<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on December 28, 1995
Securities Act File No. 33-73498
Investment Company Act File No. 811-8252
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. 3 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 4 [x]
(Check appropriate box or boxes)
Warburg, Pincus Emerging Markets Fund, Inc.
(formerly Warburg, Pincus New Growth International 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 Emerging Markets 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>2
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on December 29, 1995 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, 1995 was filed on December 19, 1995.
<PAGE>3
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A Common and Advisor Shares
Item No. Prospectus Heading*
-------- -------------------------
1. Cover Page . . . . . . . Cover Page
2. Synopsis . . . . . . . . The Funds' Expenses
3. Condensed Financial
Information . . . . . . Financial Highlights;
Performance
4. General Description of
Registrant . . . . . . . Cover Page; Investment
Objective and Policies;
Portfolio Investments; Risk
Factors and Special
Considerations; Certain
Investment Strategies;
Investment Guidelines;
General Information
5. Management of the Fund . Management of the Funds
6. Capital Stock and Other
Securities . . . . . . . General Information
7. Purchase of Securities
Being Offered . . . . . How to Open an Account; How to
Purchase Shares; Net Asset
Value
8. Redemption or Repurchase How to Redeem and Exchange
Shares
9. Legal Proceedings . . . Not applicable
_____________________
* With respect to the Advisor Prospectus, all references to the "the Funds"
in this cross-reference sheet should be read as "the Fund."
<PAGE>4
Part B Statement of Additional
Item No. Information Heading
-------- -------------------------
10. Cover Page . . . . . . . Cover 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; See
Prospectuses--"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 Fund" and "Shareholder
Servicing"
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
<PAGE>5
Part B Statement of Additional
Item No. Information Heading
-------- -------------------------
Shares," "How to Redeem and
Exchange Shares" and "Net
Asset Value"
20. Tax Status . . . . . . . Additional Information
Concerning Taxes; See
Prospectuses--"Dividends,
Distributions and Taxes"
21. Underwriters . . . . . . Investment Policies --
Portfolio Transactions; See
Prospectuses--"Management of
the Fund" and "Shareholder
Servicing"
22. Calculation of
Performance Data . . . . Determination of Performance
23. Financial Statements . . Report of Independent
Auditors; 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
amendment.
<PAGE>
PROSPECTUS
The Fund's Common Share Prospectus is incorporated by reference to
the Prospectus that forms part of Post-Effective Amendment No.13 to the
Registration Statement on Form N-1A of Warburg, Pincus International Equity
Fund, Inc. (Securities Act File No. 33-27031; Investment Co. Act File No.
811-5765).
<PAGE>
[Logo]
PROSPECTUS
DECEMBER 29, 1995
[ ] WARBURG PINCUS EMERGING MARKETS FUND
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 27, 1995
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
December 29, 1995
PROSPECTUS
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:
WARBURG PINCUS EMERGING MARKETS FUND (the 'Fund') seeks growth of capital. The
Fund will seek to achieve its investment objective by investing primarily in
equity securities of non-United States issuers consisting of companies in
emerging securities markets.
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 shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of up to .75% per annum, which is the economic equivalent of
a sales charge. The Fund's Common Shares are available for purchase by
individuals directly and are offered by a separate prospectus.
NO MINIMUM INVESTMENT
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Advisor Funds at (800) 888-6878.
Information regarding the status of shareholder accounts may also be obtained by
calling Warburg Pincus Advisor Funds at (800) 888-6878. The Statement of
Additional Information, as amended or supplemented from time to time, bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
THE FUND'S EXPENSES
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information.' Because of the higher fees paid by
Advisor Shares, the total return on such shares can be expected to be lower than
the total return on Common Shares.
<TABLE>
<S> <C>
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..................................................................................... 0
12b-1 Fees.......................................................................................... .75%*
Other Expenses...................................................................................... .75%
-----
Total Fund Operating Expenses (after fee waivers)`D'................................................ 1.50%
</TABLE>
<TABLE>
<S> <C>
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................................................................................................... $ 15
3 years.................................................................................................. $ 47
5 years.................................................................................................. $ 82
10 years................................................................................................. $179
</TABLE>
- ------------
* Current 12b-1 fees are .50% out of a maximum .75% authorized under the Advisor
Shares' Distribution Plan. At least a portion of these fees should be
considered by the investor to be the economic equivalent of a sales charge.
`D' Absent the anticipated waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees for the Fund would have equalled 1.25%,
Other Expenses would have equalled 15.86%, and Total Fund Operating Expenses
would have equalled 17.86%. The investment adviser and co-administrator are
under no obligation to continue these waivers. Other Expenses and Total
Operating Expenses are based on actual expenses for the fiscal period ended
October 31, 1995, net of any fee waivers or expense reimbursements.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the Fund. Institutions may
also charge their clients fees in connection with investments in the Fund's
Shares, which fees are not reflected in the table. The Example should not be
considered a representation of past or future expenses; actual Fund expenses may
be greater or less than those shown. Moreover, while the Example assumes a 5%
annual return, the Fund's actual performance will vary and may result in a
return greater or less than 5%. Long-term holders of Advisor Shares may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the National Association of Securities Dealers, Inc. (the 'NASD').
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following information regarding the Fund for the fiscal period ended
October 31, 1995 has been derived from information audited by Coopers & Lybrand
L.L.P., independent auditors, whose report dated December 14, 1995 appears in
the Fund's Statement of Additional Information. Further information about the
performance of the Fund is contained in the annual report, dated October 31,
1995, copies of which may be obtained without charge by calling Warburg Pincus
Advisor Funds at (800) 888-6878.
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 30, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 1995
-------------------
<S> <C>
Net Asset Value, Beginning of Period......................................................... $ 10.00
-------
Income from Investment Operations
Net Investment Income................................................................... .14
Net Gains (Losses) from Securities and Foreign Currency Related Items (both realized and
unrealized)............................................................................ 1.19
-------
Total from Investment Operations........................................................ 1.33
-------
Less Distributions
Dividends (from net investment income).................................................. (.03)
Distributions (from capital gains)...................................................... .00
-------
Total Distributions..................................................................... (.03)
-------
Net Asset Value, End of Period............................................................... $ 11.30
-------
-------
Total Return................................................................................. 16.05%*
Ratios/Supplemental Data
Net Assets, End of Period (000s)............................................................. $1
Ratios to average daily net assets:
Operating expenses...................................................................... 1.22%*
Net investment income................................................................... 1.76%*
Decrease reflected in above expense ratios due to waivers/reimbursements................ 16.36%*
Portfolio Turnover Rate...................................................................... 69.12%*
</TABLE>
- ------------
* Annualized.
3
<PAGE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is 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. The 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 the Fund. Any investment
involves risk and, therefore, there can be no assurance that the Fund will
achieve its investment objective. 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. See 'Portfolio
Investments' and 'Certain Investment Strategies' for descriptions of certain
types of investments the Fund may make.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Fund intends to acquire securities of many issuers located in a
number of foreign countries. The Fund will not necessarily seek to diversify
investments on a geographical basis or on the basis of the level of economic
development of any particular country. However, the Fund will at all times,
except during defensive periods, maintain investments in at least three
countries outside the United States. An equity security of an issuer in an
Emerging Market is defined as common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity interests
in trusts and partnerships; and depositary receipts of an issuer: (i) the
principal securities trading market for which is in an Emerging Market; (ii)
which derives at least 50% of its revenues or earnings, either alone or on a
consolidated basis, from goods produced or sold, investments made or services
performed in an Emerging Market, or which has at least 50% of its total or net
assets situated in one or more Emerging Markets; or (iii) that is organized
under the laws of, and with a principal office in, an Emerging Market.
Determinations as to whether 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
Development Programme or (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
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, Viet-
4
<PAGE>
<PAGE>
nam, 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.
PORTFOLIO INVESTMENTS
DEBT. The 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 types of debt securities in which the Fund may invest include
obligations of U.S. and foreign corporate and governmental issuers. Warburg may
consider the interest income to be derived as one factor in selecting debt
securities for investment. 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 growth of capital 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.
Among the types of debt securities in which the Fund may invest are Brady
Bonds, loan participations and assignments, asset-backed securities and
mortgage-backed securities:
Brady Bonds are collateralized or uncollateralized securities created
through the exchange of existing commercial bank loans to public and private
Latin American entities for new bonds in connection with certain debt
restructurings. Brady Bonds have been issued only recently and therefore do not
have a long payment history. However, in light of the history of commercial bank
loan defaults by Latin American public and private entities, investments in
Brady Bonds may be viewed as speculative.
Loan Participations and Assignments of fixed and floating rate loans
arranged through private negotiations between a foreign government as borrower
and one or more financial institutions as lenders will typically result in the
Fund having a contractual relationship only with the lender, in the case of a
participation, or the borrower, in the case of an assignment. The Fund may not
directly benefit from any collateral supporting a participation, and in the
event of the insolvency of a lender will be treated as a general creditor of the
lender. As a result, the Fund assumes the risk of both the borrower and the
lender of a participation. The Fund's rights and obligations as the purchaser of
an assignment may differ from, and be more limited than, those held by the
assigning lender. The lack of a liquid secondary market for both participations
5
<PAGE>
<PAGE>
and assignments will have an adverse impact on the value of such securities and
on the Fund's ability to dispose of participations or assignments.
Asset-backed securities are collateralized by interests in pools of
consumer loans, with interest and principal payments ultimately depending on
payments in respect of the underlying loans by individuals (or a financial
institution providing credit enhancement). Because market experience in these
securities is limited, the market's ability to sustain liquidity through all
phases of the market cycle 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-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
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 Investors Service, Inc.
('Moody's') or D by Standard & Poor's Ratings Group ('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.
When Warburg believes that a defensive posture is warranted, the 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.
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) and medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalties; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loans and similar institutions) that are
high quality investments or, if unrated, deemed by Warburg to be high quality
investments; commercial paper rated no lower than A-2 by S&P or Prime-2 by
Moody's or the equivalent from another major rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Fund may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Fund would acquire any underlying security for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to
6
<PAGE>
<PAGE>
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Fund's holding
period. The value of the underlying securities will at all times be at least
equal to the total amount of the purchase obligation, including interest. The
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations or becomes bankrupt and the Fund is
delayed or prevented from exercising its right to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert this
right. Warburg, acting under the supervision of the Fund's Board of Directors
(the '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 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the Fund and appropriate considering the factors of return and
liquidity, the Fund may invest up to 5% of its assets in securities of money
market mutual funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Fund will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Fund's administration
fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities in which the Fund may
invest include: direct obligations of the U.S. Treasury and obligations issued
by U.S. government agencies and instrumentalities, including instruments that
are supported by the full faith and credit of the United States, instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
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 nonconvertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Fund's investments, see 'Portfolio
Investments' beginning at page 5 and 'Certain Investment Strategies' beginning
at page 10.
EMERGING MARKETS. Investing in securities of issuers located in Emerging Markets
involves not only the risks described above 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 in their markets
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
7
<PAGE>
<PAGE>
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 common stocks and securities
convertible into common stocks is subject to the inherent risk of fluctuations
in the prices of such securities. Investing in securities of emerging growth
companies may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. 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. 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. 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. The Fund may
invest up to 10% of its assets in securities of companies in 'special
situations,' which include, but are not limited to, companies involved in an
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; or litigation which,
if resolved favorably, would improve the value of the companies' securities.
Although investing in securities of emerging growth companies or 'special
situations' offers potential for above-average returns if the companies are
successful, the risk exists that the companies will not succeed and the prices
of the companies' shares could significantly decline in value. Therefore, an
investment in the Fund may involve a greater degree of risk than an investment
in other mutual funds that seek capital appreciation by investing exclusively in
better-known, larger companies. For certain additional risks relating to the
Fund's investments, see 'Portfolio Investments' beginning at page 5 and 'Certain
Investment Strategies' beginning at page 10.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 Act ('Rule 144A Securities'). An
investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Board determines on an ongoing basis that an adequate trading market exists
for the security. In addition to an adequate trading market, the Board will
consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become uninterested for a time in purchasing Rule 144A Securities. The
Board will carefully monitor any investments by the Fund in Rule 144A
Securities. The Board may adopt guidelines and delegate to Warburg the daily
function of determining and monitoring the liquidity of Rule 144A Securities,
although the Board will retain ultimate responsibility for any determination
regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may 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 from these sales could be less than
those originally paid by the Fund. In addition, companies whose securities are
not
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publicly traded are not subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
The Fund's investment in illiquid securities is subject to the risk that should
the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
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 securities of a
single issuer. The Fund will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the 'Code'), for
qualification as a regulated investment company. As a non-diversified investment
company, the Fund may invest a greater proportion of its assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that the Fund
assumes large positions in the securities of a small number of issuers, its
return may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
LOWER-RATED SECURITIES. Lower-rated and comparable unrated securities (commonly
referred to as 'junk bonds') (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
The market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
The market value of securities in lower rating categories is more volatile
than that of higher quality securities. In addition, the 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.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Fund. As a result of the
Fund's investment policies, the Fund may engage in a substantial number of
portfolio transactions, and 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.
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All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, the Fund
is authorized to engage in the following investment strategies: (i) purchasing
securities on a when-issued basis and purchasing or selling securities for
delayed-delivery, (ii) lending portfolio securities and (iii) entering into
reverse repurchase agreements and dollar rolls. The Fund may also invest in
stand-by commitments and zero coupon securities, although the Fund currently
anticipates that during the coming year zero coupon securities and stand-by
commitments will each 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, 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
regulatory practices and requirements that are often 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. The Fund could be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any
restrictions on investments. 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 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, 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.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Fund may, but is not required to, engage in a number of strategies involving
options, futures and forward currency contracts. These strategies, commonly
referred to as 'derivatives,' may be used (i) for the purpose of hedging against
a decline in value of the Fund's current or anticipated portfolio holdings, (ii)
as a substitute for purchasing or selling portfolio securities or (iii) to seek
to generate
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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 also utilize up to 10% of
its assets to purchase put and call options on stocks and debt securities that
are traded on U.S. and foreign exchanges, as well as over-the-counter ('OTC')
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option has the right to purchase the underlying security from the writer. In
addition to purchasing options on securities, the Fund may utilize up to 15% 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.
Futures Contracts and Related Options. The Fund may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures 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.
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Hedging Considerations. The Fund may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. The Fund will engage in hedging transactions only when deemed advisable
by Warburg, and successful use of hedging transactions will depend on Warburg's
ability to correctly predict movements in the hedge and the hedged position and
the correlation between them, which could prove to be inaccurate. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on indexes; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts. The use of these strategies may require that the Fund maintain cash
or certain liquid high-grade debt obligations or other assets that are
acceptable as collateral to the appropriate regulatory authority in a segregated
account with its custodian or a designated sub-custodian to the extent the
Fund's obligations with respect to these strategies are not otherwise 'covered'
through ownership of the underlying security, financial instrument or currency
or by other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
SHORT SALES AGAINST THE BOX. The 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 or owns preferred stocks or debt securities, convertible or
exchangeable without payment of further consideration, into an equal number of
securities sold short. This kind of short sale, which is referred to as one
'against the box,' will be entered into by the Fund for the purpose of receiving
a portion of the interest earned by the executing broker from the proceeds of
the sale. The proceeds of the sale will generally be held by the broker until
the settlement date when the Fund delivers securities to close out its short
position. Although prior to delivery the Fund will have to pay an amount equal
to any dividends paid on the securities sold short, the Fund will receive the
dividends from the securities sold short or the dividends from the preferred
stock or interest from the debt securities convertible or exchangeable into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Fund will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities in connection with short
sales against the box. The Fund will endeavor to offset
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transaction costs associated with short sales against the box with the income
from the investment of the cash proceeds. Not more than 10% of the Fund's net
assets (taken at current value) may be held as collateral for short sales
against the box at any one time.
The extent to which the Fund may make short sales may be limited by Code
requirements for qualification as a regulated investments company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
INVESTMENT GUIDELINES
The Fund may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other investments that are not
readily marketable (other than Rule 144A Securities determined by the Board to
be liquid) ('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. The Fund may invest up to 5% of its total assets in the securities
of issuers that have been in continuous operation for less than three years, and
up to an additional 5% of the Fund's net assets may be invested in warrants. The
Fund may borrow from banks and enter into reverse repurchase agreements 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 the Fund's net assets, and the Fund may pledge
its assets in connection with borrowings. Whenever borrowings (including reverse
repurchase agreements) exceed 5% of the value of the Fund's total assets, the
Fund will not make any investments (including roll-overs). Except for the
limitations on borrowing, the investment guidelines set forth in this paragraph
may be changed at any time without shareholder consent by vote of the Board,
subject to the limitations contained in the 1940 Act. A complete list of
investment restrictions that the Fund has adopted identifying additional
restrictions that cannot be changed without the approval of the majority of the
Fund's outstanding shares is contained in the Statement of Additional
Information.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. The Fund employs Warburg as investment adviser to the Fund.
Warburg, subject to the control of the Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Fund in accordance with its
investment objective and stated investment policies. Warburg makes investment
decisions for the Fund and places orders to purchase or sell securities on
behalf of the Fund. Warburg also employs a support staff of management personnel
to provide services to the Fund and furnishes the Fund with office space,
furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee
calculated at an annual rate of 1.25% of the Fund's average daily net assets.
Although this advisory fee is higher than that paid by most other investment
companies, including money market and fixed income funds, Warburg believes that
it is comparable to fees charged by other mutual funds with similar policies and
strategies. The advisory agreement between the Fund and Warburg provides that
Warburg will reimburse the Fund to the extent certain expenses that are
described in the Statement of Additional Information exceed applicable state
expense limitations. Warburg and the Fund's co-administrators may voluntarily
waive a portion of their fees from time to time and temporarily limit the
expenses to be paid by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans,
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endowment funds, foundations and other institutions and individuals. As of
November 30, 1995, Warburg managed approximately $11.9 billion of assets,
including approximately $6.2 billion of assets of twenty-six investment
companies or portfolios. Incorporated in 1970, Warburg is a wholly owned
subsidiary of Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a New York
general partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Warburg
through its ownership of a class of voting preferred stock of Warburg. Warburg
G.P. has no business other than being a holding company of Warburg and its
subsidiaries. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGERS. Richard H. King, president of the Fund, and Nicholas P.W.
Horsley are the co-portfolio managers of the Fund. Mr. King has been a managing
director of EMW 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 been with Warburg since
1993, before which time he was a director, portfolio manager and analyst at
Barclays deZoete Wedd in New York City.
Harold W. Ehrlich is an associate portfolio manager and research analyst of
the Fund and has been with Warburg since February 1995. Prior to joining
Warburg, Mr. Erhlich was a senior vice president, portfolio manager and analyst
at Templeton Investment Counsel Inc. Vincent J. McBride is also an associate
portfolio manager and research analyst for the Fund and has been with Warburg
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.
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 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 the Fund's 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 PFPC a
fee calculated at a maximum 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 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') acts as shareholder servicing agent, transfer agent and dividend
disbursing agent for the Fund and serves as custodian for the Fund's assets. It
has delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
('BFDS'), respon-
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sibility for most shareholder servicing functions. State Street's principal
business address is 225 Franklin Street, Boston, Massachusetts 02110. BFDS's
principal business address is 2 Heritage Drive, North Quincy, Massachusetts
02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the Shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147.
Warburg or any of 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 of the Fund.
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) 888-6878 for instructions, an
Institution should then wire federal funds to Counsellors Securities Inc. using
the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Emerging Markets 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 ('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
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that is not preceded by a telephone order is received after the close of regular
trading on the NYSE, the payment will be held uninvested until the order is
effected at the close of business on the next business day. Payment for orders
that are not accepted will be returned after prompt inquiry. Certain
organizations or Institutions that have entered into agreements with the Fund or
its agent may enter confirmed purchase orders on behalf of customers, with
payment to follow no later than three business days following the day the order
is effected. If payment is not received by such time, the organization could be
held liable for resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients or customers that
invest in the Fund, which are in addition to or different than those described
in this Prospectus, and may charge their clients or customers direct fees.
Certain features of the Fund, such as the initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived in these programs, and administrative charges may be imposed for the
services rendered. Therefore, a client or customer should contact the
organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his account with the organization.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor of the Fund may redeem (sell) shares on any
day that the Fund's net asset value is calculated (see 'Net Asset Value' below).
Requests for the redemption (or exchange) of Advisor Shares are placed with an
Institution by its customers, which is then responsible for the prompt
transmission of this request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 888-6878 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. An investor making a telephone withdrawal should state (i) the
name of the Fund, (ii) the account number of the Fund, (iii) the name of the
investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn and
(v) the name of the person requesting the redemption.
After receipt of the redemption request the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
If a redemption order is received prior to the close of regular trading on
the NYSE, the redemption order will be effected at the net asset value per share
as determined on that day. If a redemption order is received after the close of
regular trading on the NYSE, the redemption order will be effected at the net
asset value as next determined. Except as noted above, redemption proceeds will
normally be wired to an investor on the next business day following
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the date a redemption order is effected. If, however, in the judgment of
Warburg, immediate payment would adversely affect the Fund, it reserves the
right to pay the redemption proceeds within seven days after the redemption
order is effected. Furthermore, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption (as well as suspend or postpone the
recordation of an exchange of shares) for such periods as are permitted under
the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds prior to 4:00 p.m. (Eastern time) the exchange will be made
at each fund's net asset value determined at the end of that business day.
Exchanges may be effected without a sales charge. The exchange privilege may be
modified or terminated at any time upon 60 days' notice to shareholders.
The exchange privilege is available to shareholders residing in any state
in which 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 Advisor shares in another Warburg Pincus Advisor Fund
should review the prospectus of the other fund prior to making an exchange. For
further information regarding the exchange privilege or to obtain a current
prospectus for another Warburg Pincus Advisor Fund, an investor should contact
Warburg Pincus Advisor Funds at (800) 888-6878.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period less
applicable expenses. The Fund declares dividends from its net investment income
and net realized short-term and long-term capital gains annually and pays them
in the calendar year in which they are declared, generally in November or
December. Net investment income earned on weekends and when the NYSE is not open
will be computed as of the next business day. Unless an investor instructs the
Fund to pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the Fund at net
asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Advisor Funds
at the address set forth under 'How to Purchase Shares' or by calling Warburg
Pincus Advisor Funds at (800) 888-6878. Dividends are determined in the same
manner and are paid in the same amount for each Fund share, except that Advisor
Shares bear all the expense of fees paid to certain service organizations. See
'Shareholder Servicing.' As a result, at any given time, the average annual
total return on Advisor Shares will be lower than the average annual total
return on Common Shares.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the U.S. Internal
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Revenue Service that they are subject to backup withholding.
