
- --------------------
Richard N. Cooper
/s/ Donald J. Donahue Director February 25, 1997
- --------------------
Donald J. Donahue
/s/ Jack W. Fritz Director February 25, 1997
- --------------------
Jack W. Fritz
/s/ Thomas A. Melfe Director February 25, 1997
- --------------------
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director February 25, 1997
- ---------------------------
Alexander B. Trowbridge
C-9
<PAGE>
<PAGE>
/s/ Arnold M. Reichman Director February 25, 1997
- --------------------
Arnold M. Reichman
C-10
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ---------- ----------------------
1(c) Articles of Amendment.
(d) Articles Supplementary.
6 Form of Distribution Agreement.
9(d) Forms of Services Agreements.
10(a) Opinion of Willkie Farr & Gallagher, counsel to the
Fund.
(b) Consent of Willkie Farr & Gallagher, counsel to the
Fund.
11(a) Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
(b) Consent of Hamada & Matsumoto, Japanese counsel to
the Fund.
15(a) Form of Shareholder Servicing and
Distribution Plan.
(c) Form of Distribution Plan.
16 Schedule for Computation of Total Return
Performance Quotation.
17(a) Financial Data Schedule relating to Common Shares.
17(b) Financial Data Schedule relating to Advisor Shares.
18 Form of Rule 18f-3 Plan.
C-11
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 JAPAN OTC FUND, INC.
ARTICLES OF AMENDMENT
Warburg, Pincus Japan OTC 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: The Charter of the Corporation is amended by
redesignating all of the currently issued and unissued shares of the
Corporation's Series of Common Stock designated Common Stock-Series 2, of which
two billion (2,000,000,000) shares are presently allocated, as Advisor Shares of
Common Stock.
SECOND: The foregoing amendments to the Articles of
Incorporation of the Corporation were approved by a majority of the entire Board
of Directors of the Corporation and the amendments to the Articles of
Incorporation are limited to changes expressly permitted by Section 2-605 of
Subtitle 6 of Title 2 of the Maryland General Corporation Law to be made without
action by stockholders.
THIRD: The Corporation is registered as an open-end company
under the Investment Company Act of 1940, as amended.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Warburg, Pincus Japan OTC Fund, Inc. has
caused these presents to be signed in its name and on its behalf of the 12th day
of November, 1996 by its duly authorized officers, who acknowledge that these
Articles of Amendment are the act of the Corporation and 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 JAPAN OTC
FUND, INC.
By: /s/Eugene P. Grace
----------------------
Eugene P. Grace
Vice President
WITNESS:
/s/Janna Manes
- ----------------------
Janna Manes
Assistant Secretary
<PAGE>
<PAGE>
WARBURG, PINCUS JAPAN OTC FUND, INC.
ARTICLES SUPPLEMENTARY
Warburg, Pincus Japan OTC 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 Series of Common Stock
designated Common Stock-Series 1 have been duly reclassified by the Board of
Directors of the Corporation as authorized but unissued shares of the
Corporation's Series of Common Stock designated Common Stock-Series 2 ("Series 2
Shares").
SECOND: The reclassified shares shall have the preferences,
conversions or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms and conditions of redemption of the Series 2
Shares as currently set forth in the Charter. A description of the Series 2
Shares is contained in Articles of Incorporation filed with the Department of
Assessments and Taxation of Maryland on July 26, 1994.
<PAGE>
<PAGE>
THIRD: The reclassification 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.
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 12th 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 JAPAN OTC
FUND, INC.
/s/ Eugene P. Grace
--------------------------------
Eugene P. Grace
Vice President
ATTEST:
/s/Janna Manes
- --------------------------
Janna Manes
Assistant Secretary
<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
<PAGE>
<PAGE>
securities association registered under the Securities Exchange Act of 1934, as
amended.
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
-2-
<PAGE>
<PAGE>
involved in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities for the 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.
-3-
<PAGE>
<PAGE>
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.
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
-4-
<PAGE>
<PAGE>
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 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
-5-
<PAGE>
<PAGE>
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 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
-6-
<PAGE>
<PAGE>
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
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
-7-
<PAGE>
<PAGE>
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
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.
-8-
<PAGE>
<PAGE>
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 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.
-9-
<PAGE>
<PAGE>
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:
<PAGE>
<PAGE>
SERVICES AGREEMENT
Ladies and Gentlemen:
We have an agreement (the "Distribution Agreement") with each of several
open-end investment companies, or series thereof, for which Warburg, Pincus
Counsellors, Inc. ("Counsellors") provides investment advisory services
(together with such other open-end investment companies, or series thereof, for
which Counsellors provides advisory services in the future, the
"Counsellors-advisor Funds"). Pursuant to the Distribution Agreements, we,
Counsellors Securities Inc. ("CSI"), act as the distributor of shares of common
stock of the Funds designated "Common Shares" (collectively, the "Shares"). You
provide recordkeeping and administrative services to certain employee benefit
plans and retirement plans (together, the "Plans") that include or propose to
include certain of the Counsellors-advisor Funds (as modified from time to time,
the "Funds") as an investment alternative or to other customers of yours who
from time to time beneficially own Shares (together with Plan participants,
"Customers"). We may enter into other similar agreements with any other person
or persons without your consent or notice to you.
As used herein, unless the context otherwise requires, "we," "our" and/or
"us" refer to CSI and "you," "your" and "yours" refer to the company that is the
counterparty to this Agreement (the "Service Organization"). The terms
"Prospectus" and "Statement" as used herein refer respectively to the then
current prospectus and statement of additional information relating to the
Shares forming parts of the Registration Statement on Form N-1A of a Fund under
the Securities Act of 1933, as amended (the "1933 Act").
1. Services. As applicable, you agree to provide the administrative,
shareholder and/or other services set forth on Schedule A hereto, as amended
from time to time. In providing such services, you shall not, except as
specifically provided herein, have any authority to act as agent for us or any
Fund, but shall act only as agent of the Plans and Customers who from time to
time beneficially own Shares of one or more Funds and as an independent
contractor and not as an employee or agent of the Funds, Counsellors or us.
You will maintain all records required by law, including records detailing
the services you provide in return for the fees to which you are entitled under
this Agreement. Such records shall be preserved, maintained and made available
to the extent required and in accordance with the Investment Company Act of
1940, as amended (the "1940 Act"), and the Securities Exchange Act of 1934 (the
"1934 Act")
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and the respective rules thereunder. Upon request by a Fund or us, you agree to
promptly make copies or, if required, originals of such of these records
available to the Fund or us, as the case may be. You also agree to promptly
notify the Fund or us if you experience any difficulty in maintaining the
records described in the foregoing in an accurate and complete manner. This
provision shall survive the termination of this Agreement.
You agree to furnish the Funds, Counsellors and us with such occasional
and periodic reports as we shall reasonably request from time to time to enable
the Funds or us to comply with applicable laws and regulations (including,
without limitation, providing reports relating to blue sky and other state
securities laws and regulations) and with such other information as we may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Plans (and Customers of the services described
herein). Moreover, you agree to provide to the Funds, Counsellors and us access
to you and your personnel at our reasonable request during normal business hours
to confirm compliance with the provisions of this Agreement and applicable law.
You shall take all steps necessary to ensure that the arrangements
provided for in this Agreement are properly disclosed to the Plans. You agree to
inform Plans and Customers that they are transacting business with you and not
with the Funds, Counsellors or us, and that they may look only to you for
resolution of problems or discrepancies in their accounts or between those
accounts and your omnibus accounts (the "Accounts") at the Funds.
Neither any Fund, Counsellors nor we assume any responsibility or
obligation as to your right to sell Shares in any state or jurisdiction. We have
full authority to take such action as we may deem advisable in respect of all
matters pertaining to the continuous offering of Shares. We reserve the right in
our sole discretion and without prior notice to you to suspend sales or withdraw
the offering of Shares of any or all Funds. You agree that you will not offer or
sell any Shares except in compliance with applicable federal and state
securities laws. You agree that you will not offer or sell any Shares to Plans,
Customers or other persons (i) in any state or jurisdiction in which such Shares
are not qualified for sale or exempt from the requirements of the relevant
securities laws or in which you are not properly licensed or authorized to make
such offers or sales, (ii) with respect to whom such investment would not be
suitable or otherwise appropriate, or (iii) at any time after CSI or any Fund
has provided you with written notice that any Fund is not then currently
offering Shares to the public.
