<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on November 1, 1995
Securities Act File No. 33-47880
Investment Company Act File No. 811-6670
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 6 [x]
(Check appropriate box or boxes)
Warburg, Pincus Institutional 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 Institutional 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 [date] 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:
[X] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
__________________________________
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933, as amended, pursuant to Section
(a)(1) of Rule 24f-2 under the Investment Company Act of 1940, as amended, and
to the number or amount presently registered is added an indefinite number or
amount of such securities. The Rule 24f-2 Notice for Registrant's fiscal year
ended on October 31, 1995 will be filed on or about December 29, 1995.
<PAGE>3
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . The Fund's Expenses
3. Condensed Financial Information . Financial Highlights
4. General Description of
Registrant . . . . . . . . . . . Cover Page;
Investment Objectives
and Policies;
Special Risk Considerations
and Certain Investment Strategies;
Investment Guidelines;
Additional Information
5. Management of the Fund . . . . . . Management of the Fund
6. Capital Stock and Other
Securities . . . . . . . . . . . Additional Information
7. Purchase of Securities Being
Offered . . . . . . . . . . . . How to Open an Account
in the Fund;
How to Purchase Shares
in the Portfolios;
Management of the Fund;
Net Asset Value
8. Redemption or Repurchase . . . . .
How to Redeem and Exchange
Shares in the Portfolios
9. Pending Legal Proceedings . . . . Not applicable
<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
13. Investment Objectives
and Policies . . . . . . . . . . Investment Objectives;
Investment Policies
14. Management of the Registrant . . . Management of the Fund
15. Control Persons and Principal
Holders of Securities . . . . . Management of the Fund;
Miscellaneous
See Prospectus--
"Management of the Fund"
16. Investment Advisory and
Other Services . . . . . . . . . Management of the Fund;
See Prospectus--
"Management of the Fund"
17. Brokerage Allocation
and Other Practices . . . . . . Investment Policies --
Portfolio Transactions
See Prospectus--
"Portfolio Transactions
and Turnover Rate"
18. Capital Stock and Other
Securities . . . . . . . . . . . Management of the Fund--
Organization of the Fund;
See Prospectus--"Additional
Information"
19. Purchase, Redemption and Pricing
of Securities Being Offered . . Additional Purchase and
Redemption Information;
See Prospectus--"How to
Open an Account in the Fund,"
"How to Purchase Shares in the
Portfolios," "How to Redeem
and Exchange Shares in the
Portfolios," "Net Asset Value"
<PAGE>5
Part B Statement of Additional
Item No. Information Heading
-------- -----------------------
20. Tax Status . . . . . . . . . . . . Additional Information
Concerning Taxes;
See Prospectus--"Dividends,
Distributions and Taxes"
21. Underwriters . . . . . . . . . . . Investment Policies--
Portfolio Transactions;
See Prospectus--
"Management of the Fund"
22. Calculation of Performance Data.. Determination of
Performance
23. Financial Statements . . . . . . . Report of Independent
Auditors; Financial
Statements
Part C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
[Logo]
PROSPECTUS
DECEMBER 29, 1995
WARBURG PINCUS INSTITUTIONAL FUND, INC.
[ ] INTERNATIONAL EQUITY PORTFOLIO
[ ] SMALL COMPANY GROWTH PORTFOLIO
[ ] GLOBAL FIXED INCOME PORTFOLIO
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 1, 1995
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
PROSPECTUS December 29, 1995
WARBURG, PINCUS INSTITUTIONAL FUND, INC. (the 'Fund') is an open-end management
investment company that consists of three managed investment funds (the
'Portfolios'):
INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation
by investing primarily in equity securities of non-United States issuers.
SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing
primarily in equity securities of small-sized domestic companies.
GLOBAL FIXED INCOME PORTFOLIO seeks to maximize total investment
return consistent with prudent investment management while preserving
capital by investing in investment grade fixed income securities of issuers
throughout the world, including United States issuers.
ONLY SHARES OF THE INTERNATIONAL EQUITY PORTFOLIO ARE CURRENTLY BEING OFFERED.
SHARES OF THE SMALL COMPANY GROWTH PORTFOLIO ARE EXPECTED TO BE OFFERED ON OR
ABOUT JANUARY 1, 1996.
International investment entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.' Investment in small companies, including emerging growth
companies and companies in "specal situations," also entails special risks.
Shares of the International Equity and Global Fixed Income Portfolios are
offered only to investors that make a minimum initial investment in the
Portfolio of $3,000,000 or more, although the minimum investment for any group
of related persons is an aggregate of $4,000,000. Shares of the Small Company
Growth Portfolio will be offered only to investors that make a minimum initial
investment in the Portfolio of $1,000,000. The Fund is designed for
institutional investors although, in its discretion, the Fund may permit shares
to be purchased by individuals, as well as institutions, who meet the minimum
investment requirements.
This Prospectus briefly sets forth certain information about the Fund and the
Portfolios that investors should know before investing. Investors are encouraged
to read this Prospectus carefully and retain it for future reference. Additional
information about the Fund and the Portfolios has been filed with the Securities
and Exchange Commission (the 'SEC') in a document entitled 'Statement of
Additional Information,' which is available upon request and without charge by
calling Warburg Pincus Funds at (800) 888-6878. Information regarding the status
of shareholder accounts may also be obtained by calling Warburg Pincus Funds at
(800) 888-6878. The Statement of Additional Information bears the same date as
this Prospectus and is incorporated by reference into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE 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 RELATING TO THE SMALL COMPANY GROWTH PORTFOLIO 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
<TABLE>
<CAPTION>
INTERNATIONAL SMALL COMPANY GLOBAL FIXED
EQUITY GROWTH INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price).............................................. 0 0 0
Annual Portfolio Operating Expenses (as a percentage of average net
assets)
Management Fees................................................ .55% .45% .08%
12b-1 Fees..................................................... 0 0 0
Other Expenses................................................. .40% .70% .52%
--- ------ -----
Total Portfolio Operating Expenses (after fee waivers)`D'...... .95% 1.15% .60%
EXAMPLE
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year............................................................. $10 $12 $6
3 years............................................................ $30 $37 $19
5 years............................................................ $53 n.a. n.a.
10 years............................................................ $117 n.a. n.a.
</TABLE>
`D' Warburg, Pincus Counsellors Inc., the Portfolios' investment adviser
('Warburg'), and, under certain circumstances, the Portfolios'
co-administrator, had undertaken to waive fees payable to them until October
31, 1994 so that Total Portfolio Operating Expenses of the International
Equity Portfolio and the Global Fixed Income Portfolio would not exceed
the amounts set forth in the table above. Although these waivers have
continued in the current fiscal year, there is no continuing obligation
to do so. For the Small Company Growth Portfolio, Warburg has
undertaken to limit Total Portfolio Operating Expenses through December
31, 1996.
-------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of a Portfolio. In the case of the Small
Company Growth Portfolio and the Global Fixed Income Portfolio, which had not
commenced operations as of October 31, 1994, Other Expenses are based on
estimated amounts for the fiscal period. Absent the waiver of fees payable to
Warburg and the Portfolios' co-administrator, Management Fees for the
International Equity Portfolio and the Global Fixed Income Portfolio would have
equalled .80% and .65%, respectively, Other Expenses would have equalled .44%
and .63%, respectively, and Total Portfolio Operating Expenses would have
equalled 1.24% and 1.28%, respectively, of average net assets. In the absence of
Warburg's undertaking to limit expenses of the Small Company Growth Portfolio,
Management Fees would equal .90%, Other Expenses would equal .75% and Total
Portfolio Operating Expenses would equal 1.65%. This example should not be
considered a representation of past or future expenses; actual expenses may be
greater or less than those shown. Moreover, while the table assumes a 5% annual
return, a Portfolio's actual performance will vary and may result in an actual
return greater or less than 5%.
2
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OF THE INTERNATIONAL EQUITY PORTFOLIO OUTSTANDING THROUGHOUT THE
PERIOD)`D'
The following information for the fiscal years ended October 31, 1993 and
October 31, 1994 has been derived from information audited by Coopers & Lybrand
L.L.P., independent auditors, whose report dated December 12, 1994 appears in
the Statement of Additional Information. The information for the period
September 1, 1992 (commencement of operations) through October 31, 1992 has been
audited by Ernst & Young LLP, whose report was unqualified. The information for
the six months ended April 30, 1995 is unaudited. Further information about the
performance of the International Equity Portfolio is contained in the Fund's
annual report, dated October 31, 1994, copies of which may be obtained without
charge by calling Warburg Pincus Funds at (800) 888-6878.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30,
1995 FOR THE YEAR ENDED OCTOBER 31,
(UNAUDITED) 1994 1993
------------ ------------------------------ ------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 16.34 $ 13.49 $ 9.62
------------ ----------- -----------
Income from Investment Operations
Net Investment Income....................... .12 .17 .10
Net Gains (Loss) from Securities and Foreign
Currency Related Items (both realized and
unrealized).............................. (1.55) 2.87 3.87
------------ ----------- -----------
Total from Investment Operations............ (1.43) 3.04 3.97
------------ ----------- -----------
Less Distributions
Dividends (from net investment income)...... (.18) (.07) (.10)
Distributions (from capital gains).......... (.57) (.12) .00
------------ ----------- -----------
Total Distributions...................... (.75) (.19) (.10)
------------ ----------- -----------
Net Asset Value, End of Period................ $ 14.16 $ 16.34 $ 13.49
------------ ----------- -----------
------------ ----------- -----------
Total Return.................................. (17.10%)* 22.62% 41.61%
Ratios/Supplemental Data
Net Assets, End of Period (000s).............. $375,089 $331,297 $109,280
Ratios to Average Daily Net Assets:
Operating expenses.......................... .95%* .95% .95%
Net investment income....................... 1.41%* .59% .75%
Decrease reflected in above expense ratios
due to waivers/reimbursements............ .25%* .29% .44%
Portfolio Turnover Rate....................... 25.43%* 19.34% 19.40%
<CAPTION>
FOR THE PERIOD
SEPTEMBER 1, 1992
(COMMENCEMENT OF
OPERATIONS) THROUGH
OCTOBER 31, 1992
-------------------
<S> <C>
Net Asset Value, Beginning of Period.......... $ 10.00
----------
Income from Investment Operations
Net Investment Income....................... .02
Net Gains (Loss) from Securities and Foreign
Currency Related Items (both realized and
unrealized).............................. (.40)
----------
Total from Investment Operations............ (.38)
----------
Less Distributions
Dividends (from net investment income)...... .00
Distributions (from capital gains).......... .00
----------
Total Distributions...................... .00
----------
Net Asset Value, End of Period................ $ 9.62
----------
----------
Total Return.................................. (20.69%)*
Ratios/Supplemental Data
Net Assets, End of Period (000s).............. $18,613
Ratios to Average Daily Net Assets:
Operating expenses.......................... .95%*
Net investment income....................... 1.22%*
Decrease reflected in above expense ratios
due to waivers/reimbursements............ .85%*
Portfolio Turnover Rate....................... 50.16%
</TABLE>
- ------------
`D' No financial highlights have been presented with respect to the Small
Company Growth Portfolio and the Global Fixed Income Portfolio, which had
not commenced operations as of April 30, 1995. The audited statement of
assets and liabilities of the Small Company Growth Portfolio as of August 8,
1995 and the Global Fixed Income Portfolio as of February 14, 1995 together
with the reports of Coopers & Lybrand L.L.P., as well as the unaudited
statement of assets and liabilities of the Global Fixed Income Portfolio as
of July 31, 1995, appear in the Statement of Additional Information.
* Annualized.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objective and policies
of each Portfolio. The investment objective of a Portfolio is a fundamental
policy and may not be changed without the approval of the holders of a majority
of the outstanding voting securities of that Portfolio. Any investment involves
risk and, therefore, there can be no assurance that a Portfolio will achieve its
investment objective. See 'Special Risk Considerations and Certain Investment
Strategies' for descriptions of certain types of investments the Portfolios may
make.
INTERNATIONAL EQUITY PORTFOLIO. The International Equity Portfolio's investment
objective is long-term capital appreciation. The Portfolio pursues its
investment objective by investing, under normal market conditions, substantially
all of its assets -- but no less than 65% of its total assets -- in common
stocks and securities convertible into or exchangeable for common stocks of non-
United States issuers.
The Portfolio currently intends to spread investments among countries to
reduce currency risk and, under normal market conditions, will invest in at
least three countries other than the United States. The Portfolio intends to be
widely diversified across securities of many corporations located in a number of
foreign countries. Management of the Portfolio anticipates, however, that the
Portfolio may from time to time invest a significant portion of its assets in a
single country, such as Japan, which may involve special risks (described
below). If it did, like any investor in Japan, the Portfolio would be subject to
general economic and political conditions in Japan. The Japanese economy is
heavily industrial and the manufacturing sector is export oriented; however,
domestic demand is now growing in relative importance. Although Japan is
dependent upon foreign economies for raw materials, Japan's balance of payments
in recent years has been strong and positive.
The Portfolio intends to invest principally in the securities of
financially strong companies with opportunities for growth within international
economies and markets through increased earning power and improved utilization
or recognition of assets. Investments may be made in equity securities of
companies of any size, whether traded on or off a national securities exchange.
The Portfolio is a 'diversified' investment company under the Investment
Company Act of 1940, as amended (the '1940 Act'), which means that the Portfolio
is limited by the 1940 Act, with respect to 75% of its total assets, from
investing more than 5% of its total assets in the securities of any one issuer
and from purchasing more than 10% of the voting securities of any one issuer.
In appropriate circumstances, such as when a direct investment by the
Portfolio 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 Portfolio may, consistent with the provisions of the
1940 Act, invest in the securities of closed-end investment companies that
invest in foreign securities. When Warburg believes that a conservative or
defensive posture is warranted, the Portfolio may invest temporarily without
limit in equity and debt securities of U.S. issuers and money market obligations
(described below).
SMALL COMPANY GROWTH PORTFOLIO. The Small Company Growth Portfolio's investment
objective is capital growth. The Portfolio will pursue its investment objective
by investing primarily in a portfolio of equity securities of small market
capitalization domestic companies (i.e., companies having stock market
capitalizations of $1 billion or less at the time of initial purchase, 'small
companies'). The Portfolio intends to invest at least 90% of its total assets in
common stocks or warrants of small companies that present attractive
opportunities for capital growth and, under normal market conditions, will
invest at least 65% of its total assets in such securities. The Portfolio is not
required to dispose of securities of issuers whose market capitalizations grow
to exceed $1 billion after acquisition by the Portfo-
4
<PAGE>
lio. The Portfolio will invest primarily in companies whose securities are
traded on domestic stock exchanges or in the domestic over-the-counter market,
but may invest up to 20% of its assets in foreign securities. Small companies
may still be in the developmental stage, may be older companies that appear to
be entering a new stage of growth progress owing to factors such as management
changes or development of new technology, products or markets or may be
companies providing products or services with a high unit volume growth rate.
The Portfolio's investments will be made on the basis of their equity
characteristics, and securities ratings generally will not be a factor in the
selection process.
The Portfolio may also invest in securities of emerging growth companies,
which can be either small companies or medium-sized companies that have passed
their start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time. Emerging
growth companies generally stand to benefit from new products or services,
technological developments or changes in management and other factors.
