<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on October 30, 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. 2 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 3 [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)
[ ] on March 1, 1995 pursuant to paragraph (b)
[x] 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 pursuant to Section (a)(1) of Rule 24f-2 under the
Investment Company Act of 1940, as amended (the "1940 Act").
<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;
Investment Guidelines;
General Information
5. Management of the Fund . Management of the Funds
6. Capital Stock and Other
Securities . . . . . . . General Information;
Shareholder Servicing
7. Purchase of Securities
Being Offered . . . . . How to Purchase Shares;
Management of the Funds;
Shareholder Servicing
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 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--
Organization 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--"Management of
the Fund"
16. Investment Advisory and
Other Services . . . . . Management of the Fund; See
Prospectuses--"Management of
the Fund" and "Shareholder
Servicing"
17. Brokerage Allocation . . Investment Policies--Portfolio
Transactions
18. Capital Stock and Other
Securities . . . . . . . Management of the Fund--
Organization of the Fund and
Shareholder Servicing; See
Prospectuses--"General
Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . Additional Purchase and
Redemption Information; See
Prospectuses--"How to Purchase
Shares," "How to Redeem and
<PAGE>5
Part B Statement of Additional
Item No. Information Heading
-------- -----------------------
Exchange Shares" and "Net
Asset Value"
20. Tax Status . . . . . . . Additional Information
Concerning Taxes; See
Prospectuses--"Dividends,
Distributions and Taxes"
21. Underwriters . . . . . . Management of the Fund; See
Prospectuses--"Management of
the Fund" and "Shareholder
Servicing"
22. Calculation of
Performance Data . . . . Determination of Performance
23. Financial Statements . . Report of Coopers & Lybrand
L.L.P., 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>1
PROSPECTUS
The Fund's Common Share Prospectus is incorporated by reference to
the Prospectus that forms part of Post-Effective Amendment No. 3 to the
Registration Statement on Form N-1A of Warburg, Pincus Japan OTC Fund, Inc.
(Securities Act File No. 33-82362; Investment Co. Act File No. 811-8686),
filed on October 30, 1995.
<PAGE>
[Logo]
PROSPECTUS
DECEMBER 29, 1995
[ ] WARBURG PINCUS EMERGING MARKETS FUND
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 30, 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,
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 Series 2
Shares (referred to as the Advisor Shares), is offered pursuant to this
Prospectus. The Advisor Shares of the Fund, as well as Series 2 (Advisor) Shares
of certain other Warburg Pincus-advised funds, are sold under the name 'Warburg
Pincus Advisor Funds.' The Advisor Shares may not be purchased by individuals
directly from the Fund's distributor but financial institutions, broker-dealers,
financial institutions, depository institutions, retirement plans and other
financial intermediaries ('Institutions') may purchase Advisor Shares for
individuals. The Advisor Shares impose a 12b-1 fee of up to .75% per annum,
which is the economic equivalent of a sales charge. 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 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>
THE FUND'S EXPENSES
The Fund currently offers two separate classes of shares: Common Shares and
Advisor Shares. See 'General Information' and 'Shareholder Servicing.' 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) (after fee waivers)
Management Fees..................................................................................... 0
12b-1 Fees.......................................................................................... .75%*
Other Expenses...................................................................................... .75%
-----
Total Fund Operating Expenses....................................................................... 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.................................................................................................. $
10 years................................................................................................. $
</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.
------------------------
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. Absent the voluntary waiver
of a portion of the fees payable to Warburg, Pincus Counsellors, Inc., the
Fund's investment adviser ('Warburg'), Management Fees would have equalled
1.25%, Other Expenses would have equalled 20.63% and Total Fund Operating
Expenses would have equalled 22.63%. 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>
FINANCIAL HIGHLIGHTS
(FOR AN ADVISOR SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The 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 , 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.........................................................
-------
Income from Investment Operations
Net Investment Income...................................................................
Net Gains (Losses) from Securities and Foreign Currency Related Items (both realized and
unrealized)............................................................................
-------
Total from Investment Operations........................................................
-------
Less Distributions
Dividends (from net investment income)..................................................
Distributions (from capital gains)......................................................
-------
Total Distributions.....................................................................