TAXES. The Fund intends to continue to qualify each year as a 'regulated
investment company' within the meaning of the Code. The Fund, if it qualifies as
a regulated investment company, will be subject to a 4% non-deductible excise
tax measured with respect to certain undistributed amounts of ordinary income
and capital gain. The Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains are taxable to
investors as long-term capital gains, in each case regardless of how long
investors have held Fund shares or whether such distributions are received in
cash or reinvested in Fund shares. As a general rule, an investor's gain or loss
on a sale or redemption of its Fund shares will be a long-term capital gain or
loss if it has held its shares for more than one year and will be a short-term
capital gain or loss if it has held its shares for one year or less. However,
any loss realized upon the sale or redemption of shares within six months from
the date of their purchase will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gain during
such six-month period with respect to such shares. Investors may be
proportionately liable for taxes on income and gains of the Fund, but investors
not subject to tax on their income will not be required to pay tax on amounts
distributed to them. The Fund's investment activities will not result in
unrelated business taxable income to a tax-exempt investor. The Fund's
dividends, to the extent not derived from dividends attributable to certain
types of stock issued by U.S. domestic corporations, will 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 U.S. 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 tax that must be included in each shareholder's gross
income and the amount which will be available for the deduction or credit. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Certain limitations will be imposed on the extent to which the
credit (but not the deduction) for foreign taxes may be claimed.
Certain provisions of the Code may require that a gain recognized by Fund
upon the closing of a short sale be treated as a short-term capital gain, and
that a loss recognized by the Fund upon the closing of a short sale be treated
as a long-term capital loss, regardless of the amount of time that the Fund held
the securities used to close the short sale. The Fund's use of short sales may
also affect the holding periods of certain securities held by the Fund if such
securities are 'substantially identical' to securities used by the Fund to close
the short sale. The Fund's short
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selling activities will not result in unrelated business taxable income to a
tax-exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities. Individuals investing in the
Fund through Institutions should consult those Institutions or their own tax
advisers regarding the tax consequences of investing in the Fund.
NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
PERFORMANCE
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading Warburg Pincus Advisor Funds. From
time to time, the Fund may advertise 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 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
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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 total return.
Current total return figures may be obtained by calling Warburg Pincus Advisor
Funds at (800) 888-6878.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund
and may compare its performance with (i) that of other mutual funds as listed in
the rankings prepared by Lipper Analytical Services, Inc. or similar investment
services that monitor the performance of mutual funds or as set forth in the
publications listed below; (ii) with the IFC Emerging Market Free Index, the IFC
Investible Index or the Morgan Stanley Capital International Emerging Markets
Index, all of which are unmanaged indexes; or (iii) other appropriate indexes of
investment securities or with data developed by Warburg derived from such
indexes. The Fund may also include evaluations published by nationally
recognized ranking services and by financial publications that are nationally
recognized, such as The Wall Street Journal, Investor's Daily, Money, Inc.,
Institutional Investor, Barron's, Fortune, Forbes, Business Week, Mutual Fund
Magazine, Morningstar, Inc. and Financial Times.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render 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 December 23, 1993 under the laws of
the State of Maryland under the name 'Warburg, Pincus Emerging Markets 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 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
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shares into one or more series and, without shareholder approval, may increase
the number of authorized shares of the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly to individuals pursuant to a separate prospectus. Shares of
each class represent equal pro rata interests in the Fund and accrue dividends
and calculate net asset value and performance quotations in the same manner,
except that Advisor Shares bear fees payable by the Fund to Institutions for
services they provide to the beneficial owners of such shares and enjoy certain
exclusive voting rights on matters relating to these fees. Because of the higher
fees paid by the Advisor Shares, the total return on such shares can be expected
to be lower than the total return on Common Shares. Investors may obtain
information concerning the Common Shares from their investment professional or
by calling Counsellors Securities at (800) 888-6878.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any member of the Board 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. John L. Furth,
a Director of the Fund, and Lionel I. Pincus, Chairman of the Board and Chief
Executive Officer of EMW, may be deemed to be controlling persons of the Fund as
of November 30, 1995 because they may be deemed to possess or share investment
power over shares owned by clients of Warburg and certain other entities.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
its account, as well as a statement of its account after any transaction that
affects its share balance or share registration (other than the reinvestment of
dividends or distributions). The Fund will also send to its investors a
semiannual report and an audited annual report, each of which includes a list of
the investment securities held by the Fund and a statement of the performance of
the Fund. Each Institution that is the record owner of Advisor Shares on behalf
of its customers will send a statement to those customers periodically showing
their indirect interest in Advisor Shares, as well as providing other
information about the Fund. See 'Shareholder Servicing.'
SHAREHOLDER SERVICING
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to them (together, 'Service
Organizations') will enter into agreements ('Agreements') with the Fund and/or
Counsellors Securities pursuant to a Distribution Plan as described below. Such
entities may provide certain distribution, shareholder servicing, administrative
and/or accounting services for 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
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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 service fee and a .50% annual
distribution fee) of the value of the average daily net assets of its Customers
invested in Advisor Shares. The current 12b-1 fee is .50% per annum. The Board
evaluates the appropriateness of the Plan on a continuing basis and in doing so
considers all relevant factors.
Warburg, Counsellors Securities and Counsellors Service or any of their
affiliates may, from time to time, at their own expense, provide compensation to
Service Organizations. To the extent they do so, such compensation does not
represent an additional expense to the Fund or its shareholders. In addition,
Warburg, Counsellors Securities or any of their affiliates may, from time to
time, at their own expense, pay certain Fund transfer agent fees and expenses
related to accounts of Customers. A Service Organization may use a portion of
the fees paid pursuant to the Plan to compensate the Fund's custodian or
transfer agent for costs related to accounts of Customers.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
THE FUND'S EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVE AND POLICIES ........................................ 4
PORTFOLIO INVESTMENTS .................................................... 5
RISK FACTORS AND SPECIAL
CONSIDERATIONS ........................................................ 7
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 9
CERTAIN INVESTMENT STRATEGIES ........................................... 10
INVESTMENT GUIDELINES ................................................... 13
MANAGEMENT OF THE FUND .................................................. 13
HOW TO PURCHASE SHARES .................................................. 15
HOW TO REDEEM AND EXCHANGE
SHARES ............................................................... 16
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 17
NET ASSET VALUE ......................................................... 19
PERFORMANCE ............................................................. 19
GENERAL INFORMATION ..................................................... 20
SHAREHOLDER SERVICING ................................................... 21
[LOGO]
[ ] WARBURG PINCUS
EMERGING MARKETS FUND
PROSPECTUS
DECEMBER 29, 1995
ADEMK-1-1295
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as 'D'
<PAGE>1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>1
Subject to Completion, dated December 27, 1995
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995
WARBURG PINCUS EMERGING MARKETS FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
Contents
Page
----
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 28
Additional Purchase and Redemption Information . . . . . . . . . . . . . 36
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Additional Information Concerning Taxes . . . . . . . . . . . . . . . . . 38
Determination of Performance . . . . . . . . . . . . . . . . . . . . . . 41
Auditors and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Appendix -- Description of Ratings . . . . . . . . . . . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P., Independent Auditors . . . . . . . . A-4
This 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 (the "Fund"), Warburg Pincus International Equity
Fund and Warburg Pincus Japan OTC Fund and with the Prospectus for the Advisor
Shares of the Fund, each dated December 29, 1995, as amended or supplemented
from time to time, and is incorporated by reference in its entirety into those
Prospectuses. Because this Statement of Additional Information is not itself
a prospectus, no investment in shares of the Fund should be made solely upon
the information contained herein. Copies of the Fund's Prospectuses and
information regarding the Fund's current performance may be obtained by
calling the Fund at (800) 257-5614. Information regarding the status of
shareholder accounts may be obtained by calling the Fund at (800) 888-6878 or
by writing to the Fund, P.O. Box 9030, Boston, Massachusetts 02205-9030.
<PAGE>2
INVESTMENT OBJECTIVE
The investment objective of the Fund is growth of capital.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objective and policies in the Prospectuses.
Options, Futures and Currency Exchange Transactions
Securities Options. The Fund may purchase put and call options on
stock and debt securities that are traded on foreign and U.S. exchanges, as
well as over-the-counter ("OTC").
Prior to their expirations, put and call options may be sold in
closing sale transactions (sales by the Fund prior to the exercise of options
that it has purchased of options of the same series) in which the Fund may
realize a profit or loss from the sale. An option position may be closed out
only where there exists a secondary market for an option of the same series on
a recognized securities exchange or in the over-the-counter market. When the
Fund has purchased an option and engages in a closing sale transaction,
whether the Fund realizes a profit or loss will depend upon whether the amount
received in the closing sale transaction is more or less than the premium the
Fund initially paid for the original option plus the related transaction
costs. The Fund may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to which it has written
an option from being called or put or, in the case of a call option, to
unfreeze an underlying security (thereby permitting its sale or the writing of
a new option on the security prior to the outstanding option's expiration).
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary
market may exist. A liquid secondary market in an option may cease to exist
for a variety of reasons. In the past, for example, higher than anticipated
trading activity or order flow or other unforeseen events have at times
rendered certain of the facilities of the 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, the Fund's ability to terminate
options positions established in the over-the-counter market may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in over-the-counter transactions would fail
<PAGE>3
to meet their obligations to the Fund. The Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as
determined by Warburg, are considered to be investment grade.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are held or exercised in
one or more accounts or through one or more brokers). It is possible that the
Fund and other clients of Warburg, Pincus Counsellors, Inc., the Fund's
investment adviser ("Warburg"), and certain of its affiliates may be
considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions. These limits may restrict the number of
options the Fund will be able to purchase on a particular security.
Stock Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on stock indexes. A stock index
measures the movement of a certain group of stocks by assigning relative
values to the common stocks included in the index, fluctuating with changes in
the market values of the stocks included in the index. Some stock index
options are based on a broad market index, such as the NYSE Composite Index,
or a narrower market index such as the Standard & Poor's 100. Indexes may
also be based on a particular industry or market segment.
Options on stock indexes are similar to options on stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the index and
the exercise price of the option times a specified multiple. The writer of
the option is obligated, in return for the premium received, to make delivery
of this amount. Stock index options may be offset by entering into closing
transactions as described above for securities options.
OTC Options. The Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Fund
were to purchase a dealer option, however, it would rely on
<PAGE>4
the dealer from whom it purchased the option to perform if the option were
exercised. If the dealer fails to honor the exercise of the option by the
Fund, the Fund would lose the premium it paid for the option and the expected
benefit of the transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
dealer to which the Fund originally wrote the option. Although the Fund will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Fund, there can be no assurance that the Fund will be able to liquidate a
dealer option at a favorable price at any time prior to expiration. The
inability to enter into a closing transaction may result in material losses to
the Fund. Until the Fund, as a covered OTC call option writer, is able to
effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair the Fund's ability to
sell portfolio securities or, with respect to currency options, currencies at
a time when such sale might be advantageous. In the event of insolvency of
the other party, the Fund may be unable to liquidate a dealer option.
Futures Activities. The Fund may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes
including hedging against changes in the value of portfolio securities due to
anticipated changes in currency values, interest rates and/or market
conditions and increasing return.
The Fund will not enter into futures contracts and related options
for which the aggregate initial margin and premiums (discussed below) required
to establish positions other than those considered to be "bona fide hedging"
by the CFTC exceed 5% of the Fund's net asset value after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. The Fund reserves the right to engage in transactions involving futures
contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may
be at risk with respect to futures activities. The ability of the Fund to
trade in futures contracts and options on futures contracts may be limited by
the requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company.
Futures Contracts. A foreign currency futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified non-
<PAGE>5
U.S. currency at a specified price, date, time and place. An interest rate
futures contract provides for the future sale by one party and the purchase by
the other party of a certain amount of a specific interest rate sensitive
financial instrument (debt security) at a specified price, date, time and
place. Stock indexes are capitalization weighted indexes which reflect the
market value of the stock listed on the indexes. A stock index futures
contract is an agreement to be settled by delivery of an amount of cash equal
to a specified multiplier times the difference between the value of the index
at the close of the last trading day on the contract and the price at which
the agreement is made.
No consideration is paid or received by the Fund upon entering into
a futures contract. Instead, the Fund is required to deposit in a segregated
account with its custodian an amount of cash or cash equivalents, such as U.S.
government securities or other liquid high-grade debt obligations, equal to
approximately 1% to 10% of the contract amount (this amount is subject to
change by the exchange on which the contract is traded, and brokers may charge
a higher amount). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from
the broker, will be made daily as the currency, financial instrument or stock
index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." The Fund will also incur brokerage costs in connection
with entering into futures transactions.
At any time prior to the expiration of a futures contract, the Fund
may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions
in futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although
the Fund intends to enter into futures contracts only if there is an active
market for such contracts, there is no assurance that an active market will
exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may
be made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at
an advantageous price and subjecting the Fund to substantial losses. In such
event, and in the event of adverse price movements, the Fund would be required
to make daily cash payments of variation margin. In such situations, if the
fund had insufficient cash, it might have to sell securities to meet daily
variation margin requirements at a time when it would be disadvantageous to do
so. In addition, if the transaction is entered into for hedging purposes, in
such circumstances the Fund may realize a loss on a futures contract or option
that is not offset by an increase in the value of the
<PAGE>6
hedged position. Losses incurred in futures transactions and the costs of
these transactions will affect the Fund's performance.
Options on Futures Contracts. The Fund may purchase and write put
and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives
the purchaser the right, in return for the premium paid, to assume a position
in a futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise
of an option, the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Fund.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of the Fund that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Fund may incur costs in connection with conversion between various currencies.
Currency exchange transactions may be from any non-U.S. currency into U.S.
dollars or into other appropriate currencies. The Fund will conduct its
currency exchange transactions (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on such contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options.
Forward Currency Contracts. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract as agreed upon
by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are
standardized as to contract size and delivery date.
<PAGE>7
At or before the maturity of a forward contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Fund retains the portfolio security and engages
in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward contract prices.
Currency Options. The Fund may purchase exchange-traded put and
call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options
convey the right to buy the underlying currency at a price which is expected
to be lower than the spot price of the currency at the time the option is
exercised.
Currency Hedging. The Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect
to specific receivables or payables of the Fund generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. The Fund may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
A decline in the U.S. dollar value of a foreign currency in which
the Fund's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. For example, in order to protect against diminutions
in the U.S. dollar value of securities it holds, the Fund may purchase
currency put options. If the value of the currency does decline, the Fund
will have the right to sell the currency for a fixed amount in dollars and
will thereby offset, in whole or in part, the adverse effect on the U.S.
dollar value of its securities that otherwise would have resulted.
Conversely, if a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby potentially
increasing the cost of the securities, the Fund may purchase call options on
the particular currency. The purchase of these options could offset, at least
partially, the effects of the adverse movements in exchange rates. The
benefit to the Fund derived from purchases of currency options, like the
benefit derived from other types of options, will be reduced by premiums and
other transaction costs. Because transactions in currency exchange are
generally conducted on a principal basis, no fees or commissions are generally
involved. Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Although currency hedges
limit the risk of loss due to a decline in the value of a hedged currency, at
the same time, they also limit any potential gain that might result should the
value of the currency increase. If a
<PAGE>8
devaluation is generally anticipated, the Fund may not be able to contract to
sell a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value
of the Fund's investments and a currency hedge may not be entirely successful
in mitigating changes in the value of the Fund's investments denominated in
that currency. A currency hedge, for example, should protect a Yen-
denominated bond against a decline in the Yen, but will not protect the Fund
against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income
to offset expenses or increase return, the Fund may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position.
A hedge is designed to offset a loss in a portfolio position with a gain in
the hedged position; at the same time, however, a properly correlated hedge
will result in a gain in the portfolio position being offset by a loss in the
hedged position. As a result, the use of options, futures, contracts and
currency exchange transactions for hedging purposes could limit any potential
gain from an increase in the value of the position hedged. In addition, the
movement in the portfolio position hedged may not be of the same magnitude as
movement in the hedge. With respect to futures contracts, since the value of
portfolio securities will far exceed the value of the futures contracts sold
by the Fund, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Fund's
assets.
In hedging transactions based on an index, whether the Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market
segment, rather than movements in the price of a particular stock. The risk
of imperfect correlation increases as the composition of the Fund's portfolio
varies from the composition of the index. In an effort to compensate for
imperfect correlation of relative movements in the hedged position and the
hedge, the Fund's hedge positions may be in a greater or lesser dollar amount
than the dollar amount of the hedged position. Such "over 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
<PAGE>9
the futures market and the imperfect correlation between movements in the
stock index and movements in the price of stock index futures, a correct
forecast of general market trends by Warburg still may not result in a
successful hedging transaction.
The Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in currency, interest
rate or securities markets, as the case may be, and to correctly predict
movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate.
This requires different skills and techniques than predicting changes in the
price of individual securities, and there can be no assurance that the use of
these strategies will be successful. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Losses incurred in hedging transactions and the costs of these transactions
will affect the Fund's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures. As described in the Prospectuses, the Fund will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Fund on indexes; and currency, interest rate and index futures
contracts and options on these futures contracts. These guidelines may, in
certain instances, require segregation by the Fund of cash or liquid high-
grade debt securities or other securities that are acceptable as collateral to
the appropriate regulatory authority.
For example, a call option written by the Fund on 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. If the Fund holds a futures
or forward contract, the Fund could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of
the contract held. The Fund may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets
(equal to any remaining obligation), equals its net obligation. Asset
coverage may be achieved by other means when consistent with applicable
regulatory policies.
Additional Information on Other Investment Practices
Special Situation Companies. The Fund 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.
The Fund believes, however, that if Warburg analyzes "special situation
companies" carefully and invests in the securities
<PAGE>10
of these companies at the appropriate time, the Fund may achieve growth of
capital. There can be no assurance, however, that a special situation that
exists at the time the Fund makes its investment will be consummated under the
terms and within the time period contemplated.
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S. issuers.
Foreign Currency Exchange. Since the Fund will be investing in
securities denominated in currencies of non-U.S. countries, and since the Fund
may temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies, the Fund may be affected favorably or
unfavorably by exchange control regulations or changes in the exchange rate
between such currencies and the dollar. A change in the value of a foreign
currency relative to the U.S. dollar will result in a corresponding change in
the dollar value of the Fund assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the
foreign exchange markets. Changes in the exchange rate may result over time
from the interaction of many factors directly or indirectly affecting
economic and political conditions in the United States and a particular
foreign country, including economic and political developments in other
countries. Of particular importance are rates of inflation, interest rate
levels, the balance of payments and the extent of government surpluses or
deficits in the United States and the particular foreign country, all of
which are in turn sensitive to the monetary, fiscal and trade policies
pursued by the governments of the United States and foreign countries
important to international trade and finance. Governmental intervention may
also play a significant role. National governments rarely voluntarily allow
their currencies to float freely in response to economic forces. Sovereign
governments use a variety of techniques, such as intervention by a country's
central bank or imposition of regulatory controls or taxes, to affect the
exchange rates of their currencies. The Fund may use hedging techniques with
the objective of protecting against loss through the fluctuation of the value
of the yen against the U.S. dollar, particularly the forward market in
foreign exchange, currency options and currency futures. See "Currency
Exchange Transactions" and "Futures Activities" above.
Information. Many of the securities held by the Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information
about the securities and about the foreign company or government issuing them
than is available about a domestic company or government entity. Foreign
companies are generally not subject to uniform financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
<PAGE>11
Political Instability. With respect to some foreign countries, there is
the possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Fund, political or social instability,
or domestic developments which could affect U.S. investments in those and
neighboring countries. For example, tensions in Asia have increased following
the announcement in March 1993 by The Democratic People's Republic of Korea
("North Korea") of its intention to withdraw from participation in the Nuclear
Non-Proliferation Treaty and its refusal to allow the International Atomic
Energy Agency to conduct full inspections of its nuclear facilities. Military
action involving North Korea or the economic deterioration of North Korea
could adversely affect the entire region and the performance of the Fund.
Delays. Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the
trade and settlement dates of securities purchased or sold. Due to the
increased exposure of the Fund to market and foreign exchange fluctuations
brought about by such delays, and due to the corresponding negative impact on
Fund liquidity, the Fund will avoid investing in countries which are known to
experience settlement delays which may expose the Fund to unreasonable risk of
loss.
Foreign Taxes and Increased Expenses. The operating expenses of the Fund
can be expected to be higher than that of an investment company investing
exclusively in U.S. securities, since the expenses of the Fund, such as
custodial costs, valuation costs and communication costs, as well as the rate
of the investment advisory fees, though similar to such expense of some other
international funds, are higher than those costs incurred by other investment
companies.
General. In general, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. The Fund may invest in
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such
investments as well.
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 the Fund may invest generally
consist of obligations issued or backed by national, state or provincial
governments or similar political
<PAGE>12
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 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 over-the-counter
("OTC") secondary market for debt of Latin American issuers.
Loan Participations and Assignments. The Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign government (a "Borrower") and one or more financial institutions
("Lenders"). The majority of the Fund's investments in Loans are expected to
be in the form of participations in Loans ("Participations") and assignments
of portions of Loans from third parties ("Assignments"). Participations
typically will result in the Fund having a contractual relationship only with
the Lender, not with the Borrower. 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
<PAGE>13
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.
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities, such as those issued by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") or certain foreign issuers.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or
the issuing agency typically guarantees the payment of interest and principal
of these securities. However, the guarantees do not extend to the securities'
yield or value, which are likely to vary inversely with fluctuations in
interest rates, nor do the guarantees extend to the yield or value of the
Fund's shares. These securities generally are "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
<PAGE>14
of fixed-rate 30-year mortgages, a common industry practice in the U.S. has
been to assume that prepayments will result in a 12-year average life. At
present, pools, particularly those with loans with other maturities or
different characteristics, are priced on an assumption of average life
determined for each pool. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original investment, thus
affecting the Fund's yield.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA,
and due to any yield retained by the issuer. Actual yield to the holder may
vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the
issuer receives mortgage payments from the servicer and the time the issuer
makes the payments on the mortgage-backed securities, and this delay reduces
the effective yield to the holder of such securities.
Asset-Backed Securities. The Fund may invest in asset-backed securities,
which 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 the Fund 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
<PAGE>15
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. The Fund may invest in "zero coupon" U.S.