The Portfolio is classified as a 'non-diversified' investment company under
the 1940 Act, which means that the Portfolio is not limited by the 1940 Act in
the proportion of its assets that may be invested in the securities of a single
issuer. The Portfolio, however, intends to comply with the 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 Portfolio may invest a greater
proportion of its assets in the obligations of a smaller number of issuers and,
as a result, may be subject to greater risk with respect to portfolio
securities.
GLOBAL FIXED INCOME PORTFOLIO. The Global Fixed Income Portfolio's investment
objective is to maximize total investment return consistent with prudent
investment management while preserving capital. The Portfolio will seek to
achieve its objective by investing, under normal market conditions,
substantially all of its assets -- but no less than 65% of its total
assets -- in bonds, debentures and notes of United States and foreign issuers,
denominated in U.S. dollars or in other currencies or multi-currency units such
as European Currency Units ('ECUs'). These debt obligations include obligations
issued or guaranteed by the United States government or a foreign government,
its agencies or instrumentalities, securities of supranational entities,
Eurobonds and corporate bonds.
Up to 5% of the Portfolio's net assets may be rated below investment grade
at the time of the investment but not lower than 'B' by Standard & Poor's
Ratings Group ('S&P') or Moody's Investors Service, Inc. ('Moody's'). Such
securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve large uncertainties or major risk exposures
to adverse conditions. The Fund may have difficulty disposing of certain lower
quality obligations because there may be a thin trading market for such
securities. In addition, the market value of lower quality securities may be
more volatile than that of higher quality securities.
Warburg's approach to multicurrency fixed-income management is strategic
and value-based. Warburg's assessment of the bond markets and currencies is
based on an analysis of real interest rates. Current nominal yields of
securities are adjusted for inflation prevailing in each currency sector using
an analysis of past and projected inflation rates. The Portfolio's aim is to
invest in bond markets that offer attractive real returns relative to inflation.
Warburg invests largely in medium-term securities (i.e., those with a
remaining maturity of between three and five years) and responds to changing
interest rate levels by shortening or lengthening portfolio maturity through
investment in longer- or shorter-term instruments. For example, Warburg responds
to high levels of real interest rates through a lengthening in portfolio
5
<PAGE>
maturity. Accordingly, while the bulk of the Portfolio is expected to be
invested in medium-term securities, Warburg is not restricted to any maximum or
minimum time to maturity in purchasing portfolio securities. Current and
historical yield spreads among the three main market segments -- the Government,
Foreign and Euro markets -- guide Warburg's selection of markets and particular
securities within those markets. The analysis of currencies is made independent
of the analysis of markets. Value in foreign exchange is determined by relative
purchasing power parity of a given currency. The Portfolio seeks to invest in
currencies currently undervalued based on purchasing power parity. Warburg's
analyzes current account and capital account performance and real interest rates
to adjust for shorter-term currency flows.
The Portfolio will not invest 25% or more of its total assets in the
securities issued by any one foreign government, its agencies, instrumentalities
or political subdivisions and, under normal market conditions, will invest in at
least three countries, including the United States. When Warburg believes that a
conservative or defensive posture is warranted, the Portfolio may invest
temporarily without limit in securities denominated in U.S. dollars and
securities of U.S. issuers.
The Portfolio may invest in 'zero coupon securities.' Zero coupon
securities pay no cash income to their holders until they mature and are issued
at substantial discounts from their value at maturity. When held to maturity,
their entire return comes from the difference between their purchase price and
their maturity value. The values of zero coupon securities may be highly
volatile as interest rates rise or fall.
Like the Small Company Growth Portfolio, the Global Fixed Income Portfolio
is classified as a 'non-diversified' investment company under the 1940 Act and,
as such, may be subject to greater risk with respect to portfolio securities.
ADDITIONAL INVESTMENTS
MONEY MARKET INVESTMENTS. Each Portfolio may invest, under normal circumstances,
in short-term (one year or less remaining to maturity) and medium-term (five
years or less remaining to maturity) money market obligations, although each
Portfolio intends to stay invested in securities satisfying its investment
objective to the extent practical. In addition, on occasion, Warburg may deem it
advisable to adopt a temporary defensive posture by investing without limit in
money market obligations. These instruments consist of obligations of the U.S.
government and foreign governments, their agencies or instrumentalities;
obligations of foreign and U.S. banks; commercial paper; and money market mutual
funds that invest in the foregoing. A shareholder in the Portfolio would bear
both its ratable share of that mutual fund's expenses, as well as the
Portfolio's administration fees and other expenses with respect to assets so
invested.
Repurchase Agreements. The Portfolios may invest in repurchase agreement
transactions on portfolio securities with member banks of the Federal Reserve
System and certain non-bank dealers. Under the terms of a typical repurchase
agreement, a Portfolio would acquire an underlying security for a relatively
short period (usually not more than one week) subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time, thereby determining the yield during the Portfolio'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 accrued
interest. A Portfolio 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
Portfolio is delayed or prevented from exercising its right to dispose of the
collateral securities.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which each
Portfolio may invest include: direct obligations of the U.S. Treasury (such as
Treasury bills, notes and
6
<PAGE>
bonds) and obligations issued by U.S. government agencies and instrumentalities.
COMPARISON OF INVESTMENT FUND
MANAGED BY WARBURG WITH
GLOBAL FIXED INCOME PORTFOLIO
Set forth below are certain performance data provided by Warburg relating
to Warburg Pincus Global Fixed Income Fund (the 'Warburg Pincus Fund'), a
registered open-end investment company managed by Warburg. The Global Fixed
Income Portfolio has substantially the same investment objective and policies
and will be managed using substantially the same investment strategies and
techniques as the Warburg Pincus Fund. Investors should not rely on the
following performance data as an indication of future performance of the
Portfolio. As of November 30, 1995, the Warburg, Pincus Fund had net assets of
approximately $ million and an overall expense ratio of %. The Warburg
Pincus Fund has waived fees from time to time, which has resulted in higher
performance figures than had such waivers not been in place. The Portfolio will
have the same types of expenses as the Warburg Pincus Fund.
The performance of two indexes for the same periods as shown for the
Warburg Pincus Fund is also set forth. Unlike the Global Fixed Income Portfolio
and the Warburg Pincus Fund, the indexes, which are unmanaged, do not reflect
the payment of any expenses.
WARBURG PINCUS FUND -- TOTAL RETURN FOR PERIODS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
LIPPER
GENERAL WORLD
INCOME FUND J.P. MORGAN
FUND AVERAGE* BOND INDEX**
--------- ------------- --------------
<S> <C> <C> <C>
One year............. %`D' % %
From inception***
annualized....... %`D' % %
aggregate........ %`D' % %
</TABLE>
- ------------
* The Lipper General World Income Fund Average is an unmanaged index of the
average of funds that invest in non-U.S. dollar and U.S. dollar debt
instruments with unspecified maturities or duration, or other
income-producing securities.
** The J.P. Morgan Global Government Bond Index is an unmanaged market value-
weighted index of approximately 160 international bonds of issuers in 12
countries that is compiled by J.P. Morgan and stated in U.S. dollars.
*** The Warburg Pincus Fund commenced investment operations on November 1, 1990.
`D' Absent the waiver of fees payable to the Warburg Pincus Fund's investment
adviser and co-administrators, the average total return for the year ended
November 30, 1995 was % and the annualized and aggregate total return
for the approximately four-year period commencing November 1, 1990
(commencement of operations) and ended November 30, 1995 was % and
%, respectively.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
A Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it is to be in the best interests of the relevant Portfolio and
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. In addition, to
the extent it is consistent with a Portfolio's investment objective, each
Portfolio also may engage in short-term trading. This investment approach and
the use of certain of the investment strategies described below may result in a
high portfolio turnover rate for the Portfolios. It is not possible to predict
the portfolio turnover rates for the Small Company Growth Portfolio and the
Global Fixed Income Portfolio. However, the Small Company Growth Portfolio's
annual turnover rate should not exceed 125%, and the Global Fixed Income
Portfolio may experience portfolio turnover as high as 150% to 200%. High
portfolio turnover
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rates (100% or more) may result in dealer markups 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' and 'Investment Policies -- Portfolio Transactions' in the
Statement of Additional Information.
All orders for transactions on behalf of the Portfolios are placed by
Warburg with broker-dealers that it selects. In selecting brokers or dealers to
execute portfolio transactions for each Portfolio, Warburg will seek the best
overall terms available. In assessing the best overall terms available for any
transaction, Warburg will consider the factors it deems relevant, including the
breadth of the market in the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis.
SPECIAL RISK CONSIDERATIONS AND
CERTAIN INVESTMENT STRATEGIES
In attempting to achieve its investment objective, a Portfolio may engage
in one or more of the strategies set forth below. Detailed information
concerning these strategies and their related risks is contained in the
Statement of Additional Information.
CONVERTIBLE SECURITIES. Each Portfolio may invest in investment grade fixed
income obligations convertible into equity securities at either a stated price
or at a stated rate. Convertible securities provide higher yields than the
underlying equity securities, but generally offer lower yields than
non-convertible securities of similar quality. A security will be deemed to be
investment grade if it is rated within the four highest grades by Moody's or S&P
or, if unrated, is determined to be of comparable quality by Warburg. Securities
rated in the fourth highest grade may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade securities. Subsequent to its purchase by a Portfolio, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Portfolio. Neither event will require sale
of such securities. Warburg will consider such event in its determination of
whether the Portfolio should continue to hold the securities.
As described above, up to 5% of the Global Fixed Income Portfolio's net
assets may be rated below investment grade at the time of purchase. The Global
Fixed Income Portfolio does not intend to retain in its portfolio the common
stock received upon conversion of a convertible security and will sell it as
promptly as it can and in a manner which it believes will reduce the risk to the
Portfolio of loss in connection with the sale.
FOREIGN SECURITIES. The International Equity Portfolio and the Global Fixed
Income Portfolio will invest substantially in foreign securities, and the Small
Company Growth Portfolio may invest up to 20% of its total assets in the
securities of foreign issuers. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers and
the lack of uniform accounting, auditing and financial reporting standards and
other regulatory practices and requirements that are often generally less
rigorous than those applied in the United States. Moreover, securities of many
foreign companies may be less liquid and their prices more volatile than those
of securities of comparable U.S. companies. Certain foreign countries are known
to experi-
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<PAGE>
ence 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 a Portfolio,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
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.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of a Portfolio's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE A PORTFOLIO'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect the Portfolio's net asset value and performance.
Therefore, an investment in a Portfolio may involve a greater risk than an
investment in other mutual funds that do not utilize these strategies. A
Portfolio's use of these strategies may be limited by position and exercise
limits established by securities exchanges and the National Association of
Securities Dealers, Inc. and by the Code.
Securities and Stock Index Options. Each Portfolio may write put and call
options on stock and debt securities and will realize fees (referred to as
'premiums') for granting the rights evidenced by the options; each Portfolio may
also purchase options on stocks and debt securities that are traded on U.S. and
foreign exchanges, as well as over-the-counter ('OTC') options. The purchaser of
a put option has the right to compel the purchase by the writer of the
underlying security, while the purchaser of a call option has the right to
purchase the underlying security from the writer. In addition to purchasing and
writing options on securities, each Portfolio 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.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
Futures Contracts and Commodity Options. Each Portfolio may enter into
futures contracts and purchase and write (sell) commodity options (options on
futures contracts and on physical commodities), including, but not limited to,
foreign currency, interest rate and stock index futures contracts and put and
call options on these contracts. These contracts and options will be traded on
an exchange designated by the Commodity Futures Trading Commission (the 'CFTC')
or, if consistent with CFTC regulations,
9
<PAGE>
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 a Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts.
Investments in commodity options involve a relatively high degree of risk.
Prices of commodities can be influenced by a variety of global economic,
financial and political factors and may fluctuate markedly over short periods of
time. Among other things, commodities can be affected by changes in inflation,
investment speculation, changes in industrial, commercial and governmental
demand and supply and any governmental restrictions on ownership. In addition,
investments in options on physical commodities may involve higher custodial
expenses.
Currency Exchange Transactions. Each Portfolio 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 or writing exchange-traded or OTC currency options. A forward
currency contract involves an obligation to purchase or sell a specific currency
at a future date at a price set at the time of the contract. An option on a
foreign currency operates similarly to an option on a security. Risks associated
with currency forward contracts and purchasing currency options are similar to
those described in this Prospectus for futures contracts and securities and
stock index options. In addition, the use of currency transactions could result
in losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
Hedging Considerations. Each Portfolio 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. Each Portfolio 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 a Portfolio engages in the
strategies described above, the Portfolio 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 Portfolio may be unable to close out an option or futures position without
incurring substantial losses, if at all. A Portfolio is also subject to the risk
of a default by a counterparty to a transaction.
Asset Coverage. Each Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on
10
<PAGE>
securities, indexes and currencies; 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 Portfolio 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
Portfolio'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 a Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
RULE 144A SECURITIES. A Portfolio 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'). A Rule 144A Security will be
considered illiquid and therefore subject to the Portfolio's 10% limitation (15%
in the case of the Small Company Growth Portfolio) on the purchase of illiquid
securities unless the Fund's Board of Directors (the 'Board') determines on an
ongoing basis that an adequate trading market exists for the security.
Non-publicly traded securities (including Rule 144A Securities) may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Portfolio. 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. A Portfolio's investment in illiquid securities
is subject to the risk that should the Portfolio 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 Portfolio's net assets could be
adversely affected.
SHORT SALES AGAINST THE BOX. Each Portfolio may make short sales of its
portfolio holdings if, at all times when a short position is open, the Portfolio
owns the security sold short or owns debt securities convertible or exchangeable
into the security sold short (i.e., short sales 'against the box'). Not more
than 10% of a Portfolio's net assets (taken at current value) may be held as
collateral for such sales at any one time. The extent to which a Portfolio may
make short sales may be further limited by Code requirements for qualification
as a regulated investment company.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each Portfolio may
utilize up to 20% of its total assets to purchase securities on a when-issued
basis and purchase or sell securities on a delayed-delivery basis. In these
transactions, payment for and delivery of the securities occurs beyond the
regular settlement dates, normally within 30-45 days after the transaction. A
Portfolio will not enter into a when-issued or delayed-delivery transaction for
the purpose of leverage, but may sell the right to acquire a when-issued
security prior to its acquisition or dispose of its right to deliver or receive
securities in a delayed-delivery transaction if Warburg deems it advantageous to
do so. The payment obligation and the interest rate that will be received in
when-issued and delayed-delivery transactions are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. A Portfolio will establish a segregated account with its custodian
consisting of cash, U.S. government securities or other liquid high-
11
<PAGE>
grade debt obligations or other securities that are acceptable as collateral to
the appropriate regulatory authority in an amount equal to the amount of its
when-issued and delayed-delivery purchase commitments, and will segregate the
securities underlying commitments to sell securities for delayed delivery.