-------
Net Asset Value, End of Period...............................................................
-------
-------
Total Return.................................................................................
Ratios/Supplemental Data
Net Assets, End of Period (000s).............................................................
Ratios to average daily net assets:
Operating expenses......................................................................
Net investment income...................................................................
Decrease reflected in above expense ratios due to waivers/reimbursements................
Portfolio Turnover Rate......................................................................
</TABLE>
- ------------
* Annualized.
3
<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 '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
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, 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>
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.
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in investment grade debt obligations, in
securities of U.S. companies and in domestic and foreign money market
obligations, including repurchase agreements as discussed below.
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,
mortgage-backed securities and zero coupon securities that are not convertible
into common or preferred stock:
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
5
<PAGE>
and obligations as the purchaser of an assignment may differ from, and be more
limited than, those held by the assigning lender. The lack of a liquid secondary
market for both participations and assignments will have an adverse impact on
the value of such securities and on the Fund's ability to dispose of
participations or assignments.
Asset-backed securities are collateralized by interests in pools of
consumer loans, with interest and principal payments ultimately depending on
payments in respect of the underlying loans by individuals (or a financial
institution providing credit enhancement). Because market experience in these
securities is limited, the market's ability to sustain liquidity through all
phases of the market cycle 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 market
shifts in the 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.
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 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
6
<PAGE>
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 or Warburg. 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 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.
ZERO COUPON SECURITIES. Zero coupon securities pay no cash income to their
holders until they mature and are issued at substantial discounts from their
value at maturity. When held to maturity, their entire return comes from the
difference between their purchase price and their maturity value. Because
interest on zero coupon securities is not paid on a current basis, the values of
securities of this type are subject to greater fluctuations than are the values
of securities that distribute income regularly and may be more speculative than
such other securities. Accordingly, the values of these securities may be highly
volatile as interest rates rise or fall. Redemption of shares of the Fund that
require it to sell zero coupon securities prior to maturity may result in
capital gains or losses that may be substantial. In addition, the Fund's
investments in zero coupon securities will result in special tax consequences,
which are described below under 'Dividends, Distributions and Taxes -- Taxes'.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
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
7
<PAGE>
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 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. 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.
Because smaller companies normally have fewer shares outstanding than larger
companies, it may be more difficult for a Fund to buy or sell significant
amounts of such shares without an unfavorable impact on prevailing prices. 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-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.
INVESTMENTS IN NON-PUBLICLY TRADED SECURITIES. Although the Fund expects to
invest primarily in publicly traded equity securities, up to 15% of the Fund's
net assets may be invested in non-publicly traded equity securities, which may
involve a high degree of business and financial risk and may result in
substantial losses. Because of the absence of any liquid trading market
currently for these investments, 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
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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 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.
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 bonds. 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.
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-
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<PAGE>
delivery, (ii) lending portfolio securities and (iii) entering into reverse
repurchase agreements and dollar rolls. The Fund may also invest up to 5% of its
net assets in stand-by commitments. 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.
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.
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
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<PAGE>
as 'derivatives,' may be used (i) for the purpose of hedging against a decline
in value of the Fund's current or anticipated portfolio holdings, (ii) as a
substitute for purchasing or selling portfolio securities or (iii) to seek to
generate income to offset expenses or increase return. TRANSACTIONS THAT ARE NOT
CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE
THE FUND'S INVESTMENT RISK. Transaction costs and any premiums associated with
these strategies, and any losses incurred, will affect the Fund's net asset
value and performance. Therefore, an investment in the Fund may involve a
greater risk than an investment in other mutual funds that do not utilize these
strategies. The Fund's use of these strategies may be limited by position and
exercise limits established by securities 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 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 10% of its total
assets to purchase exchange-listed and OTC put and call options on stock
indexes, and may also write such options. A stock index measures the movement of
a certain group of stocks by assigning relative values to the common stocks
included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period.
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, 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.