You shall maintain at all times general liability and other insurance
coverage, including errors and omissions coverage, that is reasonable and
customary in light of your duties hereunder, with limits of not less than $5
million. Such insurance coverage shall be issued by a qualified insurance
carrier with a Best's rating of at least "A" or with the highest rating of a
nationally recognized statistical rating organization. In
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addition, you shall promptly deliver to us such financial statements as we
reasonably request concerning your financial condition; such statements shall
fairly represent your financial condition as of the date thereof. You shall
inform us of any subsequent material change in your financial condition that
would cause such statements to no longer fairly represent your financial
condition.
2. Orders for Shares. Orders received from you for Shares of a Fund will
be accepted by us only at the public offering price applicable to each order, as
set forth in the relevant Prospectus and Statement. All orders by you for a
Fund's Shares will be held through the Accounts with the Fund, and you agree to
make available to the Funds on a monthly basis records necessary to determine
the number of Plans or Customers in each Account (indicating the number of new
Customer accounts opened during the month, as well as the number of ongoing
Customer accounts) and, if requested by us, the times of receipt of Customer
orders. You agree to use your best efforts to assist us in identifying "market
timers" or investors who engage in a pattern of short-term trading.
On each day on which a Fund calculates its net asset value (a "Business
Day"), you shall aggregate and calculate the net purchase and redemption orders
for each Account. Net orders shall only reflect Customer orders that you have
received prior to the close of regular trading on the New York Stock Exchange,
Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on that Business Day.
Orders that you have received after the close of regular trading on the NYSE
shall be treated as though received on the next Business Day. Each communication
of orders by you shall constitute a representation that such orders were
received by you prior to the close of regular trading on the NYSE on the
Business Day on which the purchase or redemption order is priced in accordance
with Rule 22c-1 under the 1940 Act. Other procedures relating to the Funds,
including the timing and manner of payment for Shares, shall be in accordance
with Schedule B, as amended from time to time, as well as with the Prospectus
and Statement of the relevant Fund and with oral or written instructions that we
or the relevant Fund shall forward to you from time to time.
SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE PROCEDURES
REFERRED TO IN THE PRECEDING PARAGRAPH, YOU ARE HEREBY APPOINTED TO ACT, AND YOU
HEREBY AGREE TO ACT, AS AGENT OF EACH FUND FOR THE PURPOSE SPECIFICALLY SET
FORTH IN THIS PARAGRAPH. Provided that you comply with the procedures referred
to in the preceding paragraph, you shall be deemed to be an agent of each Fund
for the sole purpose of receiving instructions from Customers for the purchase
and redemption of Shares of the Fund prior to the close of regular trading on
the NYSE each Business Day and communicating orders based on such instructions
to us or the Fund's transfer agent, all as specified herein. The Business Day on
which you receive such instructions prior to the close of regular trading on the
NYSE shall be the Business Day on which such
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orders will be deemed to be received by us or the Fund's transfer agent as a
result of such instructions.
You shall not withhold placing orders for the Shares received from
Customers so as to profit yourself as a result of such withholding. You shall
not place orders for Shares unless you have already received purchase orders for
Shares at the applicable public offering price and subject to the terms hereof.
All orders are subject to acceptance or rejection by us or the relevant Fund in
the sole discretion of either, or by the relevant Fund's transfer agent acting
on our behalf, and orders shall be effective only upon receipt in proper form.
The Funds may, if necessary, delay redemption of Shares to the extent permitted
by the 1940 Act.
3. Fees. For the services and facilities provided by you hereunder, we
agree to pay you beginning on the effective date indicated next to our signature
below an amount calculated at the rate and in the manner set forth in Schedule
C, as amended from time to time.
You agree that during the term of this Agreement, you will not assess
against or collect from Plans or Customers any transaction fee upon the purchase
or redemption of any Fund's Shares that are considered in calculating the fee
due pursuant to this Agreement.
4. CSI's Responsibilities; Limitation of Liability for Claims. Any printed
information that we furnish to you other than the Prospectus, the Statement,
information supplemental to the Prospectus and the Statement, periodic reports
and proxy solicitation materials are our sole responsibility and not the
responsibility of any Fund, and you agree that the Funds, the shareholders of
the Funds and the officers and governing Boards of the Funds shall have no
liability or responsibility to you in these respects. You also agree that the
payment of compensation to you under this Agreement is solely our responsibility
and not that of any Fund, and you agree that the Funds, the shareholders of the
Funds and the officers and governing Boards of the Funds shall have no liability
or responsibility to you with respect to any indebtedness, liability or
obligation hereunder. Further, it is understood, in the case of each Fund that
is organized as a Massachusetts business trust or series thereof, that the
declarations of trust for each trust refers to the trustees collectively as
trustees and not as individuals personally, and that the declaration of trust
provides that no shareholder, officer, trustee, employee or agent of the trust
shall be subject to claims against or obligations of the trust to any extent
whatsoever, but that the trust estate only shall be liable. No Fund or series of
a Fund shall be liable for the obligations or liabilities of any other Fund or
series of a Fund.
5. Pricing Errors. In the event adjustments are required to correct any
error in the computation of the net asset value of a Fund's Shares, the Fund or
we shall notify you as soon as practicable after discovering the need for those
adjustments that result
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in an aggregate reimbursement of $150 or more to the Accounts. Any such notice
shall state for each day for which an error was in effect the incorrect price,
the correct price and, to the extent communicated to the Fund's shareholders,
the reason for the price change. You may send this notice or a derivation
thereof (so long as such derivation is approved in advance by Counsellors or us)
to Customers whose accounts are affected by the price change.
If an adjustment is to be made in accordance with the preceding paragraph,
the relevant Fund shall make all necessary adjustments (within the parameters
specified therein) to the number of Shares owned in the Accounts and distribute
to you the amount of such underpayment for credit to Customers' accounts.
If the Accounts received amounts in excess of the amounts to which they
otherwise would have been entitled, you, at our request, will make a good faith
attempt to collect such excess amounts from Customers. In no event, however,
shall you be liable to the Funds or us for any such amounts.
6. Termination; Assignment. This Agreement shall be terminable without
penalty upon 30 days' written notice to us by you and upon 10 days' written
notice to you by us; provided, however, that any termination of this Agreement
shall not affect any unpaid obligations under this Agreement and you shall be
entitled to receive all fees earned up to and including the effective date of
termination.
This Agreement shall not be assignable by either us or you without the
prior written consent of the Funds. Nothing in this Agreement is intended to
confer upon any person other than the parties hereto and their permitted assigns
and successors any rights or remedies under or by reason of this Agreement.
7. Fund Information. You agree that you will not offer or sell any Shares
except in compliance with applicable federal and state securities laws and that
in connection with sales and offers to sell Shares you will furnish to each
person to whom any such sale or offer is made, at or prior to the time of
offering or sale, a copy of the relevant Prospectus and, if requested, the
corresponding Statement (each as then amended or supplemented) and will not
furnish to any person any information relating to a Fund that is inconsistent in
any respect with the information contained in the Prospectus and Statement (each
as then amended or supplemented). You shall not make any representations
concerning the Shares or a Fund except those contained in the relevant
Prospectus or Statement or in such printed material issued by us or a Fund as
information supplemental to the Prospectus and Statement.
CSI will provide you on a timely basis with investment performance
information for each Fund, including total return for the preceding calendar
month and calendar quarter, the calendar year to date and the prior one-year,
five-year and ten-year (or life of the Fund) periods. You may, based on the
Securities and Exchange Commission-
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mandated information supplied by CSI, prepare communications for Customers
("Customer Materials"). You shall provide copies of all Participant Materials to
CSI concurrently with their first use for CSI's internal recordkeeping purposes;
however, it is understood that neither CSI nor any Fund shall be responsible for
errors or omissions in, or the content of, Customer Materials.
8. Standard of Care; Indemnification. In carrying out your and our
obligations under this Agreement, you and we each agree to act in good faith and
without negligence.
You agree to and do release, indemnify and hold each Fund, Counsellors,
CSI and their and our respective employees, agents, trustees, directors,
officers and controlling persons harmless from and against any and all direct or
indirect claims, liabilities, expenses or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder. Without limiting the
generality of the foregoing, you agree that this provision will apply to claims,
liabilities, expenses or losses arising out of (a) your making any statement or
representation concerning the Shares or a Fund that is not contained in the
relevant Prospectus or Statement or in such printed material issued by us or a
Fund as information supplemental to the Prospectus and Statement (including,
without limitation, any statement, representation or omission contained in
Customer Materials) and (b) an offering or sale of Shares (i) in any state or
jurisdiction in which such Shares are not qualified for sale or exempt from the
requirements of the relevant securities laws or in which you are not properly
licensed or authorized to make such offers or sales, (ii) which is unsuitable or
otherwise inappropriate to any Plan or Customer or (iii) at any time after CSI
or any Fund has provided you with written notice that any Fund is not then
currently offering Shares to the public. The Funds and CSI, in each case solely
to the extent of such parties' responsibilities hereunder, agree to and do
release, indemnify and hold you and your officers, directors and controlling
persons harmless from and against any and all direct or indirect claims,
liabilities, expenses or losses resulting from requests, directions, actions or
inactions of or by any Fund, CSI or its or our respective officers, employees or
agents regarding our responsibilities hereunder.