Treasury, foreign government and U.S. and foreign corporate convertible and
nonconvertible debt securities, which are bills, notes and bonds that have
been stripped of their unmatured interest coupons and custodial receipts or
certificates of participation representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its
holder prior to maturity. Accordingly, such securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest. The Fund anticipates that it will not normally hold zero coupon
securities to maturity. Federal tax law requires that a holder of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year, even though the holder receives no interest
payment on the security during the year. Such accrued discount will be
includible in determining the amount of dividends the Fund must pay each year
and, in order to generate cash necessary to pay such dividends, the Fund may
liquidate portfolio securities at a time when it would not otherwise have done
so.
Below Investment Grade Securities. The Fund may invest in below
investment grade convertible debt and preferred securities and it is not
required to dispose of securities downgraded below investment grade subsequent
to acquisition by the Fund. 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 Fund may have difficulty disposing of certain of these securities
because there may be a thin trading market. Because there is no establishing
retail secondary market for
<PAGE>16
many of these securities, the Fund anticipates that these securities could be
sold only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it
generally is not as liquid as the secondary market for higher-rated
securities. The lack of a liquid secondary market, as well as adverse
publicity and investor perception with respect to these securities, may have
an adverse impact on market price and the Fund's ability to dispose of
particular issues when necessary to meet the Fund's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund and calculating
its net asset value.
The market value of securities in 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 the
Fund's net asset value. The Fund will rely on the judgment, analysis and
experience of Warburg in evaluating the creditworthiness of an issuer. In
this evaluation, Warburg will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters. Normally, medium- and lower-rated and comparable unrated
securities are not intended for short-term investment. The Fund may incur
additional expenses to the extent it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings of
such securities. Recent adverse publicity regarding lower-rated 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.
U.S. Government Securities. The Fund may invest in debt obligations of
varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. Government Securities"). Direct
obligations of the U.S. Treasury include a variety of securities that differ
in their interest rates, maturities and dates of issuance. U.S. Government
Securities also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
FHLMC, Federal Intermediate Credit Banks, Federal Land Banks, FNMA, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. The Fund may also invest in
instruments that are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. government is not obligated by law to
provide support to an instrumentality it sponsors, the Fund will invest in
obligations issued by such an instrumentality only if Warburg determines that
the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Fund.
Securities of Other Investment Companies. The Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of
<PAGE>17
1940, as amended (the "1940 Act"). Presently, under the 1940 Act, the Fund
may hold securities of another investment company in amounts which (i) do not
exceed 3% of the total outstanding voting stock of such company, (ii) do not
exceed 5% of the value of the Fund's total assets and (iii) when added to all
other investment company securities held by the Fund, do not exceed 10% of the
value of the Fund's total assets.
Lending of Portfolio Securities. The Fund may lend portfolio securities
to brokers, dealers and other financial organizations that meet capital and
other credit requirements or other criteria established by the Fund's Board of
Directors (the "Board"). These loans, if and when made, may not exceed 20% of
the Fund's total assets taken at value. The Fund will not lend portfolio
securities to E.M. Warburg, Pincus & Co., Inc. ("EMW") or its affiliates
unless the Fund has applied for and received specific authority to do so from
the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. government securities, which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account
of the Fund. From time to time, the Fund may return a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and that is
acting as a "finder."
By lending its securities, the Fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as by
either investing the collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid by the borrower
when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Fund, income
received could be used to pay the Fund's expenses and would increase an
investor's total return. The Fund will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Fund must receive at
least 100% cash collateral or equivalent securities of the type discussed in
the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Fund must be able to terminate the loan at
any time; (iv) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Fund may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material
event adversely affecting the investment occurs, the Board must terminate the
loan and regain the right to vote the securities. Loan agreements involve
certain risks in the event of default or insolvency of the other party
including possible delays or restrictions upon the Fund's ability to recover
the loaned securities or dispose of the collateral for the loan.
When-Issued Securities and Delayed-Delivery Transactions. The Fund may
utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days.
<PAGE>18
The Fund will enter into a when-issued transaction for the purpose of
acquiring portfolio securities and not for the purpose of leverage, but may
sell the securities before the settlement date if Warburg deems it
advantageous to do so. The payment obligation and the interest rate that will
be received on when-issued securities are fixed at the time the buyer enters
into the commitment. Due to fluctuations in the value of securities purchased
or sold on a when-issued or delayed-delivery basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
When the Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations or other securities that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case the Fund may be required subsequently to place additional assets
in the segregated account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. It may be expected that
the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets
aside cash. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure
of the seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Short Sales "Against the Box". In a short sale, the Fund sells a
borrowed security and has a corresponding obligation to the lender to return
the identical security. The seller does not immediately deliver the
securities sold and is said to have a short position in those securities until
delivery occurs. If the Fund engages in a short sale, the collateral for the
short position will be maintained by the Fund's custodian or qualified
sub-custodian. While the short sale is open, the Fund will maintain in a
segregated account an amount of securities equal in 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.
The Fund does not intend to engage in short sales against the box for
investment purposes. The Fund may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline
in the value of a security owned by the Fund (or a security convertible or
exchangeable for such security), or when the Fund wants to sell the security
at an attractive current price, but also wishes to defer recognition of gain
or loss for U.S. federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Code. In
such case, any future losses in the Fund's long position should be offset by a
gain in the short position and, conversely, any gain in the long position
should be reduced by a loss in the short position. The extent to which such
gains or losses are reduced will depend upon the amount of the security sold
short relative to the amount the Fund owns. There will be certain additional
<PAGE>19
transaction costs associated with short sales against the box, but the Fund
will endeavor to offset these costs with the income from the investment of the
cash proceeds of short sales.
American, European and Continental Depositary Receipts. The assets of
the Fund may be invested in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which 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.
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. 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.
Warrants. The Fund may invest up to 5% of net assets in warrants.
Because a warrant does not carry with it the right to dividends or voting
rights with respect to the securities which it entitles a holder to purchase,
and because it does not represent any rights in the assets of the issuer,
warrants may be considered more speculative than certain other types of
investments. Also, the value of a warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if
it is not exercised prior to its expiration date.
Stand-By Commitments. The 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
<PAGE>20
stand-by commitment, Warburg will periodically review relevant financial
information concerning the issuer's assets, liabilities and contingent claims.
The Fund will acquire stand-by commitments only in order to facilitate
portfolio liquidity and does not intend to exercise its rights under stand-by
commitments for trading purposes.
The amount payable to 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.
Non-Publicly Traded and Illiquid Securities. The Fund may not invest
more than 15% of its net assets in non-publicly traded and illiquid
securities, including securities that are illiquid by virtue of the absence of
a readily available market, repurchase agreements which have a maturity of
longer than seven days. 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
<PAGE>21
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public
offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale to the general
public or to certain institutions may not be indicative of the liquidity of
such investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by the
SEC allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes
a "safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid and
therefore subject to the Fund's limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, Warburg may consider, inter alia,
the following factors: (i) the unregistered nature of the security; (ii) the
frequency of trades and quotes for the security; (iii) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (iv) dealer undertakings to make a market in the security and (v)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and
the mechanics of the transfer).
Borrowing. The Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption
requests so as to permit the orderly disposition of portfolio securities or to
facilitate settlement transactions on portfolio securities. Investments
(including roll-overs) will not be made when borrowings exceed 5% of the
Fund's net assets. Although the principal of such borrowings will be fixed,
the Fund's assets may change in value during the time the borrowing is
outstanding. The Fund expects
<PAGE>22
that some of its borrowings may be made on a secured basis. In such
situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable
subcustodian, which may include the lender.
Other Investment Policies and Practices of the Fund
Non-Diversified Status. The Fund is classified as non-diversified within
the meaning of the 1940 Act, which means that it is not limited by such Act in
the proportion of its assets that it may invest in securities of a single
issuer. The Fund's investments will be limited, however, in order to qualify
as a "regulated investment company" for purposes of the Code. See "Additional
Information Concerning Taxes." To qualify, the 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 Limitations
The investment limitations numbered 1 through 9 may not be changed
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more
of the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations 10 through 16
may be changed by a vote of the Board at any time.
The 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.
<PAGE>23
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.
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.
<PAGE>24
13. Purchase any security if as a result the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three
years.
14. Purchase or retain securities of any company if, to the knowledge of
the Fund, any of the Fund's officers or Directors or any officer or director
of Warburg individually owns more than 1/2 of 1% of the outstanding securities
of such company and together they own beneficially more than 5% of the
securities.
15. Invest in warrants (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase) if, as a result,
the investments (valued at the lower of cost or market) would exceed 5% of the
value of the Fund's net assets.
16. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
Certain non-fundamental investment limitations are currently required by
one or more states in which shares of the Fund are sold. These may be more
restrictive than the limitations set forth above. Should the Fund determine
that any such commitment is no longer in the best interest of the Fund and its
shareholders, the Fund will revoke the commitment by terminating the sale of
Fund shares in the state involved. In addition, the relevant state may change
or eliminate its policy regarding such investment limitations.
If a percentage restriction (other than the percentage limitation
set forth in No. 1 above) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in
the values of portfolio securities or in the amount of the Fund's assets will
not constitute a violation of such restriction.
Portfolio Valuation
The Prospectuses discuss the time at which the net asset value of the
Fund is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities
exchange or traded in an over-the-counter market will be valued at the most
recent sale as of the time the valuation is made or, in the absence of sales,
at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options or futures contracts will be
valued similarly. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Board. Amortized cost involves valuing a portfolio
instrument at its initial
<PAGE>25
cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. The amortized cost method of valuation
may also be used with respect to other debt obligations with 60 days or less
remaining to maturity. In determining the market value of portfolio
investments, the Fund may employ outside organizations (a "Pricing Service")
which may use a matrix, formula or other objective method that takes into
consideration market indexes, matrices, yield curves and other specific
adjustments. The procedures of Pricing Services are reviewed periodically by
the officers of the Fund under the general supervision and responsibility of
the Board, which may replace a Pricing Service at any time. Securities,
options and futures contracts for which market quotations are not available
and certain other assets of the Fund will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures
established by the Board. In addition, the Board or its delegates may value a
security at fair value if it determines that such security's value determined
by the methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and days on which the Fund's net asset value is not
calculated. As a result, calculation of the Fund's net asset value may not
take place contemporaneously with the determination of the prices of certain
portfolio securities used in such calculation. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service. Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of regular trading on the NYSE will not be
reflected in the Fund's calculation of net asset value unless the Board or its
delegates deems that the particular event would materially affect net asset
value, in which case an adjustment may be made. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing exchange rate as quoted by a Pricing Service.
If such quotations are not available, the rate of exchange will be determined
in good faith pursuant to consistently applied procedures established by the
Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where necessary,
modifying the Fund's investment program to achieve its investment objective.
Purchases and sales of newly issued portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer
or with an underwriter acting as principal. Other purchases and sales may be
effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers,
<PAGE>26
acting as either principals or agents in the after market, are normally
executed at a price between the bid and asked price, which includes a dealer's
mark-up or mark-down. Transactions on U.S. stock exchanges and some foreign
stock exchanges involve the payment of negotiated brokerage commissions. On
exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the
price of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased
from underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the
issuing agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of a broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on
a continuing basis. Warburg may, in its discretion, effect transactions in
portfolio securities with dealers who provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Fund and/or other accounts over which Warburg exercises
investment discretion. Warburg may place portfolio transactions with a broker
or dealer with whom it has negotiated a commission that is in excess of the
commission another broker or dealer would have charged for effecting the
transaction if Warburg determines in good faith that such amount of commission
was reasonable in relation to the value of such brokerage and research
services provided by such broker or dealer viewed in terms of either that
particular transaction or of the overall responsibilities of Warburg.
Research and other services received may be useful to Warburg in serving both
the Fund and its other clients and, conversely, research or other services
obtained by the placement of business of other clients may be useful to
Warburg in carrying out its obligations to the Fund. Research may include
furnishing advice, either directly or through publications or writings, as to
the value of securities, the advisability of purchasing or selling specific
securities and the availability of securities or purchasers or sellers of
securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management
personnel, industry experts, economists and government officials; comparative
performance evaluation and technical measurement services and quotation
services; and products and other services (such as third party publications,
reports and analyses, and computer and electronic access, equipment, software,
information and accessories that deliver, process or otherwise utilize
information, including the research described above) that assist Warburg in
carrying out its responsibilities. For the fiscal year ended October 31,
1995, $________ of total brokerage commissions was paid to brokers and dealers
who provided such research and other services on portfolio transactions of $__
____ . Research received from brokers or dealers is
<PAGE>27
supplemental to Warburg's own research program. The fees to Warburg under its
advisory agreements with the Fund are not reduced by reason of its receiving
any brokerage and research services.
During the fiscal period ended October 31, 1995, the Fund paid an
aggregate of approximately $31,789 in commissions to broker-dealers for
execution of portfolio transactions.
As of October 31, 1995, the Fund owned $________ worth of shares of
common stock of ____________, one of the Fund's regular broker-dealers.
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as
the Fund. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which Warburg believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
sold for the Fund. To the extent permitted by law, Warburg may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for such other investment clients in order to obtain best execution.
Any portfolio transaction for the Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors
Securities"), if, in Warburg's judgment, the use of Counsellors Securities is
likely to result in price and execution at least as favorable as those of
other qualified brokers, and if, in the transaction, Counsellors Securities
charges the Fund a commission rate consistent with those charged by
Counsellors Securities to comparable unaffiliated customers in similar
transactions. All transactions with affiliated brokers will comply with Rule
17e-1 under the 1940 Act. No portfolio transactions have been executed
through Counsellors Securities since the commencement of the Fund's
operations.
In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities or any affiliated person of such companies.
In addition, the Fund will not give preference to any institutions with whom
the Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services. See
the Prospectuses, "Shareholder Servicing."
The Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of
such a group. The Fund will engage in this practice, however, only when
Warburg, in its sole discretion, believes such practice to be otherwise in the
Fund's interest.
<PAGE>28
Portfolio Turnover
The Fund does not intend to seek profits through short-term trading, but
the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the
date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could result in high
portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard N. Cooper(61) . . . . . . . Director
Room 7E47OHB Professor at Harvard
Central Intelligence Agency University; Director or
930 Dolly Madison Blvd. Trustee of Circuit City
McClain, Virginia 22107 Stores, Inc. (retail
electronics and appliances)
and Phoenix Home Life
Insurance Co.
Donald J. Donahue (71) . . . . . . Director
99 Indian Field Road Chairman of Magma Copper
Greenwich, Connecticut 06830 Company since January 1987;
Director or Trustee of
Northeast Utilities, GEV
Corporation and Signet Star
Reinsurance Company; Chairman
and Director of NAC Holdings
from September 1990-June
1993.
Jack W. Fritz (68) . . . . . . . . Director
2425 North Fish Creek Road Private investor; Consultant
P.O. Box 483 and Director of Fritz
Wilson, Wyoming 83014 Broadcasting, Inc. and Fritz
Communications (developers
and operators of radio
stations); Director of Advo,
Inc. (direct mail
advertising).
<PAGE>29
John L. Furth* (65) . . . . . . . . Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of
New York, New York 10017-3147 EMW; Associated with EMW
since 1970; officer of other
investment companies advised
by Warburg.
Thomas A. Melfe (63) . . . . . . . Director
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton &
Irvine; Director of Municipal
Fund for New York Investors,
Inc.
Alexander B. Trowbridge (66) . . . Director
1155 Connecticut Avenue, N.W. President of Trowbridge
Suite 700 Partners, Inc. (business
Washington, DC 20036 consulting) from January
1990-January 1994; President
of the National Association
of Manufacturers from
1980-1990; Director or
Trustee of New England Mutual
Life Insurance Co., ICOS
Corporation
(biopharmaceuticals), P.H.H.
Corporation (fleet auto
management; housing and plant
relocation service), WMX
Technologies Inc. (solid and
hazardous waste collection
and disposal), The Rouse
Company (real estate
development), SunResorts
International Ltd. (hotel and
real estate management),
Harris Corp. (electronics and
communications equipment),
The Gillette Co. (personal
care products) and Sun
Company Inc. (petroleum
refining and marketing).
Richard H. King (51) . . . . . . . President and Co-Portfolio
466 Lexington Avenue Manager
New York, New York 10017-3147 Portfolio Manager or Co-
Portfolio Manager of other
Warburg Pincus Funds;
Managing Director of EMW
since 1989; Associated with
EMW since 1989; President of
other investment companies
advised by Warburg.
- ------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>30
Arnold M. Reichman (47) . . . . . . Executive Vice President
466 Lexington Avenue Managing Director and
New York, New York 10017-3147 Assistant Secretary of EMW;
Associated with EMW since
1984; Senior Vice President,
Secretary and Chief Operating
Officer of Counsellors
Securities; Officer of other
investment companies advised
by Warburg.
Eugene L. Podsiadlo (38) . . . . . Senior Vice President
466 Lexington Avenue Managing Director of EMW;
New York 10017-3147 Associated with EMW since
1991; Vice President of
Citibank, N.A. from 1987-
1991; Senior Vice President
of Counsellors Securities and
officer of other investment
companies advised by Warburg.
Stephen Distler (42) . . . . . . . Vice President and Chief
466 Lexington Avenue Financial Officer
New York, New York 10017-3147 Managing Director, Controller
and Assistant Secretary of
EMW; Associated with EMW
since 1984; Treasurer of
Counsellors Securities; Vice
President, Treasurer and
Chief Accounting Officer or
Vice President and Chief
Financial Officer of other
investment companies advised
by Warburg.
Eugene P. Grace (44) . . . . . . . Vice President and Secretary
466 Lexington Avenue Associated with EMW since
New York, New York 10017-3147 April 1994; Attorney-at-law
from September 1989 - April
1994; life insurance agent,
New York Life Insurance
Company from 1993-1994;
General Counsel and -1992;
Vice President and Chief
Compliance Officer of
Counsellors Securities; Vice
President and Secretary of
other investment companies
advised by Warburg.
Howard Conroy (41) . . . . . . . . Vice President, Treasurer and
466 Lexington Avenue Chief Accounting Officer
New York, New York 10017-3147 Associated with EMW since
1992; Associated with Martin
Geller, C.P.A. from 1990-
1992; Vice President, Finance
with Gabelli/Rosenthal &
Partners,
<PAGE>31
L.P.until 1990; Vice
President, Treasurer and
Chief Accounting Officer of
other investment companies
advised by Warburg.
Karen Amato (32) . . . . . . . . . New York, New York 10017-3147
466 Lexington Avenue Assistant Secretary
Associated with EMW since
1987; Assistant Secretary of
other investment companies
advised by Warburg.
No employee of Warburg or PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund
for acting as an officer or Director of the Fund. Each Director who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and $250 for each meeting of the
Board attended by him for his services as Director and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
Directors' Compensation
(for the fiscal year ended October 31, 1995)
<TABLE>
<CAPTION>
Total Total Annual Compensation from
Compensation from all Investment Companies
Name of Director* Fund Managed by Warburg*
----------------- ----------------- ------------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $2,875 $41,083
Donald J. Donahue $3,125 $43,833
Jack W. Fritz $2,375 $35,333
Thomas A. Melfe $3,125 $43,583
Alexander B. Trowbridge $3,125 $43,833
</TABLE>
____________________
* Each Director also serves as a Director or Trustee of 15 other investment
companies advised by Warburg.
** Mr. Furth is considered to be an interested person of the Fund and
Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receives no compensation from the Fund or any other
investment company managed by Warburg.
<PAGE>32
As of November 30, 1995, Directors and officers of the Fund as a group
owned of record 29,692 of the Fund's outstanding Common Shares (as defined
below). As of the same date, Mr. Furth may be deemed to have beneficially
owned 40.40% of the Fund's outstanding Common Shares, including shares owned
by clients for which Warburg has investment discretion. Mr. Furth disclaims
ownership of these shares and does not intend to exercise voting rights with
respect to these shares. No Directors or officers owned of record any Advisor
Shares.
Mr. Richard H. King, president and co-portfolio manager of the Fund,
earned a B.A. degree from Durham University in England. Mr. King is also
portfolio manager of Warburg, Pincus International Equity Fund and the
International Equity Portfolios of Warburg, Pincus Institutional Fund, Inc.
and Warburg, Pincus Trust and a co-portfolio manager of Warburg, Pincus Japan
OTC Fund. 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) 1985-1986 which grew from $3 million to over $100 million during
this two-year period.
Mr. Nicholas P.W. Horsley, co-portfolio manager of the Fund, is also a
co-portfolio manager of Warburg, Pincus Japan OTC Fund and a research analyst
and associate portfolio manager of Warburg Pincus International Equity Fund
and the 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 Fund, is also an associate portfolio manager and research
analyst of Warburg, Pincus International Equity Fund and 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.
<PAGE>33
Mr. Vincent J. McBride, associate portfolio manager and research analyst
of the Fund, is also an associate portfolio manager of Warburg, Pincus
International Equity Fund and the International Equity Portfolios of Warburg,
Pincus Institutional Fund, Inc. and Warburg, Pincus Trust. Prior to joining
Warburg in 1994, Mr. McBride was an international equity analyst at Smith
Barney Inc. from 1993 to 1994 and at General Electric Investment Corp. from
1992 to 1993. He was also a portfolio manager/analyst at United Jersey Bank
from 1989 to 1992 and a portfolio manager at First Fidelity Bank from 1987 to
1989. Mr. McBride earned a B.S. degree from the University of Delaware and an
M.B.A. degree from Rutgers University.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund, Counsellors Funds
Service, Inc. ("Counsellors Service") serves as a co-administrator to the Fund
and PFPC serves as a co-administrator to the Fund pursuant to separate written
agreements (the "Advisory Agreement," the "Counsellors Service Co-
Administration Agreement" and the "PFPC Co-Administration Agreement,"
respectively). The services provided by, and the fees payable by the Fund to,
Warburg under the Advisory Agreement, Counsellors Service under the
Counsellors Service Co-Administration Agreement and PFPC under the PFPC Co-
Administration Agreement are described in the Prospectuses. See the
Prospectuses, "Management of the Fund." Each class of shares of the Fund
bears its proportionate share of fees payable to Warburg, Counsellors Service
and PFPC in the proportion that its assets bear to the aggregate assets of the
Fund at the time of calculation.
Warburg agrees that if, in any fiscal year, the expenses borne by the
Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Fund are registered or
qualified for sale to the public, it will reimburse the Fund to the extent
required by such regulations. Unless otherwise required by law, such
reimbursement would be accrued and paid on a monthly basis. At the date of
this Statement of Additional Information, the most restrictive annual expense
limitation applicable to the Fund is 2.5% of the first $30 million of the
average net assets of the Fund, 2% of the next $70 million of the average net
assets of the Fund and 1.5% of the remaining average net assets of the Fund.