LENDING PORTFOLIO SECURITIES. Each Portfolio is authorized to lend securities it
holds to brokers, dealers and other financial organizations. Loans of a
Portfolio's securities may not exceed 33 1/3% of the Portfolio's net assets. A
Portfolio's loans of securities will be collateralized by cash, letters of
credit or U.S. government securities which are maintained at all times in an
amount at least equal to the current market value of the loaned securities. From
time to time, a Portfolio may pay a part of the interest earned from the
investment collateral received for securities loaned to the borrower and/or a
third party that is unaffiliated with the Portfolio and that is acting as a
'finder.' The risks associated with loans of portfolio securities are
substantially similar to those associated with repurchase agreements. As with
any extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially.
INVESTMENT GUIDELINES
Each Portfolio may invest up to 10% of its net assets
in securities with contractual or other restrictions on resale and
other instruments that are not readily marketable, including (i)
securities issued as part of a privately negotiated transaction between an
issuer and one or more purchasers; (ii) repurchase agreements
with maturities greater than seven days; and (iii) time deposits
maturing in more than seven calendar days. In addition, up to 5%
of a Portfolio's total assets may be invested in the securities of
issuers which have been in continuous operation for less than three years,
and up to an additional 5% of its net assets may be invested in warrants.
A Portfolio may borrow from banks for temporary or emergency purposes in
an amount up to 30% of its total assets and may pledge its assets to the
same extent in connection with these borrowings. Whenever borrowings
(including reverse repurchase agreements) exceed 5% of the value of a
Portfolio's total assets, the Portfolio will not make any investments
(including roll-overs). Although there is no intention of doing so during
the coming year, the Small Company Growth Portfolio is authorized to engage
in reverse repurchase agreements and dollar rolls. 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 a Portfolio has adopted identifying
additional restrictions that cannot be changed without the approval of the
majority of the Portfolio'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 each
Portfolio. Warburg, subject to the control of the Fund's officers and the Board,
manages the investment and reinvestment of the assets of the Portfolios in
accordance with each Portfolio's investment objective and stated investment
policies. Warburg makes investment decisions for the Portfolios and places
orders to purchase or sell securities on behalf of the Portfolios. 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 at an
annual rate equal to percentages of the relevant Portfolio's average net assets,
as follows: International Equity Portfolio -- .80%, Small Company Growth
Portfolio -- .90% and Global Fixed Income Portfolio -- .65%. Although, in the
case of the International Equity and Small Company Growth Portfolios,
12
<PAGE>
these advisory fees are higher than those paid by most other investment
companies, including money market and fixed income funds, Warburg believes that
they are comparable to fees charged by other mutual funds with similar policies
and strategies. The advisory agreement between the Fund and Warburg with respect
to each Portfolio provides that Warburg will reimburse the Fund to the extent
certain expenses that are described in the Statement of Additional Information
exceed the applicable state expense limitations. Warburg and the Portfolios' co-
administrators may voluntarily waive a portion of their fees from time to time
and temporarily limit the expenses to be borne by the Portfolios.
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 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. The portfolio manager of the International Equity Portfolio
is Richard H. King, who has been portfolio manager of the Portfolio since its
inception. He has been a managing director of EMW since 1989, before which time
he was chief investment officer and a director at Fiduciary Trust Company
International S.A. in London. Nicholas P.W. Horsely, Nicholas P. Edwards, Harold
W. Ehrlich and Vincent J. McBride have been associate portfolio managers of the
International Equity Portfolio since joining Warburg. Mr. Horsely is a senior
vice president of Warburg and has been with Warburg since 1993, before which
time he was a director, portfolio manager and analyst at Barclays deZoete Wedd
in New York City. Mr. Edwards has been with Warburg since August 1995, before
which time he was a director at Jardine Fleming Investment Advisers, Tokyo. He
was a vice president of Robert Fleming Inc. in New York City from 1988 to 1991.
Mr. Ehrlich is a senior vice president of Warburg and has been with Warburg
since February 1995, before which time he was a senior vice president, portfolio
manager and analyst at Templeton Investment Counsel Inc. Mr. McBride has been
with Warburg 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.
The co-portfolio managers of the Small Company Growth Portfolio are
Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater is a managing director of
EMW and has been a portfolio manager of Warburg since 1978. Mr. Lurito is a
managing director of EMW and has been with Warburg since 1987, before which time
he was a research analyst at Sanford C. Bernstein & Company, Inc.
The portfolio manager of the Global Fixed Income Portfolio is Dale C.
Christensen. Mr. Christensen is a managing director of EMW and has been
associated with Warburg since 1989, before which time he was a senior vice
president at Citibank, N.A.
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 Portfolios, including responding to shareholder
inquiries and providing information on shareholder investments. Counsellors
Service also performs a variety of other services, including furnishing certain
executive and administrative services, acting as liaison between each Portfolio
and its various service providers, fur-
13
<PAGE>
nishing corporate secretarial services, which include preparing materials for
meetings of the Board, preparing proxy statements and annual, semiannual and
quarterly reports, assisting in other regulatory filings as necessary and
developing and monitoring compliance procedures for the Portfolios. As
compensation, each Portfolio pays Counsellors Service a fee calculated at an
annual rate of .10% of the Portfolio's average daily net assets.
The Fund employs PFPC Inc., an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PFPC'), as a co-administrator. As a co-administrator, PFPC
calculates each Portfolio's net asset value, provides all accounting services
for the Portfolios and assists in related aspects of the Portfolios' operations.
As compensation, the International Equity Portfolio and the Global Fixed Income
Portfolio each pays PFPC a fee calculated at an annual rate of .12% of the
Portfolio'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, and the Small Company Growth Portfolio will pay PFPC a fee calculated
at an annual rate of .10% of the Portfolio's average daily net assets, subject
in each case to a minimum annual fee and exclusive of out-of-pocket expenses.
PFPC has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware
19809.
CUSTODIAN. Fiduciary Trust Company International ('Fiduciary') and PNC Bank,
National Association ('PNC') serve as custodians of the International Equity and
Global Fixed Income Portfolios' assets. The principal business address of
Fiduciary is Two World Trade Center, New York, New York 10048. Like PFPC, PNC is
an indirect wholly owned subsidiary of PNC Bank Corp., and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101.
PNC also serves as custodian of the Small Company Growth Portfolio's U.S.
assets, and State Street Bank and Trust Company ('State Street') serves as
international custodian of the Portfolio's non-U.S assets. State Street's
principal business address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street serves as shareholder servicing agent, transfer
agent and dividend disbursing agent for the Fund. It has delegated to Boston
Financial Data Services, Inc., a 50% owned subsidiary ('BFDS'), responsibility
for most shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities Inc. ('Counsellors Securities') serves
without compensation as distributor of the shares of each Portfolio. Counsellors
Securities is a wholly owned subsidiary of Warburg and is located at 466
Lexington Avenue, New York, New York 10017-3147.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to 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 Fund shares.
OTHER. Fund shares may be sold to or through institutions that will not be paid
a distribution fee by the Fund pursuant to Rule 12b-1 under the 1940 Act for
services to their clients or customers who may be deemed to be beneficial owners
of Fund shares. These institutions may be paid a fee by the Fund for transfer
agency, administrative or other services provided to their customers that invest
in the Fund. These services include maintaining account records, processing
orders to purchase, redeem and exchange Fund shares and responding to certain
customer inquiries. Organizations that provide recordkeeping or other services
to certain employee benefit plans and qualified and other retirement plans
that include a Portfolio as an investment alterna-
14
<PAGE>
tive may also be paid a fee by the Fund for these services.
Warburg, Counsellors Securities and Counsellors Service or any of their
affiliates may, from time to time, at their own expense, also provide
compensation to institutions and organizations that provide certain
distribution, administrative, accounting and/or shareholder services
for their clients or customers. 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, Counsellors
Service or their affiliates. Warburg, Counsellors Securities, Counsellors
Service or any of their affiliates may, from time to time, at their own
expense, pay certain Fund transfer agency fees and expenses in connection
with agreements with service organizations.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO OPEN AN ACCOUNT IN
THE FUND
In order to invest in a Portfolio, an investor must first complete and sign
an account application. To obtain an account application, an investor may
telephone Warburg Pincus Funds at (800) 888-6878. An investor may also obtain an
account application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg
Pincus Funds at the above address.
THE INTERNATIONAL EQUITY AND GLOBAL FIXED INCOME PORTFOLIOS' SHARES ARE
ONLY OFFERED TO INVESTORS THAT MAKE A MINIMUM INITIAL INVESTMENT IN THE
PORTFOLIO OF $3,000,000 OR MORE, ALTHOUGH THE MINIMUM INVESTMENT FOR ANY GROUP
OF RELATED PERSONS IS AN AGGREGATE OF $4,000,000. SHARES OF THE SMALL COMPANY
GROWTH PORTFOLIO ARE OFFERED ONLY TO INVESTORS THAT MAKE A MINIMUM INITIAL
INVESTMENT IN THE PORTFOLIO OF $1,000,000.
THE FUND IS DESIGNED FOR INSTITUTIONAL INVESTORS ALTHOUGH, IN ITS
DISCRETION, THE FUND MAY PERMIT SHARES TO BE PURCHASED BY INDIVIDUALS, AS WELL
AS INSTITUTIONS, WHO MEET THE MINIMUM INVESTMENT REQUIREMENTS.
HOW TO PURCHASE SHARES IN
THE PORTFOLIOS
ONLY SHARES OF THE INTERNATIONAL EQUITY PORTFOLIO ARE CURRENTLY BEING
OFFERED. SHARES OF THE SMALL COMPANY GROWTH PORTFOLIO WILL BE OFFERED ONLY
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND ARE EXPECTED TO BE AVAILABLE
ON OR ABOUT JANUARY 1, 1996.
SPECIAL PURCHASE PROVISIONS FOR THE SMALL COMPANY GROWTH PORTFOLIO. Until
February 1, 1996 (the 'Special Purchase Period'), former shareholders of Warburg
Pincus Emerging Growth Fund (the 'Emerging Growth Fund') may acquire shares of
the Small Company Growth Portfolio in exchange for portfolio securities received
by them upon redemption of their shares of the Emerging Growth Fund. All such
purchases will be subject to the Portfolio's minimum investment requirements.
Portfolio shares acquired by former shareholders of the Emerging Growth Fund
will have a value equal to the fair market value of the portfolio securities
transferred to the Small Company Growth Portfolio. The transferred securities
will in all cases be securities that are consistent with the Portfolio's
investment focus. The Portfolio will realize no gain or loss when it acquires
the former assets of the Emerging Growth Fund from the former shareholders and
will have a tax
15
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basis in those assets equal to the fair market value (that is, the net asset
value) of the shares that it issued to acquire the former assets. After the
conclusion of the Special Purchase Period, shares of the Small Company Growth
Portfolio (like the International Equity and Global Fixed Income Portfolios) can
be purchased only for cash.
------------------
Shares of the Portfolios may be purchased either by mail or, with special
advance instructions, by wire.
BY MAIL. If the investor desires to purchase shares by mail, a check or money
order made payable to Warburg, Pincus Institutional Fund, Inc. or Warburg Pincus
Funds (in U.S. currency) should be sent along with the completed account
application to Warburg Pincus Funds through its distributor, Counsellors
Securities Inc., at the address set forth above and should indicate the
Portfolio in which shares are to be purchased. Checks payable to the investor
and indorsed to the order of the Fund or Warburg Pincus Funds will not be
accepted as payment and will be returned to the sender. If payment is received
in proper form before 4:00 p.m. (Eastern time) on a day that the Fund calculates
its net asset value (a 'business day'), the purchase will be made at the
relevant Portfolio's net asset value calculated at the end of that day. If
payment is received after 4:00 p.m., the purchase will be effected at the
relevant Portfolio's net asset value determined for the next business day after
payment has been received. Checks or money orders that are not in proper form or
that are not accompanied or preceded by a complete account application will be
returned to the sender. Shares purchased by check or money order are entitled to
receive dividends and distributions beginning on the day after payment has been
received. Checks or money orders in payment for more than one Portfolio or
Warburg Pincus Fund should be accompanied by a breakdown of amounts to be
invested in each Portfolio or fund. If a check used for the purchase does not
clear, the Fund will cancel the purchase and the investor may be liable for
losses or fees incurred. For a description of the manner of calculating each
Portfolio's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase shares in a Portfolio by wiring funds from
their banks. Telephone orders by wire will not be accepted until a completed
account application in proper form has been received and an account number has
been established. Investors should place an order with the Fund prior to wiring
funds by telephoning (800) 888-6878. Federal funds may be wired to Counsellors
Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA #0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Institutional Fund, Inc.: [Port-
folio name]
DDA #9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received by the close of regular trading on the New
York Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment
by wire is received on the same day in proper form in accordance with
instructions set forth above, the shares will be priced according to the net
asset value of the relevant Portfolio on that day and are entitled to dividends
and distributions beginning on that day. If payment by wire is received in
proper form by the close of the NYSE without a prior telephone order, the
purchase will be priced according to the net asset value of the relevant
Portfolio 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 received or
accepted will be returned to the prospective investor after prompt inquiry. If a
telephone
16
<PAGE>
order is placed and payment by wire is not received on the same day, the Fund
will cancel the purchase and the investor may be liable for losses or fees
incurred.
Shares of the Fund are sold without a sales charge. The minimum initial
investment in the International Equity Portfolio and the Global Fixed Income
Portfolio is $3,000,000 (although the minimum investment for any group of
related persons is an aggregate of $4,000,000), and the minimum subsequent
investment is $50,000 (except for certain retirement plans for which
record-keeping is performed on an omnibus basis for multiple participants, which
are not subject to a subsequent investment minimum). Defined benefit
contribution plans investing in the International Equity Portfolio are not
subject to an investment minimum. The minimum initial investment in the Small
Company Growth Portfolio is $1,000,000, with no subsequent investment minimum.
The investment minimums may be waived for investors maintaining advisory
accounts with Warburg or brokerage accounts with Counsellors Securities. The
Fund reserves the right to change the initial and subsequent investment minimum
requirements at any time. Existing investors will be given 15 days' notice by
mail of any increase in subsequent investment minimum requirements.
After an investor has made an initial investment, additional shares may be
purchased at any time by mail or by telephone in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the Portfolio in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares of a
Portfolio 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 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 its 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 its accounts
with the organization. These organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Fund in
accordance with their agreements with clients or customers. Certain
organizations 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 the Fund's pricing on the following business day. If payment is
not received by such time, the organization could be held liable for resulting
fees or losses.
HOW TO REDEEM AND EXCHANGE SHARES IN THE PORTFOLIOS
REDEMPTION OF SHARES. An investor in a Portfolio may redeem (sell) shares on any
day that the Portfolio's net asset value is calculated (see 'Net Asset Value'
below).