This provision shall survive the termination of this Agreement.
9. Representations and Warranties. Each party hereby represents and
warrants to each other party that it is duly authorized by all necessary action,
approval or authorization to enter into this Agreement and that it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
You further represent, warrant and agree that:
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(i) you are fully authorized by applicable law and regulation and by
any agreement you may have with any Plan, Customer or other client for whom
you may act pursuant to this Agreement to perform the services and receive
the compensation therefor described in this Agreement;
(ii) in performing the services described in this Agreement, you will
comply with all applicable laws, rules and regulations and with the
relevant Prospectus and Statement;
(iii) if you are not duly registered as a broker-dealer under Section
15 of the 1934 Act or as a transfer agent under Section 17A of the 1934 Act
and, in either case, applicable state securities laws and regulations, you
are not required to be so registered and will not be required to be so
registered in order to perform the services and receive the compensation
therefor described in this Agreement;
(iv) neither you nor any of your "affiliates" (as such term is defined
in 29 C.F.R. Section 2510.3-21(e)) is a "fiduciary" of any Plan as such
term is defined in section 3(21) of the Employment Retirement Income
Security Act of 1974, as amended ("ERISA"), and section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
(v) the receipt of fees hereunder will not constitute a "prohibited
transaction" as such term is defined in section 406 of ERISA and section
4975 of the Code.
10. Transactions Subject to Fund/SERV. Upon the execution of the Fund/SERV
Amendment to this Agreement, trades may be made through Fund/SERV.
11. Governing Law; Complete Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
reference to conflicts of laws principles.
This Agreement contains the full and complete understanding of the parties
and supersedes all prior representations, promises, statements, arrangements,
agreements, warranties and understandings between the parties with respect to
the subject matter hereof, whether oral or written, express or implied.
12. Amendment. This Agreement, including the Schedules thereto, may be
modified or amended and the terms of this Agreement may be waived only by
writings signed by each of the parties.
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13. Notices. All notices and communications shall be mailed or telecopied
to you to the address set forth below and to us at 466 Lexington Avenue, New
York, New York 10017, Attention: Eugene P. Grace (Fax No.: 212-878-9351), or in
any case to such other address as a party may request by giving written notice
to the other.
COUNSELLORS SECURITIES INC.
Date:_____________ __, 199_ By:________________________________
Name:
Title:
Effective as of: _________, 199-
By:________________________________
Name:
Title:
Please indicate your confirmation and acceptance of this Agreement as of
the date written above by signing below and returning one copy of this Agreement
to Counsellors Securities Inc., 466 Lexington Avenue, New York, New York 10017,
Attention: Eugene P. Grace.
Accepted and Agreed:
By: ___________________________
Name (Print): _________________
Title: ________________________
Address:
Telephone No.:
Fax No.:
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Capitalized terms used herein and not otherwise defined shall
have the meaning set forth in the body of the Services Agreement.
SCHEDULE A
Administrative Services
(i) providing Customers with a service that invests the assets of their
accounts in Shares;
(ii) receiving from the Plans and Customers, in accordance with the
Services Agreement, instructions for the purchase and redemption of Shares;
aggregating and processing purchase and redemption requests for Shares from
Customers and placing net purchase and redemption orders for each Account with
CSI or its designee, communicating such orders in a timely manner to CSI or its
designee in accordance with Schedule D to the Services Agreement; promptly
delivering, or instructing the Plans to deliver, appropriate documentation to
CSI or its designee; and settling purchase and redemption orders in accordance
with the Services Agreement and the relevant Prospectus and Statement;
(iii) arranging for bank wires;
(iv) providing sub-accounting with respect to Shares beneficially owned by
Plans and Customers;
(v) to the extent required by law, at your expense, forwarding shareholder
communications from the relevant Fund (such as the Prospectus, the Statement,
information supplemental to the Prospectus and Statement, periodic reports,
proxy solicitation materials and dividend, distribution and tax notices) to
Plans and Customers, with such material to be provided to you by CSI to the
extent reasonably practicable upon 10 Business Days' notice;
(vi) withholding taxes on non-resident alien accounts and otherwise as
required by law;
(vii) maintaining records of dividends and other distributions; including
dates and prices for all transactions, reinvesting or disbursing in cash such
dividends and distributions in the relevant Fund for Plans and Customers;
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(viii) preparing and delivering to Plans and Customers and state and
federal regulatory authorities, including the U.S. Internal Revenue Service,
such information respecting dividends and distributions paid by the relevant
Fund as may be required by law;
(ix) maintaining adequate records for each Plan and Customer, including
daily and monthly summaries, reflecting Shares purchased and redeemed, including
dates and prices for all transactions and Share balances; and
(x) preparing and delivering to Plans and Customers periodic account
statements showing for each Plan and Customer, respectively, the total number of
Shares of a Fund held as of the statement closing date, purchases and
redemptions of Shares during the statement period and dividends and other
distributions paid during the statement period including dates and prices for
all transactions.
A-2
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Shareholder Services
(i) responding to Plan and Customer inquiries; providing information on
Plan and Customer investments; and providing other shareholder liaison services;
(ii) providing office space and equipment, telephone facilities and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel already employed by you) as
may be reasonably necessary or beneficial in order to provide services to Plans
and Customers under this Agreement;
(iii) sending confirmations of orders to the Plans and Customers to the
extent required by law and paying any expenses in connection therewith;
(iv) using all reasonable efforts to ensure that taxpayer identification
numbers provided by you on behalf of the Plans and Customers are correct; and
(v) providing the Plans and Customers a confirming Prospectus following an
acquisition of Shares to the extent required by law.
Other Services
(i) providing all other services as may be incidental to the
Administrative Services and Shareholder Services enumerated above;
(ii) providing such other services as may be normal or customary for
service providers performing substantially similar services; and
(iii) providing such other services as may be mutually agreed by the
parties to the extent permitted under applicable law.
A-3
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SCHEDULE B
Operating Procedures
(i) Each Fund will make available its net asset value per Share each
Business Day as soon as reasonably practicable after calculation. The Fund will
use its best efforts to make such determination available by 6:00 p.m., Eastern
time, but in no event later than 7:00 p.m., Eastern time.
(ii) For orders placed with a Fund for investment at the prior Business
Day's net asset value per Share (the Business day of the order being referred to
as "T+1"):
(a) orders must be communicated to us or the Fund's transfer agent
by 9:00 a.m., Eastern time, on T + 1, and
(b) payment for such orders must be in federal funds transmitted by
wire initiated by 12:00 p.m., Eastern time, on T + 1 by either you or us, as
applicable.
(iii) Issuance and transfer of Shares will be by book entry only. Share
certificates will not be issued by the Funds unless specifically requested by
you and agreed to by the relevant Fund.
(iv) CSI will make available reports as to the states and jurisdictions in
which we believe Shares of the Funds are qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states and
jurisdictions. These reports will be updated periodically.
(v) The Funds will make available confirmation of executed orders the next
Business Day following receipt of the order from you. Confirmation may be in
written or verbal form. You must promptly inform CSI of any discrepancies;
silence will be deemed to indicate agreement.
(vi) Each Fund will furnish notice of the declaration of any dividends or
other distributions payable by it. This information will include the ex, record
and payable dates along with the Shares' reinvestment price. Typically, this
notice will be given by fax transmission, but may be given by other means as may
be reasonable under the circumstances.
(vii) Dividends and distributions of a Fund will be automatically
reinvested, unless otherwise indicated in writing by you, at net asset value per
Share of the Fund in accordance with the Fund's Prospectus.
(viii) The Funds will prepare Account statements on a calendar quarter
basis.
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SCHEDULE C
FEES
Total Annual Fee as % of
Average Daily Net Assets of
Name of Fund Customers held:
- ------------------------------ --------------------------------
Service Provider:_____________________
Approved By:_____________________
Name:_____________________
Title:_____________________
Date:_____________________
C-1
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Fees will be computed by CSI and paid quarterly. CSI or another of the
Funds' designees shall pay the Fee to you, and shall be reimbursed by each Fund
for a portion of the Fee due with respect to that Fund to be determined from
time to time ("Fund Portion"). The difference between the Fee due minus the Fund
Portion shall not be reimbursed by the Funds, but shall be borne by CSI or
another of the Funds' designees.