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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<PAGE>
Hedging Considerations. The Fund may engage in options, futures and
currency transactions for, among other things, 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 directions of 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 a 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 securities 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 make short sales of its portfolio
holdings if, at all times when a short position is open, the Fund owns the
security sold short or owns debt securities convertible or exchangeable, without
payment of further consideration, into the security sold short. Short sales of
this kind are referred to as short sales 'against the box.' The broker-dealer
that executes a short sale generally invests cash proceeds of the sale until
they are paid to the Fund. Arrangements may be made with the broker-dealer to
obtain a portion of the interest earned by the broker on the investment of short
sale proceeds. The Fund will segregate the security sold short or convertible or
exchangeable debt securities in a special account with its custodian. Not more
than 10% of the Fund's net assets (taken at current value) may be held as
collateral for such sales at any one time. The extent to which the Fund may make
short sales may be limited by the Code.
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
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<PAGE>
144A Securities determined by the Board to be liquid) including repurchase
agreements with maturities greater than seven days and time deposits maturing in
more than seven calendar days. 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 total 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 borne by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of November 30,
1995, Warburg managed approximately $ billion of assets, including
approximately $ billion of assets of twenty-three investment companies or
portfolios. Incorporated in 1970, Warburg is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Warburg through
its ownership of a class of voting preferred stock of 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
respon-
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<PAGE>
sibility 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.
Warburg or any of its affiliates may, at their own expense, provide
promotional incentives to qualified recipients who support the sale of shares of
the Fund. Qualified recipients are 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.
The Fund employs PFPC Inc. ('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.
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.
TRANSFER AGENT AND CUSTODIAN. 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'), responsibility for most shareholder servicing functions. State
Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110.
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<PAGE>
BFDS's principal business address is 2 Heritage Drive, North Quincy,
Massachusetts 02171.
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
Warburg Pincus Advisor Fund shares are only available for investment by
financial institutions on behalf of their customers and through retirement plans
that elect to make one or more Advisor Funds an option for participants in the
plans. Individuals, including participants in retirement plans, cannot invest
directly in Advisor Shares of the Fund, but may do so only through a
participating Institution. 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 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
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<PAGE>
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 that invest in the
Fund, which are in addition to or different than those described in this
Prospectus, and, to the extent permitted by applicable regulatory authority, may
charge their clients direct fees. Certain features of the Fund, such as the
initial and subsequent investment minimums, may be modified 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. Redemption proceeds will normally be wired to an
investor on the next business day following the date a redemption order is
effected. If, however, in the judgment of Warburg, immediate payment would
adversely affect the Fund, 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.
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<PAGE>
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
annually and pays them in the calendar year in which they are declared. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Distributions of net realized long-term
and short-term capital gains are declared annually and, as a general rule, will
be distributed or paid in November or December of each calendar year. 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 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
divi-
17
<PAGE>
dends and to make such additional distributions as are necessary to avoid the
application of this tax.
The investments by the Fund in zero coupon securities may create special
tax consequences. Zero coupon securities do not make interest payments, although
a portion of the difference between a zero coupon security's face value and its
purchase price is imputed as income to 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.
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.
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
18
<PAGE>
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. Generally, the Fund's investments
are valued at market value or, in the absence of a quoted market value with
respect to any portfolio securities, at fair value as determined by or under the
direction of the Board.
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 closing value on
the date on which the valuation is made or, in the absence of sales, the mean
between the highest 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. Option or futures contracts will be valued similarly. Debt
obligations that mature in 60 days or less from the valuation date are valued on
the basis of amortized cost, unless the Board determines that using this
valuation method would not reflect the investments' value. Securities, options
and futures contracts for which market quotations are not readily available and
other assets will be valued at their fair value as determined in good faith
pursuant to consistently applied procedures established by the Board.
Trading in securities in certain foreign countries may be completed prior
to the close of regular trading on the NYSE. When an occurrence subsequent to
the time a value was so established is likely to have materially changed such
value, then the fair market value of the securities will be determined by or
under the direction of the Board. In addition, trading may take place in various
foreign markets on days on which the Fund's net asset value is not calculated.