Shares of a Portfolio may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, they may be giving up a measure of security that they may have if they
were to redeem or exchange their shares in writing. If an investor desires to
redeem shares by mail, a written request for redemption should be sent to
Warburg Pincus Funds at the address indicated above under 'How to Open an
Account in the Fund.' An investor should be sure that the redemption request
identifies the relevant Portfolio, the number of shares to be redeemed and the
investor's account number. In order to change the bank account designated to
17
<PAGE>
receive the redemption proceeds, the investor must send a written request (with
signature guarantee of all investors listed on the account when such a change is
made in conjunction with a redemption request) to Warburg Pincus Funds. Each
mail redemption request must be signed by the registered owner(s) (or legal
representative(s)) exactly as the shares are registered. If an investor has
applied for the telephone redemption feature on the account application, the
investor may redeem the shares by telephone by calling Warburg Pincus Funds at
(800) 888-6878 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any business
day. An investor making a telephone withdrawal should state (i) the name of the
relevant Portfolio, (ii) the account number of the Portfolio, (iii) the name of
the investor(s) appearing on the Portfolio's records, (iv) the amount to be
withdrawn and (v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. The Fund does
not currently impose a service charge for effecting wire transfers but it
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account in the Fund.' Although the
Fund will redeem shares purchased by check before the check has cleared, payment
of the redemption proceeds will be delayed until such check has cleared, which
may take up to 15 days from the purchase date. Investors should consider
purchasing shares using a certified or bank check or money order if they
anticipate an immediate need for a redemption.
If a redemption order is received prior to the close of regular trading on
the NYSE, the redemption order will be effected at the relevant Portfolio's net
asset value per share as determined on that day. If a redemption order is
received after the close of trading on the NYSE, the redemption order will be
effected at the relevant Portfolio's net asset value as next determined.
Redemption proceeds will normally be mailed or wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect a Portfolio,
the Portfolio reserves the right to pay the redemption proceeds within seven
days after the redemption order is effected. Furthermore, a Portfolio may
suspend the right of redemption or postpone the date of payment upon redemption
(as well as suspend or postpone the recordation of an exchange of shares) for
such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in the account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account in a Portfolio
drops to less than $250,000, the Fund reserves the right to redeem the shares in
that account at net asset value. Prior to any redemption, the Fund will notify
an investor in writing that the account has a value of less than the minimum.
The investor will then have 60 days to make an additional investment before a
redemption will be processed by the Fund.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone, investors
must have completed and returned to Warburg Pincus Funds an account application
containing a telephone election. Unless contrary instructions are elected, an
investor will be entitled to make
18
<PAGE>
exchanges by telephone. Neither the Fund nor its agents will be liable for
following instructions communicated by telephone that it reasonably believes to
be genuine. Reasonable procedures will be employed on behalf of the Fund to
confirm that instructions communicated by telephone are genuine. Such procedures
include providing written confirmation of telephone transactions, tape recording
telephone instructions and requiring specific personal information prior to
acting upon telephone instructions.
EXCHANGE OF SHARES. An investor may exchange shares of one Portfolio for shares
of another Portfolio at their respective net asset values. Exchanges may be
effected by mail or by telephone in the manner described under 'Redemption of
Shares' above. If an exchange request is received by Warburg Pincus Funds prior
to 4:00 p.m. (Eastern time), the exchange will be made at each Portfolio's net
asset value determined at the end of that business day. Exchanges will be
effected without a sales charge but must satisfy the minimum dollar amount
necessary for new purchases. Due to the costs involved in effecting exchanges,
the Fund reserves the right to refuse to honor more than three exchange requests
by a shareholder in any 30-day period. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders. The exchange
privilege is available to investors in any state in which the shares being
acquired may be legally sold. An 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. For further information regarding the
exchange privilege an investor should contact Warburg Pincus Funds at (800)
888-6878.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued on the
Portfolio's portfolio securities for the applicable period (which includes
amortization of market discounts) less amortization of market premium and
applicable expenses. Each Portfolio declares dividends from its net investment
income and net realized short-term and long-term capital gains annually and pays
them in the calendar year in which they are declared. Net investment income
earned on weekends and when the NYSE is not open will be computed as of the next
business day. Unless an investor instructs the Fund to pay dividends or
distributions in cash, dividends and distributions will automatically be
reinvested in additional shares of the relevant Portfolio at net asset value.
The election to receive dividends in cash may be made on the account application
or, subsequently, by writing to Warburg Pincus Funds at the address set forth
under 'How to Open an Account in the Fund' or by calling Warburg Pincus Funds at
(800) 888-6878.
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. Each Portfolio intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. A Portfolio, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Portfolio expects to pay such additional dividends and to
make such additional distributions as are necessary to avoid the application of
this tax.
Dividends paid from net investment income and distributions derived from
net realized short-term capital gains are taxable to investors as ordinary
income whether received in cash or reinvested in additional Portfolio shares.
Distributions derived from net realized long-term capital gains will be taxable
to investors as long-term capital gains, regardless of how long inves-
19
<PAGE>
tors have held Portfolio shares or whether such distributions are received in
cash or reinvested in Portfolio shares. As a general rule, an investor's gain or
loss on a sale or redemption of Portfolio shares will be a long-term capital
gain or loss if the investor has held the shares for more than one year and will
be a short-term capital gain or loss if the investor has held the 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 Portfolios,
but investors not subject to tax on their income will not be required to pay tax
on amounts distributed to them. The Portfolios' 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 each Portfolio may be subject to
withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If a Portfolio qualifies as a regulated investment
company, if certain distribution requirements are satisfied and if more than 50%
of the Portfolio's total assets at the close of its fiscal year consist of stock
or securities of foreign corporations, the Portfolio may elect for U.S. income
tax purposes to treat any foreign income taxes paid by it that can be treated as
income taxes under U.S. income tax principles as paid by its shareholders. A
Portfolio may qualify for and make this election in some, but not necessarily
all, of its taxable years. If a Portfolio were to make an election, shareholders
of the Portfolio 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, a Portfolio will
report to its shareholders, in writing, the amount per share of such foreign
income tax that must be included in each shareholder's gross income and the
amount which will be available for the deduction or credit. No deduction for
foreign taxes may be claimed by a shareholder who does not itemize deductions.
Certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
GLOBAL FIXED INCOME PORTFOLIO. Zero coupon securities do not make interest
payments, although a portion of the difference between a zero coupon security's
maturity value and its purchase price is imputed as income to the Portfolio each
year even though the Portfolio receives no cash distribution until maturity.
Under the U.S. federal tax laws, the Portfolio 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 Portfolio.
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 each Portfolio's prior
taxable year with respect to certain dividends and distributions which were
received from the Portfolio during the Portfolio's prior taxable year. Investors
should consult their tax advisers with specific reference to their own tax
situations, including their state and local tax liabilities.
NET ASSET VALUE
Each Portfolio'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,
20
<PAGE>
except on days when the NYSE is closed. The NYSE is currently scheduled to be
closed on New Year's Day, Washington's Birthday, Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and
on the preceding Friday or subsequent Monday when one of these holidays falls on
a Saturday or Sunday, respectively. The net asset value per share of each
Portfolio generally changes each day.
The net asset value per share of each Portfolio is computed by dividing the
value of a Portfolio's net assets by the total number of its shares outstanding.
Generally, a Portfolio'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 Portfolios' net asset value is not
calculated. Further information regarding valuation policies is contained in the
Statement of Additional Information.
THE PORTFOLIOS' PERFORMANCE
From time to time, a Portfolio may advertise its yield or average annual
total return over various periods of time. The yield of a Portfolio refers to
net investment income generated by the Portfolio over a specified 30-day period,
which is then annualized. Total return figures show the average percentage
change in value of an investment in a Portfolio from the beginning of the
measurement period to the end of the measurement period. The figures reflect
changes in the price of the Portfolio's shares assuming that any income
dividends and/or capital gain distributions made by the Portfolio during the
period were reinvested in shares of the Portfolio. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Portfolio's operations or on a
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 such return may not be representative of any
Portfolio's return over a longer market cycle. A Portfolio may also advertise
aggregate total return figures for various periods, representing the cumulative
change in value of an investment in the relevant Portfolio for the specific
period. Aggregate and average total returns may be shown by means of schedules,
charts or graphs, and may indicate various
21
<PAGE>
components of total return (i.e., change in value of initial investment, income
dividends and capital gain distributions).
Investors should note that yield and 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 each
Portfolio's yield and total return. Current yield and total return figures may
be obtained by calling Warburg Pincus Funds at (800) 888-6878.
In reports or other communications to investors or in advertising material,
a Portfolio may describe general economic and market conditions affecting the
Portfolio and may compare its performance with (i) that of other mutual funds
with similar investment objectives and policies, which may be based on the
rankings prepared by Lipper Analytical Services, Inc. or similar investment
services that monitor the performance of mutual funds; (ii) in the case of the
International Equity Portfolio, the Morgan Stanley Capital International EAFE
Index, the Salomon Russell Global Equity Index, the FT-Actuaries World Indices
(jointly compiled by The Financial Times, Ltd., Goldman, Sachs & Co. and NatWest
Securities Ltd.) and the S&P 500; in the case of the Small Company Growth
Portfolio, with the Russell 2000 Small Stock Index; and, in the case of the
Global Fixed Income Portfolio, with the Lipper General World Income Fund Average
and the J.P. Morgan Global Government Bond 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. A Portfolio may also include
evaluations of the Portfolio published by nationally recognized ranking services
and by financial publications that are nationally recognized, such as The Wall
Street Journal, Money, Inc., Institutional Investor, Barron's, Fortune, Forbes,
Business Week, Mutual Fund Magazine, Morningstar, Inc., Investor's Daily and
Financial Times.
In reports or other communications to investors or in advertising, each
Portfolio may also describe the general biography or work experience of the
portfolio managers of the Portfolio and may include quotations attributable to
the portfolio managers describing approaches taken in managing the Portfolio's
investments, research methodology underlying stock selection or the Portfolio's
investment objective. Each Portfolio 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,
each Portfolio may from time to time compare its expense ratio to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
ADDITIONAL INFORMATION
The Fund is a no-load investment company that was incorporated on May 13,
1992 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, par
value $.001 per share. Shares of three series have been authorized, which
constitute the interests in the Portfolios.
When matters are submitted for shareholder vote, shareholders of each
Portfolio will have one vote for each full share owned and proportionate,
fractional votes for fractional shares held. Generally, shares of the Fund vote
in the aggregate on all matters except where otherwise required by law. 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 members
holding office have been elected by shareholders. Any Director may be removed
from office upon the vote of shareholders holding at least a majority of the
Fund's outstanding shares at a meeting called for that purpose. A meeting will
be called for any purpose at the written request of holders of 10% of the Fund's
outstanding shares. John L.
22
<PAGE>
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
International Equity Portfolio 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.
Each investor will receive a quarterly statement of the investor's account,
as well as a statement after any transaction that affects the investor's share
balance or share registration (other than 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 each Portfolio and a statement of the performance of the
Portfolio.
------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF SHARES OF THE PORTFOLIOS, 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 SHARES IN ANY STATE
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE. SHARES OF
THE GLOBAL FIXED INCOME PORTFOLIO ARE NOT CURRENTLY AVAILABLE TO NEW HAMPSHIRE
INVESTORS.
23
<PAGE>
TABLE OF CONTENTS
THE FUND'S EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVES AND POLICIES ....................................... 4
COMPARISON OF INVESTMENT FUND
MANAGED BY WARBURG WITH
GLOBAL FIXED INCOME PORTFOLIO ......................................... 7
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 7
SPECIAL RISK CONSIDERATIONS
AND CERTAIN INVESTMENT STRATEGIES ..................................... 8
INVESTMENT GUIDELINES ................................................... 12
MANAGEMENT OF THE FUND .................................................. 12
HOW TO OPEN AN ACCOUNT IN THE FUND ...................................... 15
HOW TO PURCHASE SHARES IN THE
PORTFOLIOS ........................................................... 15
HOW TO REDEEM AND EXCHANGE SHARES
IN THE PORTFOLIOS .................................................... 17
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 19
NET ASSET VALUE ......................................................... 20
THE PORTFOLIOS' PERFORMANCE ............................................. 21
ADDITIONAL INFORMATION .................................................. 22
WPINS-1-1295
[LOGO]
WARBURG PINCUS
INSTITUTIONAL FUND, INC.
[ ] INTERNATIONAL EQUITY
PORTFOLIO
[ ] SMALL COMPANY GROWTH
PORTFOLIO
[ ] GLOBAL FIXED INCOME
PORTFOLIO
PROSPECTUS
DECEMBER 29, 1995
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as 'D'
<PAGE>1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>1
Subject to Completion, dated November 1, 1995
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995
WARBURG PINCUS INSTITUTIONAL FUND, INC.
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
Contents
Page
Investment Objectives . . . . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . . . . 2
Management of the Fund . . . . . . . . . . . . . . . . . . . 31
Additional Purchase and Redemption Information . . . . . . . 39
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . 40
Additional Information Concerning Taxes . . . . . . . . . . . 40
Determination of Performance . . . . . . . . . . . . . . . . 43
Auditors and Counsel . . . . . . . . . . . . . . . . . . . . 44
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 45
Financial Statements . . . . . . . . . . . . . . . . . . . . 45
Appendix -- Description of Ratings . . . . . . . . . . . . A-1
Reports of Coopers & Lybrand L.L.P.,
Independent Auditors . . . . . . . . . . . . . . . . . A-4
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Warburg Pincus Institutional Fund, Inc.
(the "Fund") dated December 29, 1995, and is incorporated by reference in its
entirety into that Prospectus. The Fund consists of three managed investment
funds. Only shares of the International Equity Portfolio are currently being
offered. Shares of the Small Company Growth Portfolio are expected to be
offered on or about January 1, 1995. Shares of the Global Fixed Income
Portfolio are not currently being offered. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
the International Equity Portfolio, the Small Company Growth Portfolio or the
Global Fixed Income Portfolio (the "Portfolios")
<PAGE>2
should be made solely upon the information contained herein. Copies of the
Fund's Prospectus and information regarding each of the Portfolio's current
performance may be obtained by calling Warburg Pincus Funds at (800) 888-6878.
Information regarding the status of shareholder accounts may also be obtained
by calling the Fund at (800) 888-6878 or by writing to the Fund, P.O. Box
9030, Boston, Massachusetts 02205-9030.
INVESTMENT OBJECTIVES
The investment objective of the International Equity Portfolio is
long-term capital appreciation. The investment objective of the Small Company
Growth Portfolio is capital growth. The investment objective of the Global
Fixed Income Portfolio is to maximize total investment return consistent with
prudent investment management while preserving capital.
INVESTMENT POLICIES
The following policies supplement the descriptions of each
Portfolio's investment objective and policies in the Prospectus.
Options, Futures and Currency Exchange Transactions
Securities Options. Each Portfolio may write covered put and call
options on stock and debt securities and may purchase such options that are
traded on foreign and U.S. exchanges, as well as over-the-counter ("OTC").
The Portfolio realizes fees (referred to as "premiums") for granting
the rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right
of its purchaser to compel the writer of the option to sell to the option
holder an underlying security at a specified price for a specified time period
or at a specified time.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a
Portfolio as the writer of a covered call option forfeits the right to any
appreciation in the value of the underlying security above the strike price
for the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the Portfolio as a put or call writer retains the
risk of a decline in the price of the underlying security. The size of the
premiums that the Portfolio may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
<PAGE>3
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at
a lower price. If security prices fall, the put writer would expect to suffer
a loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
In the case of options written by a Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange
and obtain physical delivery of the underlying common stock with respect to
which the Portfolio has written options may exceed the time within which the
Portfolio must make delivery in accordance with an exercise notice. In these
instances, the Portfolio may purchase or temporarily borrow the underlying
securities for purposes of physical delivery. By so doing, the Portfolio will
not bear any market risk, since the Portfolio will have the absolute right to
receive from the issuer of the underlying security an equal number of shares
to replace the borrowed securities, but the Portfolio may incur additional
transaction costs or interest expenses in connection with any such purchase or
borrowing.