During the fiscal period ended October 31, 1995, Warburg earned, and
voluntarily waived, $29,641 under the Advisory Agreement. Warburg also
reimbursed the Fund $230,338 during the fiscal period ended October 31, 1995.
During the fiscal period ended October 31, 1995, Counsellors Service earned
$2,372 in co-administration fees. During the fiscal period ended October 31,
1995, PFPC earned, and voluntarily waived, $2,845 in co-administration fees.
<PAGE>34
Custodian and Transfer Agent
State Street Bank and Trust Company ("State Street") serves as custodian
of the Fund's assets pursuant to a custodian agreement (the "Custodian
Agreement"). Under the Custodian Agreement, State Street (i) maintains a
separate account or accounts in the name of the Fund, (ii) holds and transfers
portfolio securities on account of the Fund, (iii)makes receipts and
disbursements of money on behalf of the Fund, (iv)collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities and (v) makes periodic reports to the Board concerning the Fund's
custodial arrangements. 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 Fund.
State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Fund pursuant to a Transfer Agency and
Service Agreement, under which State Street (i) issues and redeems shares of
the Fund, (ii) addresses and mails all communications by the Fund to record
owners of Fund shares, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders,
(iii)maintains shareholder accounts and, if requested, sub-accounts and
(iv)makes periodic reports to the Board concerning the transfer agent's
operations with respect to the Fund. The principal business address of State
Street is 225 Franklin Street, Boston, Massachusetts 02110. State Street has
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
("BFDS"), responsibility for most shareholder servicing functions. BFDS's
principal business address is 2 Heritage Drive, Boston, Massachusetts 02171.
Organization of the Fund
The Fund's charter authorizes the Board to issue three billion full and
fractional shares of common stock, $.001 par value per share ("Common
Shares"), of which one billion shares are designated Common Stock - Series 1
and one billion shares are designated Common Stock - Series 2 (the "Advisor
Shares"). Only Common Shares and Advisor Shares have been issued by the Fund.
All shareholders of the Fund in each class, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
Common Shares. The Fund has entered into a Shareholder Servicing and
Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under the 1940
Act, pursuant to which the 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 Fund, as set forth in the 12b-1
<PAGE>35
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 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; (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 Fund to prospective shareholders of 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 Fund paid Counsellors Securities $5,926 in
the fiscal period ended October 31, 1995, all of which was spent on
advertising and marketing communications.
Pursuant to the 12b-1 Plan, Counsellors Securities provides the Board
with periodic reports of amounts expended under the 12b-1 Plan and the purpose
for which the expenditures were made.
Advisor Shares. The Fund may, in the future, enter into 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 Prospectuses, "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.
An Institution with which the Fund has entered into an Agreement with
respect to either 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
<PAGE>36
services to be provided under the Fund's co-administration and distribution
and shareholder servicing arrangements. A Customer of an Institution should
read the relevant Prospectus and Statement of Additional Information in
conjunction with the Agreement and other literature describing the services
and related fees that would be provided by the Institution to its Customers
prior to any purchase of Fund shares. Prospectuses are available from the
Fund's distributor upon request. No preference will be shown in the selection
of Fund portfolio investments for the instruments of Institutions.
General. The Distribution Plan and the 12b-1 Plan will continue in
effect for so long as their continuance is specifically approved at least
annually by the Board, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plan or the 12b-1 Plan, as the
case may be ("Independent Directors"). Any material amendment of the
Distribution Plan or the 12b-1 Plan would require the approval of the Board in
the same manner. Neither the Distribution Plan nor the Rule 12b-1 Plan may be
amended to increase materially the amount to be spent thereunder without
shareholder approval of the relevant class of shares. The Distribution Plan
or the 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 the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share net
asset value of the relevant class of shares of the Fund. Information on how
to purchase and redeem Fund shares and how such shares are priced is included
in the Prospectuses.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Fund may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other investment instruments which
may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or
other property, a shareholder would incur transaction costs in disposing of
the redemption proceeds. The Fund intends to comply with Rule 18f-1
promulgated under the 1940 Act with respect to redemptions in kind.
<PAGE>37
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan (the
"Plan") is available to shareholders who wish to receive specific amounts of
cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Warburg is
available to investors in the Fund. The funds into which exchanges can be
made by holders of Common Shares currently are the Common Shares of Warburg
Pincus Cash Reserve Fund, Warburg Pincus New York Tax Exempt Fund, Warburg
Pincus New York Intermediate Municipal Fund, Warburg Pincus Tax-Free Fund,
Warburg Pincus Intermediate Maturity Government Fund, Warburg Pincus Fixed
Income Fund, Warburg Pincus Global Fixed Income Fund, Warburg Pincus Balanced
Fund, Warburg Pincus Growth & Income Fund, Warburg Pincus Capital Appreciation
Fund, Warburg Pincus Small Company Value Fund, Warburg Pincus Emerging Growth
Fund, Warburg Pincus Post-Venture Capital Fund, Warburg Pincus International
Equity Fund, Warburg Pincus Japan Growth Fund and Warburg Pincus Japan OTC
Fund. Shareholders of the Fund may exchange all or part of their shares for
Common Shares of these or other mutual funds organized by Warburg in the
future on the basis of their relative net asset values per share at the time
of exchange. Exchanges of Advisor Shares may currently be made with Advisor
Shares of Warburg Pincus Balanced Fund, Warburg Pincus Capital Appreciation
Fund, Warburg Pincus Emerging Growth Fund, Warburg Pincus International Equity
Fund, and Warburg Pincus Growth & Income Fund at their relative net asset
values at the time of the exchange.
The exchange privilege enables shareholders to acquire shares in a fund
with a different investment objective when they believe that a shift between
funds is an appropriate investment decision. This privilege is available to
shareholders residing in any state in which the Common Shares or Advisor
Shares being acquired, as relevant, may legally be sold. Prior to any
exchange, the investor should obtain and review a copy of the current
prospectus of the relevant class of each fund into which an exchange is being
considered. Shareholders may obtain a prospectus of the relevant class of the
fund into which they are contemplating an exchange from Counsellors
Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same
day, at a price as described above, in shares of the
<PAGE>38
relevant class of the fund being acquired. Warburg reserves the right to
reject more than three exchange requests by a shareholder in any 30-day
period. The exchange privilege may be modified or terminated at any time upon
60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally affecting
the Fund and its shareholders is intended to be only a summary and is not
intended as a substitute for careful tax planning by prospective shareholders.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
The Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Code. If it qualifies as a regulated investment
company, the Fund will pay no federal income taxes on its taxable net
investment income (that is, taxable income other than net realized capital
gains) and its net realized capital gains that are distributed to
shareholders. To qualify under Subchapter M, the Fund must, among other
things: (i) distribute to its shareholders at least 90% of its taxable net
investment income (for this purpose consisting of taxable net investment
income and net realized short-term capital gains); (ii) derive at least 90% of
its gross income from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of securities, or other
income (including, but not limited to, gains from options, futures, and
forward contracts) derived with respect to the Fund's business of investing in
securities; (iii) derive less than 30% of its annual gross income from the
sale or other disposition of securities, options, futures or forward contracts
held for less than three months; and (iv) diversify its holdings so that, at
the end of each fiscal quarter of the Fund (a) at least 50% of the market
value of the Fund's assets is represented by cash, U.S. government securities
and other securities, with those other securities limited, with respect to any
one issuer, to an amount no greater in value than 5% of the Fund's total
assets and to not more than 10% of the outstanding voting securities of the
issuer, and (b) not more than 25% of the market value of the Fund's assets is
invested in the securities of any one issuer (other than U.S. government
securities or securities of other regulated investment companies) or of two or
more issuers that the Fund controls and that are determined to be in the same
or similar trades or businesses or related trades or businesses. In meeting
these requirements, the Fund may be restricted in the selling of securities
held by the Fund for less than three months and in the utilization of certain
of the investment techniques described above and in the Fund's Prospectuses.
As a regulated investment company, the Fund will be subject to a 4%
non-deductible excise tax measured with respect to certain undistributed
amounts of ordinary income and capital gain required to be but not distributed
under a prescribed formula. The formula requires payment to shareholders
during a calendar year of distributions representing at least 98% of the
Fund's taxable ordinary income for the calendar year and at least 98% of the
excess of its capital gains over capital losses realized during the one-year
period ending October 31 during such year, together with any undistributed,
untaxed amounts of ordinary income and capital
<PAGE>39
gains from the previous calendar year. The Fund expects to pay the dividends
and make the distributions necessary to avoid the application of this excise
tax.
The Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Fund, defer Fund losses
and cause the Fund to be subject to hyperinflationary currency rules. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (i) will require the Fund to
mark-to-market certain types of its positions (i.e., treat them as if they
were closed out) and (ii) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books
and records when it acquires any foreign currency, forward contract, option,
futures contract or hedged investment so that (a) neither the Fund nor its
shareholders will be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received, (b) the
Fund will be able to use substantially all of its losses for the fiscal years
in which the losses actually occur and (c) the Fund will continue to qualify
as a regulated investment company.
A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should
have a cost basis in the shares received equal to that amount.
The Fund's investments 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 the Fund each year even though the
Fund receives no cash distribution until maturity. Under the U.S. federal tax
laws, the Fund will not be subject to tax on this income if it pays 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 Fund.
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
<PAGE>40
the Prospectuses, will be long-term or short-term depending upon the
shareholder's holding period for the shares. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced,
including replacement through the reinvestment of dividends and capital gains
distributions in the Fund, within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be increased to reflect the disallowed loss.
Each shareholder will receive an annual statement as to the federal
income tax status of his dividends and distributions from the Fund for the
prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable
year regarding the federal income tax status of certain dividends and
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to "backup withholding," the shareholder may be subject to a 31%
"backup withholding" tax with respect to (i) taxable dividends and
distributions and (ii) the proceeds of any sales or repurchases of shares of
the Fund. An individual's taxpayer identification number is his social
security number. Corporate shareholders and other shareholders specified in
the Code are or may be exempt from backup withholding. The backup withholding
tax is not an additional tax and may be credited against a taxpayer's federal
income tax liability. Dividends and distributions also may be subject to
state and local taxes depending on each shareholder's particular situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities classified under
the Code as "passive foreign investment companies" ("PFICs"), the Fund may be
subject to federal income tax on a portion of an "excess distribution" or gain
from the disposition of the shares, even though the income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In
addition, gain on the disposition of shares in a PFIC generally is treated as
ordinary income even though the shares are capital assets in the hands of the
Fund. Certain interest charges may be imposed on either the Fund or its
shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross income its
share of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did
not make the election. In addition, information required to make such an
election may not be available to the Fund.
<PAGE>41
On April 1, 1992 proposed regulations of the Internal Revenue Service
(the "IRS") were published providing a mark-to-market election for regulated
investment companies. The IRS subsequently issued a notice indicating that
final regulations will provide that regulated investment companies may elect
the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of the Fund is unclear. If the Fund is not able to make the
foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, break it
as if it were sold for fair market value). Such an election could result in
acceleration of income to the Fund.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its Common
Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. With respect to the Fund's Common Shares, the
Fund's average annual total return for the period commencing December 30,
1994 (commencement of operations) and ended October 31, 1995 was 16.09% (9.74%
without waivers). The actual total return for the same period was 13.33 %
(8.10% without waivers). These figures are calculated by finding the average
compounded rates of return for the one-, five- and ten- (or such shorter
period as the relevant class of shares has been offered) year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula: P(1 + T)[*GRAPHIC OMITTED-SEE FOOTNOTE
BELOW] = ERV. For purposes of this formula, "P" is a hypothetical investment
of $1,000; "T" is average annual total return; "n" is number of years; and
"ERV" is the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five- or ten-year periods (or fractional portion
thereof). Total return or "T" is computed by finding the average annual
change in the value of an initial $1,000 investment over the period and
assumes that all dividends and distributions are reinvested during the
period. The Advisor Shares average annual total return for the period
commenced December 30, 1994 (commencement of operations) and ended October
31, 1995 was 16.05% (-.95% without waivers). The actual total return for the
same period was 13.29% (-.80% without waivers).
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or
more other mutual funds with similar investment objectives. The Fund may
advertise average annual calendar year-to-date and calendar quarter returns,
which are calculated according to the formula set forth in the preceding
paragraph, except that the relevant measuring period would be the number of
months that have elapsed in the current calendar year or most recent three
months, as the case may be. Investors should note that this performance may
not be representative of the Fund's total return in longer market cycles.
The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of the Fund's portfolio and
operating expenses
- ------------------------
* - The expression (1 + T) is being raised to the nth power.
<PAGE>42
allocable to it. As described above, total return is based on historical
earnings and is not intended to indicate future performance. Consequently,
any given performance quotation should not be considered as representative of
performance for any specified period in the future. Performance information
may be useful as a basis for comparison with other investment alternatives.
However, the Fund's performance will fluctuate, unlike certain bank deposits
or other investments which pay a fixed yield for a stated period of time. Any
fees charged by Institutions or other institutional investors directly to
their customers in connection with investments in Fund shares are not
reflected in the Fund's total return, and such fees, if charged, will reduce
the actual return received by customers on their investments.
The Fund intends to diversify its assets among countries, and in doing
so, would expect to be able to reduce the risk arising from economic problems
affecting a single country. Warburg thus believes that, by spreading risk
throughout many diverse markets outside the United States, the Fund will
reduce its exposure to country-specific economic problems. Warburg also
believes that a diversified portfolio of international equity securities, when
combined with a similarly diversified portfolio of domestic equity securities,
tends to have a lower volatility than a portfolio composed entirely of
domestic securities. Furthermore, international equities have been shown to
reduce volatility in single asset portfolios regardless of whether the
investments are in all domestic equities or all domestic fixed-income
instruments, and research has indicated that volatility can be significantly
decreased when international equities are added. Advertising or supplemental
sales literature relating to the Fund may describe the percentage decline from
all-time high levels for certain foreign stock markets.
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal offices at
2400 Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
auditors for the Fund. The financial statements that appear in this Statement
of Additional Information for the fiscal period ended October 31, 1995 have
been audited by Coopers & Lybrand, whose report thereon appears elsewhere
herein and has been included herein in reliance upon the report of such firm
of independent auditors given upon their authority as experts in accounting
and auditing.
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.
<PAGE>43
MISCELLANEOUS
As of November 30, 1995, the name, address and percentage of ownership of
persons (other than Mr. Furth, see "Management of the Fund") that own of
record 5% or more of the Fund's outstanding shares were as follows:
Common Shares
Nat'l Financial Svsc Corp., FBO Customers, Church Street Station, New
York, NY 10008-3908 -- 10.32%; Charles Schwab & Co. ("Schwab"), Inc., Reinvest
Account, Attn: Mutual Funds Dept., 101 Montgomery Street, San Francisco, CA
94104-4122 -- 9.59%; and State Street Bank & Trust, Cust. for the IRA of
Norman L. Cannon, 8007 Whisper Lake Lane East, Ponte Vedra Beach, FL 32082-
3114 -- 5.02%. The Fund believes that Schwab is not the beneficial owner of
shares held of record by it. Mr. Lionel I. Pincus, Chairman of the Board and
Chief Executive Officer of EMW, may be deemed to have beneficially owned
42.77% of the Common Shares outstanding, including shares owned by clients for
which Warburg has investment discretion and by companies that EMW may be
deemed to control. Mr. Pincus disclaims ownership of these shares and does
not intend to exercise voting rights with respect to these shares.
Advisor Shares
Boston Financial Data Serv Inc., Corporate Actions Cash, Audit Acct. #s
1, 2 and 4 FD23, Emerging Market Series 2, 2 Heritage Drive, 8th floor, No.
Quincy, MA 02171-2144 -- 5.26% (owned by each Audit Acct) and Warburg, Pincus
Counsellors, Inc., 466 Lexington Avenue, New York, NY 10017 -- 82.22%. These
shares are held as a result of limited distribution of the Advisor Shares
since commencement of the Fund's operations.
FINANCIAL STATEMENTS
The Fund's audited financial statements for the fiscal period ended
October 31, 1995 follow the Report of Independent Auditors.
<PAGE>A-1
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Group ("S&P")
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although 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.
<PAGE>A-2
To provide more detailed indications of credit quality, the ratings from
"AA" to "BBB" may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
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.
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.
<PAGE>A-3
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "B". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues may be
in default or present elements of danger may exist with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
December 8, 1995
Dear Shareholder:
The objective of Warburg Pincus Emerging Markets Fund (the 'Fund') is
growth of capital. The Fund is a non-diversified management investment company
that invests primarily in equity securities of companies in emerging markets
around the world.
Total return since inception through October 31, 1995 (the Fund was
launched December 30, 1994), was 13.33%, vs. a loss of -7.49% in the Lipper
Emerging Markets Fund Index.
The Fund's outperformance of its benchmark index resulted from good stock
selection and a relatively large cash position in the first few months following
its inception. In addition, the Fund's focus on Asian stocks due to their good
fundamental values and sound economies meant that it avoided many of the
problems in Latin America following the Mexican peso devaluation in December
1994.
Currently, we are finding many compelling values in emerging markets,
particularly in Asia. By region, our largest concentration among Asian markets
is in Northeast Asia, principally Taiwan and South Korea (12.2% and 15.0% of the
portfolio, respectively, as of October 31, 1995). Though Taiwan's market has
fallen sharply in 1995 due to political tensions with China, we have viewed the
situation as a buying opportunity, since we believe investors' concerns are
largely overdone and that the long-term argument for investing in Taiwan remains
strong. We are similarly bullish on South Korea, and hold the stocks of
excellent companies in the banking, technology and industrial sectors.
Other large Asian weightings in the portfolio include China/Hong Kong
(13.9%) and Indonesia (10.4%), where we have found undemanding valuations in
relation to prospective growth. The portfolio remains underweighted in Latin
America, since we are finding better values and less economic uncertainty
elsewhere. Among Latin American markets, our heaviest weighting is in Argentina,
which represented 7.8% of the portfolio at the end of the reporting period.
<TABLE>
<S> <C>
Richard H. King Nicholas P.W. Horsley
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
10
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS EMERGING MARKETS
FUND SINCE INCEPTION AS OF OCTOBER 31, 1995
The graph below illustrates the hypothethical investment of $10,000 in
Common Shares of Warburg Pincus Emerging Markets Fund (the 'Fund') from December
30, 1994 (inception) to October 31, 1995, assuming the reinvestment of dividends
and capital gains at net assets value, compared to the Lipper Emerging Markets
Fund Index* for the same time period.
[GRAPH]
<TABLE>
<CAPTION>
FUND
-----
<S> <C>
Total Return Since Inception (12/30/94-9/30/95)....................................... 18.45%+
</TABLE>
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost. Without waivers or reimbursements of Fund expenses,
aggregate total return since inception for the periods ending 9/30/95 and
10/31/95, respectively, would have been 12.70% and 8.10%.
- ------------
* The Lipper Emerging Markets Funds Index contains Funds which seek long-term
capital appreciation by investing at least 65% of total assets in emerging
market equity securities, where 'Emerging Markets' is defined by a country's
GNP per capita or other economic measures.
+ Non-annualized
11
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Boards of Directors, Trustees and Shareholders of
Warburg Pincus Equity Funds:
We have audited the accompanying statements of net assets of the Warburg Pincus
Capital Appreciation Fund, Warburg Pincus Emerging Growth Fund and Warburg
Pincus International Equity Fund and the accompanying statements of assets and
liabilities including the schedules of investments of Warburg Pincus Japan OTC
Fund, Warburg Pincus Emerging Markets Fund and Warburg Pincus Post-Venture
Capital Fund (all Funds collectively referred to as the 'Warburg Pincus Equity
Funds') as of October 31, 1995, and the related statements of operations for the
year (or period) then ended, and the statements of changes in net assets for
each of the two years (or period) and the financial highlights for each of the
three years (or period) in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of the
Warburg Pincus Equity Funds for each of the two years in the period ended
October 31, 1992, were audited by other auditors, whose report dated December
15, 1992, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Warburg Pincus Equity Funds as of October 31, 1995, and the results of
their operations for the year (or period) then ended, and the changes in their
net assets for each of the two years (or period) and the financial highlights
for each of the three years (or period) in the period then ended, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
December 14, 1995
67
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCK (88.6%)
Argentina (6.5%)
Banco Frances del Rio de la Plata SA ADR 4,500 $ 98,438
Telefonica de Argentina SA ADR 9,200 190,900
YPF SA ADR 7,800 133,575
----------
422,913
----------
Australia (1.1%)
Novus Petroleum Ltd. + 58,700 70,179
----------
Austria (2.8%)
V.A. Technologie AG 1,610 186,714
----------
Brazil (4.7%)
Panamerican Beverages, Inc. Class A 11,200 306,600
----------
Chile (4.1%)
Compania de Telecommunicacion de Chile SA ADR 3,700 266,400
----------
China (1.7%)
Guangzhou Shipyard International 94,000 28,573
Shanghai Haixing Shipping + 802,000 82,988
----------
111,561
----------
Colombia (0.6%)
Banco Industrial Colombiano ADR 3,000 40,874
----------
Hong Kong (12.1%)
Citic Pacific Ltd. 87,800 274,261
HSBC Holdings PLC 11,360 165,304
Jardine Matheson Holdings Ltd. ADR 39,672 241,999
Jilin Chemical Industrial Co., Ltd. ADR + 5,500 113,438
----------
795,002
----------
India (4.1%)
Hindalco Industries Ltd. GDR 900 28,800
Reliance Industries Ltd. GDS 13,585 212,198
The India Fund, Inc. 3,500 29,313
----------
270,311
----------
Indonesia (10.4%)
P.T. Dynaplast Ltd. 30,500 26,908
P.T. Mulia Industrindo 47,500 140,384
P.T. Semen Cibinong 72,500 190,284
P.T. Semen Gresik 79,500 206,903
</TABLE>
See Accompanying Notes to Financial Statements.