For purposes of determining the Fees payable hereunder, the average net
assets of the Plans' and Customers' Shares will be computed in the manner
specified in the relevant Fund's registration statement (as the same is in
effect from time to time) in connection with the computation of the net asset
value of Shares for purposes of purchases and redemptions. Fees payable
hereunder shall only be paid with respect to assets serviced by you and not by
any other financial institution and/or any of your affiliates. You will not at
any time include or permit to be included in the calculation of Customers' or
Plans' Shares or fees due from CSI or any affiliate thereof pursuant to this
Agreement, Shares with respect to which a fee is being paid by CSI to a party
other than you or which are otherwise the subject of a similar agreement,
whether such agreement is in place on the date hereof or entered into at some
future date.
In computing your fee, the applicable fee rate set forth above (multiplied
by the actual number of days elapsed during the period and divided by 365) shall
be applied to the average aggregate quarterly net asset value of Shares of the
applicable Funds in accounts for which you provide services for the period in
question. Each quarterly fee shall be determined independently of every other
quarterly fee. For the quarter in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during such quarter. In addition, if in
any period the aggregate amount payable to you is less than $200, we may, in our
discretion, defer the payment of such amount until it, together with a
subsequent payment or payments, exceeds $200.
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WARBURG PINCUS ADVISOR FUNDS SERVICES AGREEMENT
Gentlemen:
We, Counsellors Securities Inc. ("CSI"), have an agreement (the
"Distribution Agreement") with the several open-end management investment
companies, or series thereof, for which Warburg, Pincus Counsellors, Inc.
("Counsellors") provides investment advisory services which are listed on
Appendix A hereto, as amended from time to time (the "Funds"). Pursuant to the
Distribution Agreements, we act as the distributor of shares of each Fund's
common stock or beneficial interest, as the case may be, par value $.001 per
share, designated Series 2 Shares or Advisor Shares (collectively, "Advisor
Shares"). This is to confirm that, in consideration of the agreements
hereinafter contained, we have agreed that the company that is the counterparty
to this Agreement (the "Service Organization") shall provide certain services in
connection with the Advisor Shares. We acknowledge that Advisor Shares may be
sold directly to certain employee benefit and retirement plans ("Plans") that
include or propose to include one or more Funds as an investment alternative.
The terms "Prospectus" and "Statement" as used herein refer respectively to the
then current prospectus and statement of additional information relating to the
Advisor Shares forming parts of the Registration Statement on Form N-1A of a
Fund under the Securities Act of 1933, as amended (the "1933 Act").
1. Services. Service Organization agrees to provide to investors in the
Funds ("Customers"), Plans and Plan participants the administrative, shareholder
and/or other services set forth on Schedule A hereto, as amended from time to
time. If Service Organization is not a banking organization that is prohibited
from performing such services (a "Bank"), Service Organization also agrees to
provide the distribution and marketing services set forth on Schedule A hereto.
In providing such services, Service Organization shall not, except as
specifically provided herein, have any authority to act as agent for CSI or any
Fund, but shall act only as agent of the Plans, Plan participants and Customers
who from time to time beneficially own Advisor Shares and as an independent
contractor and not as an employee or agent of the Funds, Counsellors or CSI.
Service Organization will maintain all records required by law,
including records detailing the services it provides in return for the fees to
which it is entitled under this Agreement. Such records shall be preserved,
maintained and made available to the extent required by law and in accordance
with the Investment Company Act of 1940, as amended (the "1940 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the rules thereunder. Upon
request by a Fund or CSI, Service Organization agrees to
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promptly make copies or, if required, originals of such of these records
available to the Fund or CSI, as the case may be. Service Organization also
agrees to promptly notify the Fund or CSI if it experiences any difficulty in
maintaining these records in an accurate and complete manner. This provision
shall survive the termination of this Agreement.
Service Organization agrees to furnish the Funds, Counsellors and CSI
with such occasional and periodic reports as we shall reasonably request from
time to time to enable us or the Funds to comply with applicable laws and
regulations (including, without limitation, providing reports relating to blue
sky and other state securities laws and regulations) and with such other
information as they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Plans, Plan participants and
Customers of the services described herein). Moreover, Service Organization
agrees to provide to the Funds, Counsellors and CSI access to it, and its
personnel at their reasonable request during normal business hours to confirm
compliance with the provisions of this Agreement and applicable law. In
performing services hereunder, Service Organization agrees that it will not
engage in any activities set forth in Schedule B.
Service Organization shall take all steps necessary to ensure that the
arrangements provided for in this Agreement are properly disclosed to the Plans
and Customers. Service Organization agrees to inform Plans and Customers that
they are transacting business with Service Organization and not with CSI,
Counsellors or the Funds, and that they and Plan participants may look only to
Service Organization for resolution of problems or discrepancies in their
accounts or between those accounts and Service Organization's omnibus accounts
(the "Accounts") at the Funds.
In the case of Service Organizations that are not banks, neither CSI,
Counsellors nor any Fund assumes any responsibility or obligation as to Service
Organization's right to sell Advisor Shares in any state or jurisdiction. Any
such Service Organization agrees that it will not offer or sell any Advisor
Shares to Plans, Customers or persons (i) in any jurisdiction in which Service
Organization is not properly licensed and authorized to make such offers or
sales, or in which Advisor Shares are not qualified for sale, (ii) with respect
to whom such investment would not be suitable or appropriate under applicable
law or (iii) at any time after CSI or any Fund has provided you with written
notice that any Fund is not then currently offering Advisor Shares to the
public. CSI has full authority to take such action as it may deem advisable in
respect of all matters pertaining to the continuous offering of Advisor Shares.
CSI reserves the right in its sole discretion and without prior notice to
Service Organization to suspend sales or withdraw the offering of Advisor Shares
of each Fund.
Service Organization shall maintain at all times general liability and
other insurance coverage, including errors and omissions coverage, that is
reasonable and
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customary in light of its duties hereunder, with limits of not less than $5
million. Such insurance coverage shall be issued by a qualified insurance
carrier with a Best's rating of at least "A" or with the highest rating of a
nationally recognized statistical rating organization. In addition, Service
Organization shall promptly deliver to CSI such financial statements as CSI may
reasonably request concerning Service Organization's financial condition; such
statements shall fairly represent Service Organization's financial condition as
of the date thereof.
Each Fund and CSI may enter into other similar agreements with any
other person or persons without Service Organization's consent.
2. Orders for Advisor Shares. Orders received from Service Organization
for Advisor Shares will be accepted by CSI only at the public offering price
applicable to each order, as set forth in the relevant Prospectus and Statement.
All orders by Service Organization for Advisor Shares will be held through the
Accounts with the Funds; and Service Organization agrees to make available on a
monthly basis to CSI records necessary to determine the number of Plans, Plan
participants and/or Customers in each Account and the times of receipt of Plan
participant and Customer orders. Service Organization agrees to use its best
efforts to assist CSI in identifying "market timers" or investors who engage in
a pattern of short-term trading.
On each day on which a Fund calculates its net asset value (a "Business
Day"), Service Organization shall aggregate and calculate the net purchase and
redemption orders for each Account maintained by the Fund in which Plan
participant and Customer assets are invested. Net orders shall only reflect Plan
participant and Customer orders that Service Organization has received prior to
the close of regular trading on the New York Stock Exchange, Inc. (the "NYSE")
(currently 4:00 p.m., Eastern time) on that Business Day. Orders that Service
Organization has received after the close of regular trading on the NYSE shall
be treated as though received on the next Business Day. Each communication of
orders by Service Organization shall constitute a representation that such
orders were received by it prior to the close of regular trading on the NYSE on
the Business Day on which the purchase or redemption order is priced in
accordance with Rule 22c-1 under the 1940 Act. Other procedures relating to the
Funds shall be in accordance with Schedule C, as amended from time to time, as
well as with the Prospectus and Statement of the relevant Fund and with oral or
written instructions that CSI or a Fund shall forward to Service Organization
from time to time.
SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE
PROCEDURES REFERRED TO ABOVE, SERVICE ORGANIZATION HEREBY IS APPOINTED TO ACT,
AND SERVICE ORGANIZATION HEREBY AGREES TO ACT AS AGENT OF CSI FOR THE PURPOSE
SPECIFICALLY SET FORTH IN THIS
-3-
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<PAGE>
PARAGRAPH. Provided that Service Organization complies with the foregoing, it
shall be deemed to be an agent of CSI for the sole purpose of receiving
instructions as Plan and Customer agent for the purchase and redemption of
Advisor Shares of that Fund prior to the close of regular trading each Business
Day and communicating orders based on such instructions to the Fund's transfer
agent, all as specified herein. The Business Day on which Service Organization
receives such instructions prior to the close of regular trading on the NYSE
shall be the Business Day on which such orders will be deemed to be received by
CSI or the Fund's transfer agent as a result of such instructions.
Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with the Fund's Prospectus.
Payment for Advisor Shares must be received at the time, and in the
manner, set forth in Schedule C, as amended from time to time. All orders are
subject to acceptance or rejection by CSI or the relevant Fund in the sole
discretion of either, or by the Fund's transfer agent acting on its behalf, and
orders shall be effective only upon receipt in proper form. Each Fund may, if
necessary, delay redemption of Advisor Shares to the extent permitted by the
1940 Act.
3. Fees. (a) Each Fund has adopted a plan pursuant to Rule 12b-1 under
the 1940 Act providing for paymnet of 12b-1 fee of up to .75% of the value of
the average daily net assets of the Advisor Shares held of record by the Service
Organization from time to time on behalf of Plan participants and Customers (the
"Customers' Advisor Shares"). In consideration of the services and facilities
provided by the Service Organization, CSI, on behalf of each Fund, may pay to
the Service Organization, and the Service Organization will accept as full
payment therefor, a fee in an amount obtained by multiplying the applicable
percentages set forth on Appendix A by the average daily net assets of the
Customers' Advisor Shares, which fee will be computed daily and payable
quarterly. The fee set forth above may include a service fee in the amount of
.25% of the average daily net assets of the Customers' Advisor Shares, which fee
will be computed daily and payable quarterly. Any such service fee shall be paid
to Service Organization solely for personal service and/or the maintenance of
shareholder accounts.
(b) For purposes of determining the fees payable under this
Section 3, the average daily net assets of the Customers' Advisor Shares will be
computed in the manner specified in the relevant Fund's registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Advisor Shares for purposes of purchases and
redemptions. If in any period the aggregate amount payable to Service
Organization is less than $200, CSI may, in its discretion, defer the payment of
such amount until it, together with a subsequent payment or payments, exceeds
$200.
-4-
<PAGE>
<PAGE>
(c) Service Organization will provide to Plans, Plan
participants and Customers a schedule of fees showing the compensation payable
to the Service Organization hereunder, along with any other fees charged by it
to Plans, Plan participants and Customers relating to their assets that are
invested in Advisor Shares.
(d) The fees paid pursuant to this Agreement shall be payable
only after, for so long as and to the extent that CSI has received an amount
equal to the fees payable to Service Organization from each Fund pursuant to
such Fund's Distribution Plan, as amended from time to time, adopted pursuant to
Rule 12b-1 under the 1940 Act.
4. Counsellors Securities' Responsibilities; Limitation of Liability
for Claims. Any printed information that is furnished to Service Organization
other than each Fund's Prospectus, Statement, information supplemental to the
Prospectus and the Statement, periodic reports and proxy solicitation materials
is CSI's sole responsibility, and not the responsibility of any Fund, and
Service Organization agrees that the Funds, the shareholders of the Funds and
the officers and governing Boards of the Funds shall have no liability or
responsibility to Service Organization in these respects. Further, it is
understood, in the case of each Fund that is organized as a Massachusetts
business trust or series thereof, that the declarations of trust for each trust
refers to the trustees collectively as trustees and not as individuals
personally, and that the declaration of trust provides that no shareholder,
trustee, officer, employee or agent of the trust shall be subject to claims
against or obligations of the trust to any extent whatsoever, but that the trust
estate only shall be liable. No Fund shall be liable for the obligations or
liabilities of any other Fund. No series of any Fund, if any, shall be liable
for obligations of any other series.
5. Pricing Errors. In the event adjustments are required to correct any
error in the computation of the net asset value of a Fund's Advisor Shares, the
Fund or CSI shall notify Service Organization as soon as practicable after
discovering the need for those adjustments that result in an aggregate
reimbursement of $150 or more to any one Account. Any such notice shall state
for each day for which an error occurred the incorrect price, the correct price
and, to the extent communicated to the Fund's shareholders, the reason for the
price change. Service Organization may send this notice or a derivation thereof
(so long as such derivation is approved in advance by CSI or Counsellors) to
Plan participants and Customers whose accounts are affected by the price change.
If an Account received amounts in excess of the amounts to which it
otherwise would have been entitled prior to an adjustment for an error, Service
Organization, at the Fund's request, will make a good faith attempt to collect
such excess amounts from
-5-
<PAGE>
<PAGE>
Plan participants and Customers. In no event, however, shall Service
Organization be liable to a Fund or CSI for any such amounts.
If an adjustment is to be made in accordance with the first paragraph
of this Section 5, the relevant Fund shall make all necessary adjustments
(within the parameters specified in that first paragraph) to the number of
Advisor Shares owned in the Accounts and distribute to Service Organization the
amount of such underpayment for credit to Plan participants' and Customers'
accounts.
6. Publicity. CSI will provide Service Organization on a timely basis
with investment performance information for each Fund in which Service
Organization maintains an Account, including total return for the preceding
calendar month and calendar quarter, the calendar year to date, and the prior
one-year, five-year, and ten-year (or life of the Fund) periods. Service
Organization may, based on the Securities and Exchange Commission-mandated
information supplied by CSI, prepare communications for Plan participants and
Customers ("Participant Materials"). Service Organization shall provide copies
of all Participant Materials to CSI concurrently with their first use for CSI's
internal recordkeeping purposes. It is understood that neither CSI nor any Fund
shall be responsible for errors or omissions in, or the content of, Participant
Materials.
7. Standard of Care; Indemnification. In carrying out Service
Organization's and CSI's obligations under this Agreement, Service Organization
and CSI each agree to act in good faith and without negligence.
Service Organization agrees to and does release, indemnify and hold
each Fund, its investment adviser(s), CSI and their respective officers,
trustees, directors, employees, agents and controlling persons harmless from and
against any and all direct or indirect claims, liabilities, expenses or losses
resulting from requests, directions, actions or inactions of or by Service
Organization or its or their officers, employees or agents regarding Service
Organization's responsibilities hereunder. Without limiting the generality of
the foregoing, Service Organization agrees that this provision will apply to
claims, liabilities, expenses or losses arising out of (a) Service Organization
making any statement or representation concerning the Advisor Shares that is not
contained in the relevant Prospectus or Statement or in such printed material
issued by CSI or a Fund as information supplemental to the Prospectus and
Statement (including, without limitation, any statement, representation or
omission contained in Participant Materials), (b) a sale or offering of Advisor
Shares (i) in any state or jurisdiction in which such Advisor Shares are not
qualified for sale or exempt from the requirements of the relevant securities
laws or in which Service Organization is not properly licensed or authorized to
make offers or sales, (ii) which is unsuited or otherwise inappropriate for any
Plan, Plan participant or Customer or (iii) at any time after CSI or any Fund
provides written notice that any Fund is not then currently offering Advisor
Shares to
-6-
<PAGE>
<PAGE>
the public. CSI agrees to and does release, indemnify and hold Service
Organization and its officers, directors and controlling persons harmless from
and against any and all direct or indirect claims, liabilities, expenses or
losses resulting from requests, directions, actions or inactions of or by CSI or
its respective officers, trustees, directors, employees, agents or controlling
persons.
This provision shall survive the termination of this Agreement.
8. Representations and Warranties. Each party hereby represents and
warrants to the other that it is duly authorized by all necessary action,
approval or authorization to enter into this Agreement and that it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
Service Organization further represents, warrants and agrees that:
(i) Service Organization is and, during the term of
this Agreement, will be fully authorized by applicable law and
regulation and by any agreement it may have with any Plan, Customer or
client for whom it may act in a manner covered by this Agreement to
perform the services and receive the compensation therefor described in
this Agreement;
(ii) in performing the services and receiving the
compensation described in this Agreement, Service Organization will
comply with all applicable laws, rules and regulations;
(iii) Service Organization is duly registered as a
broker-dealer under Section 15 of the 1934 Act and a transfer agent
under Section 17A of the 1934 Act and, in each case, applicable state
securities laws and regulations, and all such registrations are in full
force and effect and will remain in effect during the term of this
Agreement; if Service Organization is not so registered, it is not
required to be so registered and will not be required to be so
registered in order to perform the services described in this
Agreement;
(iv) neither Service Organization, nor any of its
"affiliates" (as such term is defined in 29 C.F.R. Section
2510.3-21(e)) is or, during term of this Agreement, will become a
"fiduciary" of any Plan as such term is defined in section 3(21) of the
Employment Retirement Income Security Act of 1974, as amended
("ERISA"), and section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code");
(v) the receipt of fees hereunder will not
constitute a "prohibited transaction" as such term is defined in
section 406 of ERISA and section 4975 of the Code; and
-7-
<PAGE>
<PAGE>
(vi) the compensation payable to Service
Organization hereunder, together with any other compensation it
receives from Plans, Plan participants and Customers for services
contemplated by this Agreement, will not be excessive or unreasonable
under the laws and instruments governing its relationships with Plans,
Plan participants and Customers.