Additional risks exist with respect to certain of the securities for
which the Portfolios may write covered call options. For example, if a
Portfolio writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If
this occurs, the Portfolio will compensate for the decline in the value of the
cover by purchasing an appropriate additional amount of mortgage-backed
securities.
Options written by a Portfolio will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolios may write (i) in-the-money
call options when Warburg, Pincus Counsellors, Inc., the Portfolios'
investment adviser ("Warburg"), expects that the price of the underlying
security will remain flat or decline moderately during the option period,
(ii) at-the-money call options when Warburg expects that the price of the
underlying security will remain flat or advance moderately during the option
period and (iii) out-of-the-money call options when Warburg expects that the
premiums received from writing the call option plus the appreciation in market
price of the underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to
the relation of exercise price to market price) may be used in the same market
<PAGE>4
environments that such call options are used in equivalent transactions. To
secure its obligation to deliver the underlying security when it writes a call
option, a Portfolio will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on
which the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Portfolio
prior to the exercise of options that it has purchased or written,
respectively, of options of the same series) in which the Portfolio 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
Portfolio has purchased an option and engages in a closing sale transaction,
whether the Portfolio 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 Portfolio initially paid for the original option plus the related
transaction costs. Similarly, in cases where the Portfolio has written an
option, it will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the original option
and will incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the original option. The Portfolio may
engage in a closing purchase transaction to realize a profit, to prevent an
underlying security with respect to which it has written an option from being
called or put or, in the case of a call option, to unfreeze an underlying
security (thereby permitting its sale or the writing of a new option on the
security prior to the outstanding option's expiration). The obligation of the
Portfolio under an option it has written would be terminated by a closing
purchase transaction, but the Portfolio would not be deemed to own an option
as a result of the transaction. So long as the obligation of the Portfolio as
the writer of an option continues, the Portfolio may be assigned an exercise
notice by the broker-dealer through which the option was sold, requiring the
Portfolio to deliver the underlying security against payment of the exercise
price. This obligation terminates when the option expires or the Portfolio
effects a closing purchase transaction. The Portfolio can no longer effect a
closing purchase transaction with respect to an option once it has been
assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary
market may exist. A liquid secondary market in an option may cease to exist
for a variety of reasons. In the past, for example, higher than anticipated
trading activity or order flow or other unforeseen events have at times
rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions in particular options.
Moreover, a Portfolio's ability to terminate options positions established in
the over-the-counter market may be more limited
<PAGE>5
than for exchange-traded options and may also involve the risk that securities
dealers participating in over-the-counter transactions would fail to meet
their obligations to the Portfolio. The Portfolio, however, intends to
purchase over-the-counter options only from dealers whose debt securities, as
determined by Warburg, are considered to be investment grade. If, as a
covered call option writer, the Portfolio is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise. In either case, the Portfolio would continue to be at
market risk on the security and could face higher transaction costs, including
brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group
of investors acting in concert (regardless of whether the options are written
on the same or different securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the Fund or a Portfolio and other clients of Warburg and certain
of its affiliates may be considered to be such a group. A securities exchange
may order the liquidation of positions found to be in violation of these
limits and it may impose certain other sanctions. These limits may restrict
the number of options a Portfolio will be able to purchase on a particular
security.
Stock Index Options. Each Portfolio 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.
<PAGE>6
OTC Options. The Portfolios may purchase OTC or dealer options or
sell covered OTC options. Unlike exchange-listed options where an
intermediary or clearing corporation, such as the Clearing Corporation,
assures that all transactions in such options are properly executed, the
responsibility for performing all transactions with respect to OTC options
rests solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying stock to
the clearing organization if the option is exercised, and the clearing
organization is then obligated to pay the writer the exercise price of the
option. If a Portfolio were to purchase a dealer option, however, it would
rely on the dealer from whom it purchased the option to perform if the option
were exercised. If the dealer fails to honor the exercise of the option by
the Portfolio, the Portfolio 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 Portfolio 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 Portfolio
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 Portfolio originally wrote the option. Although
the Portfolios 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 Portfolios, there can be no assurance that the Portfolio
will be able to liquidate a dealer option at a favorable price at any time
prior to expiration. The inability to enter into a closing transaction may
result in material losses to a Portfolio. Until the Portfolio, 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 Portfolio'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 Portfolio
may be unable to liquidate a dealer option.
Futures Activities. Each Portfolio 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.
A Portfolio 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 Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolios reserve the right to engage in
<PAGE>7
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 a Portfolio's policies. Although each Portfolio is limited in
the amount of assets it may invest in futures transactions (as described above
and in the Prospectus), there is no overall limit on the percentage of
Portfolio assets that may be at risk with respect to futures activities. The
ability of the Portfolio to trade in futures contracts and options on futures
contracts may be limited by the requirements of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to a regulated investment company.
Futures Contracts. A foreign currency futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified non-U.S. currency at a specified price, date, time and
place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate sensitive financial instrument (debt security) at a specified
price, date, time and place. Stock indexes are capitalization weighted
indexes which reflect the market value of the stock listed on the indexes. A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract
and the price at which the agreement is made.
No consideration is paid or received by a Portfolio upon entering
into a futures contract. Instead, the Portfolio 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 obliga-
tions, 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 Portfolio 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 Portfolio
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 Portfolios will
also incur brokerage costs in connection with entering into futures
transactions.
At any time prior to the expiration of a futures contract, a
Portfolio may elect to close the position by taking an opposite position,
which will operate to terminate the Portfolio'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 Portfolios intend 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
<PAGE>8
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
day. It is possible that futures contract prices could move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions at an advantageous price
and subjecting a Portfolio to substantial losses. In such event, and in the
event of adverse price movements, the Portfolio 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 Portfolio may realize a loss on a futures contract or option
that is not offset by an increase in the value of the hedged position. Losses
incurred in futures transactions and the costs of these transactions will
affect the Portfolio's performance.
Options on Futures Contracts. Each Portfolio 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
Portfolio.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of a Portfolio that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any non-U.S. currency
into U.S. dollars or into other appropriate currencies. Each Portfolio 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
<PAGE>9
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.
At or before the maturity of a forward contract, the Portfolio 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 Portfolio retains the portfolio security
and engages in an offsetting transaction, the Portfolio, 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 Portfolios 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 Portfolios' currency hedging will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect
to specific receivables or payables of a Portfolio generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. A Portfolio 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 Portfolio's securities are denominated will reduce the U.S. dollar value
of the securities, even if their value in the foreign currency remains
constant. The use of currency hedges does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. For example, in order to protect against
diminutions in the U.S. dollar value of securities it holds, a Portfolio may
purchase currency put options. If the value of the currency does decline, the
Portfolio 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
<PAGE>10
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 Portfolio 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 Portfolio derived from purchases of currency
options, like the benefit derived from other types of options, will be reduced
by premiums and other transaction costs. Because transactions in currency
exchange are generally conducted on a principal basis, no fees or commissions
are generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although
currency hedges limit the risk of loss due to a decline in the value of a
hedged currency, at the same time, they also limit any potential gain that
might result should the value of the currency increase. If a devaluation is
generally anticipated, the Portfolio 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 Portfolio's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Portfolio'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
Portfolio against a price decline if the issuer's creditworthiness
deteriorates.
Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income
to offset expenses or increase return, each Portfolio 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 Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether a Portfolio 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 Portfolio'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 Portfolio's hedge positions may
<PAGE>11
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
Portfolio's net investment results if market movements are not as anticipated
when the hedge is established. Stock index futures transactions may be
subject to additional correlation risks. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may
close futures contracts through offsetting transactions which would distort
the normal relationship between the stock index and futures markets.
Secondly, from the point of view of speculators, the deposit requirements in
the futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market also may cause temporary price distortions. Because of the possibility
of price distortions in the futures market and the imperfect correlation
between movements in the stock index and movements in the price of stock index
futures, a correct forecast of general market trends by Warburg still may not
result in a successful hedging transaction.
A Portfolio will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Portfolio 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 Portfolio's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures. As described in the Prospectus, each Portfolio 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 Portfolio 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
Portfolio 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 Portfolio on securities
may require the Portfolio to hold the securities subject to the call (or
securities convertible into the securities without additional consideration)
or to segregate assets (as described above) sufficient to purchase and deliver
the securities if the call is exercised. A call option written by the
Portfolio on an index may require the Portfolio to own portfolio securities
that correlate with the index or to segregate assets (as described above)
equal to the excess of the index value over the exercise price on a current
basis. A put option written by the Portfolio may require the Portfolio to
segregate assets (as described above) equal to the exercise price. The
Portfolio could purchase a put option if the strike price of that option is
the same or
<PAGE>12
higher than the strike price of a put option sold by the Portfolio. If the
Portfolio holds a futures or forward contract, the Portfolio 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 Portfolio may enter into
fully or partially offsetting transactions so that its net position, coupled
with any segregated assets (equal to any remaining obligation), equals its net
obligation. Asset coverage may be achieved by other means when consistent
with applicable regulatory policies.
Additional Information on Other Investment Practices
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S. issuers. Since the
International Equity and Global Fixed Income Portfolios will, and the Small
Company Growth Portfolio may, be investing in securities denominated in
currencies other than the U.S. dollar, and since a Portfolio may temporarily
hold funds in bank deposits or other money market investments denominated in
foreign currencies, each Portfolio 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 a Portfolio's assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Portfolio with respect to its foreign investments.
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 foreign securities held by a Portfolio 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
<PAGE>13
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 Portfolio, political or social
instability, or domestic developments which could affect U.S. investments in
those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Each of the Portfolios
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 a Portfolio to market and foreign exchange fluctuations
brought about by such delays, and due to the corresponding negative impact on
a Portfolio's liquidity, the Portfolios will avoid investing in countries
which are known to experience settlement delays which may expose the
Portfolios to unreasonable risk of loss.
Additionally, the operating expenses of the Portfolios, to the
extent they invest in foreign securities, can be expected to be higher than
that of an investment company investing exclusively in U.S. securities, since
the expenses of the Portfolios associated with foreign investing, such as
custodial costs, valuation costs and communication costs, as well as, in the
case of the International Equity and Global Fixed Income Portfolios, the rate
of the investment advisory fees, though similar to such expenses of some other
funds investing internationally, are higher than those costs incurred by other
investment companies.
Japanese Investments (International Equity Portfolio). From time to
time depending on current market conditions, the Portfolio may invest a
significant portion of its assets in Japanese securities. Like any investor
in Japan, the Portfolio will be subject to general economic and political
conditions in the country. In addition to the considerations discussed above,
these include future political and economic developments, the possible
imposition of, or changes in, exchange controls or other Japanese governmental
laws or restrictions applicable to such investments, diplomatic developments,
political or social unrest and natural disasters.
The information set forth in this section has been extracted from
various governmental publications and other sources. The Fund makes no
representation as to the accuracy of the information, nor has the Fund
attempted to verify it. Furthermore, no representation is made that any
correlation exists between Japan or its economy in general and the performance
of the Fund.
<PAGE>14
Economic Background. Over the past 30 years Japan has experienced
significant economic development. During the era of high economic growth in
the 1960's and early 1970's the expansion was based on the development of
heavy industries such as steel and shipbuilding. In the 1970's Japan moved
into assembly industries which employ high levels of technology and consume
relatively low quantities of resources, and since then has become a major
producer of electrical and electronic products and automobiles. Moreover,
since the mid-1980's Japan has become a major creditor nation. With the
exception of the periods associated with the oil crises of the 1970's, Japan
has generally experienced very low levels of inflation. On January 17, 1995,
the Great Hanshin Earthquake severely damaged Kobe, Japan's largest container
port. The government has announced a $5.9 billion plan to repair the port and
estimated that damage to the region equals $96 billion. However, the long-
term economic effects of the earthquake on the Japanese economy as a whole and
on the Portfolio's investments cannot be predicted.
Japan is largely dependent upon foreign economies for raw materials.
For instance, almost all of its oil is imported, the majority from the Middle
East. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of
the 1970's. Oil prices have declined mainly due to a worldwide easing of
demand for crude oil. The stabilized price of oil contributed to Japan's
sizeable current account surplus and stability of wholesale and consumer
prices since 1981. While Japan is working to reduce its dependence on foreign
materials, its lack of natural resources poses a significant obstacle to this
effort.
International trade is important to Japan's economy, as exports
provide the means to pay for many of the raw materials it must import.
Japan's trade surplus has increased dramatically in recent years, exceeding
$100 billion per year since 1991 and reaching a record high of $145 billion in
1994. In 1995, however, the trade surplus has decreased due to a drop in
exports. The reduced exports are due primarily to the strength of the yen and
the impact of threatened U.S. trade sanctions. Because of the concentration
of Japanese exports in highly visible products such as automobiles, machine
tools and semiconductors, and the large trade surpluses resulting therefrom,
Japan has entered a difficult phase in its relations with its trading
partners, particularly with respect to the United States, with whom the trade
imbalance is the greatest. The United States and Japan have engaged in
"economic framework" negotiations to help raise United States' share in
Japanese markets and reduce Japan's current account surplus but progress in
the negotiations has been hampered by recent political upheaval in Japan. On
June 28, 1995, the United States agreed not to impose trade sanctions in
return for a modest commitment by Japan to buy more American cars and auto
parts. Any trade sanctions imposed upon Japan by the United States as a
result of the current friction or otherwise could adversely impact Japan and
the Portfolio's investments there.
<PAGE>15
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years
shown.
CURRENT ACCOUNT
Trade
<TABLE>
<CAPTION>
Year Exports Imports Trade Balance Current Balance
---- ------- ------- ------------- ---------------
(U.S. dollars in millions)
<S> <C> <C> <C> <C>
1989 269,570 192,653 76,917 57,157
1990 280,374 216,846 63,528 35,761
1991 306,557 203,513 103,044 72,901
1992 330,850 198,502 132,348 117,551
1993 351,292 209,778 141,514 131,448
1994 384,176 283,232 145,944 129,140
</TABLE>
- ------------------------
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
Economic Trends. The following tables set forth Japan's gross
domestic product, wholesale price index and consumer price index for the years
shown.
GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GDP (yen billions)
(Expenditures) 469,149 465,972 463,145 451,297 424,537 396,197
Change in GDP
from Preceding
Year
Nominal terms 0.7% 0.6% 2.6% 6.3% 7.2% 6.7%
Real Terms 0.5% -0.2% 1.1% 4.3% 4.8% 4.7%
</TABLE>
- ------------------------
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
<PAGE>16
WHOLESALE PRICE INDEX
<TABLE>
<CAPTION>
Change from
All Preceding
Year Commodities Year
---- ----------- -----------
(Base year: 1990)
<S> <C> <C>
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 (2.1)
</TABLE>
- ------------------------
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
CONSUMER PRICE INDEX
<TABLE>
<CAPTION>
Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
<S> <C> <C>
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
1992 105.0 1.6
1993 106.4 1.3
1994 107.1 0.7
</TABLE>
- ------------------------
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of
Japan
Securities markets. There are eight stock exchanges in Japan. Of
these, the Tokyo Stock Exchange is by far the largest, followed by the Osaka
Stock Exchange and the Nagoya Stock Exchange. These exchanges divide the
market for domestic stocks into two sections, with newly listed companies and
smaller companies assigned to the Second Section and larger companies assigned
to the First Section.