30
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCK (CONT'D)
P.T. Tri Polyta Indonesia ADR + 7,400 $ 114,700
----------
679,179
----------
Israel (5.6%)
Ampal-American Israel Corp. Class A + 4,200 23,625
Clal Electronics Industries Ltd. + 982 112,112
ECI Telecommunications Limited Designs 12,200 231,800
----------
367,537
----------
Japan (2.3%)
Circle K Japan Co., Ltd. + 4,000 152,627
----------
Malaysia (1.0%)
Westmont BHD 18,000 62,350
----------
Mexico (2.3%)
Gruma SA + 51,000 150,421
----------
Portugal (1.8%)
Portugal Telecommunications SA + 6,300 119,373
----------
Singapore (1.5%)
IPC Corp., Ltd. 140,000 95,646
----------
South Korea (13.5%)
Daewoo Electronics Co., Ltd. + 20,850 277,963
Daewoo Electronics Co., Ltd. (New) + 6,200 79,009
Daewoo Heavy Industries 5,240 68,145
Hana Bank 3,800 81,851
Hanil Bank 8,900 115,580
Korea Long Term Credit Bank 2,790 89,392
Mando Machinery Corp. + 2,500 170,468
Samsung Electronics Co., Ltd. Second Series 1 248
----------
882,656
----------
Taiwan (9.6%)
China Steel Corp. + 28,000 22,101
GP-Taiwan Index Fund + 180,000 139,500
Taiwan Semiconductor Mfg., Co. + 32,000 99,611
Ton Yi Industrial Corp. + 154,000 204,306
Tuntex Distinct Corp. + 20,000 12,674
Tuntex Distinct Corp. GDS + 1,080 6,750
Yang Ming Marine Transport Corp. 129,000 141,979
----------
626,921
----------
</TABLE>
See Accompanying Notes to Financial Statements.
31
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCK (CONT'D)
Thailand (2.9%)
Industrial Finance Corp. of Thailand 57,800 $ 190,056
----------
TOTAL COMMON STOCK (Cost $5,835,052) 5,797,320
----------
PREFERRED STOCK (1.5%)
South Korea
Keyang Electronic Machinery Co. + 4,200 78,500
Samsung Electronics Co., Ltd. + 130 18,192
Samsung Electronics Co., Ltd. New + 25 3,446
----------
100,138
----------
TOTAL PREFERRED STOCK (Cost $78,848) 100,138
----------
STOCK WARRANTS (0.1%)
Hong Kong
Jardine Strategic Holdings, 05/02/98 +
(Cost $10,610) 21,000 5,565
----------
CONVERTIBLE BONDS/NOTES (3.9%) PAR
--------
Argentina (1.3%)
Banco de Galicia & Buenos Aires SA 7.00%, 08/01/02 $101,000 81,305
----------
Taiwan (2.6%)
President Enterprises 0.00%, 07/22/01 140,000 172,550
----------
TOTAL CONVERTIBLE BONDS/NOTES (Cost $241,828) 253,855
----------
SHORT-TERM INVESTMENTS (5.9%)
Repurchase agreement with State Street Bank & Trust
dated 10/31/95 at 5.83% to be repurchased at $389,063 on 11/01/95.
(Collateralized by $380,000 U.S. Treasury Note 7.25%,
due 11/30/96, with a market value of $397,692.) (Cost $389,000) 389,000 389,000
----------
TOTAL INVESTMENTS (100.0%) (Cost $6,555,338*) $6,545,878
----------
----------
</TABLE>
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
ADR =American Depository Receipt
GDR =Global Depository Receipt
GDS =Global Depository Share
</TABLE>
+ Non-income producing security.
* Cost for Federal income tax purposes is $6,556,878.
See Accompanying Notes to Financial Statements.
32
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $6,555,338) $6,545,878
Receivable for Fund shares sold 207,547
Deferred organizational costs (Note 1) 187,395
Foreign currency (Cost $47,256) 47,209
Dividends and interest receivable 7,974
Other assets 4,047
----------
Total assets 7,000,050
----------
LIABILITIES
Payable for investment securities purchased 111,286
Accrued expenses 91,932
Other liabilities 15,903
----------
Total liabilities 219,121
----------
NET ASSETS applicable to 600,795 Common Shares outstanding and
122 Advisor Shares outstanding $6,780,929
----------
----------
NET ASSET VALUE, offering and redemption price per Common Share
($6,779,551[div]600,795) $11.28
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($1,378[div]122) $11.30
------
------
</TABLE>
See Accompanying Notes to Financial Statements.
37
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth International Equity
Fund Fund Fund
-------------------- --------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,107,232 $ 772,834 $ 40,091,101
Interest 684,526 2,112,707 7,110,116
Foreign taxes withheld (2,423) 0 (5,031,072)
-------------------- --------------- --------------------
Total investment income 2,789,335 2,885,541 42,170,145
-------------------- --------------- --------------------
EXPENSES:
Investment advisory 1,367,729 3,824,061 20,225,631
Administrative services 390,780 849,790 3,408,846
Audit 27,208 27,469 69,286
Custodian/Sub-custodian 63,554 145,277 1,753,400
Directors/Trustees 10,500 10,500 11,500
Distribution/Shareholder servicing 45,989 531,359 1,274,343
Insurance 10,104 14,770 58,340
Legal 90,851 76,677 102,549
Organizational 0 0 0
Printing 27,954 41,914 172,129
Registration 62,918 159,555 428,595
Transfer agent 92,488 149,133 1,538,272
Miscellaneous 35,776 37,625 380,319
-------------------- --------------- --------------------
2,225,851 5,868,130 29,423,210
Less: fees waived and expenses reimbursed 0 0 0
-------------------- --------------- --------------------
Total expenses 2,225,851 5,868,130 29,423,210
-------------------- --------------- --------------------
Net investment income (loss) 563,484 (2,982,589) 12,746,935
-------------------- --------------- --------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
AND FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 31,649,453 49,113,782 (34,444,203)
Net realized gain (loss) from foreign currency
related items 0 0 16,792,905
Net change in unrealized appreciation (depreciation)
from investments and foreign currency related items 12,386,702 84,670,426 (4,675,049)
-------------------- --------------- --------------------
Net realized and unrealized gain (loss) from
investments and foreign currency related
items 44,036,155 133,784,208 (22,326,347)
-------------------- --------------- --------------------
Net increase (decrease) in net assets
resulting from operations $ 44,599,639 $ 130,801,619 $ (9,579,412)
-------------------- --------------- --------------------
-------------------- --------------- --------------------
</TABLE>
40
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture Capital
Fund Fund (1) Fund (2)
-------------- ---------------- --------------------
<S> <C> <C>
$ 221,577 $ 33,788 $ 0
412,522 22,711 2,675
(33,237) (3,250) 0
-------------- ---------------- -----------
600,862 53,249 2,675
-------------- ---------------- -----------
599,720 29,641 1,756
138,679 5,217 280
25,700 16,000 9,000
60,612 45,701 5,771
11,290 14,625 1,250
119,941 5,926 351
2,761 855 0
96,359 54,987 5,000
42,449 37,432 1,932
2,579 14,765 1,000
115,649 26,664 6,000
100,690 28,656 2,833
10,620 6,070 500
-------------- ---------------- -----------
1,327,049 286,539 35,673
(652,386) (262,824) (33,354)
-------------- ---------------- -----------
674,663 23,715 2,319
-------------- ---------------- -----------
(73,801) 29,534 356
-------------- ---------------- -----------
(4,629,196) 102,219 (26,884)
7,895,010 (4,992) 0
(195,368) (9,058) 164,441
-------------- ---------------- -----------
3,070,446 88,169 137,557
-------------- ---------------- -----------
$2,996,645 $117,703 $137,913
-------------- ---------------- -----------
-------------- ---------------- -----------
(1) For the period December 30, 1994 (Commencement of Operations) through October 31, 1995.
(2) For the period September 29, 1995 (Commencement of Operations) through October 31, 1995.
</TABLE>
See Accompanying Notes to Financial Statements.
41
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth
Fund Fund
----------------------------------- -----------------------------------
For the Year Ended October 31, For the Year Ended October 31,
1995 1994 1995 1994
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 563,484 $ 384,246 $ (2,982,589) $ (1,678,646)
Net realized gain (loss) from
security transactions 31,649,453 11,173,174 49,113,782 (5,721,525)
Net realized gain (loss) from foreign
currency related items 0 0 0 0
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency related items 12,386,702 (9,106,613) 84,670,426 10,930,919
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets resulting from
operations 44,599,639 2,450,807 130,801,619 3,530,748
--------------- ---------------- --------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (563,484) (419,337) 0 0
Advisor Shares 0 (27,724) 0 0
Distributions in excess of net
investment income:
Common Shares 0 0 0 0
Distributions from capital gains:
Common Shares (10,419,627) (12,899,141) 0 (10,576,150)
Advisor Shares (575,892) (852,608) 0 (1,639,316)
--------------- ---------------- --------------- ----------------
Net decrease from distributions (11,559,003) (14,198,810) 0 (12,215,466)
--------------- ---------------- --------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 88,963,455 45,617,531 335,569,078 180,813,270
Reinvested dividends 11,246,752 13,809,167 0 12,758,387
Net asset value of shares redeemed (53,459,471) (49,851,500) (116,280,844) (71,767,717)
--------------- ---------------- --------------- ----------------
Net increase in net assets from
capital share transactions 46,750,736 9,575,198 219,288,234 121,803,940
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets 79,791,372 (2,172,805) 350,089,853 113,119,222
NET ASSETS:
Beginning of period 167,514,493 169,687,298 304,672,758 191,553,536
--------------- ---------------- --------------- ----------------
End of period $ 247,305,865 $167,514,493 $ 654,762,611 $304,672,758
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
42
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture
Warburg Pincus Fund Fund Capital Fund
International Equity --------------------------------------- ------------------- -------------------
Fund For the Period For the Period For the Period
----------------------------------- September 30, 1994 December 30, 1994 September 29, 1995
For the (Commencement of (Commencement of (Commencement of
For the Year Ended October 31, Year Ended Operations) through Operations) through Operations) through
1995 1994 October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1995
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 12,746,935 $ 1,310,933 $ (73,801) $ 5,115 $ 29,534 $ 356
(34,444,203 ) 48,091,665 (4,629,196) 0 102,219 (26,884)
16,792,905 (2,772,944) 7,895,010 (294,437) (4,992) 0
(4,675,049 ) 82,484,415 (195,368) (35,099) (9,058) 164,441
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(9,579,412 ) 129,114,069 2,996,645 (324,421) 117,703 137,913
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(11,671,023 ) (1,764,380) 0 0 (14,321) 0
(629,473 ) (218,961) 0 0 (3) 0
0 (223,659) 0 0 0 0
(42,332,078 ) (1,047,367) 0 0 0 0
(5,756,403 ) (129,979) 0 0 0 0
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
(60,388,977 ) (3,384,346) 0 0 (14,324) 0
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
1,383,361,959 1,430,739,923 200,565,875 20,287,158 7,753,908 2,792,403
54,872,977 2,950,772 0 0 13,802 0
(715,598,203 ) (249,050,078) (44,871,674) (185,101) (1,191,160) (4,887)
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
722,636,733 1,184,640,617 155,694,201 20,102,057 6,576,550 2,787,516
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
652,668,344 1,310,370,340 158,690,846 19,777,636 6,679,929 2,925,429
1,733,275,503 422,905,163 19,878,636 101,000 101,000 100,000
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
$2,385,943,847 $1,733,275,503 $178,569,482 $19,878,636 $ 6,780,929 $ 3,025,429
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
--------------- ---------------- ---------------- ------------------- ------------------- -------------------
</TABLE>
See Accompanying Notes to Financial Statements.
43
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
December 30, 1994
(Commencement of
Operations) through
October 31, 1995
---------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .08
Net Gain on Securities and Foreign Currency Related Items (both
realized and unrealized) 1.25
-------
Total from Investment Operations 1.33
-------
Less Distributions:
Dividends from Net Investment Income (.05)
Distributions from Capital Gains .00
-------
Total Distributions (.05)
-------
NET ASSET VALUE, END OF PERIOD $ 11.28
-------
-------
Total Return 16.09%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 6,780
Ratios to average daily net assets:
Operating expenses 1.00%*
Net investment income 1.25%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 11.08%*
Portfolio Turnover Rate 69.12%*
* Annualized
</TABLE>
See Accompanying Notes to Financial Statements.
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.05
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
48
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund'), Warburg Pincus
International Equity Fund (the 'International Equity Fund') and Warburg Pincus
Post-Venture Capital Fund (the 'Post-Venture Capital Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund'), Warburg Pincus Japan OTC Fund
(the 'Japan OTC Fund') and Warburg Pincus Emerging Markets Fund (the 'Emerging
Markets Fund', together with the Capital Appreciation Fund, the International
Equity Fund, the Post-Venture Capital Fund, the Emerging Growth Fund and the
Japan OTC Fund, the 'Funds') which are registered under the 1940 Act as non-
diversified, open-end management investment companies.
Investment objectives for each Fund are as follows: the Capital
Appreciation Fund, the International Equity Fund and the Japan OTC Fund seek
long-term capital appreciation; the Emerging Growth Fund seeks maximum capital
appreciation; the Emerging Markets Fund seeks growth of capital; the
Post-Venture Capital Fund seeks long-term growth of capital.
Each Fund offers two classes of shares, one class being referred to as
Common Shares and one class being referred to as Advisor Shares. Common and
Advisor Shares in each Fund represent an equal pro rata interest in such Fund,
except that they bear different expenses which reflect the difference in the
range of services provided to them. Common Shares for the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund bear expenses paid
pursuant to a shareholder servicing and distribution plan adopted by each Fund
at an annual rate not to exceed .25% of the average daily net asset value of
each Fund's outstanding Common Shares. Advisor Shares for each Fund bear
expenses paid pursuant to a distribution plan adopted by each Fund at an annual
rate not to exceed .75% of the average daily net asset value of each Fund's
outstanding Advisor Shares. The Common and the Advisor Shares are currently
bearing expenses of .25% and .50% of average daily net assets, respectively.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported bid price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's governing Board. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are
50
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
reported in the results of operations for the current period. The Funds do not
isolate that portion of gains and losses on investments in equity securities
which are due to changes in the foreign exchange rate from that which are due to
changes in market prices of equity securities. The Funds isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses, principally distribution,
transfer agent and printing) and realized/unrealized gains/losses are allocated
proportionately to each class of shares based upon the relative net asset value
of outstanding shares. The cost of investments sold is determined by use of the
specific identification method for both financial reporting and income tax
purposes.
Dividends from net investment income are declared and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared and
paid annually. However, to the extent that a net realized capital gain can be
reduced by a capital loss carryover, such gain will not be distributed. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
Certain amounts in the Financial Highlights have been reclassified to
conform with current year presentation.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Japan OTC Fund, the Emerging Markets Fund and the
Post-Venture Capital Fund in connection with their organization have been
deferred and are being amortized over a period of five years from the date each
Fund commenced its operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives the
following fees based on each Fund's average daily net assets:
51
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- --------------------------------- ----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
Emerging Markets 1.25% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
</TABLE>
For the period or year ended October 31, 1995, investment advisory fees,
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ------------------------------------------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 1,367,729 $ 0 $ 1,367,729 $ 0
Emerging Growth 3,824,061 0 3,824,061 0
International Equity 20,225,631 0 20,225,631 0
Japan OTC 599,720 (599,720) 0 (25,920)
Emerging Markets 29,641 (29,641) 0 (230,338)
Post-Venture Capital 1,756 (1,756) 0 (31,458)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Warburg pays SPARX USA a fee at an annual rate of .625% of the average daily net
assets of the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to
SPARX USA for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Fund's average daily net assets. For the period or year
ended October 31, 1995, administrative services fees earned by CFSI were as
follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 195,390
Emerging Growth 424,895
International Equity 2,022,563
Japan OTC 47,978
Emerging Markets 2,372
Post-Venture Capital 140
</TABLE>
For its administrative services, PFPC currently receives a fee calculated
at an annual rate of .10% of the average daily net assets of the Capital
Appreciation Fund, the Emerging Growth Fund and the Post-Venture Capital Fund.
For the International Equity Fund, the Japan OTC Fund and the Emerging Markets
Fund, PFPC currently receives a fee calculated at an annual rate of .12% on each
Fund's first $250 million in average daily net assets, .10% on the next $250
million in average daily net assets, .08%
52
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
on the next $250 million in average daily net assets, and .05% of the average
daily net assets over $750 million.
For the period or year ended October 31, 1995, administrative service fees
earned and waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- ----------------------------------------- --------------------- -------- -------------------------
<S> <C> <C> <C>
Capital Appreciation $ 195,390 $ 0 $ 195,390
Emerging Growth 424,895 0 424,895
International Equity 1,386,283 0 1,386,283
Japan OTC 90,701 (26,746) 63,955
Emerging Markets 2,845 (2,845) 0
Post-Venture Capital 140 (140) 0
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund, the Emerging Growth Fund or the International Equity
Fund to CSI for distribution services. For its shareholder servicing and
distribution services, CSI currently receives a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares for the Japan OTC
Fund, the Emerging Markets Fund and the Post-Venture Capital Fund pursuant to a
shareholder servicing and distribution plan adopted by each Fund. For the period
or year ended October 31, 1995, distribution fees earned by CSI were as follows:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Japan OTC $119,941
Emerging Markets 5,926
Post-Venture Capital 351
</TABLE>
3. INVESTMENTS IN SECURITIES
For the period or year ended October 31, 1995, purchases and sales of
investment securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------------------------------------- -------------- ------------
<S> <C> <C>
Capital Appreciation $ 299,741,274 $269,962,070
Emerging Growth 532,722,466 336,581,792
International Equity 1,457,609,458 735,613,078
Japan OTC 189,768,420 36,507,703
Emerging Markets 7,181,659 1,297,140
Post-Venture Capital 2,714,501 222,270
</TABLE>
53
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 45,397,319 $ (3,203,157) $ 42,194,162
Emerging Growth 144,909,782 (9,681,675) 135,228,107
International Equity 260,125,513 (171,560,066) 88,565,447
Japan OTC 6,205,079 (7,100,852) (895,773)
Emerging Markets 341,944 (352,944) (11,000)
Post-Venture Capital 233,929 (69,488) 164,441
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund, the Japan OTC Fund, the Emerging Markets
Fund and the Post-Venture Capital Fund may enter into forward currency contracts
for the purchase or sale of a specific foreign currency at a fixed price on a
future date. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. The Funds will enter into forward contracts primarily for hedging
purposes. The forward currency contracts are adjusted by the daily exchange rate
of the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
54
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the International Equity Fund and the Japan OTC Fund had
the following open forward foreign currency contracts:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French Francs 11/15/95 260,000,000 $ 52,170,074 $ 53,253,590 $ (1,083,516)
French Francs 11/16/95 122,216,250 25,050,833 25,032,515 18,318
German Marks 11/16/95 110,000,000 78,272,317 78,263,963 8,354
German Marks 05/17/96 78,928,380 55,400,000 56,652,584 (1,252,584)
Japanese Yen 03/21/96 5,547,240,000 57,000,000 55,475,507 1,524,493
Japanese Yen 03/21/96 4,764,377,500 47,298,496 47,646,443 (347,947)
Japanese Yen 03/21/96 4,764,377,500 47,276,203 47,646,443 (370,240)
Japanese Yen 03/21/96 1,385,445,000 13,761,286 13,855,226 (93,940)
Japanese Yen 05/13/96 8,731,990,000 109,000,000 88,008,212 20,991,788
Japanese Yen 05/16/96 9,247,700,000 110,000,000 93,246,752 16,753,248
Japanese Yen 05/16/96 4,586,012,000 55,400,000 46,241,847 9,158,153
Japanese Yen 09/18/96 4,660,000,000 50,000,000 47,860,895 2,139,105
------------ ------------ ----------------
$700,629,209 $653,183,977 $ 47,445,232
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
FORWARD CURRENCY EXPIRATION TO BE CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE PURCHASED AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
German Marks 11/16/95 34,500,000 $ 25,050,828 $ 24,546,425 $ (504,403)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JAPAN OTC FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 11/30/95 12,567,400,000 $124,000,000 $123,536,813 $ 463,187
Japanese Yen 11/30/95 2,027,000,000 20,000,000 19,925,293 74,707
Japanese Yen 11/30/95 1,520,250,000 15,000,000 14,943,969 56,031
------------ ------------ ----------------
$159,000,000 $158,406,075 $ 593,925
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
55
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
5. EQUITY SWAP TRANSACTIONS
The International Equity Fund (the 'Fund') entered into a Taiwanese equity
swap agreement (which represents approximately .005% of the Fund's net assets at
October 31, 1995) dated August 11, 1995, where the Fund receives a quarterly
payment, representing the total return (defined as market appreciation and
dividend income) on a basket of three Taiwanese common stocks ('Common Stocks').
In return, the Fund pays quarterly the Libor rate (London Interbank Offered
Rate), plus 1.25% per annum (7.125% on October 31, 1995) on the initial stock
purchase amount ('Notional amount') of $12,000,000. The Notional amount is
marked to market on each quarterly reset date. In the event that the Common
Stocks decline in value, the Fund will be required to pay quarterly, the amount
of any depreciation in value from the notional amount. The equity swap agreement
will terminate on August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At October 31, 1995, the
Fund has recorded an unrealized gain of $502,018 and interest payable of
$192,375 on the equity swap transaction.
56
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
The Capital Appreciation Fund is authorized to issue three billion of full
and fractional shares of beneficial interest, $.001 par value per share, of
which one billion shares are classified as Series 2 Shares (the Advisor Shares).
The Emerging Growth Fund, the International Equity Fund, the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund are each authorized to
issue three billion full and fractional shares of capital stock, $.001 par value
per share, of which one billion shares of each Fund are designated as Series 2
Shares (the Advisor Shares).