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
19
<PAGE>
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 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. The Fund may also discuss 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. 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. 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 Series 2 Shares (the 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,
20
<PAGE>
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption. The Board may similarly classify or reclassify any
class of its shares into one or more 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, as
described elsewhere in this Prospectus, except that Advisor Shares bear fees
payable by the Fund to service organizations 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 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 to 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. Pursuant to the
terms of an Agreement, the Service Organization agrees to 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
21
<PAGE>
services related to the sale of Advisor Shares may include (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the Fund's transfer agent, (ii) processing
dividend payments from the Fund on behalf of Customers and (iii) providing sub-
accounting related to the sale of Advisor Shares beneficially owned by Customers
or the information to the Fund necessary for sub-accounting. The Board has
approved a Distribution Plan (the 'Plan') pursuant to 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 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 since it will be
paid from the assets of Warburg, Counsellors Securities or their affiliates. 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 of Service Organizations that have
entered into Agreements. A Service Organization may use a portion of the fees
paid pursuant to the Plan to compensate the Fund's custodian or transfer agent
(for costs related to accounts of Customers of the Service Organization holding
Adviser Shares).
------------------------
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.
22
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
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 ............................................ 9
INVESTMENT GUIDELINES ................................................... 12
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
</TABLE>
<PAGE>
[LOGO]
[ ] WARBURG PINCUS
EMERGING MARKETS FUND
PROSPECTUS
DECEMBER 29, 1995
ADEMK-1-0695
<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 October 30, 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 . . . . . . . . . . . . . . . . . . . . . . . . . 26
Additional Purchase and Redemption Information . . . . . . . . . . . . . 34
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Additional Information Concerning Taxes . . . . . . . . . . . . . . . . . 36
Determination of Performance . . . . . . . . . . . . . . . . . . . . . . 39
Auditors and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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, 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 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 currencies, securities and indexes; and currency, interest rate
and index futures contracts and options on these futures contracts. These
guidelines may, in certain instances, require segregation by the Fund of cash
or liquid high-grade debt securities or other securities that are acceptable
as collateral to the appropriate regulatory authority.
For example, a call option written by the Fund on 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. Since the
Fund will be investing substantially in securities denominated in currencies
other than the U.S. dollar, and since the Fund may temporarily hold funds in
bank deposits or other money market investments denominated in foreign
currencies, the Fund may be affected favorably or unfavorably by exchange
control regulations or changes in the exchange rate between such currencies
and the dollar. A change in the value of a foreign currency relative to the
U.S. dollar will result in a corresponding change in the dollar value of the
Fund assets denominated in that foreign currency. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned,
gains and losses realized on the sale of securities and net investment income
and gains, if any, to be distributed to 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.
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. In
addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or domestic
developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments
<PAGE>11
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.
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.
Additionally, 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 expenses of some other international funds, are
higher than those costs incurred by other investment companies.
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 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
<PAGE>12
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 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
<PAGE>13
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 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
<PAGE>14
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 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
<PAGE>15
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.
U.S. Government Securities. The Fund may invest in debt obligations of
varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. Government Securities"). Direct
obligations of the U.S. Treasury include a variety of securities that differ
in their interest rates, maturities and dates of issuance. U.S. Government
Securities also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, GNMA, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
FHLMC, Federal Intermediate Credit Banks, Federal Land Banks, FNMA, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. The Fund may also invest in
instruments that are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. government is not obligated by law to
provide support to an instrumentality it sponsors, the Fund will invest in
obligations issued by such an instrumentality only if Warburg determines that
the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Fund.
Securities of Other Investment Companies. The Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of
such company, (ii) do not exceed 5% of the value of the Fund's total assets
and (iii) when added to all other investment company securities held by the
Fund, do not exceed 10% of the value of the Fund's total assets.
Lending of Portfolio Securities. The Fund may lend portfolio securities
to brokers, dealers and other financial organizations that meet capital and
other credit requirements or other criteria established by the Fund's Board of
Directors (the "Board"). These loans, if and when made, may not exceed 20% of
the Fund's total assets taken at value. The Fund will not lend portfolio
securities to E.M. Warburg, Pincus & Co., Inc. ("EMW") or its affiliates
unless the Fund has applied for and received specific authority to do so from
the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. government securities, which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account
of the Fund. From time to time, the Fund may return a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and that is
acting as a "finder."
<PAGE>16
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. 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
<PAGE>17
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 Fund may engage in short sales if at the time of
the short sale the Fund owns or has the right to obtain without additional
cost an equal amount of the security being sold short. This investment
technique is known as a short sale "against the box."