<PAGE>17
The following table sets forth the number of Japanese companies
listed on the three major Japanese stock exchanges as of the end of 1994.
<TABLE>
<CAPTION>
NUMBER OF LISTED DOMESTIC COMPANIES
Tokyo Osaka Nagoya
----------------------------- ------------------------- -------------------------
1st 2nd 1st 2nd 1st 2nd
Sec. Sec. Sec. Sec. Sec. Sec.
------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1,235 454 855 344 431 129
</TABLE>
- ------------------------
Source: Tokyo Stock Exchange, Fact Book 1995
The following table sets forth the trading volume and value of
Japanese stocks on the eight Japanese stock exchanges for the years shown.
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>
Year Volume Value
---- ------ -----
<S> <C> <C>
1989 . . . . . . . . . . . . . . . . . . . . 256,296 Y 386,395
1990 . . . . . . . . . . . . . . . . . . . . 145,837 231,837
1991 . . . . . . . . . . . . . . . . . . . . 107,844 134,160
1992 . . . . . . . . . . . . . . . . . . . . 82,563 80,456
1993 . . . . . . . . . . . . . . . . . . . . 101,173 106,123
1994 . . . . . . . . . . . . . . . . . . . . 105,937 114,622
</TABLE>
- ------------------------
Source: Tokyo Stock Exchange, Fact Book 1995; Tokyo Stock Exchange New York
<PAGE>18
Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a
composite index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. TOPIX reflects the change in the aggregate market value of
the common stocks as compared to the aggregate market value of those stocks as
of the close on January 4, 1968.
The following table sets forth the high, low and year-end TOPIX for
the years shown.
TOPIX
(January 4, 1968=100)
<TABLE>
<CAPTION>
Year Year-end High Low
---- -------- ---- ---
<S> <C> <C> <C>
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
</TABLE>
- ------------------------
Source: Tokyo Stock Exchange, Fact Book 1995
American, European and Continental Depositary Receipts. The assets
of a Portfolio 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.
Short Sales "Against the Box." In a short sale, a Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return
the identical security. A Portfolio may engage in short sales if at the time
of the short sale the Portfolio 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 a Portfolio engages in a short sale, the collateral for
the short position will be maintained by the Portfolio's custodian or
qualified sub-custodian. While the short sale is open, the Portfolio 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
<PAGE>19
securities. These securities constitute the Portfolio's long position. Not
more than 10% of a Portfolio's net assets (taken at current value) may be held
as collateral for such short sales at any one time.
The Portfolios do not intend to engage in short sales against the
box for investment purposes. A Portfolio 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 Portfolio (or a security
convertible or exchangeable for such security), or when a Portfolio 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 Portfolio'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
Portfolio owns. There will be certain additional transaction costs associated
with short sales against the box, but the Portfolio will endeavor to offset
these costs with the income from the investment of the cash proceeds of short
sales.
U.S. Government Securities. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. Government Securities").
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
Government Securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. Each Portfolio 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, a Portfolio 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 Portfolio.
Securities of Other Investment Companies. Each Portfolio 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, a Portfolio 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 Portfolio's total
assets and (iii) when added to all other investment company
<PAGE>20
securities held by the Portfolio, do not exceed 10% of the value of the
Portfolio's total assets.
Lending of Portfolio Securities. A Portfolio 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 33-1/3% of a Portfolio's total assets taken at value. A Portfolio
will not lend portfolio securities to E.M. Warburg, Pincus & Co., Inc. ("EMW")
or its affiliates unless it has applied for and received specific authority to
do so from the SEC. Loans of portfolio securities will be collateralized by
cash, letters of credit or U.S. Government Securities, which are maintained at
all times in an amount equal to at least 100% of the current market value of
the loaned securities. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would be for the account
of the Portfolio involved. From time to time, a Portfolio 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 Portfolio and that is acting as a "finder."
By lending its securities, the Portfolio 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. Income
received could be used to pay a Portfolio's expenses and would increase its
total return. Each Portfolio will adhere to the following conditions whenever
its portfolio securities are loaned: (i) the Portfolio 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 Portfolio must be able to terminate the loan at
any time; (iv) the Portfolio 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 Portfolio 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 Portfolio's
ability to recover the loaned securities or dispose of the collateral for the
loan.
When-Issued Securities and Delayed-Delivery Transactions. Each
Portfolio 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.
A Portfolio 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
<PAGE>21
time the buyer enters into the commitment. Due to fluctuations in the value
of securities purchased or sold on a when-issued or delayed-delivery basis,
the yields obtained on such securities may be higher or lower than the yields
available in the market on the dates when the investments are actually
delivered to the buyers.
When a Portfolio 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 Portfolio 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 Portfolio's commitment. It may be
expected that the Portfolio'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 Portfolio engages in when-issued or
delayed-delivery transactions, it relies on the other party to consummate the
trade. Failure of the seller to do so may result in the Portfolio's incurring
a loss or missing an opportunity to obtain a price considered to be
advantageous.
Convertible Securities. Convertible securities in which a Portfolio
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. Each Portfolio may invest up to 5% of net assets in
warrants, provided that not more than 2% of net assets may be invested in
warrants not listed on a recognized U.S. or foreign stock exchange. Because a
warrant does not carry with it the right to dividends or voting rights with
respect to the securities which it entitles a holder to purchase, and because
it does not represent any rights in the assets of the issuer, warrants may be
considered more speculative than certain other types of investments. Also,
the value of a warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not
exercised prior to its expiration date.
Non-Publicly Traded and Illiquid Securities. Each Portfolio may
not invest more than 10% of its net assets in non-publicly traded and
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market, repurchase agreements which have a
maturity of longer than seven days and time deposits maturing in more than
seven days. Securities that have legal or contractual restrictions on resale
but have a readily available market are not
<PAGE>22
considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject
to contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the
potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for
repayment. The 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 a
Portfolio under the supervision of the Board. In reaching liquidity
decisions, Counsellors 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).
<PAGE>23
Borrowing. Each Portfolio 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
Portfolio's total assets. Although the principal of such borrowings will be
fixed, the Portfolio's assets may change in value during the time the
borrowing is outstanding. Each Portfolio expects that some of its borrowings
may be made on a secured basis. In such situations, either the custodian will
segregate the pledged assets for the benefit of the lender or arrangements
will be made with a suitable subcustodian, which may include the lender.
Non-Diversified Status (Small Company Growth Portfolio and Global
Fixed Income Portfolio). The Portfolios are classified as non-diversified
within the meaning of the 1940 Act, which means that each Portfolio is not
limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. Each Portfolio'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
Portfolio will comply with certain requirements, including limiting its
investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of its total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer and the Portfolio
will not own more than 10% of the outstanding voting securities of a single
issuer.
Special Situation Companies (Small Company Growth Portfolio). The
Small Company Growth Portfolio 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 Portfolio believes, however, that if Warburg analyzes "special situation
companies" carefully and invests in the securities of these companies at the
appropriate time, the Portfolio may achieve capital growth. There can be no
assurance, however, that a special situation that exists at the time the
Portfolio makes its investment will be consummated under the terms and within
the time period contemplated.
Ratings as Investment Criteria (Global Fixed Income Portfolio). Up
to 5% of the Global Fixed Income Portfolio's net assets may be invested in
securities rated below investment grade at the time of the investment, but not
lower than "B" by Standard & Poor's Corporation or Moody's Investors Service,
Inc. Subsequent to its purchase by a Portfolio, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. Neither event will require sale of such securities
by a
<PAGE>24
Portfolio, but Warburg will consider such event in its determination of
whether the Portfolio should continue to hold the securities.
Other Investment Limitations
International Equity Portfolio and Global Fixed Income Portfolio.
The investment limitations numbered 1 through 12, as applied to a Portfolio,
may not be changed without the affirmative vote of the holders of a majority
of the Portfolio'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 Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.
Investment limitations 13 through 16, as applied to a Portfolio, may be
changed by a vote of the Board at any time.
The International Equity Portfolio or the Global Fixed Income
Portfolio may not:
1. Borrow money or issue senior securities except that the
Portfolio may (a) borrow from banks for temporary or emergency purposes, and
not for leveraging, and then in amounts not in excess of 30% of the value of
the Portfolio's total assets at the time of such borrowing and (b) enter into
futures contracts; or mortgage, pledge or hypothecate any assets except in
connection with any bank borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed. Whenever borrowings described in (a) exceed
5% of the value of the Portfolio's total assets, the Portfolio will not make
any investments (including roll-overs). For purposes of this restriction, (a)
the deposit of assets in escrow in connection with certain of the Portfolio's
investment strategies and (b) collateral arrangements with respect to initial
or variation margin for futures contracts will not be deemed to be pledges of
the Portfolio's assets.
2. Purchase any securities which would cause 25% or more of the
value of the Portfolio'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 Portfolio may purchase or hold
publicly distributed fixed income securities, lend portfolio securities and
enter into repurchase agreements.
4. Underwrite any issue of securities except to the extent that the
investment in restricted securities and the purchase of fixed income
securities directly from the issuer thereof in accordance with the Portfolio's
investment objective, policies and limitations may be deemed to be
underwriting.
5. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in real estate
limited partnerships, oil, gas or
<PAGE>25
mineral exploration or development programs or oil, gas and mineral leases,
except that the Portfolio may invest in (a) securities secured by real estate,
mortgages or interests therein, (b) securities of companies that invest in or
sponsor oil, gas or mineral exploration or development programs and
(c) futures contracts and related options and commodity options. The entry
into forward foreign currency exchange contracts is not and shall not be
deemed to involve investing in commodities.
6. Make short sales of securities or maintain a short position,
except that a Portfolio may maintain short positions in forward currency
contracts, options and futures contracts and make short sales "against the
box."
7. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Portfolio may (a) purchase put and call
options on securities and foreign currencies, (b) write covered call options
on securities and (c) purchase or write options on futures contracts.
8. 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.
9. Purchase securities on margin, except that the Portfolio may
obtain any short-term credits necessary for the clearance of purchases and
sales of securities. For purposes of this restriction, the deposit or payment
of initial or variation margin in connection with futures contracts or related
options will not be deemed to be a purchase of securities on margin.
10. With respect to the International Equity Portfolio only,
purchase the securities of any issuer if as a result more than 5% of the value
of the Portfolio's total assets would be invested in the securities of such
issuer, except that this 5% limitation does not apply to U.S. Government
Securities and except that up to 25% of the value of the Portfolio's total
assets may be invested without regard to this 5% limitation.
11. Purchase any security if as a result the Portfolio 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.
12. With respect to the International Equity Portfolio only,
purchase more than 10% of the voting securities of any one issuer; provided
that this limitation shall not apply to investments in U.S. Government
Securities.
13. Invest more than 10% of the value of the Portfolio's net assets
in securities which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available
market quotations. For purposes of this limitation, (a) repurchase agreements
with maturities greater than seven days and (b) time deposits maturing in more
than seven calendar days shall be considered illiquid securities.
<PAGE>26
14. Purchase or retain securities of any company if, to the
knowledge of the Portfolio, any of the Fund's officers or Directors or any
officer or director of Counsellors 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
Portfolio 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 Portfolio's net assets of which not more than 2%
of the Portfolio's net assets may be invested in warrants not listed on a
recognized U.S. or foreign stock exchange.
16. Invest in oil, gas or mineral leases.
Small Company Growth Portfolio. The investment limitations numbered
1 through 9 may not be changed without the affirmative vote of the holders of
a majority of the Portfolio'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 Portfolio 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 Small Company Growth Portfolio may not:
1. Borrow money except that the Portfolio 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 Portfolio may not exceed 30% of the value of the
Portfolio'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 Portfolio'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 Portfolio 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 Portfolio's investment objective, policies and limitations
may be deemed to be underwriting.
<PAGE>27
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Portfolio may invest in
(a) securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
6. Make short sales of securities or maintain a short position,
except that the Portfolio may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and
make short sales "against the box".
7. Purchase securities on margin, except that the Portfolio 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 Portfolio may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, and purchase and sell currencies on a forward commitment or delayed-
delivery basis.
9. Issue any senior security except as permitted in the Portfolio'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 and in connection with the writing of covered
put and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures
contracts, and options on futures contracts.
12. Invest more than 10% of the Portfolio'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 Portfolio 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 Portfolio's officers or Directors or any
officer or director of Warburg
<PAGE>28
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
Portfolio 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 Portfolio's net assets of which not more than
2% of the Portfolio's net assets may be invested in warrants not listed on a
recognized U.S. or foreign stock exchange.
16. Make additional investments (including roll-overs) if the
Portfolio's borrowings exceed 5% of its net assets.
General. Each Portfolio may make commitments more restrictive than
the restrictions listed above so as to permit the sale of Portfolio shares in
certain states. Should a Portfolio determine that any such commitment is no
longer in the best interest of the Portfolio and its shareholders, the
Portfolio will revoke the commitment by terminating the sale of Portfolio
shares in the state involved. If a percentage restriction 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 Portfolio's assets will not constitute a violation of such
restriction.
Portfolio Valuation
The Prospectus discusses the time at which the net asset value of
each Portfolio is determined for purposes of sales and redemptions. The
following is a description of the procedures used by each Portfolio in valuing
its assets.
Securities, options and futures contracts for which market
quotations are available will be valued as described in the Prospectus. 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
Portfolio 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. The amortized cost method of valuation
may also be used with respect to debt obligations with 60 days or less
remaining to maturity. Securities, options and futures contracts for which
market quotations are not available and certain other assets of the Portfolio
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.
<PAGE>29
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and days on which a Portfolio's net asset value is not
calculated. As a result, calculation of the Portfolio'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.
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. 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 Portfolio'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.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying each Portfolio's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio
securities are usually principal transactions without brokerage commissions
effected directly with the issuer or with an underwriter acting as principal.
Other purchases and sales may be effected on a securities exchange or
over-the-counter, depending on where it appears that the best price or
execution will be obtained. The purchase price paid by a Portfolio 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 each Portfolio. 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
<PAGE>30
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 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 a Portfolio and/or other accounts over
which Warburg exercises investment discretion. Research and other services
received may be useful to Warburg in serving both the Portfolios 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 Portfolios. The fees to Warburg under its advisory
agreements with the Fund are not reduced by reason of its receiving any
brokerage and research services.
Investment decisions for each Portfolio 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 a Portfolio. 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 Portfolios. In some instances, this investment procedure may
adversely affect the price paid or received by a Portfolio or the size of the
position obtained or sold for a Portfolio. To the extent permitted by law,
Warburg may aggregate the securities to be sold or purchased for a Portfolio
with those to be sold or purchased for such other investment clients in order
to obtain best execution.