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
Common Shares Advisor Shares
----------------------------- ---------------------------
For the Year Ended October 31,
-------------------------------------------------------------
1995 1994 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Shares sold 6,020,619 2,958,494 201,782 290,193
Shares issued to
shareholders on
reinvestment of
dividends 850,478 920,210 46,554 61,526
Shares redeemed (3,638,974) (3,126,497) (110,027) (460,020)
------------ ------------ ----------- -----------
Net increase
(decrease) in
shares outstanding 3,232,123 752,207 138,309 (108,301)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Proceeds from sale
of shares $ 85,992,655 $ 41,570,590 $ 2,970,800 $ 4,046,941
Reinvested dividends 10,670,876 12,945,690 575,876 863,477
Net asset value of
shares redeemed (51,907,650) (43,449,501) (1,551,821) (6,401,999)
------------ ------------ ----------- -----------
Net increase
(decrease) from
capital share
transactions $ 44,755,881 $ 11,066,779 $ 1,994,855 $(1,491,581)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
<CAPTION>
EMERGING GROWTH FUND
Common Shares Advisor Shares
----------------------------- ----------------------------
For the Year Ended October 31,
--------------------------------------------------------------
1995 1994 1995 1994
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold 9,808,362 6,133,751 3,172,686 2,233,737
Shares issued to
shareholders on
reinvestment of
dividends 0 506,720 0 80,473
Shares redeemed (4,294,179) (2,859,413) (383,922) (517,898)
------------ ------------ ----------- ------------
Net increase
(decrease) in
shares outstanding 5,514,183 3,781,058 2,788,764 1,796,312
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Proceeds from sale
of shares $256,886,928 $132,922,995 $78,682,150 $ 47,890,275
Reinvested dividends 0 11,015,146 0 1,743,241
Net asset value of
shares redeemed (106,777,032) (61,126,667) (9,503,812) (10,641,050)
------------ ------------ ----------- ------------
Net increase
(decrease) from
capital share
transactions $150,109,896 $ 82,811,474 $69,178,338 $ 38,992,466
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
57
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND EMERGING MARKETS FUND
Common Shares Advisor Shares
Common Shares Advisor Shares ------------- --------------
-------------------------------- ---------------------------- For the Period
For the Year Ended October 31, December 30, 1994
---------------------------------------------------------------- (Commencement of Operations)
1995 1994 1995 1994 through October 31, 1995
-------------- -------------- ------------ ------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 68,096,606 64,218,907 7,225,150 7,956,088 694,008 22
Shares issued to
shareholders on
reinvestment of
dividends 2,623,005 147,031 346,377 6,879 1,267 0
Shares redeemed (38,317,625) (11,861,720) (770,753) (795,406) (104,480) 0
-------------- -------------- ------------ ------------ ------------- -----
Net increase (decrease)
in shares outstanding 32,401,986 52,504,218 6,800,774 7,167,561 590,795 22
-------------- -------------- ------------ ------------ ------------- -----
-------------- -------------- ------------ ------------ ------------- -----
Proceeds from sale of
shares $1,251,776,887 $1,275,306,263 $131,585,072 $155,433,660 $ 7,753,651 $257
Reinvested dividends 48,487,109 2,820,903 6,385,868 129,869 13,802 0
Net asset value of shares
redeemed (701,310,424) (233,614,600) (14,287,779) (15,435,478) (1,191,160) 0
-------------- -------------- ------------ ------------ ------------- -----
Net increase (decrease)
from capital share
transactions $ 598,953,572 $1,044,512,566 $123,683,161 $140,128,051 $ 6,576,293 $257
-------------- -------------- ------------ ------------ ------------- -----
-------------- -------------- ------------ ------------ ------------- -----
</TABLE>
7. NET ASSETS
Net Assets at October 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL EMERGING
APPRECIATION FUND GROWTH FUND
----------------- ------------
<S> <C> <C>
Capital contributed, net $ 173,327,827 $479,035,241
Accumulated net investment income (loss) 0 0
Accumulated net realized gain (loss) from security transactions 31,648,355 40,302,640
Net unrealized appreciation (depreciation) from investments and
foreign currency related items 42,329,683 135,424,730
----------------- ------------
Net assets $ 247,305,865 $654,762,611
----------------- ------------
----------------- ------------
</TABLE>
58
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN OTC FUND
Common Shares Advisor Shares
------------------------------------- -------------------------------------
For the Period For the Period POST-VENTURE CAPITAL FUND
September 30, September 30, Advisor Shares
1994 1994 --------------
(Commencement (Commencement
Common Shares
-------------
For the Period
For the of Operations) For the of Operations) September 29, 1995
Year Ended through Year Ended through (Commencement of Operations)
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994 through October 31, 1995
---------------- ---------------- ---------------- ---------------- --------------------------------
<S> <C> <C> <C> <C> <C>
22,809,795 2,025,697 0 15 273,510 19
0 0 0 0 0 0
(5,180,432) (18,605) 0 0 (473) 0
---------------- ---------------- --- ----- ------------- -----
17,629,363 2,007,092 0 15 273,037 19
---------------- ---------------- --- ----- ------------- -----
---------------- ---------------- --- ----- ------------- -----
$200,565,875 $ 20,287,008 $0 $150 $ 2,792,203 $200
0 0 0 0 0 0
(44,871,674) (185,101) 0 0 (4,887) 0
---------------- ---------------- --- ----- ------------- -----
$155,694,201 $ 20,101,907 $0 $150 $ 2,787,316 $200
---------------- ---------------- --- ----- ------------- -----
---------------- ---------------- --- ----- ------------- -----
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING POST-VENTURE
EQUITY FUND MARKETS FUND JAPAN OTC FUND CAPITAL FUND
-------------- ------------ -------------- ------------
<S> <C> <C> <C>
$2,271,007,433 $6,677,550 $175,619,527 $2,887,516
19,124,669 10,218 7,821,209 356
(40,671,086) 102,219 (4,640,787) (26,884)
136,482,831 (9,058) (230,467) 164,441
-------------- ------------ -------------- ------------
$2,385,943,847 $6,780,929 $178,569,482 $3,025,429
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
</TABLE>
59
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
8. CAPITAL LOSS CARRYOVER
At October 31, 1995, the International Equity Fund, the Japan OTC Fund and
the Post-Venture Capital Fund had capital loss carryovers of $40,671,086,
$4,629,196 and $26,884, respectively, expiring in 2003 to offset possible future
capital gains of each Fund.
9. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Advisor Shares,
representing equal prorata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for an Advisor Share of each Fund are as
follows:
<TABLE>
<CAPTION>
Capital Appreciation Fund
----------------------------------------------------------------
Advisor Shares
----------------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.22 $15.28 $13.28 $12.16 $12.04
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .00 (.08) .00 (.01) .05
Net Gain on Securities (both realized and
unrealized) 3.02 .23 2.76 1.20 .13
------ ------ ------ ------ -------
Total from Investment Operations 3.02 .15 2.76 1.19 .18
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income .00 (.02) .00 (.02) (.06)
Distributions from Capital Gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ -------
Total Distributions (.98) (1.21) (.76) (.07) (.06)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $16.26 $14.22 $15.28 $13.28 $12.16
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return 23.41% 1.23% 21.64% 9.83% 2.66%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $11,594 $8,169 $10,437 $1,655 $443
Ratios to average daily net assets:
Operating expenses 1.62% 1.55% 1.51% 1.56% 1.63%*
Net investment income (loss) (.18%) (.24%) (.25%) (.11%) .25%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .01%*
Portfolio Turnover Rate 146.09% 51.87% 48.26% 55.83% 39.50%
* Annualized
</TABLE>
60
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.02
Long-term capital gain .96
</TABLE>
Ordinary income dividends qualifying for the dividends received deduction
available to corporate shareholders was 100.00%.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
61
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Growth Fund
--------------------------------------------------------
Advisor Shares
--------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $22.05 $23.51 $18.19 $16.99 $15.18
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Loss (.09) (.08) (.08) (.06) .00
Net Gain (Loss) on Securities (both
realized and unrealized) 7.42 (.02) 5.77 1.62 1.82
------ ------ ------ ------ -------
Total from Investment Operations 7.33 (.10) 5.69 1.56 1.82
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income .00 .00 .00 .00 (.01)
Distributions from Capital Gains .00 (1.36) (.37) (.36) .00
------ ------ ------ ------ -------
Total Distributions .00 (1.36) (.37) (.36) (.01)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $29.38 $22.05 $23.51 $18.19 $16.99
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return 33.24% (.29%) 31.67% 9.02% 23.43%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $167,225 $64,009 $26,029 $5,398 $275
Ratios to average daily net assets:
Operating expenses 1.76% 1.72% 1.73% 1.74% 1.74%*
Net investment loss (1.08%) (1.08%) (1.09%) (.87%) (.49%)*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements .00% .04% .00% .06% .42%*
Portfolio Turnover Rate 84.82% 60.38% 68.35% 63.38% 97.69%
* Annualized
</TABLE>
62
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
--------------------------------------------------------
Advisor Shares
--------------------------------------------------------
April 4, 1991
(Initial
For the Year Ended October 31, Issuance)
------------------------------------ through
1995 1994 1993 1992 October 31, 1991
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.38 $16.91 $12.20 $13.66 $13.14
------ ------ ------ ------ -------
Income from Investment Operations:
Net Investment Income (Loss) .03 .16 (.01) .13 .00
Net Gain (Loss) on Securities and
Foreign Currency Related Items
(both realized and unrealized) (.67) 3.35 4.86 (1.32) .58
------ ------ ------ ------ -------
Total from Investment Operations (.64) 3.51 4.85 (1.19) .58
------ ------ ------ ------ -------
Less Distributions:
Dividends from Net Investment Income (.05) .00 (.01) (.12) (.06)
Distributions from Capital Gains (.53) (.04) (.13) (.15) .00
------ ------ ------ ------ -------
Total Distributions (.58) (.04) (.14) (.27) (.06)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $19.16 $20.38 $16.91 $12.20 $13.66
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total Return (3.04%) 20.77% 40.06% (8.86%) 7.85%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $317,736 $199,404 $44,244 $1,472 $153
Ratios to average daily net assets:
Operating expenses 1.89% 1.94% 2.00% 2.00% 2.23%*
Net investment income (loss) .20% (.29%) (.36%) .54% .30%*
Decrease reflected in above operating expense ratios due to
waivers/reimbursements .00% .00% .00% .07% .17%*
Portfolio Turnover Rate 39.24% 17.02% 22.60% 53.29% 54.95%
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.38
Long-term capital gain .20
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
63
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Japan OTC Fund
----------------------------------------
Advisor Shares
----------------------------------------
For the Period
September 30, 1994
For the (Commencement of
Year Ended Operations) through
October 31, 1995 October 31, 1994
---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.85 $10.00
------ -------
Income from Investment Operations:
Net Investment Income (Loss) (.02) .00
Net Loss on Securities and Foreign Currency Related Items (both
realized and unrealized) (.75) (.15)
------ -------
Total from Investment Operations (.77) (.15)
------ -------
Less Distributions:
Dividends from Net Investment Income .00 .00
Distributions from Capital Gains .00 .00
------ -------
Total Distributions .00 .00
------ -------
NET ASSET VALUE, END OF PERIOD $ 9.08 $ 9.85
------ -------
------ -------
Total Return (7.82%) (15.84%)*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1 $1
Ratios to average daily net assets:
Operating expenses 1.31% 1.18%*
Net investment income (loss) (.19%) .12%*
Decrease reflected in above operating expense ratios due to
waivers/reimbursements 1.83% 4.74%*
Portfolio Turnover Rate 82.98% .00%
* Annualized
</TABLE>
64
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Markets Fund
---------------------
Advisor Shares
---------------------
December 30, 1994
(Commencement of
Operations) through
October 31, 1995
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .14
Net Gain on Securities and Foreign Currency Related Items (both realized and unrealized) 1.19
-------
Total from Investment Operations 1.33
-------
Less Distributions:
Dividends from Net Investment Income (.03)
Distributions from Capital Gains .00
-------
Total Distributions (.03)
-------
NET ASSET VALUE, END OF PERIOD $ 11.30
-------
-------
Total Return 16.05%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 1.22%*
Net investment income 1.76%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 16.36%*
Portfolio Turnover Rate 69.12%*
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.03
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
65
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-Venture Capital Fund
-------------------------
Advisor Shares
-------------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
-------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities .68
-------
Total from Investment Operations .68
-------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
-------
Total Distributions .00
-------
NET ASSET VALUE, END OF PERIOD $ 10.68
-------
-------
Total Return 6.80%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 2.15%*
Net investment income .09%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 9.25%*
Portfolio Turnover Rate 16.90%*
* Annualized
+ Non annualized
</TABLE>
66
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND -- ADVISOR SHARES
- --------------------------------------------------------------------------------
December 8, 1995
Dear Shareholder:
The objective of the Advisor Shares of Warburg Pincus Emerging Markets Fund
(the 'Fund') is growth of capital. The Fund is a non-diversified management
company that invests primarily in equity securities of companies in emerging
securities markets around the world.
Total return since inception through October 31, 1995 (the Fund was
launched December 30, 1994), was 13.29%, vs. a loss of -7.49% in the Lipper
Emerging Markets Fund Index.
The Fund's outperformance of its benchmark index resulted from good stock
selection and a relatively large cash position in the first few months following
its inception. In addition, the Fund's focus on Asian stocks due to their good
fundamental values and sound economies meant that it avoided many of the
problems in Latin America following the Mexican peso devaluation in December
1994.
Currently, we are finding many compelling values in emerging markets,
particularly in Asia. By region, our largest concentration among Asian markets
is in Northeast Asia, principally Taiwan and South Korea (12.2% and 15% of the
portfolio, respectively, as of October 31, 1995). Though Taiwan's market has
fallen sharply in 1995 due to political tensions with China, we have viewed the
situation as a buying opportunity, since we believe investors' concerns are
largely overdone and that the long-term argument for investing in Taiwan remains
strong. We are similarly bullish on South Korea, and hold the stocks of
excellent companies in the banking, technology and industrial sectors.
Other large Asian weightings in the portfolio include China/Hong Kong
(13.9%) and Indonesia (10.4%), where we have found undemanding valuations in
relation to prospective growth. The portfolio remains underweighted in Latin
America, since we are finding better values and less economic uncertainty
elsewhere. Among Latin American markets, our heaviest weighting is in Argentina,
which represented 7.8% of the portfolio at the end of the reporting period.
<TABLE>
<S> <C>
Richard H. King Nicholas P.W. Horsley
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
10
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND -- ADVISOR SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ADVISOR SHARES OF WARBURG PINCUS EMERGING MARKETS
FUND
SINCE INCEPTION AS OF OCTOBER 31, 1995
The graph below illustrates the hypothetical investment of $10,000 in
Advisor Shares of Warburg Pincus Emerging Markets Fund (the 'Fund') from
December 30, 1994 (inception) to October 31, 1995, assuming the reinvestment of
dividends and capital gains at net asset value, compared to the Lipper Emerging
Markets Fund Index* for the same time period.
[ INSERT GRAPHIC HERE ]
<TABLE>
<CAPTION>
FUND
-----
<S> <C>
1 Year Total Return (12/30/94-9/30/95)................................................ 18.40%+
</TABLE>
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost. Without waivers or reimbursements of Fund expenses,
aggregate total return since inception for the periods ending 9/30/95 and
10/31/95, respectively, would have been 5.50% and -0.80%.
- ------------
* The Lipper Emerging Markets Funds Index contains Funds which seek long-term
capital appreciation by investing at least 65% of total assets in emerging
market equity securities, where 'Emerging Markets' is defined by a country's
GNP per capita or other economic measures.
+ Non-annualized
11
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Boards of Directors, Trustees and Shareholders of
Warburg Pincus Equity Funds:
We have audited the accompanying statements of net assets of the Warburg Pincus
Capital Appreciation Fund, Warburg Pincus Emerging Growth Fund and Warburg
Pincus International Equity Fund and the accompanying statements of assets and
liabilities including the schedules of investments of Warburg Pincus Japan OTC
Fund, Warburg Pincus Emerging Markets Fund and Warburg Pincus Post-Venture
Capital Fund (all Funds collectively referred to as the 'Warburg Pincus Equity
Funds') as of October 31, 1995, and the related statements of operations for the
year (or period) then ended, and the statements of changes in net assets for
each of the two years (or period) and the financial highlights for each of the
three years (or period) in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of the
Warburg Pincus Equity Funds for each of the two years in the period ended
October 31, 1992, were audited by other auditors, whose report dated December
15, 1992, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Warburg Pincus Equity Funds as of October 31, 1995, and the results of
their operations for the year (or period) then ended, and the changes in their
net assets for each of the two years (or period) and the financial highlights
for each of the three years (or period) in the period then ended, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
December 14, 1995
67
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
<S> <C> <C>
COMMON STOCK (88.6%)
Argentina (6.5%)
Banco Frances del Rio de la Plata SA ADR 4,500 $ 98,438
Telefonica de Argentina SA ADR 9,200 190,900
YPF SA ADR 7,800 133,575
----------
422,913
----------
Australia (1.1%)
Novus Petroleum Ltd. + 58,700 70,179
----------
Austria (2.8%)
V.A. Technologie AG 1,610 186,714
----------
Brazil (4.7%)
Panamerican Beverages, Inc. Class A 11,200 306,600
----------
Chile (4.1%)
Compania de Telecommunicacion de Chile SA ADR 3,700 266,400
----------
China (1.7%)
Guangzhou Shipyard International 94,000 28,573
Shanghai Haixing Shipping + 802,000 82,988
----------
111,561
----------
Colombia (0.6%)
Banco Industrial Colombiano ADR 3,000 40,874
----------
Hong Kong (12.1%)
Citic Pacific Ltd. 87,800 274,261
HSBC Holdings PLC 11,360 165,304
Jardine Matheson Holdings Ltd. ADR 39,672 241,999
Jilin Chemical Industrial Co., Ltd. ADR + 5,500 113,438
----------
795,002
----------
India (4.1%)
Hindalco Industries Ltd. GDR 900 28,800
Reliance Industries Ltd. GDS 13,585 212,198
The India Fund, Inc. 3,500 29,313
----------
270,311
----------
Indonesia (10.4%)
P.T. Dynaplast Ltd. 30,500 26,908
P.T. Mulia Industrindo 47,500 140,384
P.T. Semen Cibinong 72,500 190,284
P.T. Semen Gresik 79,500 206,903
</TABLE>
See Accompanying Notes to Financial Statements.
30
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
COMMON STOCK (CONT'D)
<S> <C> <C>
P.T. Tri Polyta Indonesia ADR + 7,400 $ 114,700
----------
679,179
----------
Israel (5.6%)
Ampal-American Israel Corp. Class A + 4,200 23,625
Clal Electronics Industries Ltd. + 982 112,112
ECI Telecommunications Limited Designs 12,200 231,800
----------
367,537
----------
Japan (2.3%)
Circle K Japan Co., Ltd. + 4,000 152,627
----------
Malaysia (1.0%)
Westmont BHD 18,000 62,350
----------
Mexico (2.3%)
Gruma SA + 51,000 150,421
----------
Portugal (1.8%)
Portugal Telecommunications SA + 6,300 119,373
----------
Singapore (1.5%)
IPC Corp., Ltd. 140,000 95,646
----------
South Korea (13.5%)
Daewoo Electronics Co., Ltd. + 20,850 277,963
Daewoo Electronics Co., Ltd. (New) + 6,200 79,009
Daewoo Heavy Industries 5,240 68,145
Hana Bank 3,800 81,851
Hanil Bank 8,900 115,580
Korea Long Term Credit Bank 2,790 89,392
Mando Machinery Corp. + 2,500 170,468
Samsung Electronics Co., Ltd. Second Series 1 248
----------
882,656
----------
Taiwan (9.6%)
China Steel Corp. + 28,000 22,101
GP-Taiwan Index Fund + 180,000 139,500
Taiwan Semiconductor Mfg., Co. + 32,000 99,611
Ton Yi Industrial Corp. + 154,000 204,306
Tuntex Distinct Corp. + 20,000 12,674
Tuntex Distinct Corp. GDS + 1,080 6,750
Yang Ming Marine Transport Corp. 129,000 141,979
----------
626,921
----------
</TABLE>
See Accompanying Notes to Financial Statements.
31
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Thailand (2.9%)
Industrial Finance Corp. of Thailand 57,800 $ 190,056
----------
TOTAL COMMON STOCK (Cost $5,835,052) 5,797,320
----------
PREFERRED STOCK (1.5%)
South Korea
Keyang Electronic Machinery Co. + 4,200 78,500
Samsung Electronics Co., Ltd. + 130 18,192
Samsung Electronics Co., Ltd. New + 25 3,446
----------
100,138
----------
TOTAL PREFERRED STOCK (Cost $78,848) 100,138
----------
STOCK WARRANTS (0.1%)
Hong Kong
Jardine Strategic Holdings, 05/02/98 +
(Cost $10,610) 21,000 5,565
----------
</TABLE>
<TABLE>
<CAPTION>
PAR
--------
<S> <C> <C>
CONVERTIBLE BONDS/NOTES (3.9%)
Argentina (1.3%)
Banco de Galicia & Buenos Aires SA 7.00%, 08/01/02 $101,000 81,305
----------
Taiwan (2.6%)
President Enterprises 0.00%, 07/22/01 140,000 172,550
----------
TOTAL CONVERTIBLE BONDS/NOTES (Cost $241,828) 253,855
----------
SHORT-TERM INVESTMENTS (5.9%)
Repurchase agreement with State Street Bank & Trust
dated 10/31/95 at 5.83% to be repurchased at $389,063 on 11/01/95.
(Collateralized by $380,000 U.S. Treasury Note 7.25%,
due 11/30/96, with a market value of $397,692.) (Cost $389,000) 389,000 389,000
----------
TOTAL INVESTMENTS (100.0%) (Cost $6,555,338*) $6,545,878
----------
----------
</TABLE>
INVESTMENT ABBREVIATIONS
<TABLE>
<S> <C>
ADR =American Depository Receipt
GDR =Global Depository Receipt
GDS =Global Depository Share
</TABLE>
+ Non-income producing security.
* Cost for Federal income tax purposes is $6,556,878.
See Accompanying Notes to Financial Statements.
32
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $6,555,338) $6,545,878
Receivable for Fund shares sold 207,547
Deferred organizational costs (Note 1) 187,395
Foreign currency (Cost $47,256) 47,209
Dividends and interest receivable 7,974
Other assets 4,047
----------
Total assets 7,000,050
----------
LIABILITIES
Payable for investment securities purchased 111,286
Accrued expenses 91,932
Other liabilities 15,903
----------
Total liabilities 219,121
----------
NET ASSETS applicable to 600,795 Common Shares outstanding and
122 Advisor Shares outstanding $6,780,929
----------
----------
NET ASSET VALUE, offering and redemption price per Common Share
($6,779,551[div]600,795) $11.28
------
------
NET ASSET VALUE, offering and redemption price per Advisor Share
($1,378[div]122) $11.30
------
------
</TABLE>
See Accompanying Notes to Financial Statements.