9. Reports. Service Organization will furnish CSI, each Fund or its
designees with such information as it or they may reasonably request (including,
without limitation, periodic certifications confirming the provision to Plans,
Plan participants and Customers of the services described herein), and will
otherwise cooperate with CSI, each Fund and its designees (including, without
limitation, any auditors designated by each Fund), in connection with the
preparation of reports to the Fund's governing Board concerning this Agreement
and the monies paid or payable by CSI, on behalf of the Fund, pursuant hereto,
as well as any other reports or filings that may be required by law. Service
Organization will promptly notify the Fund and CSI in the event it is no longer
able to make the representations and warranties set forth above.
10. Term. This Agreement will become effective on the date set forth
below. Unless sooner terminated, this Agreement will continue until one year
from the date hereof, and thereafter will continue automatically for successive
annual periods provided such continuance is specifically approved at least
annually by the Fund in the manner set forth in the next paragraph. This
Agreement is terminable with respect to each Fund, with or without cause,
without penalty (i) at any time by the Fund, which termination may be by vote of
a majority of (a) the Disinterested Trustees/Directors (as defined below) or (b)
the outstanding Advisor Shares of the Fund, or (ii) by CSI or Service
Organization upon 30 days' notice to the other party hereto.
Anything in this Agreement to the contrary notwithstanding, no
compensation may be paid under this Agreement with respect to any Fund until
this Agreement has been approved by vote of a majority of (i) the Fund's
governing Board and (ii) those Trustees/Directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect
financial interest in the operation of the Distribution Plan adopted by the Fund
regarding the provision of distribution and support services to the beneficial
owners of the Advisor Shares or in any agreements related thereto
("Disinterested Trustees/Directors"), cast in person at a meeting for the
purpose of voting on such approval.
11. Transactions Subject to Fund/SERV. Upon the execution of a
Fund/SERV Amendment to this Agreement, transactions in Fund shares may be
affected through Fund/SERV.
-8-
<PAGE>
<PAGE>
12. Governing Law; Complete Agreement; Assignment. This Agreement shall
be governed by and construed in accordance with the laws (except the conflict of
law rules) of the State of New York.
This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, statements,
arrangements, agreements, warranties and understandings between the parties with
respect to the subject matter hereof, whether oral or written, express or
implied.
This Agreement is non-assignable by the parties hereto and will
terminate automatically in the event of its assignment (as such term is defined
in the 1940 Act). Nothing in this Agreement is intended to confer upon any
person other than the Fund and the parties hereto and their permitted assigns
and successors any rights or remedies under or by reason of this Agreement.
13. Amendment. This Agreement, including the Schedules thereto, may be
modified or amended and the terms of this Agreement may be waived only by
writings signed by each of the parties.
14. Notices. All notices and communications shall be mailed or
telecopied to Service Organization to the address set forth below and to the
Fund or CSI at 466 Lexington Avenue, New York, New York 10017, Attention: Eugene
P. Grace (Fax No.: 212-878-9351), or in any case to such other address as a
party may request by giving written notice to the other.
COUNSELLORS SECURITIES INC.
Date:_____________ __, 199_ By:________________________________
Name:
Title:
Effective as of:______________
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<PAGE>
<PAGE>
Please indicate Service Organization's confirmation and acceptance of this
Agreement as of the date written above by signing below and returning one copy
of this Agreement to Counsellors Securities Inc., 466 Lexington Avenue, New
York, New York 10017, Attention: Eugene P. Grace.
Accepted and Agreed:
____________________________________
By:__________________________
Name (Print):__________________
Title:_________________________
Address: ______________________
Telephone No.:__________________
Fax No.:
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<PAGE>
<PAGE>
Capitalized terms used herein and not otherwise defined shall have the meaning
set forth in the body of the Advisor Funds Services Agreement.
APPENDIX A
Funds Fee Rate
----- --------
Warburg Pincus Balanced Fund .50%
Warburg Pincus Capital Appreciation Fund .50%
Warburg Pincus Emerging Growth Fund .50%
Warburg Pincus Emerging Markets Fund .50%
Warburg Pincus Fixed Income Fund .25%
Warburg Pincus Health Sciences Fund .50%
Warburg Pincus Global Fixed Income Fund .50%
Warburg Pincus Growth & Income Fund .50%
Warburg Pincus Intermediate Maturity Government Fund .25%
Warburg Pincus International Equity Fund .50%
Warburg Pincus Japan Growth Fund .50%
Warburg Pincus Japan OTC Fund .50%
Warburg Pincus New York Intermediate Municipal Fund .25%
Warburg Pincus Post-Venture Capital Fund .50%
Warburg Pincus Small Comany Growth Fund .50%
Warburg Pincus Small Company Value Fund .50%
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<PAGE>
<PAGE>
SCHEDULE A
Distribution and Marketing Services
(i) formulation and implementation of marketing and promotional
activities including, but not limited to, direct mail promotions and other
advertising, if appropriate;
(ii) distributing Prospectuses, Statements and reports of the Fund
to prospective Plans, Plan sponsors and Customers;
(iii) preparing, printing and distributing sales literature
pertaining to the Fund; and
(iv) obtaining information, analyses and reports with respect to
marketing and promotional activities relating to the Fund.
Administrative Services
(i) receiving from the Plans, Plan participants and Customers, by
the close of regular trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time) on any business day (i.e., a day on which the New York Stock
Exchange is open for trading), instructions for the purchase and redemption of
shares; aggregating and processing purchase and redemption requests for Advisor
Shares from Plan participants and Customers and placing net purchase and
redemption orders with CSI or its designee; payment for net purchase orders must
be received at the time the order is placed; communicating orders in a timely
manner to CSI or its designee and promptly delivering, or instructing the Plans
to deliver, appropriate documentation to CSI or its designee;
(ii) providing Plan participants and Customers with a service that
invests the assets of their accounts in Advisor Shares;
(iii) providing information periodically to Plans, Plan participants
and Customers showing their positions in Advisor Shares;
(iv) arranging for bank wires;
(v) providing sub-accounting with respect to Advisor Shares
beneficially owned by Plans, Plan participants and Customers;
A-1
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<PAGE>
(vi) if required by law, forwarding shareholder communications from
the relevant Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Plans, Plan
participants and Customers at Service Organization's expense, with such material
to be provided to it by CSI to the extent reasonably practicable upon ten
Business Days' notice;
(vii) withholding taxes on non-resident alien accounts and otherwise
as appropriate;
(viii) maintaining records of dividends and distributions; and
disbursing dividends and distributions and reinvesting such in the relevant Fund
for Plans and Plan participants;
(ix) preparing and delivering to Plans, Plan participants and
Customers and state and federal regulatory authorities, including the U.S.
Internal Revenue Service, such information respecting dividends and
distributions paid by the relevant Fund as may be required by law;
(x) maintaining adequate records for each Plan and Customer
reflecting Advisor Shares purchased and redeemed, including dates and prices for
all transactions, and Share balances;
(xi) preparing and delivering to Plans and Customers periodic
account statements showing for each Plan and Customer, respectively, the total
number of Advisor Shares held as of the statement closing date, purchases and
redemptions of Advisor Shares during the statement period, and dividends and
other distributions paid during the statement period (whether paid in cash or
reinvested in Advisor Shares), including dates and prices for all transactions;
(xii) on behalf of and to the extent instructed by each Plan and
Customer and as required by law, at Service Organization's expense, delivering
to Plan participants (or delivering to the Plans for distribution to Plan
participants) and Customers Prospectuses, Statements and other materials
provided to it by CSI to the extent reasonably practicable upon ten Business
Days' notice;
(xiii) maintain daily and monthly purchase summaries (expressed in
both Share and dollar amounts) for each Plan and Customer; and
(xiv) settle orders in accordance with the terms of the Prospectus
and Statement of the Fund.