In a short sale, 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.
Not more than 10% of the Fund's net assets (taken at current value) may be
held as collateral for such short sales at any one time.
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
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.
<PAGE>18
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 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
<PAGE>19
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 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.
<PAGE>20
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.
Warburg will monitor the liquidity of restricted securities in the Fund
under the supervision of the Board. 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 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
<PAGE>21
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.
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.
<PAGE>22
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.
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.
<PAGE>23
16. Make additional investments (including roll-overs) if the Fund's
borrowings exceed 5% of its net assets.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
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. 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, options and futures contracts for which market quotations are
available will be valued as described in the Prospectuses. 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. 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. Short-term obligations with maturities of 60
days or less are valued at amortized cost, which constitutes fair value as
determined by the Board. Amortized cost involves valuing a portfolio
instrument at its initial cost and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. The
amortized cost method of valuation may also be used with respect to other debt
obligations with 60 days or less remaining to maturity. Securities, option
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
<PAGE>24
days in New York and days on which the Fund's net asset value is not
calculated. As a result, calculation of the Fund's net asset value may not
take place contemporaneously with the determination of the prices of certain
portfolio securities used in such calculation. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service. Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of regular trading on the NYSE will not be
reflected in the Fund's calculation of net asset value unless the Board or its
delegates deems that the particular event would materially affect net asset
value, in which case an adjustment may be made. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing exchange rate as quoted by a Pricing Service.
If such quotations are not available, the rate of exchange will be determined
in good faith pursuant to consistently applied procedures established by the
Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where necessary,
modifying the Fund's investment program to achieve its investment objective.
Purchases and sales of newly issued portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer
or with an underwriter acting as principal. Other purchases and sales may be
effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. On most foreign exchanges,
commissions are generally fixed. There is generally no stated commission in
the case of securities traded in domestic or foreign over-the-counter markets,
but the price of securities traded in over-the-counter markets includes an
undisclosed commission or mark-up. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Fund. Warburg seeks to obtain the best net price and the
most favorable execution of orders. 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. In addition, to the extent that the execution and price
offered by more than one broker or dealer are comparable, Warburg may, in its
discretion, effect transactions in portfolio
<PAGE>25
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. 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. The fee to Warburg
under its advisory agreement with the Fund is not reduced by reason of its
receiving any brokerage and research services.
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.
During the fiscal period ended October 31, 1995, the Fund paid an
aggregate of approximately $______ in commissions to broker-dealers for
execution of portfolio transactions. 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
("Agreements") concerning the provision of services to customers ("Customers")
who beneficially own the Fund's Common Stock, par value $.001 per share,
designated Common Stock - Series 1 (the "Series 1 Shares") or Common Stock -
Series 2 (the "Advisor Shares"). 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
<PAGE>26
practice, however, only when Warburg, in its sole discretion, believes such
practice to be otherwise in the Fund's interest.
Portfolio Turnover
The Fund does not intend to seek profits through short-term trading, but
the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the
date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could result in high
portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the 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.
<PAGE>27
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).
John L. Furth*(64) 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 (65) 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).
____________________
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>28
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.
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.
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 Secretary,
Home Unity Savings Bank from
1991-1992; Vice President and
Chief Compliance Officer of
Counsellors Securities; Vice
President and Secretary of
other investment companies
advised by Warburg.
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.
<PAGE>29
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,
L.P. until 1990; Vice
President, Treasurer and Chief
Accounting Officer of other
investment companies advised
by Warburg.
Karen Amato (31) Assistant Secretary
466 Lexington Avenue Associated with EMW since
New York, New York 10017-3147 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
<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 $1,500 $
Donald J. Donahue $1,500 $
Jack W. Fritz $1,500 $
Thomas A. Melfe $1,500 $
Alexander B. Trowbridge $1,500 $
</TABLE>
____________________
+ Since the Fund has not completed its first full fiscal year, amounts
shown are estimates of future payments to be made pursuant to existing
arrangements.
* Each Director also serves as a Director or Trustee of 17 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>30
As of November 30, 1995, Directors and officers of the Fund as a group
owned of record of the Fund's outstanding Common Shares (as defined
below). As of the same date, Mr. Furth may be deemed to have beneficially
owned % 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.