37
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF OPERATIONS
For the Year or Period Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth International Equity
Fund Fund Fund
-------------------- --------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,107,232 $ 772,834 $ 40,091,101
Interest 684,526 2,112,707 7,110,116
Foreign taxes withheld (2,423) 0 (5,031,072)
-------------------- --------------- --------------------
Total investment income 2,789,335 2,885,541 42,170,145
-------------------- --------------- --------------------
EXPENSES:
Investment advisory 1,367,729 3,824,061 20,225,631
Administrative services 390,780 849,790 3,408,846
Audit 27,208 27,469 69,286
Custodian/Sub-custodian 63,554 145,277 1,753,400
Directors/Trustees 10,500 10,500 11,500
Distribution/Shareholder servicing 45,989 531,389 1,274,343
Insurance 10,104 14,770 58,340
Legal 90,851 76,677 102,549
Organizational 0 0 0
Printing 27,954 41,914 172,129
Registration 62,918 159,555 428,595
Transfer agent 92,488 149,133 1,538,272
Miscellaneous 35,776 37,625 380,319
-------------------- --------------- --------------------
2,225,851 5,868,130 29,423,210
Less: fees waived and expenses reimbursed 0 0 0
-------------------- --------------- --------------------
Total expenses 2,225,851 5,868,130 29,423,210
-------------------- --------------- --------------------
Net investment income (loss) 563,484 (2,982,589) 12,746,935
-------------------- --------------- --------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
AND FOREIGN CURRENCY RELATED ITEMS:
Net realized gain (loss) from security transactions 31,649,453 49,113,782 (34,444,203)
Net realized gain (loss) from foreign currency
related items 0 0 16,792,905
Net change in unrealized appreciation (depreciation)
from investments and foreign currency related items 12,386,702 84,670,426 (4,675,049)
-------------------- --------------- --------------------
Net realized and unrealized gain (loss) from
investments and foreign currency related
items 44,036,155 133,784,208 (22,326,347)
-------------------- --------------- --------------------
Net increase (decrease) in net assets
resulting from operations $ 44,599,639 $ 130,801,619 $ (9,579,412)
-------------------- --------------- --------------------
-------------------- --------------- --------------------
</TABLE>
40
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets Post-Venture Capital
Fund Fund (1) Fund (2)
-------------- ---------------- --------------------
<S> <C> <C> <C>
$ 221,577 $ 33,788 $ 0
412,522 22,711 2,675
(33,237) (3,250) 0
-------------- ---------------- -----------
600,862 53,249 2,675
-------------- ---------------- -----------
599,720 29,641 1,756
138,679 5,217 280
25,700 16,000 9,000
60,612 45,701 5,771
11,290 14,625 1,250
119,941 5,926 351
2,761 855 0
96,359 54,987 5,000
42,449 37,432 1,932
2,579 14,765 1,000
115,649 26,664 6,000
100,690 28,656 2,833
10,620 6,070 500
-------------- ---------------- -----------
1,327,049 286,539 35,673
(652,386) (262,824) (33,354)
-------------- ---------------- -----------
674,663 23,715 2,319
-------------- ---------------- -----------
(73,801) 29,534 356
-------------- ---------------- -----------
(4,629,196) 102,219 (26,884)
7,895,010 (4,992) 0
(195,368) (9,058) 164,441
-------------- ---------------- -----------
3,070,446 88,169 137,557
-------------- ---------------- -----------
$2,996,645 $117,703 $137,913
-------------- ---------------- -----------
-------------- ---------------- -----------
</TABLE>
(1) For the period December 30, 1994 (Commencement of Operations) through
October 31, 1995.
(2) For the period September 29, 1995 (Commencement of Operations) through
October 31, 1995.
See Accompanying Notes to Financial Statements.
41
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Capital Appreciation Emerging Growth
Fund Fund
----------------------------------- -----------------------------------
For the Year Ended October 31, For the Year Ended October 31,
1995 1994 1995 1994
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 563,484 $ 384,246 $ (2,982,589) $ (1,678,646)
Net realized gain (loss) from
security transactions 31,649,453 11,173,174 49,113,782 (5,721,525)
Net realized gain (loss) from foreign
currency related items 0 0 0 0
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency related items 12,386,702 (9,106,613) 84,670,426 10,930,919
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets resulting from
operations 44,599,639 2,450,807 130,801,619 3,530,748
--------------- ---------------- --------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income:
Common Shares (563,484) (419,337) 0 0
Advisor Shares 0 (27,724) 0 0
Distributions in excess of net
investment income:
Common Shares 0 0 0 0
Distributions from capital gains:
Common Shares (10,419,627) (12,899,141) 0 (10,576,150)
Advisor Shares (575,892) (852,608) 0 (1,639,316)
--------------- ---------------- --------------- ----------------
Net decrease from distributions (11,559,003) (14,198,810) 0 (12,215,466)
--------------- ---------------- --------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 88,963,455 45,617,531 335,569,078 180,813,270
Reinvested dividends 11,246,752 13,809,167 0 12,758,387
Net asset value of shares redeemed (53,459,471) (49,851,500) (116,280,844) (71,767,717)
--------------- ---------------- --------------- ----------------
Net increase in net assets from
capital share transactions 46,750,736 9,575,198 219,288,234 121,803,940
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets 79,791,372 (2,172,805) 350,089,853 113,119,222
NET ASSETS:
Beginning of period 167,514,493 169,687,298 304,672,758 191,553,536
--------------- ---------------- --------------- ----------------
End of period $ 247,305,865 $167,514,493 $ 654,762,611 $304,672,758
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
42
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Japan OTC Emerging Markets
Warburg Pincus Fund Fund
International Equity --------------------------------------- -------------------
Fund For the Period For the Period
----------------------------------- September 30, 1994 December 30, 1994
For the (Commencement of (Commencement of
For the Year Ended October 31, Year Ended Operations) through Operations) through
1995 1994 October 31, 1995 October 31, 1994 October 31, 1995
--------------- ---------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 12,746,935 $ 1,310,933 $ (73,801) $ 5,115 $ 29,534
(34,444,203 ) 48,091,665 (4,629,196) 0 102,219
16,792,905 (2,772,944) 7,895,010 (294,437) (4,992)
(4,675,049 ) 82,484,415 (195,368) (35,099) (9,058)
--------------- ---------------- ---------------- ------------------- -------------------
(9,579,412 ) 129,114,069 2,996,645 (324,421) 117,703
--------------- ---------------- ---------------- ------------------- -------------------
(11,671,023 ) (1,764,380) 0 0 (14,321)
(629,473 ) (218,961) 0 0 (3)
0 (223,659) 0 0 0
(42,332,078 ) (1,047,367) 0 0 0
(5,756,403 ) (129,979) 0 0 0
--------------- ---------------- ---------------- ------------------- -------------------
(60,388,977 ) (3,384,346) 0 0 (14,324)
--------------- ---------------- ---------------- ------------------- -------------------
1,383,361,959 1,430,739,923 200,565,875 20,287,158 7,753,908
54,872,977 2,950,772 0 0 13,802
(715,598,203 ) (249,050,078) (44,871,674) (185,101) (1,191,160)
--------------- ---------------- ---------------- ------------------- -------------------
722,636,733 1,184,640,617 155,694,201 20,102,057 6,576,550
--------------- ---------------- ---------------- ------------------- -------------------
652,668,344 1,310,370,340 158,690,846 19,777,636 6,679,929
1,733,275,503 422,905,163 19,878,636 101,000 101,000
--------------- ---------------- ---------------- ------------------- -------------------
$2,385,943,847 $1,733,275,503 $178,569,482 $19,878,636 $ 6,780,929
--------------- ---------------- ---------------- ------------------- -------------------
--------------- ---------------- ---------------- ------------------- -------------------
<CAPTION>
Warburg Pincus
Post-Venture
Capital Fund
-------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
-------------------
<S> <C>
$ 356
(26,884)
0
164,441
-------------------
137,913
-------------------
0
0
0
0
0
-------------------
0
-------------------
2,792,403
0
(4,887)
-------------------
2,787,516
-------------------
2,925,429
100,000
-------------------
$ 3,025,429
-------------------
-------------------
</TABLE>
See Accompanying Notes to Financial Statements.
43
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 30, 1994
(Commencement of
Operations) through
October 31, 1995
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .14
Net Gain on Securities and Foreign Currency Related Items (both realized and unrealized) 1.19
-------
Total from Investment Operations 1.33
-------
Less Distributions:
Dividends from Net Investment Income (.03)
Distributions from Capital Gains .00
-------
Total Distributions (.03)
-------
NET ASSET VALUE, END OF PERIOD $ 11.30
-------
-------
Total Return 16.05%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $1
Ratios to average daily net assets:
Operating expenses 1.22%*
Net investment income 1.76%*
Decease reflected in above operating expense ratio due to
waivers/reimbursements 16.36%*
Portfolio Turnover Rate 69.12%*
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.03
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
See Accompanying Notes to Financial Statements.
48
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Equity Funds are comprised of Warburg Pincus Capital
Appreciation Fund (the 'Capital Appreciation Fund'), Warburg Pincus
International Equity Fund (the 'International Equity Fund') and Warburg Pincus
Post-Venture Capital Fund (the 'Post-Venture Capital Fund') which are registered
under the Investment Company Act of 1940, as amended (the '1940 Act'), as
diversified, open-end management investment companies, and Warburg Pincus
Emerging Growth Fund (the 'Emerging Growth Fund'), Warburg Pincus Japan OTC Fund
(the 'Japan OTC Fund') and Warburg Pincus Emerging Markets Fund (the 'Emerging
Markets Fund', together with the Capital Appreciation Fund, the International
Equity Fund, the Post-Venture Capital Fund, the Emerging Growth Fund and the
Japan OTC Fund, the 'Funds') which are registered under the 1940 Act as non-
diversified, open-end management investment companies.
Investment objectives for each Fund are as follows: the Capital
Appreciation Fund, the International Equity Fund and the Japan OTC Fund seek
long-term capital appreciation; the Emerging Growth Fund seeks maximum capital
appreciation; the Emerging Markets Fund seeks growth of capital; the
Post-Venture Capital Fund seeks long-term growth of capital.
Each Fund offers two classes of shares, one class being referred to as
Common Shares and one class being referred to as Advisor Shares. Common and
Advisor Shares in each Fund represent an equal pro rata interest in such Fund,
except that they bear different expenses which reflect the difference in the
range of services provided to them. Common Shares for the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund bear expenses paid
pursuant to a shareholder servicing and distribution plan adopted by each Fund
at an annual rate not to exceed .25% of the average daily net asset value of
each Fund's outstanding Common Shares. Advisor Shares for each Fund bear
expenses paid pursuant to a distribution plan adopted by each Fund at an annual
rate not to exceed .75% of the average daily net asset value of each Fund's
outstanding Advisor Shares. The Common and the Advisor Shares are currently
bearing expenses of .25% and .50% of average daily net assets, respectively.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported bid price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's governing Board. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are
50
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
reported in the results of operations for the current period. The Funds do not
isolate that portion of gains and losses on investments in equity securities
which are due to changes in the foreign exchange rate from that which are due to
changes in market prices of equity securities. The Funds isolate that portion of
gains and losses on investments in debt securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
debt securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Income, expenses (excluding class-specific expenses, principally distribution,
transfer agent and printing) and realized/unrealized gains/losses are allocated
proportionately to each class of shares based upon the relative net asset value
of outstanding shares. The cost of investments sold is determined by use of the
specific identification method for both financial reporting and income tax
purposes.
Dividends from net investment income are declared and paid semiannually for
all Funds. Distributions of net realized capital gains, if any, are declared and
paid annually. However, to the extent that a net realized capital gain can be
reduced by a capital loss carryover, such gain will not be distributed. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
Certain amounts in the Financial Highlights have been reclassified to
conform with current year presentation.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Japan OTC Fund, the Emerging Markets Fund and the
Post-Venture Capital Fund in connection with their organization have been
deferred and are being amortized over a period of five years from the date each
Fund commenced its operations.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives the
following fees based on each Fund's average daily net assets:
51
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- --------------------------------- ----------------------------------
<S> <C>
Capital Appreciation .70% of average daily net assets
Emerging Growth .90% of average daily net assets
International Equity 1.00% of average daily net assets
Japan OTC 1.25% of average daily net assets
Emerging Markets 1.25% of average daily net assets
Post-Venture Capital 1.25% of average daily net assets
</TABLE>
For the period or year ended October 31, 1995, investment advisory fees,
waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
FUND ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
- ------------------------------------------- ------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Capital Appreciation $ 1,367,729 $ 0 $ 1,367,729 $ 0
Emerging Growth 3,824,061 0 3,824,061 0
International Equity 20,225,631 0 20,225,631 0
Japan OTC 599,720 (599,720) 0 (25,920)
Emerging Markets 29,641 (29,641) 0 (230,338)
Post-Venture Capital 1,756 (1,756) 0 (31,458)
</TABLE>
SPARX Investment & Research, USA, Inc. ('SPARX USA') serves as
sub-investment adviser for the Japan OTC Fund. From its investment advisory fee,
Warburg pays SPARX USA a fee at an annual rate of .625% of the average daily net
assets of the Japan OTC Fund. No compensation is paid by the Japan OTC Fund to
SPARX USA for its sub-investment advisory services.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Fund's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Fund's average daily net assets. For the period or year
ended October 31, 1995, administrative services fees earned by CFSI were as
follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Capital Appreciation $ 195,390
Emerging Growth 424,895
International Equity 2,022,563
Japan OTC 47,978
Emerging Markets 2,372
Post-Venture Capital 140
</TABLE>
For its administrative services, PFPC currently receives a fee calculated
at an annual rate of .10% of the average daily net assets of the Capital
Appreciation Fund, the Emerging Growth Fund and the Post-Venture Capital Fund.
For the International Equity Fund, the Japan OTC Fund and the Emerging Markets
Fund, PFPC currently receives a fee calculated at an annual rate of .12% on each
Fund's first $250 million in average daily net assets, .10% on the next $250
million in average daily net assets, .08%
52
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
on the next $250 million in average daily net assets, and .05% of the average
daily net assets over $750 million.
For the period or year ended October 31, 1995, administrative service fees
earned and waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
FUND CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- ----------------------------------------- --------------------- -------- -------------------------
<S> <C> <C> <C>
Capital Appreciation $ 195,390 $ 0 $ 195,390
Emerging Growth 424,895 0 424,895
International Equity 1,386,283 0 1,386,283
Japan OTC 90,701 (26,746) 63,955
Emerging Markets 2,845 (2,845) 0
Post-Venture Capital 140 (140) 0
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is paid by the
Capital Appreciation Fund, the Emerging Growth Fund or the International Equity
Fund to CSI for distribution services. For its shareholder servicing and
distribution services, CSI currently receives a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares for the Japan OTC
Fund, the Emerging Markets Fund and the Post-Venture Capital Fund pursuant to a
shareholder servicing and distribution plan adopted by each Fund. For the period
or year ended October 31, 1995, distribution fees earned by CSI were as follows:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ------------------------------------------- ------------------------------
<S> <C>
Japan OTC $119,941
Emerging Markets 5,926
Post-Venture Capital 351
</TABLE>
3. INVESTMENTS IN SECURITIES
For the period or year ended October 31, 1995, purchases and sales of
investment securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ----------------------------------------------------------- -------------- ------------
<S> <C> <C>
Capital Appreciation $ 299,741,274 $269,962,070
Emerging Growth 532,722,466 336,581,792
International Equity 1,457,609,458 735,613,078
Japan OTC 189,768,420 36,507,703
Emerging Markets 7,181,659 1,297,140
Post-Venture Capital 2,714,501 222,270
</TABLE>
53
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the net unrealized appreciation from investments for
those securities having an excess of value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- ----------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Capital Appreciation $ 45,397,319 $ (3,203,157) $ 42,194,162
Emerging Growth 144,909,782 (9,681,675) 135,228,107
International Equity 260,125,513 (171,560,066) 88,565,447
Japan OTC 6,205,079 (7,100,852) (895,773)
Emerging Markets 341,944 (352,944) (11,000)
Post-Venture Capital 233,929 (69,488) 164,441
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The International Equity Fund, the Japan OTC Fund, the Emerging Markets
Fund and the Post-Venture Capital Fund may enter into forward currency contracts
for the purchase or sale of a specific foreign currency at a fixed price on a
future date. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. The Funds will enter into forward contracts primarily for hedging
purposes. The forward currency contracts are adjusted by the daily exchange rate
of the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
54
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
At October 31, 1995, the International Equity Fund and the Japan OTC Fund had
the following open forward foreign currency contracts:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French Francs 11/15/95 260,000,000 $ 52,170,074 $ 53,253,590 $ (1,083,516)
French Francs 11/16/95 122,216,250 25,050,833 25,032,515 18,318
German Marks 11/16/95 110,000,000 78,272,317 78,263,963 8,354
German Marks 05/17/96 78,928,380 55,400,000 56,652,584 (1,252,584)
Japanese Yen 03/21/96 5,547,240,000 57,000,000 55,475,507 1,524,493
Japanese Yen 03/21/96 4,764,377,500 47,298,496 47,646,443 (347,947)
Japanese Yen 03/21/96 4,764,377,500 47,276,203 47,646,443 (370,240)
Japanese Yen 03/21/96 1,385,445,000 13,761,286 13,855,226 (93,940)
Japanese Yen 05/13/96 8,731,990,000 109,000,000 88,008,212 20,991,788
Japanese Yen 05/16/96 9,247,700,000 110,000,000 93,246,752 16,753,248
Japanese Yen 05/16/96 4,586,012,000 55,400,000 46,241,847 9,158,153
Japanese Yen 09/18/96 4,660,000,000 50,000,000 47,860,895 2,139,105
------------ ------------ ----------------
$700,629,209 $653,183,977 $ 47,445,232
------------ ------------ ----------------
------------ ------------ ----------------
<CAPTION>
FOREIGN
CURRENCY UNREALIZED
FORWARD CURRENCY EXPIRATION TO BE CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE PURCHASED AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
German Marks 11/16/95 34,500,000 $ 25,050,828 $ 24,546,425 $ (504,403)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
JAPAN OTC FUND
- -----------------------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ------------------- ----------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 11/30/95 12,567,400,000 $124,000,000 $123,536,813 $ 463,187
Japanese Yen 11/30/95 2,027,000,000 20,000,000 19,925,293 74,707
Japanese Yen 11/30/95 1,520,250,000 15,000,000 14,943,969 56,031
------------ ------------ ----------------
$159,000,000 $158,406,075 $ 593,925
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
55
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
5. EQUITY SWAP TRANSACTIONS
The International Equity Fund (the 'Fund') entered into a Taiwanese equity
swap agreement (which represents approximately .005% of the Fund's net assets at
October 31, 1995) dated August 11, 1995, where the Fund receives a quarterly
payment, representing the total return (defined as market appreciation and
dividend income) on a basket of three Taiwanese common stocks ('Common Stocks').
In return, the Fund pays quarterly the Libor rate (London Interbank Offered
Rate), plus 1.25% per annum (7.125% on October 31, 1995) on the initial stock
purchase amount ('Notional amount') of $12,000,000. The Notional amount is
marked to market on each quarterly reset date. In the event that the Common
Stocks decline in value, the Fund will be required to pay quarterly, the amount
of any depreciation in value from the notional amount. The equity swap agreement
will terminate on August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At October 31, 1995, the
Fund has recorded an unrealized gain of $502,018 and interest payable of
$192,375 on the equity swap transaction.
56
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
The Capital Appreciation Fund is authorized to issue three billion of full
and fractional shares of beneficial interest, $.001 par value per share, of
which one billion shares are classified as Series 2 Shares (the Advisor Shares).
The Emerging Growth Fund, the International Equity Fund, the Japan OTC Fund, the
Emerging Markets Fund and the Post-Venture Capital Fund are each authorized to
issue three billion full and fractional shares of capital stock, $.001 par value
per share, of which one billion shares of each Fund are designated as Series 2
Shares (the Advisor Shares).