A-2
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<PAGE>
Shareholder Services
(i) responding to Plans, Plan participant and Customer inquiries;
(ii) providing information on Plan, Plan participant and Customer
investments;
(iii) providing other shareholder liaison services;
(iv) providing office space and equipment, telephone facilities and
personnel (which may be any part of the space, equipment and facilities
currently used in Service Organization's business, or any personnel employed by
Service Organization) as may be reasonably necessary or beneficial in order to
provide services to Plans and Customers under this Agreement;
(v) sending confirmations of orders to the Plans and Plan
participants and Customers to the extent required by law and paying any costs in
connection therewith;
(vi) using all reasonable efforts to ensure that taxpayer
identification numbers provided by Service Organization on behalf of the Plans,
Plan participants and Customers are correct; and
(vii) providing the Plans, Plan participants and Customers a
confirming Prospectus following an acquisition of Advisor Shares to the extent
required by law.
A-3
<PAGE>
<PAGE>
Other Services
(i) providing all other services as may be incidental to the
Distribution and Marketing Services, Administrative Services and Shareholder
Services enumerated above;
(ii) providing such other services as may be normal or customary for
service providers performing substantially similar services; and
(iii) providing such other services as may be mutually agreed by the
parties to the extent permitted under applicable statutes, rules and
regulations.
A-4
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<PAGE>
SCHEDULE B
Prohibited Activities
(i) Service Organization shall not withhold placing orders for the
Advisor Shares received from Plan participants and Customers so as to profit as
a result of such withholding.
(ii) Service Organization shall not place orders for Advisor Shares
unless it has already received purchase orders for Advisor Shares at the
applicable public offering price and subject to the terms hereof.
(iii) Service Organization agrees that it will not offer or sell any
Advisor Shares except under circumstances that will result in compliance with
applicable federal and state securities laws and that in connection with sales
and offers to sell Advisor Shares Service Organization will furnish to each
person to whom any such sale or offer is made, at or prior to the time of
offering or sale, a copy of the relevant Prospectus and, if requested, the
corresponding Statement (each as then amended or supplemented) and will not
furnish to any person any information relating to a Fund that is inconsistent in
any respect with the information contained in the Prospectus and Statement (each
as then amended or supplemented).
(iv) Service Organization shall not make any representations
concerning the Advisor Shares except those contained in the relevant Prospectus
and Statement and in such printed information subsequently issued by CSI or a
Fund as information supplemental to the Prospectus and Statement.
B-1
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<PAGE>
SCHEDULE C
Operating Procedures
1. Each Fund will make available its net asset value per share on a
daily basis as soon as reasonably practicable after the net asset value is
calculated. The Fund will use its best efforts to make such determination
available by 6:00 p.m., Eastern time, but in no event later than 7:00 p.m.,
Eastern time, each Business Day.
2. Each Fund will furnish notice of the declaration of any income,
dividends or capital gains distributions payable by it. This information will
include the ex, record and payable dates along with the Fund's reinvestment
price. Typically, this notice will be given by fax transmission, but may be
given by other means as may be reasonable under the circumstances.
3. Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with the Fund's Prospectus.
4. For trades placed with a Fund the Business Day after a trade date
("T+1") for investment at the prior Business Day's net asset value:
(i) trade orders must be received before 4:00 p.m., Eastern time, by
the Service Organization on the trade date ("T"):
(ii) trade orders must be communicated to the relevant Fund by 10:00
a.m., Eastern time on T + 1, and
(iii) payment for such orders must be in federal funds transmitted
by wire. This wire must be initiated by 12:00 p.m., Eastern time on T + 1 by
either the Service Organization or CSI, as the case may be.
5. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued by the Funds unless specifically
requested by the Service Organization and agreed to by the relevant Fund.
6. CSI will make available reports as to the states and
jurisdictions in which we believe the Funds are qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states
and jurisdictions. These reports will be updated periodically as changes arise.
7. The Funds will make available confirmation of executed trades the
next Business Day following receipt of the trade from the Service Organization.
Confirmation may be in written or verbal form. If verbal, Service Organization
must promptly inform CSI of any discrepancies; silence will be deemed to
indicate agreement.
8. The Funds will make available account statements on a calendar
quarter basis.
C-1
<PAGE>
February 21, 1997
Warburg, Pincus Japan OTC Fund, Inc.
466 Lexington Avenue
New York, New York 10017
Re: Post-Effective Amendment No. 5 to Registration
Statement (Securities Act File No. 33-82362;
Investment Company Act File No. 811-8686 (the
"Registration Statement"))
---------------------------------------------------
Ladies and Gentlemen:
You have requested that we, as counsel to the Warburg, Pincus Japan OTC Fund,
Inc. (the "Fund"), render an opinion in connection with the filing by the Fund
of Post-Effective Amendment No. 5 to the Registration Statement (the
"Amendment") in which you intend to register under the Securities Act of 1933,
as amended (the "1933 Act"), 1,448,840 shares of common stock of the Fund, par
value $.001 per share (the "Shares").
We have examined the Fund's Articles of Incorporation, its By-Laws, resolutions
adopted by its Board of Directors, and other records, documents, papers,
statutes and authorities as we have deemed necessary to form a basis for the
opinion hereinafter expressed.
On the basis of the foregoing, and assuming compliance with the 1933 Act, the
Investment Company Act of 1940, as amended, and applicable state laws regulating
the sale of securities, and assuming further that all of the Shares will be sold
at a sales price in each case in excess of the par value of the Shares, we are
of the opinion that such Shares, when duly sold, issued and paid for as
contemplated by the Prospectuses and Statement of Additional Information
included in the Amendment, will be validly and legally issued, fully paid and
non-assessable by the Fund.
<PAGE>
<PAGE>
We consent to your filing this opinion with the Securities and Exchange
Commission as an exhibit to the Amendment.
We are members of the Bar of the State of New York and do not hold ourselves out
as being conversant with the laws of any jurisdiction other than those of the
United States of America and the State of New York. We note that we are not
licensed to practice law in the State of Maryland, and to the extent that any
opinion expressed herein involves the law of Maryland, such opinion should be
understood to be based solely upon our review of the documents referred to
above, the published statutes of that state, and where applicable, published
cases, rules or regulations of regulatory bodies of that state.
Very truly yours,
WILLKIE FARR & GALLAGHER
By: /s/ Willkie Farr & Gallagher
-------------------------------
A Member of the Firm
<PAGE>
<PAGE>
CONSENT OF COUNSEL
Warburg, Pincus Japan OTC Fund, Inc.
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 5 (the "Amendment") to the
Registration Statement on Form N-1A (Securities Act File No. 33-82362,
Investment Company Act File No. 811-8686) of Warburg, Pincus Japan OTC 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 21, 1997
New York, New York
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 5 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (File No. 33-82362) of our report dated December 18, 1996 on our audit of
the financial Japan OTC 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.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 21, 1997
<PAGE>
<PAGE>
[Hamada & Matsumoto Letterhead]
February 21, 1997
Warburg, Pincus Japan OTC Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Japan OTC Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, as to matters of
Japanese law.
We hereby confirm that the information set forth under the caption "Dividends,
Distributions and Taxes" in the Prospectuses contained in the Fund's
Registration Statement on Form N-1A, as amended (the "Registration Statement"),
has been reviewed by us and in our opinion is correct. In addition, we hereby
consent to the reference to us in the Prospectuses and to the filing of this
opinion with the U.S. Securities and Exchange Commission as an exhibit to the
Registration Statement.
Very truly yours,
HAMADA & MATSUMOTO
By: /s/ Yogo Kimura
----------------------------
Yogo Kimura
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
This Shareholder Servicing and Distribution Plan ("Plan") is
adopted by each of the Warburg Pincus Funds (the "Fund"), with respect to the
common stock, par value $.001 per share, of the Fund other than those designated
Advisor Shares (the "Shares") pursuant to Rule 12b-1 (the "Rule") under the
Investment Company Act of 1940, as amended (the "1940 Act"), subject to the
following terms and conditions:
Section 1. Amount of Payments.
The Fund will pay Counsellors Securities Inc. ("Counsellors
Securities"), a corporation organized under the laws of the State of New York,
for shareholder servicing and distribution services provided to the Shares, an
annual fee of up to .25% of the value of the average daily net assets of the
Shares. Fees to be paid with respect to the Fund under this Plan will be
calculated monthly and paid quarterly by the Fund.
Section 2. Services Payable under the Plan.