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.
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
<PAGE>31
Equity Corporation of Florida from 1983 to 1985. Mr. Ehrlich earned a
B.S.B.A. degree from the University of Florida and earned his Chartered
Financial Analyst designation in 1990.
Mr. Vincent J. McBride, associate portfolio manager and research analyst
of the Fund, is also an associate portfolio manager of Warburg, Pincus
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.
For the fiscal period ended October 31, 1995, Warburg received $_________
under the Advisory Agreement, PFPC received $__________ under the PFPC Co-
Administration Agreement and Counsellors Service received $_________ under the
Counsellors Service for Administration Agreement.
<PAGE>32
Organization of the Fund
The Fund was incorporated on December 23, 1993 under the laws of the
State of Maryland. The Fund's charter authorizes the Board to issue three
billion full and fractional shares of common stock, $.001 par value per share.
Common Stock ("Common Shares"), Common Stock -- Series 1 and Advisor Shares
have been authorized by the Fund's charter, although only Common Shares and
Advisor Shares have been issued by the Fund. When matters are submitted for
shareholder vote, each shareholder will have one vote for each share owned and
proportionate, fractional votes for fractional shares held. Shareholders
generally vote in the aggregate, except with respect to (i) matters affecting
only the shares of a particular class, in which case only the shares of the
affected class would be entitled to vote, or (ii) when the 1940 Act requires
that shares of the classes be voted separately. There will normally be no
meetings of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any
purpose when requested to do so in writing by shareholders of record of not
less than 10% of the Fund's outstanding shares.
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.
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
<PAGE>33
("BFDS"), responsibility for most shareholder servicing functions. BFDS's
principal business address is 2 Heritage Drive, Boston, Massachusetts 02171.
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 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 $_________ in the fiscal period ended October 31,
1995 [, all of which was spent on advertising].
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
institutions ("Institutions") to perform certain distribution, shareholder
servicing, administrative and accounting services for their Customers who are
owners of Advisor Shares. See the Prospectuses, "Shareholder Servicing." The
Fund's Agreements with Institutions with respect to Advisor Shares will be
governed by a distribution plan (the "Distribution Plan"). 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.
<PAGE>34
General. An Institution with which the Fund has entered into an
Agreement with respect to either its Common Shares or Advisor Shares may
charge a Customer one or more of the following types of fees, as agreed upon
by the Institution and the Customer, with respect to the cash management or
other services provided by the Institution: (i) account fees (a fixed amount
per month or per year); (ii) transaction fees (a fixed amount per transaction
processed); (iii) compensation balance requirements (a minimum dollar amount a
Customer must maintain in order to obtain the services offered); or (iv)
account maintenance fees (a periodic charge based upon the percentage of
assets in the account or of the dividend paid on those assets). Services
provided by an Institution to Customers are in addition to, and not
duplicative of, the services to be provided under the Fund's co-administration
and distribution 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.
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 manner described
above. Neither the 12b-1 Plan nor the Distribution 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.)
<PAGE>35
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 property. 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.
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 Short-Term Tax-Advantaged Bond 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 Post-Venture Capital Fund, Warburg
Pincus Emerging Growth 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
<PAGE>36
prospectus of the relevant class of each fund into which an exchange is being
considered. Shareholders may obtain a prospectus of the relevant class of the
fund into which they are contemplating an exchange from Counsellors
Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same
day, at a price as described above, in shares of the relevant class of the
fund being acquired. Warburg reserves the right to reject more than three
exchange requests by a shareholder in any 30-day period. The exchange
privilege may be modified or terminated at any time upon 60 days' notice to
shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally affecting
the Fund and its shareholders is intended to be only a summary and is not
intended as a substitute for careful tax planning by prospective shareholders.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.
The Fund 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
<PAGE>37
regulated investment company, the Fund will be subject to a 4% non-deductible
excise tax measured with respect to certain undistributed amounts of ordinary
income and capital gain required to be but not distributed under a prescribed
formula. The formula requires payment to shareholders during a calendar year
of distributions representing at least 98% of the Fund's taxable ordinary
income for the calendar year and at least 98% of the excess of its capital
gains over capital losses realized during the one-year period ending October
31 during such year, together with any undistributed, untaxed amounts of
ordinary income and capital gains from the previous calendar year. The Fund
expects to pay the dividends and make the distributions necessary to avoid the
application of this excise tax.