During the fiscal period or years ended October 31, 1992,
October 31, 1993 and October 31, 1994, the Fund, on behalf of the
International Equity Portfolio, paid an aggregate of approximately $12,602,
$305,110 and $612,312, respectively, in commissions to broker-dealers for
execution of portfolio transactions. The fiscal 1993 and 1994 commission
figures were a result of sharp increases in the volume of share-related
activity as the Portfolio received a large inflow of capital. In no instance
will portfolio securities be purchased from or sold to Warburg or Counsellors
Securities Inc., the Fund's distributor ("Counsellors Securities"), or any
affiliated person of such companies.
Transactions for the Portfolios may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Fund will deal directly with the dealers who
make a market in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions
and the purchase and sale of underlying securities upon exercise of options.
Each Portfolio may participate, if and when practicable, in bidding
for the purchase of securities for the Portfolio's portfolio directly from an
issuer in order to take
<PAGE>31
advantage of the lower purchase price available to members of such a group. A
Portfolio will engage in this practice, however, only when Warburg, in its
sole discretion, believes such practice to be otherwise in the Portfolio's
interest.
Portfolio Turnover
The Portfolios do not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when a
Portfolio deems it desirable to sell or purchase securities. A Portfolio'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. The
decrease in the portfolio turnover rate of the International Equity Portfolio
during the year ended October 31, 1993 was due to a large growth in assets.
Certain practices that may be employed by a Portfolio 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. The Small Company Growth Portfolio's
investment in special situation companies could result in high portfolio
turnover. To the extent that its portfolio is traded for the short-term, the
Portfolio will be engaged essentially in trading activities based on short-
term considerations affecting the value of an issuer's stock instead of long-
term investments based on fundamental valuation of securities. Because of
this policy, portfolio securities may be sold without regard to the length of
time for which they have been held. Consequently, the annual portfolio
turnover rate of the Small Company Growth Portfolio may be higher than mutual
funds having a similar objective that do not invest in special situation
companies.
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 University;
Central Intelligence Agency Director or Trustee of Circuit City
930 Dolly Madison Blvd. Stores, Inc. (retail electronics and
McClain, Virginia 22107 appliances) and Phoenix Home Life
Insurance Co.
<PAGE>32
Donald J. Donahue (71) . . . . . Director
99 Indian Field Road Chairman of Magma Copper Company since
Greenwich, Connecticut 06830 January 1987; Director or Trustee of GEV
Corporation and Signet Star Reinsurance
Company; Chairman and Director of NAC
Holdings from September 1990-June 1993.
Jack W. Fritz (68) . . . . . . . Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations); Director of
Advo, Inc. (direct mail advertising).
John L. Furth* (64) . . . . . Chairman of the Board and President
466 Lexington Avenue Vice Chairman and Director of EMW;
New York, New York 10017-3147 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 Donovan
New York, New York 10112 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 Partners, Inc.
Suite 700 (business consulting) from January 1990-
Washington, DC 20036 January 1994; President of the National
Association of Manufacturers from
1980-1990; Director or Trustee of New
England Mutual Life Insurance Co., ICOS
Corporation (biopharmaceuticals), P.H.H.
Corporation (fleet auto management; housing
and plant relocation service), WMX
Technologies Inc. (solid and hazardous
waste collection and disposal), The Rouse
Company (real estate development),
SunResorts International Ltd. (hotel and
real estate management), Harris Corp.
(electronics and communications equipment),
The Gillette Co. (personal care products)
and Sun Company Inc. (petroleum refining
and marketing).
- ------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>33
Dale C. Christensen (47) . . . . Vice President of the Fund and Portfolio
466 Lexington Avenue Manager of Global Fixed Income Portfolio
New York, New York 10017-3147 Portfolio Manager or Co-Portfolio Manager
of other Warburg Pincus Funds; Managing
Director of EMW; Associated with EMW since
1989; Vice President at Citibank, N.A. from
1985-1989; Vice President of Counsellors
Securities; President of other investment
companies advised by Warburg.
Richard H. King (51) . . . . . . Vice President of the Fund and Portfolio
466 Lexington Avenue Manager of International Equity Portfolio
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 Assistant Secretary
New York, New York 10017-3147 of EMW; Associated with EMW since 1984;
Senior Vice President, Secretary and Chief
Operating Officer of Counsellors
Securities; Officer of other investment
companies advised by Warburg.
Eugene L. Podsiadlo (38) . . . . Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated
New York, New York 10017-3147 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 April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April
1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General
Counsel and Secretary, Home Unity Savings
Bank from 1991-1992; Vice President and
Chief Compliance Officer of Counsellors
Securities; Vice President and Secretary of
other investment companies advised by
Warburg.
<PAGE>34
Stephen Distler (42) . . . . Vice President and Chief Financial Officer
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 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.
Howard Conroy(41) . . . . . . . . Vice President, Treasurer and Chief
466 Lexington Avenue 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 1987;
New York, New York 10017-3147 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.
<PAGE>35
Directors' Compensation
(for the fiscal year ended October 31, 1994)
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund Managed by Warburg*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $1,500 $36,500
Donald J. Donahue $1,500 $36,500
Jack W. Fritz $1,500 $36,500
Thomas A. Melfe $1,500 $36,500
Alexander B. Trowbridge $1,500 $36,500
</TABLE>
________________________
* Each Director also serves as a Director or Trustee of 15 other investment
companies advised by Warburg.
** Mr. Furth is considered to be an interested person of the Fund and
Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receives no compensation from the Fund or any other
investment company managed by Warburg.
As of October 27, 1995, no Directors or officers of the Fund owned
any of the outstanding shares of the International Equity Portfolio. As of
the same date Mr. Furth may be deemed to have beneficially owned 91.46% of the
International Equity Portfolio's shares outstanding, 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.
Mr. Richard H. King, vice president of the Fund and portfolio
manager of the International Equity Portfolio, 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 Portfolio of
Warburg Pincus Trust and a co-portfolio manager of Warburg Pincus Emerging
Markets Fund and 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 an EAFE mutual fund (FTIT) 1985-1986 which grew from $3
million to over $100 million during this two-year period.
<PAGE>36
Mr. Nicholas P.W. Horsley, associate portfolio manager and research
analyst of the International Equity Portfolio, is also a co-portfolio manager
of Warburg Pincus Emerging Markets Fund and Warburg Pincus Japan OTC Fund and
an associate portfolio manager and research analyst of Warburg Pincus
International Equity Fund and the International Equity Portfolio of Warburg
Pincus Trust. From 1981 to 1984 Mr. Horsley was a securities analyst at
Barclays Merchant Bank in London, UK and Johannesburg, RSA. From 1984 to 1986
he was a senior analyst with BZW Investment Management in London. From 1986
to 1993 he was a director, portfolio manager and analyst at Barclays deZoete
Wedd in New York City. Mr. Horsley earned B.A. and M.A. degrees with honors
from University College, Oxford. Mr. Nicholas P. Edwards, associate portfolio
manager and research analyst of the International Equity Portfolio, is also
portfolio manager of Warburg Pincus Japan Growth Fund and a co-portfolio
manager and research analyst of Warburg Pincus International Equity Fund and
Warburg Pincus Japan OTC Fund and an associate portfolio manager and research
analyst of the International Equity Portfolio of Warburg Pincus Trust. Prior
to joining Warburg in August 1995, Mr. Edwards was a director at Jardine
Fleming Investment Advisers, Tokyo. He was a vice president of Robert Fleming
Inc. in New York City from 1988 to 1991. Mr. Edwards earned M.A. degrees from
Oxford University and Hiroshima University in Japan. Mr. Harold W. Ehrlich,
associate portfolio manager and research analyst of the International Equity
Portfolio, is also an associate portfolio manager and research analyst of
Warburg Pincus International Equity Fund, the International Equity Portfolio
of Warburg Pincus Trust and Warburg Pincus Emerging Markets Fund. Prior to
joining Warburg, Mr. Ehrlich was a senior vice president, portfolio manager
and analyst at Templeton Investment Counsel Inc. from 1987 to 1995. He was a
research analyst and assistant portfolio manager at Fundamental Management
Corporation from 1985 to 1986 and a research analyst at First Equity
Corporation of Florida from 1983 to 1985. Mr. Ehrlich earned a B.S.B.A.
degree from University of Florida and earned his Chartered Financial Analyst
designation in 1990. Mr. Vincent J. McBride, associate portfolio manager and
research analyst of the International Equity Portfolio, is also an associate
portfolio manager and research analyst of Warburg Pincus International Equity
Fund, the International Equity Portfolio of Warburg Pincus Trust and Warburg
Pincus Emerging Markets Fund. 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 Corporation 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.
Ms. Elizabeth B. Dater, co-portfolio manager of the Small Company
Growth Portfolio is also co-portfolio manager of Warburg Pincus Emerging
Growth Fund. She also manages a post-venture capital fund and is the former
director of research for Counsellors' investment management activities. Prior
to joining Warburg in 1978, she was a vice president of Research at Fiduciary
Trust Company of New York and an institutional sales assistant at Lehman
Brothers. Ms. Dater has been a regular panelist on Maryland Public
Television's "Wall Street Week" since 1976. Ms. Dater earned a B.A. degree
from Boston University in Massachusetts. Mr. Stephen J. Lurito, co-portfolio
manager of the Small
<PAGE>37
Company Growth Portfolio, is also co-portfolio manager of Warburg Pincus
Emerging Growth Fund. Mr. Lurito, also the research coordinator and a
portfolio manager for micro-cap equity and post-venture products, has been
with Warburg since 1987. Prior to that he was a research analyst at Sanford
C. Bernstein & Company, Inc. Mr. Lurito earned a B.A. degree from the
University of Virginia and a M.B.A. from the University of Pennsylvania.
Mr. Dale C. Christensen, vice president of the Fund and portfolio
manager of the Global Fixed Income Portfolio, earned a B.S. in Agriculture
from the University of Alberta and a B.Ed. in Mathematics from the University
of Calgary, both located in Canada. Mr. Christensen directs the Fixed Income
Group at Warburg, which he joined in 1989, providing portfolio management for
Warburg Pincus Funds and institutional clients around the world. Mr.
Christensen was a vice president in the International Private Banking division
and the domestic pension fund management division at Citicorp, N.A. from 1985
to 1989. Prior to that, Mr. Christensen was a fixed income portfolio manager
at CIC Asset Management from 1982 to 1984.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to each Portfolio, Counsellors
Funds Service, Inc. ("Counsellors Service") serves as co-administrator to the
Fund, and PFPC serves as a co-administrator to the Fund pursuant to separate
written agreements (the "Advisory Agreements," the "Counsellors Service Co-
Administration Agreements" and the "PFPC Co-Administration Agreements,"
respectively). The services provided by, and the fees payable by the Fund to,
Warburg under the Advisory Agreements, Counsellors Service under the
Counsellors Service Co-Administration Agreements and PFPC under the PFPC Co-
Administration Agreements are described in the Prospectus. See the
Prospectus, "Management of the Fund." Prior to March 1, 1994, PFPC served as
administrator to the Fund and Counsellors Service served as administrative
services agent to the Fund pursuant to separate written agreements.
Warburg agrees that if, in any fiscal year, the expenses borne by a
Portfolio exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Portfolio 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 a Portfolio is 2.5% of the first $30 million of the
average net assets of the Portfolio, 2% of the next $70 million of the average
net assets of the Portfolio and 1.5% of the remaining average net assets of
the Portfolio.
During the two-month period beginning September 1, 1992
(commencement of operations) through October 31, 1992, Warburg voluntarily
waived $21,393 of the $23,021 in investment advisory fees earned with respect
to the International Equity Portfolio. For the years ended October 31, 1993
and October 31, 1994, Warburg earned $406,466 and $1,736,864, respectively,
and waived $195,081 and $542,549, respectively, in investment
<PAGE>38
advisory fees. Counsellors Service earned $1,775, $24,631 and $188,503 during
the fiscal period or years ended October 31, 1992, October 31, 1993 and
October 31, 1994, respectively. PFPC received $3,453, $60,970 and $259,290,
respectively, in fees and voluntarily waived $3,028, $29,253 and $81,358 of
such fees for the fiscal period or years ended October 31, 1992, October 31,
1993 and October 31, 1994. Since the Small Company Growth Portfolio and the
Global Fixed Income Portfolio had not commenced investment operations as of
October 31, 1994, no fees were paid to Warburg, PFPC or Counsellors Service
with respect to them.
Organization of the Fund
The Fund was incorporated on May 13, 1992 under the laws of the
State of Maryland under the name "Warburg, Pincus Institutional Fund, Inc.".
The Fund's charter authorizes the Board to issue three billion full and
fractional shares of separate series of common stock, $.001 par value per
share. Shares of three series have been authorized, which constitute the
interests in the Portfolios. When matters are submitted for shareholder vote,
shareholders of each Portfolio 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 Portfolio, in which case only the shares of
the affected Portfolio would be entitled to vote, or (ii) when the 1940 Act
requires that shares of the Portfolios 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 a Portfolio, upon liquidation, will participate
ratably in the Portfolio'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.
Custodians and Transfer Agent
Fiduciary Trust Company International ("Fiduciary") serves as
custodian of the International Equity and Global Fixed Income Portfolio's
assets pursuant to separate custodian agreements (the "Fiduciary Custodian
Agreements"). Under the Fiduciary Custodian Agreements, Fiduciary (i)
maintains a separate account or accounts in the name of each Portfolio, (ii)
holds and transfers portfolio securities on account of each Portfolio,
(iii) makes receipts and disbursements of money on behalf of each Portfolio,
(iv) collects and receives all income and other payments and distributions on
account of each Portfolio's portfolio securities and (v) makes periodic
reports to the Board concerning each Portfolio's custodial arrangements.
Fiduciary is authorized to select one or more foreign or domestic banks or
trust companies and securities depositories to serve as sub-custodian on
behalf of the Portfolios. The principal business address of Fiduciary is Two
World Trade Center, New York, New York 10048.
<PAGE>39
PNC Bank, National Association ("PNC") and State Street Bank and
Trust Company ("State Street") serve as custodians of the Small Company Growth
Portfolio's U.S. and foreign assets, respectively, pursuant to separate
custodian agreements (the "Custodian Agreements"). Under the Custodian
Agreements, PNC and State Street each (i) maintains a separate account or
accounts in the name of the Portfolio, (ii) holds and transfers portfolio
securities for the account of the Portfolio, (iii) makes receipts and
disbursements of money on behalf of the Portfolio, (iv) collects and receives
all income and other payments and distributions on account of the Portfolio's
portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Portfolio's custodial arrangements. PNC may delegate its
duties under its Custodian Agreement with the Fund to a wholly owned direct or
indirect subsidiary of PNC or PNC Bank Corp. upon notice to the Fund and upon
the satisfaction of certain other conditions. With the approval of the Board,
State Street is authorized to select one or more foreign banking institutions
and foreign securities depositaries as sub-custodian on behalf of the
Portfolios; State Street is not relieved of any responsibility or liability to
the Fund on account of any actions or omissions of any such sub-custodian.
PNC is an indirect, wholly owned subsidiary of PNC Bank Corp., and its
principal business address is Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19101. The principal business address of State Street is 225
Franklin Street, Boston, Massachusetts 02110. PNC also provides certain
custodial services generally in connection with purchases and sales of the
International Equity and Global Fixed Income Portfolios' shares.