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND EMERGING GROWTH FUND
Common Shares Advisor Shares Common Shares Advisor Shares
----------------------------- --------------------------- ------------------------------ --------------
For the Year Ended October 31, For the Year Ended October 31,
------------------------------------------------------------- ----------------------------------------------
1995 1994 1995 1994 1995 1994 1995
------------ ------------ ----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold 6,020,619 2,958,494 201,782 290,193 9,808,362 6,133,751 3,172,686
Shares issued to
shareholders on
reinvestment of
dividends 850,478 920,210 46,554 61,526 0 506,720 0
Shares redeemed (3,638,974) (3,126,497) (110,027) (460,020) (4,294,179) (2,859,413) (383,922)
------------ ------------ ----------- ----------- ------------- ------------ -----------
Net increase
(decrease) in
shares
outstanding 3,232,123 752,207 138,309 (108,301) 5,514,183 3,781,058 2,788,764
------------ ------------ ----------- ----------- ------------- ------------ -----------
------------ ------------ ----------- ----------- ------------- ------------ -----------
Proceeds from sale
of shares $ 85,992,655 $ 41,570,590 $ 2,970,800 $ 4,046,941 $ 256,886,928 $132,922,995 $78,682,150
Reinvested
dividends 10,670,876 12,945,690 575,876 863,477 0 11,015,146 0
Net asset value of
shares redeemed (51,907,650) (43,449,501) (1,551,821) (6,401,999) (106,777,032) (61,126,667) (9,503,812)
------------ ------------ ----------- ----------- ------------- ------------ -----------
Net increase
(decrease) from
capital share
transactions $ 44,755,881 $ 11,066,779 $ 1,994,855 $(1,491,581) $ 150,109,896 $ 82,811,474 $69,178,338
------------ ------------ ----------- ----------- ------------- ------------ -----------
------------ ------------ ----------- ----------- ------------- ------------ -----------
<CAPTION>
1994
------------
<S> <C>
Shares sold 2,233,737
Shares issued to
shareholders on
reinvestment of
dividends 80,473
Shares redeemed (517,898)
------------
Net increase
(decrease) in
shares
outstanding 1,796,312
------------
------------
Proceeds from sale
of shares $ 47,890,275
Reinvested
dividends 1,743,241
Net asset value of
shares redeemed (10,641,050)
------------
Net increase
(decrease) from
capital share
transactions $ 38,992,466
------------
------------
</TABLE>
57
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONT'D)
<TABLE>
<CAPTION>
EMERGING MARKETS FUND
INTERNATIONAL EQUITY FUND Common Shares Advisor Shares
Common Shares Advisor Shares --------------- -----------------
-------------------------------- ---------------------------- For the Period
For the Year Ended October 31, December 30, 1994
---------------------------------------------------------------- (Commencement of Operations)
1995 1994 1995 1994 through October 31, 1995
-------------- -------------- ------------ ------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 68,096,606 64,218,907 7,225,150 7,956,088 694,008 22
Shares issued to
shareholders on
reinvestment of
dividends 2,623,005 147,031 346,377 6,879 1,267 0
Shares redeemed (38,317,625) (11,861,720) (770,753) (795,406) (104,480) 0
-------------- -------------- ------------ ------------ --------------- -----
Net increase
(decrease) in
shares outstanding 32,401,986 52,504,218 6,800,774 7,167,561 590,795 22
-------------- -------------- ------------ ------------ --------------- -----
-------------- -------------- ------------ ------------ --------------- -----
Proceeds from sale of
shares $1,251,776,887 $1,275,306,263 $131,585,072 $155,433,660 $ 7,753,651 $ 257
Reinvested dividends 48,487,109 2,820,903 6,385,868 129,869 13,802 0
Net asset value of
shares redeemed (701,310,424) (233,614,600) (14,287,779) (15,435,478) (1,191,160) 0
-------------- -------------- ------------ ------------ --------------- -----
Net increase
(decrease) from
capital share
transactions $ 598,953,572 $1,044,512,566 $123,683,161 $140,128,051 $ 6,576,293 $ 257
-------------- -------------- ------------ ------------ --------------- -----
-------------- -------------- ------------ ------------ --------------- -----
</TABLE>
7. NET ASSETS
Net Assets at October 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
CAPITAL EMERGING
APPRECIATION FUND GROWTH FUND
----------------- ------------
<S> <C> <C>
Capital contributed, net $ 173,327,827 $479,035,241
Accumulated net investment income (loss) 0 0
Accumulated net realized gain (loss) from security transactions 31,648,355 40,302,640
Net unrealized appreciation (depreciation) from investments and
foreign currency related items 42,329,683 135,424,730
----------------- ------------
Net assets $ 247,305,865 $654,762,611
----------------- ------------
----------------- ------------
</TABLE>
58
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPAN OTC FUND
Common Shares Advisor Shares
------------------------------------- -------------------------------------
For the Period For the Period POST-VENTURE CAPITAL FUND
September 30, September 30, Common Shares
1994 1994 ------------------
(Commencement of (Commencement of For the Period
For the Operations) For the Operations) September 29, 1995
Year Ended through Year Ended through (Commencement of Operations)
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994 through October 31, 1995
---------------- ---------------- ---------------- ---------------- --------------------------
<S> <C> <C> <C> <C> <C>
22,809,795 2,025,697 0 15 273,510
0 0 0 0 0
(5,180,432) (18,605) 0 0 (473)
--
---------------- ---------------- ----- ------------------
17,629,363 2,007,092 0 15 273,037
--
--
---------------- ---------------- ----- ------------------
---------------- ---------------- ----- ------------------
$200,565,875 $ 20,287,008 $0 $150 $2,792,203
0 0 0 0 0
(44,871,674) (185,101) 0 0 (4,887)
--
---------------- ---------------- ----- ------------------
$155,694,201 $ 20,101,907 $0 $150 $2,787,316
--
--
---------------- ---------------- ----- ------------------
---------------- ---------------- ----- ------------------
<CAPTION>
Advisor Shares
---------------------
<S> <C>
19
0
0
-----
19
-----
-----
$ 200
0
0
-----
$ 200
-----
-----
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING POST-VENTURE
EQUITY FUND MARKETS FUND JAPAN OTC FUND CAPITAL FUND
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
$2,271,007,433 $6,677,550 $175,619,527 $2,887,516
19,124,669 10,218 7,821,209 356
(40,671,086 ) 102,219 (4,640,787) (26,884)
136,482,831 (9,058) (230,467) 164,441
-------------- ------------ -------------- ------------
$2,385,943,847 $6,780,929 $178,569,482 $3,025,429
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
</TABLE>
59
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
8. CAPITAL LOSS CARRYOVER
At October 31, 1995, the International Equity Fund, the Japan OTC Fund and
the Post-Venture Capital Fund had capital loss carryovers of $40,671,086,
$4,629,196 and $26,884, respectively, expiring in 2003 to offset possible future
capital gains of each Fund.
9. OTHER FINANCIAL HIGHLIGHTS
Each Fund currently offers one other class of shares, Common Shares,
representing equal prorata interests in each of the respective Warburg Pincus
Equity Funds. The financial highlights for a Common Share of each Fund are as
follows:
<TABLE>
<CAPTION>
Capital Appreciation Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.29 $15.32 $13.30 $12.16 $ 9.78
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .04 .04 .05 .04 .15
Net Gain on Securities (both
realized and unrealized) 3.08 .17 2.78 1.21 2.41
------ ------ ------ ------ ------
Total from Investment Operations 3.12 .21 2.83 1.25 2.56
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.04) (.05) (.05) (.06) (.18)
Distributions from Capital Gains (.98) (1.19) (.76) (.05) .00
------ ------ ------ ------ ------
Total Distributions (1.02) (1.24) (.81) (.11) (.18)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $16.39 $14.29 $15.32 $13.30 $12.16
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 24.05% 1.65% 22.19% 10.40% 26.39%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $235,712 $159,346 $159,251 $117,900 $115,191
Ratios to average daily net assets:
Operating expenses 1.12% 1.05% 1.01% 1.06% 1.08%
Net investment income .31% .26% .30% .41% 1.27%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .01% .00% .01% .00%
Portfolio Turnover Rate 146.09% 51.87% 48.26% 55.83% 39.50%
</TABLE>
60
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.06
Long-term capital gain .96
</TABLE>
Ordinary income dividends qualifying for the dividends received deduction
available to corporate shareholders was 100.00%.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
61
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Growth Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $22.38 $23.74 $18.28 $16.97 $10.83
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income (Loss) (.05) (.06) (.10) (.03) .05
Net Gain on Securities (both
realized and unrealized) 7.64 .06 5.93 1.71 6.16
------ ------ ------ ------ ------
Total from Investment Operations 7.59 .00 5.83 1.68 6.21
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income .00 .00 .00 (.01) (.07)
Distributions from Capital Gains .00 (1.36) (.37) (.36) .00
------ ------ ------ ------ ------
Total Distributions .00 (1.36) (.37) (.37) (.07)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $29.97 $22.38 $23.74 $18.28 $16.97
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 33.91% .16% 32.28% 9.87% 57.57%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $487,537 $240,664 $165,525 $99,562 $42,061
Ratios to average daily net assets:
Operating expenses 1.26% 1.22% 1.23% 1.24% 1.25%
Net investment income (loss) (.58%) (.58%) (.60%) (.25%) .32%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .04% .00% .08% .47%
Portfolio Turnover Rate 84.82% 60.38% 68.35% 63.35% 97.69%
</TABLE>
62
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
------------------------------------------------------
Common Shares
------------------------------------------------------
For the Year Ended October 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $20.51 $17.00 $12.22 $13.66 $11.81
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income .12 .09 .09 .15 .19
Net Gain (Loss) on Securities and
Foreign Currency Related Items (both
realized and unrealized) (.67) 3.51 4.84 (1.28) 2.03
------ ------ ------ ------ ------
Total from Investment Operations (.55) 3.60 4.93 (1.13) 2.22
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income (.13) (.04) (.02) (.16) (.33)
Distributions in Excess of
Net Investment Income .00 (.01) .00 .00 .00
Distributions from Capital Gains (.53) (.04) (.13) (.15) (.04)
------ ------ ------ ------ ------
Total Distributions (.66) (.09) (.15) (.31) (.37)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $19.30 $20.51 $17.00 $12.22 $13.66
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return (2.55%) 21.22% 40.68% (8.44%) 19.42%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $2,068,207 $1,533,872 $378,661 $101,763 $72,553
Ratios to average daily net assets:
Operating expenses 1.39% 1.44% 1.48% 1.49% 1.50%
Net investment income .69% .19% .38% .88% 1.19%
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .00% .00% .00% .07% .17%
Portfolio Turnover Rate 39.24% 17.02% 22.60% 53.29% 54.95%
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.46
Long-term capital gain .20
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
63
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Japan OTC Fund
---------------------------------------------------------
Common Shares
---------------------------------------------------------
For the Period
September 30, 1994
(Commencement of
For the Year Ended Operations) through
October 31, 1995 October 31, 1994
--------------------------- --------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.85 $ 10.00
----------- ----------
Income from Investment Operations:
Net Investment Income .00 .00
Net Loss on Securities and Foreign Currency
Related Items (both realized and unrealized) (.76) (.15)
----------- ----------
Total from Investment Operations (.76) (.15)
----------- ----------
Less Distributions:
Dividends from Net Investment Income .00 .00
Distributions from Capital Gains .00 .00
----------- ----------
Total Distributions .00 .00
----------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.09 $ 9.85
----------- ----------
----------- ----------
Total Return (7.72%) (15.84%)*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 178,568 $ 19,878
Ratios to average daily net assets:
Operating expenses 1.41% 1.00%*
Net investment income (loss) (.15%) .49%*
Decrease reflected in above operating expense
ratios due to waivers/reimbursements 1.35% 4.96%*
Portfolio Turnover Rate 82.98% .00%
* Annualized
</TABLE>
64
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Markets Fund
---------------------------
Common Shares
---------------------------
For the Period
December 30, 1994
(Commencement of
Operations) through
October 31, 1995
---------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .08
Net Gain on Securities and Foreign Currency Related Items (both
realized and unrealized) 1.25
-------
Total from Investment Operations 1.33
-------
Less Distributions:
Dividends from Net Investment Income (.05)
Distributions from Capital Gains .00
-------
Total Distributions (.05)
-------
NET ASSET VALUE, END OF PERIOD $ 11.28
-------
-------
Total Return 16.09%*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 6,780
Ratios to average daily net assets:
Operating expenses 1.00%*
Net investment income 1.25%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 11.08%*
Portfolio Turnover Rate 69.12%*
* Annualized
</TABLE>
TAX STATUS OF 1995 DIVIDENDS (Unaudited)
Taxable dividends paid by the Fund on per share basis were as follows:
<TABLE>
<S> <C>
Ordinary income $.05
</TABLE>
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
65
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-Venture Capital Fund
---------------------------
Common Shares
---------------------------
For the Period
September 29, 1995
(Commencement of
Operations) through
October 31, 1995
---------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .00
Net Gain on Securities (both realized and unrealized) .69
-------
Total from Investment Operations .69
-------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
-------
Total Distributions .00
-------
NET ASSET VALUE, END OF PERIOD $ 10.69
-------
-------
Total Return 6.90%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 3,024
Ratios to average daily net assets:
Operating expenses 1.65%*
Net investment income .25%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements 23.76%*
Portfolio Turnover Rate 16.90%*
* Annualized
+ Non-annualized
</TABLE>
66
- --------------------------------------------------------------------------------
<PAGE>C-1
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements included in Part A:
(a) Financial Highlights
(2) Audited Financial Statements included in
Part B:
(a) Report of Coopers & Lybrand L.L.P., Independent
Auditors
(b) Schedule of Investments
(c) Statement of Assets and Liabilities
(d) Statement of Operations
(e) Statement of Changes in Net Assets
(f) Financial Highlights
(g) Notes to Financial Statements
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.(1)
(b) Articles of Amendment.(1)
2 By-Laws.(1)
3 Not applicable.
4 Form of Share Certificates.(1)
5 Investment Advisory Agreement.(1)
6 Distribution Agreement.(2)
7 Not applicable.
- ------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed on June 30, 1995.
(2) Contained in Exhibit No. 15 hereto.
<PAGE>C-2
8 Custodian Agreement, as amended.(3)
9(a) Form of Transfer Agency Agreement.(4)
(b) Form of Counsellors Service Co-Administration Agreement.(4)
(c) Form of PFPC Co-Administration Agreement.(4)
(d) Forms of Services Agreements.(5)
10(a) Opinion of Willkie Farr & Gallagher, counsel to the
Fund.(6)
(b) Consent of Willkie Farr & Gallagher, counsel to the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent Auditors.
12 Not applicable.
13 Form of Purchase Agreement.(1)
- ------------------------
(3) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A of Warburg, Pincus Japan OTC Fund, Inc., filed on December 27,
1995 (Securities Act File No. 33-82362).
(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
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of Warburg, Pincus Japan Growth Fund, Inc., filed on
December 18, 1995 (Securities Act File No. 33-63655).
(6) Incorporated by reference to Opinion of Willkie Farr &
Gallagher filed with Registrant's Rule 24-2 Notice, filed on
December 19, 1995.
<PAGE>C-3
14 Form of Retirement Plans.(7)
15(a) Form of Shareholder Servicing and Distribution Plan.(8)
(b) Distribution Agreement.(1)
(c) Form of Shareholder Services Plan.(9)
(d) Form of Amended and Restated Distribution Plan.(5)
(e) Rule 18f-3 Plan. (10)
16 Computation of Performance Quotations.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
- ------------------------
(7) 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).
(8) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 2 to the Registration Statement
on Form N-1A of Warburg, Pincus Post-Venture Capital Fund,
Inc., filed on September 22, 1995 (Securities Act File No. 33-
61225).
(9) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A of Warburg, Pincus Cash Reserve Fund, Inc. filed
on June 28, 1995 (Securities Act File No. 2-94840).
(10) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A of Warburg, Pincus International Equity Fund,
Inc., filed on December 27, 1995 (Securities Act File No. 33-
27031).
<PAGE>C-4
Item 25. Persons Controlled by or Under Common Control with
Registrant
Warburg, Pincus Warburg, Inc. ("Warburg"), Registrant's investment
adviser, may be deemed a controlling person of Registrant because it possesses
or shares investment or voting power with respect to more than 25% of the
outstanding securities of Registrant. E.M. Warburg, Pincus & Co., Inc.
controls Warburg through its ownership of a class of voting preferred stock of
Warburg. John L. Furth, director of the Fund, and Lionel I. Pincus may be
deemed to be controlling persons of the Fund because they may be deemed to
possess or share investment power over shares owned by clients of Warburg and
certain other entities.
Item 26. Number of Holders of Securities
Number of
Record Holders
Title of Class as of November 30, 1995
-------------- -----------------------
Shares of common stock 560
par value $.001 per share
Shares of common stock
par value $.001 per share - 0
Series 1
Shares of common stock
par value $.001 per share -
Series 2 (Advisor shares) 5
Item 27. Indemnification
Registrant, officers and directors or trustees of Warburg, of
Counsellors Securities Inc. ("Counsellors Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. Discussion of this coverage is
incorporated by reference to Item 27 of Part C of the Registration Statement
of Warburg, Pincus Trust (Securities Act File No. 33-58125), filed on March
17, 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 reference
to Schedules A and D of Form ADV filed by Warburg (SEC File No. 801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for The RBB Fund, Inc.;
Warburg, Pincus Capital Appreciation
<PAGE>C-5
Fund; Warburg, Pincus Cash Reserve Fund; Warburg, Pincus Emerging Growth Fund;
Warburg, Pincus Fixed Income Fund; Warburg, Pincus Global Fixed Income Fund;
Warburg, Pincus Institutional Fund, Inc.; Warburg, Pincus Intermediate
Maturity Government Fund; Warburg, Pincus International Equity Fund; Warburg,
Pincus Japan OTC Fund; Warburg, Pincus New York Intermediate Municipal Fund;
Warburg, Pincus Post-Venture Capital Fund; Warburg, Pincus New York Tax Exempt
Fund; Warburg, Pincus Post-Venture Capital Fund, Warburg, Pincus Short-Term
Tax-Advantaged Bond Fund and Warburg, Pincus Trust.
(b) For information relating to each director and officer of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654)
filed by Counsellors Securities under the Securities Exchange Act of 1934, as
amended.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Emerging Markets Fund
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)
(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) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
<PAGE>C-6
(records relating to its functions as shareholder servicing
agent, transfer agent, dividend disbursing agent and custodian)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) 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.
(b) 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.
<PAGE>C-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and the State of New York, on the 22nd day of December, 1995.
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
By:/s/ Richard H. King
Richard H. King
President
ATTEST:
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John L. Furth Chief Executive Officer and December 22, 1995
John L. Furth Director
/s/ Richard H. King President December 22, 1995
Richard H. King
/s/ Stephen Distler Vice President and Chief December 22, 1995
Stephen Distler Financial Officer
/s/ Howard Conroy Vice President, Treasurer and December 22, 1995
Howard Conroy Chief Accounting Officer
/s/ Richard N. Cooper Director December 22, 1995
Richard N. Cooper
/s/ Donald J. Donahue Director December 22, 1995
Donald J. Donahue
<PAGE>C-8
/s/ Jack W. Fritz Director December 22, 1995
Jack W. Fritz
/s/ Thomas A. Melfe Director December 22, 1995
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director December 22, 1995
Alexander B. Trowbridge
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.(1)
(b) Articles of Amendment.(1)
2 By-Laws.(1)
3 Not applicable.
4 Form of Share Certificates.(1)
5 Investment Advisory Agreement.(1)
6 Distribution Agreement.(2)
7 Not applicable.
- ------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed on June 30, 1995.
(2) Contained in Exhibit No. 15 hereto.
<PAGE>
8 Custodian Agreement, as amended.(3)
9(a) Form of Transfer Agency Agreement.(4)
(b) Form of Counsellors Service Co-Administration Agreement.(4)
(c) Form of PFPC Co-Administration Agreement.(4)
(d) Forms of Services Agreements.(5)
10(a) Opinion of Willkie Farr & Gallagher, counsel to the
Fund.(6)
(b) Consent of Willkie Farr & Gallagher, counsel to the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent Auditors.
12 Not applicable.
13 Form of Purchase Agreement.(1)
- ------------------------
(3) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A of Warburg, Pincus Japan OTC Fund, Inc., filed on December 27,
1995 (Securities Act File No. 33-82362).
(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
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of Warburg, Pincus Japan Growth Fund, Inc., filed on
December 18, 1995 (Securities Act File No. 33-63655).
(6) Incorporated by reference to Opinion of Willkie Farr &
Gallagher filed with Registrant's Rule 24-2 Notice, filed on
December 19, 1995.
<PAGE>
14 Form of Retirement Plans.(7)
15(a) Form of Shareholder Servicing and Distribution Plan.(8)
(b) Distribution Agreement.(1)
(c) Form of Shareholder Services Plan.(9)
(d) Form of Amended and Restated Distribution Plan.(5)
(e) Rule 18f-3 Plan. (10)
16 Computation of Performance Quotations.
17(a) Financial Data Schedule relating to Common Shares.
(b) Financial Data Schedule relating to Advisor Shares.
- ------------------------
(7) 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).
(8) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 2 to the Registration Statement
on Form N-1A of Warburg, Pincus Post-Venture Capital Fund,
Inc., filed on September 22, 1995 (Securities Act File No. 33-
61225).
(9) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 12 to the Registration Statement
on Form N-1A of Warburg, Pincus Cash Reserve Fund, Inc. filed
on June 28, 1995 (Securities Act File No. 2-94840).
(10) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A of Warburg, Pincus International Equity Fund,
Inc., filed on December 27, 1995 (Securities Act File No. 33-
27031).
<PAGE>
CONSENT OF COUNSEL
Warburg, Pincus Emerging Markets Fund, Inc.
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 3 (the "Amendment") to
the Registration Statement on Form N-1A (Securities Act File No. 33-73498,
Investment Company Act File No. 811-8252) of Warburg, Pincus Emerging Markets
Fund, Inc. (the "Fund") under the caption "Auditors 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
December 22, 1995
New York, New York
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 3 to the
Registration Statement under the Securities Act of 1933 on Form N-1A ( No.
33-73498) of our report dated December 14, 1995 on our audit of the financial
statements and financial highlights of Warburg, Pincus Emerging Markets
Fund, Inc. We also consent to the reference to our Firm under the
captions "Financial Highlights" and "Auditors and Counsel" in the filing.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 26, 1995
<PAGE>
Warburg Pincus Emerging Markets Fund
For the Period December 30, 1994 to October 31, 1995
Common Shares
-------------
Aggregate Total Return With Waivers:
((11,333-10,000)/10,000) = 13.33%
Aggregate Total Return Without Waivers:
((10,810-10,000)/10,000) = 8.10%
Annualized Total Return With Waivers:
((11,333/10,000)[*GRAPHIC OMITTED-SEE FOOTNOTE BELOW]-1) = 16.09%
Annualized Total Return Without Waivers:
((10,810/10,000)[*GRAPHIC OMITTED-SEE FOOTNOTE BELOW]-1) = 9.74%
Series 2 Shares
---------------
Aggregate Total Return With Waivers:
((11,329-10,000)/10,000) = 13.29%
Aggregate Total Return Without Waivers:
((9,920-10,000)/10,000) = -0.80%
Annualized Total Return With Waivers:
((11,329/10,000)[*GRAPHIC OMITTED-SEE FOOTNOTE BELOW]-1) = 16.05%
Annualized Total Return Without Waivers:
((9,920/10,000)[*GRAPHIC OMITTED-SEE FOOTNOTE BELOW]-1) = -0.95%
- ------------------------
* - The preceding expression is being raised to the power 1/.83836
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000933582
<NAME> WARBURG PINCUS EMERGING MARKETS FUND
<SERIES>
<NUMBER> 001
<NAME> COMMON SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 6602594
<INVESTMENTS-AT-VALUE> 6593087
<RECEIVABLES> 219446
<ASSETS-OTHER> 187517
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7000050
<PAYABLE-FOR-SECURITIES> 111286
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107835
<TOTAL-LIABILITIES> 219121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6677550
<SHARES-COMMON-STOCK> 600917
<SHARES-COMMON-PRIOR> 10100
<ACCUMULATED-NII-CURRENT> 10218
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 102219
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (9058)
<NET-ASSETS> 6780929
<DIVIDEND-INCOME> 30538
<INTEREST-INCOME> 22711
<OTHER-INCOME> 0
<EXPENSES-NET> 23715
<NET-INVESTMENT-INCOME> 29534
<REALIZED-GAINS-CURRENT> 97227
<APPREC-INCREASE-CURRENT> (9058)
<NET-CHANGE-FROM-OPS> 117703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14324
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 694008
<NUMBER-OF-SHARES-REDEEMED> 104480
<SHARES-REINVESTED> 1267
<NET-CHANGE-IN-ASSETS> 6679929
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29641
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 286539
<AVERAGE-NET-ASSETS> 2836623
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 1.25
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.28
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000933582
<NAME> WARBURG PINCUS EMERGING MARKETS FUND
<SERIES>
<NUMBER> 002
<NAME> ADVISOR SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 6602594
<INVESTMENTS-AT-VALUE> 6593087
<RECEIVABLES> 219446
<ASSETS-OTHER> 187517
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7000050
<PAYABLE-FOR-SECURITIES> 111286
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107835
<TOTAL-LIABILITIES> 219121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6677550
<SHARES-COMMON-STOCK> 600917
<SHARES-COMMON-PRIOR> 10100
<ACCUMULATED-NII-CURRENT> 10218
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</TABLE>