The Fund's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Fund (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Fund, defer Fund losses
and cause the Fund to be subject to hyperinflationary currency rules. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (i) will require the Fund to
mark-to-market certain types of its positions (i.e., treat them as if they
were closed out) and (ii) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books
and records when it acquires any foreign currency, forward contract, option,
futures contract or hedged investment so that (a) neither the Fund nor its
shareholders will be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received, (b) the
Fund will be able to use substantially all of its losses for the fiscal years
in which the losses actually occur and (c) the Fund will continue to qualify
as a regulated investment company.
A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should
have a cost basis in the shares received equal to that amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares purchased
at that time may reflect the amount of the forthcoming distribution, those who
purchase just prior to a distribution will receive a distribution that will
nevertheless be taxable to them. Upon the sale or exchange of shares, a
shareholder will realize a taxable gain or loss depending upon the amount
realized and the basis in the shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands, and, as described in the Prospectuses, will be long-term or short-term
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvestment of
<PAGE>38
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.
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
<PAGE>39
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 % (
% without waivers). The actual total return for the same period was % (
% 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 % ( % without waivers). The actual total return for
the same period was % ( % without waivers). Investors should note
that this performance may not be representative of the Fund's total return in
longer market cycles.
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. [With respect to the Fund's Common Shares, the Fund's actual
total return for the calendar year and the three-month period ended on
December 31, 1995 was ___% and ___%, respectively (__% and __%, respectively,
without waivers.)]
The performance of a class of Fund shares will vary from time to time
depending upon market conditions, the composition of the Fund's portfolio and
operating expenses allocable to it. As described above, total return is based
on historical earnings and is not
- ------------------------
* - The expression (1 + T) is being raised to the nth power.
<PAGE>40
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.
From time to time, the Fund may advertise evaluations of a class of Fund
shares published by nationally recognized financial publications, such as
Morningstar, Inc. or Lipper Analytical Services, Inc. Morningstar, Inc. rates
funds in broad categories based on risk/reward analyses over various time
periods. In addition, 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>41
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: [State
Street Bank and Trust, FBO Norman L. Cannon, 22870 Canterbury Lane, Shaker
Heights, OH 44122-3912 (Common Shares) -- 11.22% and Warburg, 466 Lexington
Avenue, New York, NY 10017-3140 (Advisor Shares) -- 100%.] Mr. Lionel I.
Pincus, Chairman of the Board and Chief Executive Officer of EMW, may be
deemed to have beneficially owned % 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.
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>
STATEMENT OF DIFFERENCES BETWEEN PAPER DOCUMENT AND EDGAR VERSION
-----------------------------------------------------------------
Difference Page
---------- ----
Missing exponent (explained
by footnote) 39
<PAGE>6
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B*:
(1) Report of Coopers & Lybrand L.L.P.,
Independent Auditors.
(2) Schedule of Investments at October 31, 1995.
(3) Statement of Assets and Liabilities at October 31, 1995
(4) Statement of Operations
(5) Statement of Changes in Net Assets.
(6) Financial Highlights.
(7) Notes to Financial Statements.
- ------------------------
* To be filed by amendment.
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.(1)
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>7
Exhibit No. Description of Exhibit
- ----------- ----------------------
8(a) Custodian Agreement.(3)
(b) Form of Amendment to Custodian Agreement.(1)
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)
(a) Opinion of Willkie Farr & Gallagher.(3)
(b) Consent of Willkie Farr & Gallagher.(5)
(c) Opinion of Venable Baetjer & Howard.(3)
11 Consent of Coopers & Lybrand L.L.P.(5)
12 Not applicable.
13 Form of Purchase Agreement.(1)
14 Form of Retirement Plans.(6)
15(a) Shareholder Services and Distribution Plan.(3)
(b) Distribution Agreement.(1)
(c) Form of Shareholder Services Plan.(7)
(d) Distribution Plan.(1)
16 Computation of Performance Quotations.(5)
17 Financial Data Schedule.(5)
- ------------------------
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement of Registrant, filed on December 15, 1994.