(a) The annual fees described above payable with respect to
the Fund are intended to compensate Counsellors Securities, or enable
Counsellors Securities to compensate other persons ("Service Providers"),
including any other distributor of Shares, for providing (i) ongoing servicing
and/or maintenance of the accounts of holders of Shares ("Shareholder
Services"); (ii) services that are primarily intended to result in, or that are
primarily attributable to, the sale of Shares ("Selling Services"); and/or (iii)
subtransfer agency services, subaccounting services or administrative services
with respect to Shares ("Administrative Services"). Shareholder Services may
include, among other things, responding to inquiries of prospective investors
regarding the Fund and services to shareholders not otherwise required to be
provided by the Fund's custodian or any co-administrator. Selling Services may
include, but are not limited to: the printing and distribution to prospective
investors in Shares of prospectuses and statements of additional information
describing the Fund; the preparation, including printing, and distribution of
sales literature, reports and media advertisements relating to the Shares;
providing telephone services relating to the Fund; distributing Shares; costs
relating to the formulation and implementation of marketing and promotional
activities, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising, and
related travel and entertainment expenses; and 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
<PAGE>
<PAGE>
advisable. In providing compensation for Selling Services in accordance with
this Plan, Counsellors Securities is expressly authorized (i) to make, or cause
to be made, payments reflecting an allocation of overhead and other office
expenses related to providing Services; (ii) to make, or cause to be made,
payments, or to provide for the reimbursement of expenses of, persons who
provide support services in connection with the distribution of Shares
including, but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, and providing any other Service;
and (iii) to make, or cause to be made, payments to compensate selected dealers
or other authorized persons for providing any Services. Administrative Services
may include, but are not limited to, establishing and maintaining accounts and
records on behalf of Fund shareholders; processing purchase, redemption and
exchange transactions in Shares; and other similar services not otherwise
required to be provided by the Fund's transfer agent or any co-administrator.
(b) Payments under this Plan are not tied exclusively to the
expenses for shareholder servicing, administration and distribution expenses
actually incurred by Counsellors Securities or any Service Provider, and the
payments may exceed expenses actually incurred by Counsellors Securities and/or
a Service Provider. Furthermore, any portion of any fee paid to Counsellors
Securities or to any of its affiliates by the Fund or any of their past profits
or other revenue may be used in their sole discretion to provide services to
shareholders of the Fund or to foster distribution of Shares.
Section 3. Approval of Plan.
Neither this Plan nor any related agreements will take effect
until approved by a majority of (a) the outstanding voting Shares, (b) the full
Board of Directors/Trustees (the "Board" and "Board Members") of the Fund and
(c) those Board Members who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of this Plan or in any
agreements related to it (the "Independent Board Members"), cast in person at a
meeting called for the purpose of voting on this Plan and the related
agreements.
Section 4. Continuance of Plan.
This Plan will continue in effect with respect to the Shares
from year to year so long as its continuance is specifically approved annually
by vote of the Fund's Board in the manner described in Section 3(b) and 3(c)
above. The Fund's Board will evaluate the appropriateness of this Plan and its
payment terms on a continuing basis and in doing so will consider all relevant
factors, including the types and extent of Shareholder Services, Selling
Services and Administrative Services provided by Counsellors Securities and/or
Service
<PAGE>
<PAGE>
Providers and amounts Counsellors Securities and/or Service Providers receive
under this Plan.
Section 5. Termination.
This Plan may be terminated at any time with respect to the
Shares by vote of a majority of the Independent Board Members or by a vote of a
majority of the outstanding voting Shares.
Section 6. Amendments.
This Plan may not be amended to increase materially the amount
of the fees described in Section 1 above with respect to the Shares without
approval of at least a majority of the outstanding voting Shares. In addition,
all material amendments to this Plan must be approved in the manner described in
Section 3(b) and 3(c) above.
Section 7. Selection of Certain Board Members.
While this Plan is in effect with respect to the Fund, 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 8. Written Reports.
In each year during which this Plan remains in effect with
respect to the Fund, any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to the Plan or any related agreement will
prepare and furnish to the Fund's Board, and the Board will review, at least
quarterly, written reports, complying with the requirements of the Rule, which
set out the amounts expended under this Plan and the purposes for which those
expenditures were made.
Section 9. Preservation of Materials.
The Fund will preserve copies of this Plan, any agreement
relating to this Plan and any report made pursuant to Section 8 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of this Plan, the agreement or the report.
Section 10. Meaning of Certain Terms.
As used in this 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
under the 1940 Act, subject to any exemption that may be granted to the Fund
under the 1940 Act by the Securities and Exchange Commission.
<PAGE>
<PAGE>
Section 11. Date of Effectiveness.
This Plan will become effective as of the date the Fund first
commences its investment operations.
IN WITNESS WHEREOF, the Fund has executed this Plan as of the
_____ day of_______, 199_.
By: __________________________
Name:
Title:
<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
________ __, 199_.
By:___________________________
Name:
Title:
Acknowledged this
_____ day of ________, 199_
COUNSELLORS SECURITIES INC.
By:_____________________________
Name:
Title:
<PAGE>
<PAGE>
Warburg Pincus Japan OTC Fund
Common Shares
1 Year Annualized Total Return Without Waivers:
((9,681/10,000)1/1 -1) = -3.19%
Annualized Total Return from inception Without Waivers:
((8,770/10,000)1/2.09041 -1) = -6.09%
Series 2 Shares
1 Year Annualized Total Return Without Waivers:
((8,618/10,000)1/1 -1) = -3.05%
Annualized Total Return from inception Without Waivers:
((8,618/10,000)1/2.09041 -1) = -6.87%
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000927947
<NAME> WARBURG PINCUS JAPAN OTC
<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> 160085015
<INVESTMENTS-AT-VALUE> 146739606
<RECEIVABLES> 6687105
<ASSETS-OTHER> 2425831
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 155852542
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1391287
<TOTAL-LIABILITIES> 1391287
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166971739
<SHARES-COMMON-STOCK> 18244341
<SHARES-COMMON-PRIOR> 19646570
<ACCUMULATED-NII-CURRENT> 25509693
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24498264)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13521913)
<NET-ASSETS> 154461255
<DIVIDEND-INCOME> 927270
<INTEREST-INCOME> 226149
<OTHER-INCOME> 0
<EXPENSES-NET> 3810543
<NET-INVESTMENT-INCOME> (2657124)
<REALIZED-GAINS-CURRENT> 8891753
<APPREC-INCREASE-CURRENT> (13291445)
<NET-CHANGE-FROM-OPS> (7056816)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8403622
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 252768825
<NUMBER-OF-SHARES-REDEEMED> 268976988
<SHARES-REINVESTED> 7560373
<NET-CHANGE-IN-ASSETS> (24108228)
<ACCUMULATED-NII-PRIOR> 7821209
<ACCUMULATED-GAINS-PRIOR> (4640787)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2721814
<INTEREST-EXPENSE> 16049
<GROSS-EXPENSE> 4438119
<AVERAGE-NET-ASSETS> 217743994
<PER-SHARE-NAV-BEGIN> 9.09
<PER-SHARE-NII> (.23)
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> .38
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.47
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000927947
<NAME> WARBURG PINCUS JAPAN OTC
<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> 160085015
<INVESTMENTS-AT-VALUE> 146739606
<RECEIVABLES> 6687105
<ASSETS-OTHER> 2425831
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 155852542
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1391287
<TOTAL-LIABILITIES> 1391287
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166971739
<SHARES-COMMON-STOCK> 18244341
<SHARES-COMMON-PRIOR> 19646570
<ACCUMULATED-NII-CURRENT> 25509693
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24498264)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13521913)
<NET-ASSETS> 154461255
<DIVIDEND-INCOME> 927270
<INTEREST-INCOME> 226149
<OTHER-INCOME> 0
<EXPENSES-NET> 3810543
<NET-INVESTMENT-INCOME> (2657124)
<REALIZED-GAINS-CURRENT> 8891753
<APPREC-INCREASE-CURRENT> (13291445)
<NET-CHANGE-FROM-OPS> (7056816)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8403622
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 252768825
<NUMBER-OF-SHARES-REDEEMED> 268976988
<SHARES-REINVESTED> 7560373
<NET-CHANGE-IN-ASSETS> (24108228)
<ACCUMULATED-NII-PRIOR> 7821209
<ACCUMULATED-GAINS-PRIOR> (4640787)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2721814
<INTEREST-EXPENSE> 16049
<GROSS-EXPENSE> 4438119
<AVERAGE-NET-ASSETS> 1131
<PER-SHARE-NAV-BEGIN> 9.08
<PER-SHARE-NII> (.13)
<PER-SHARE-GAIN-APPREC> (.14)
<PER-SHARE-DIVIDEND> .36
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.45
<EXPENSE-RATIO> 2.09
<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>