(4) Incorporated by reference; material provisions of this exhibit
substantially similar to those of this 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) To be filed by amendment.
(6) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A for Warburg, Pincus Capital
Appreciation Fund filed on May 16, 1988 (Securities Act File No. 33-
12344).
(7) Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A of
Counsellors Cash Reserve Fund, Inc. filed on June 28, 1995 (Securities
Act File No. 2-94840).
<PAGE>8
Item 25. Persons Controlled by or Under Common Control with
Registrant
Warburg, Pincus Counsellors, Inc. ("Counsellors"), 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 Counsellors through its ownership of a class of voting preferred
stock of Counsellors. 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
Counsellors and certain other entities.
Item 26. Number of Holders of Securities
As of November 30, 1995:
Number of
Title of Class Record Holders
-------------- --------------
Common Stock --
Advisor Shares --
Item 27. Indemnification
Registrant, officers and directors or trustees of Counsellors, 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, Pincus Counsellors, Inc. ("Counsellors"), a wholly owned
subsidiary of Warburg, Pincus Counsellors G.P., acts as investment adviser to
Registrant. Counsellors renders investment advice to a wide variety of
individual and institutional clients. The list required by this Item 28 of
officers and directors of Counsellors, 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 Counsellors (SEC File No. 801-07321).
<PAGE>9
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for Warburg, Pincus
Balanced Fund; Warburg, Pincus Capital Appreciation Fund; Warburg, Pincus Cash
Reserve Fund; Warburg, Pincus Emerging Growth Fund; Warburg, Pincus Fixed
Income Fund; Warburg, Pincus Global Fixed Income Fund; Warburg, Pincus Growth
& 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 New York Tax Exempt Fund; Warburg, Pincus
Post-Venture Capital Fund; Warburg, Pincus Short-Term Tax- Advantaged Bond
Fund and Warburg, Pincus Tax-Free Fund.
(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)
<PAGE>10
(6) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(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>12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, 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 26th day of October, 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 October 26, 1995
John L. Furth Director
/s/ Richard H. King President October 26, 1995
Richard H. King
/s/ Stephen Distler Vice President and Chief October 26, 1995
Stephen Distler Financial Officer
/s/ Howard Conroy Vice President, Treasurer and October 26, 1995
Howard Conroy Chief Accounting Officer
/s/ Richard N. Cooper Director October 26, 1995
Richard N. Cooper
/s/ Donald J. Donahue Director October 26, 1995
Donald J. Donahue
<PAGE>13
/s/ Jack W. Fritz Director October 26, 1995
Jack W. Fritz
/s/ Thomas A. Melfe Director October 26, 1995
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director October 26, 1995
Alexander B. Trowbridge
</TABLE>
<PAGE>15
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.
8(a) Custodian Agreement.(3)
(b) Form of Amendment to Custodian Agreement.(1)
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.(3)
(b) Consent of Willkie Farr & Gallagher.(5)
(c) Opinion of Venable Baetjer & Howard.(3)
11 Consent of Coopers & Lybrand L.L.P.(5)
- ------------------------
(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.
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement of Registrant, filed on December 15, 1994.
(4) Incorporated by reference; material provisions of this exhibit
substantially similar to those of this 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) To be filed by amendment.
<PAGE>16
Exhibit No. Description of Exhibit
- ----------- ----------------------
12 Not applicable.
13 Form of Purchase Agreement.(1)
14 Form of Retirement Plans.(6)
15(a) Shareholder Services and
Distribution Plan.(3)
(b) Distribution Agreement.(1)
(c) Form of Shareholder Services Plan.(7)
(d) Distribution Plan.(1)
16 Computation of Performance
Quotations.(1)
17 Financial Data Schedule.(1)
- ------------------------
(6) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A for Warburg, Pincus Capital
Appreciation Fund filed on May 16, 1988 (Securities Act File No. 33-
12344).
(7) Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A of
Counsellors Cash Reserve Fund, Inc. filed on June 28, 1995 (Securities
Act File No. 2-94840).