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
each Portfolio, (ii) addresses and mails all communications by the Fund to
record owners of Portfolio 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. State Street has delegated to Boston
Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility
for most shareholder servicing functions. BFDS's principal business address
is 2 Heritage Drive, Boston, Massachusetts 02171.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of each Portfolio's shares is equal to its per
share net asset value. Additional information on how to purchase and redeem a
Portfolio's shares and how such shares are priced is included in the
Prospectus under "Net Asset Value."
Under the 1940 Act, a Portfolio may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which
the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair
valuation of portfolio securities is not reasonably practicable, or for such
other periods as the SEC may permit. (A Portfolio may also suspend or
<PAGE>40
postpone the recordation of an exchange of its shares upon the occurrence of
any of the foregoing conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, a Portfolio 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. The Fund
intends to comply with Rule 18f-1 promulgated under the 1940 Act with respect
to redemptions in kind.
EXCHANGE PRIVILEGE
Shareholders of a Portfolio may exchange all or part of their shares
for shares of another Portfolio or other portfolios of the Fund organized by
Warburg in the future on the basis of their relative net asset values per
share at the time of exchange.
The exchange privilege enables shareholders to acquire shares in a
Portfolio with a different investment objective when they believe that a shift
between Portfolios is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the Portfolio's
shares being acquired may legally be sold.
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 Portfolio and the proceeds are invested on the same day, at
a price as described above, in shares of the Portfolio 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 a
Portfolio.
Each Portfolio intends to qualify each year, as a "regulated
investment company" under Subchapter M of the Code. If it qualifies as a
regulated investment company, a Portfolio will pay no federal income taxes on
its taxable net investment income (that is, taxable income other than net
realized capital gains) and its net realized capital gains that are
distributed to shareholders. To qualify under Subchapter M, a Portfolio 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
<PAGE>41
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 its 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 Portfolio (a) at least 50% of the market value of the
Portfolio'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 Portfolio'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 Portfolio'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 Portfolio controls and that are determined
to be in the same or similar trades or businesses or related trades or
businesses. In meeting these requirements, a Portfolio may be restricted in
the selling of securities held by the Portfolio for less than three months and
in the utilization of certain of the investment techniques described above and
in the Prospectus. As a regulated investment company, a Portfolio 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 Portfolio'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 Portfolios expect to pay the dividends and make
the distributions necessary to avoid the application of this excise tax.
A Portfolio'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 Portfolio (i.e., may affect whether gains or losses are
ordinary or capital), accelerate recognition of income to the Portfolio, defer
Portfolio losses and cause the Portfolio 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 a Portfolio to mark-to-market certain types of its positions (i.e.,
treat them as if they were closed out) and (ii) may cause the Portfolio to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes. Each Portfolio 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 Portfolio nor its shareholders will be treated as
receiving a materially greater amount of capital gains or distributions than
actually realized or received, (b) the Portfolio will be able to use
substantially all of its losses for the fiscal years in which
<PAGE>42
the losses actually occur and (c) the Portfolio will continue to qualify as a
regulated investment company.
A shareholder of a Portfolio 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 on 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 Prospectus, will be long-term or
short-term depending on the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced, including replacement through the
reinvestment of dividends and capital gains distributions in a Portfolio,
within a period of 61 days beginning 30 days before and ending 30 days after
the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss.
Each shareholder will receive an annual statement as to the federal
income tax status of his dividends and distributions from the relevant
Portfolio for the prior calendar year. Furthermore, shareholders will also
receive, if appropriate, various written notices after the close of the
Portfolio'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 Portfolio 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 Portfolio. 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.
<PAGE>43
Investment in Passive Foreign Investment Companies
If a Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio 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 Portfolio 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 Portfolio. Certain interest charges may be imposed
on either the Portfolio or its shareholders with respect to any taxes arising
from excess distributions or gains on the disposition of shares in a PFIC.
A Portfolio 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 Portfolio 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 Portfolio.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice
indicating that final regulations will provide that regulated investment
companies may elect the mark-to-market election for tax years ending after
March 31, 1992 and before April 1, 1993. Whether and to what extent the
notice will apply to taxable years of a Portfolio is unclear. If the
Portfolio is not able to make the foregoing election, it may be able to avoid
the interest charge (but not the ordinary income treatment) on disposition of
the stock by electing, under proposed regulations, each year to mark-to-market
the stock (that is, treat it as if it were sold for fair market value). Such
an election could result in acceleration of income to the Portfolio.
DETERMINATION OF PERFORMANCE
From time to time, a Portfolio may quote its total return and, in
the case of the Global Fixed Income Portfolio, yield in advertisements or in
reports and other communications to shareholders. The average total return of
the International Equity Portfolio for the fiscal year ended October 31, 1994
was 22.62% (21.56% without waivers). The average annual total return of the
International Equity Portfolio for the period beginning September 1, 1992
(inception) to October 31, 1994 was 26.75% (26.02% without waivers). A
Portfolio's average annualized total return is calculated by finding the
average annual compounded rates of return for the one-, five- and ten- (or
such shorter period as the Portfolio 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
- ------------------------
* - The expression (1 + T) is being raised to the nth power.
<PAGE>44
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.
A Portfolio may advertise, from time to time, comparisons of its
performance with that of one or more other mutual funds with similar
investment objectives. A Portfolio 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.
The actual total return of the International Equity Portfolio for the calendar
year ended December 31, 1994 and for the six-month period ended April 30, 1995
was .86% and -8.94%, respectively (.63% and -9.01%, respectively, without
waivers). Investors should note that this performance may not be
representative of the Portfolio's total return in longer market cycles.
Yield is calculated by annualizing the net investment income
generated by the Portfolio over a specified thirty-day period according to the
following formula:
YIELD = 2[( a-b +1)[*-OMITTED GRAPHIC-SEE FOOTNOTE]-1]
-----------------------------------------------
cd
- ------------------------
* - The expression (a-b + 1) is being raised to the sixth power.
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
A Portfolio's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and operating expenses
allocable to it. As described above, total return and yield are based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Portfolio's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for
a stated period of time.
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves
as independent auditors for the Fund. The financial statements (except for
the International Equity and the Global Fixed Income Portfolios' unaudited
financial statements for the period ending April 30, 1995 and July 31, 1995,
respectively) for the Portfolios that appear in this Statement of Additional
Information have been audited by Coopers & Lybrand, whose reports thereon
appear
<PAGE>45
elsewhere herein and have been included herein in reliance upon the report of
such firm of independent auditors given upon their authority as experts in
accounting and auditing.
The financial statements for the period beginning with commencement
of the Fund through October 31, 1992 have been audited by Ernst & Young LLP
("Ernst & Young"), independent auditors, as set forth in their report, and
have been included in reliance on such report and upon the authority of such
firm as experts in accounting and auditing. Ernst & Young's address is 787
7th Avenue, New York, New York 10019.
Willkie Farr & Gallagher serves as counsel for the Fund as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of October 27, 1995, no person owned of record 5% or more of the
outstanding shares of the International Equity Portfolio. Mr. Lionel I.
Pincus, Chairman of the Board and Chief Executive Officer of EMW, may be
deemed to have beneficially owned 92.13% of the International Equity
Portfolio's 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 International Equity Portfolio's financial statements for the
fiscal year ended October 31, 1994 (audited) and for the period ended April
30, 1995 (unaudited); the statement of assets and liabilities of the Small
Company Growth Portfolio as of August 8, 1995; and the statement of assets and
liabilities as of February 14, 1995 (audited) and as of July 31, 1995
(unaudited) of the Global Fixed Income Portfolio follow the Reports 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 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 they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Although they normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions, which
could lead to inadequate capacity to meet
<PAGE>A-2
timely interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or implied BBB
rating.
B - Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BBB rating.
To provide more detailed indications of credit quality, the ratings
from "AA" to "B" may be modified by the addition of a plus or minus sign to
show relative standing within this major rating category.
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 edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
<PAGE>A-3
B - Bonds which are rated B generally lack characteristics of the
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.
<PAGE>
STATEMENT OF DIFFERENCES BETWEEN EDGAR VERSION AND PAPER DOCUMENT
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Yen symbol appears in 17
EDGAR document as Y
Missing exponent (explained 43,44
by footnote)
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND L.L.P.]
To the Board of Directors and Shareholders of
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO:
We have audited the accompanying statement of net assets of Warburg Pincus
Institutional Fund, Inc. -- International Equity Portfolio as of October 31,
1994, and the related statement of operations for the year then ended, and the
statements of changes in net assets, and the financial highlights for each of
the two years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of Warburg Pincus Institutional
Fund, Inc. -- International Equity Portfolio for the period ended October 31,
1992, were audited by other auditors, whose report dated December 15, 1992,
expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Warburg Pincus Institutional Fund, Inc. -- International Equity Portfolio as of
October 31, 1994, and the results of its operations for the year then ended, and
the changes in its net assets and its financial highlights for each of the two
years in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 12, 1994
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (87.7%)
Argentina (3.3%)
Banco De Galicia & Buenos Aires SA 78,700 $ 529,757
Banco De Galicia & Buenos Aires SA ADR 1,500 40,500
Banco Frances del Rio de la Plata SA 107,200 911,382
Banco Frances del Rio de la Plata SA ADR 30,300 776,438
Capex SA GDR + 130,900 2,552,550
YPF SA ADR 254,200 6,132,575
------------
10,943,202
------------
Australia (5.6%)
BTR Nylex Ltd. 2,163,525 3,838,303
News Corp., Ltd. 701,651 4,317,727
Niugini Mining Ltd. + 313,000 1,231,401
Pasminco Ltd. + 835,000 1,400,794
Reinsurance Australia Corp., Ltd. + 1,988,600 2,760,378
Woodside Petroleum Ltd. 1,314,500 4,898,282
------------
18,446,885
------------
Austria (2.2%)
Austria Mikro-Systeme International AG 25,300 1,877,600
Maculan Holding AG Vorzuege 8,090 826,009
V.A. Technologie AG + 44,900 4,631,098
------------
7,334,707
------------
Finland (1.8%)
Metsa-Serla Class B 127,500 5,946,647
------------
France (5.9%)
Cetelem 8,879 1,731,689
Fives-Lille (Compagnie De) 26,740 2,553,091
Lagardere Groupe 167,700 3,954,114
Scor SA 104,296 2,287,104
Societe Nationale Elf Aquitaine SA ADR 127,300 4,662,363
Total Cie Franc Des Petroles Class B 68,925 4,466,147
------------
19,654,508
------------
</TABLE>
See Accompanying Notes to Financial Statements.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
India (2.6%)
Hindalco Industries Ltd. GDR 148,000 $ 5,180,000
Reliance Industries Ltd. GDS 135,000 3,476,250
------------
8,656,250
------------
Indonesia (1.1%)
P.T. Dynaplast Ltd. 170,400 400,341
P.T. Hadtex Indosyntec 283,000 149,925
P.T. Modern Photo Film Co. 280,000 1,534,953
P.T. Tri Polyta Indonesia ADR + 51,600 1,535,100
------------
3,620,319
------------
Israel (0.6%)
Ampal-American Israel Corp. Class A + 233,000 1,849,438
------------
Japan (22.8%)
Canon Inc. 320,000 5,947,341
Canon Inc. ADR 30,200 2,785,950
DDI Corp. 7,960 7,216,190
East Japan Railway Co. 1,630 8,128,962
Fuji Denki Reiki Co., Ltd. 29,221 461,622
Fujitsu Ltd. 397,000 4,550,026
Fujitsu Ltd. ADR 4,000 227,000
Hitachi Ltd. 190,750 1,989,236
Japan Securities Finance Co., Ltd. 208,000 3,414,765
Kao Corp. 443,000 5,260,196
Murata Mfg. Co., Ltd. 37,290 1,524,712
NEC Corp. 110,000 1,408,363
Nippon Telegraph & Telephone Corp. 382 3,569,541
Sankyo Co., Ltd. 19,000 1,471,347
Sekisui House Ltd. 282,000 3,202,891
Shin-Etsu Chemical Co., Ltd. 265,600 5,649,313
Sony Corp. 55,000 3,356,221
Sony Corp. ADR 34,900 2,107,088
TDK Corp. 107,000 5,258,854
</TABLE>
See Accompanying Notes to Financial Statements.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Toho Co., Ltd. 21,000 $ 4,054,724
Tsuchiya Home Co. 68,600 1,862,860
York-Benimaru Co., Ltd. 52,800 2,224,306
------------
75,671,508
------------
Korea (5.9%)
Hana Bank 50,000 1,097,867
Hanil Bank 212,223 3,339,117
Inchon Iron & Steel Co., Ltd. 27,830 1,524,888
Korea Electric Power Corp. 83,700 3,341,174
Korea Europe Fund Ltd. 289 1,228,250
Korea Long Term Credit Bank 30,903 1,248,528
Samsung Electronics Co., Ltd. 10,414 2,224,571
Samsung Electronics Co., Ltd. GDR 12,803 777,782
Samsung Heavy Industries Co., Ltd. 80,495 4,588,316
------------
19,370,493
------------
Malaysia (0.6%)
Arab-Malaysian Merchant Bank BHD 54,000 591,897
Westmont BHD 211,000 1,495,048
------------
2,086,945
------------
Mexico (6.8%)
Cemex SA de CV ADR 331,062 5,979,807
Grupo Financiero Bancomer SA de CV ADR + 144,200 3,316,600
Grupo Financiero Bancomer SA de CV Series B 300,000 288,252
Grupo Mexicano de Desarrollo SA ADR Series B + 58,021 1,051,631
Grupo Mexicano de Desarrollo SA ADR Series L + 37,891 767,293
Grupo Radio Centro SA de CV ADR 75,100 1,267,312
Grupo Tribasa SA de CV ADR + 166,404 5,220,926
Telefonos de Mexico SA de CV ADR 86,400 4,752,000
------------
22,643,821
------------
</TABLE>
See Accompanying Notes to Financial Statements.
4
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
New Zealand (4.3%)
Brierley Investments Ltd. 4,571,336 $ 3,432,662
Fletcher Challenge Ltd. 1,946,050 5,246,337
Lion Nathan Ltd. 1,716,600 3,254,227
Wrightson Ltd. 3,271,735 2,436,641
------------
14,369,867
------------
Norway (1.7%)
Norsk Hydro AS ADR 141,444 5,693,121
------------
Pakistan (0.8%)
Pakistan Telecommunications Corp. GDR + 15,300 2,532,150
------------
Singapore (1.4%)
Development Bank of Singapore Ltd. 143,562 1,525,071
Development Bank of Singapore Ltd. ADR 34,750 1,481,219
IPC Corp., Ltd. + 2,136,000 1,730,909
------------
4,737,199
------------
South Africa (1.2%)
Anglovaal Ltd. 28,000 852,934
Barlow Ltd. 202,700 1,644,881
Barlow Ltd. ADR 42,000 336,000
Genbel Investments Ltd. 464,700 1,102,285
------------
3,936,100
------------
Spain (2.3%)
Banco De Santander 28,500 1,158,204
Banco De Santander ADR 160,700 6,528,437
------------
7,686,641
------------
Sweden (4.0%)
Asea AB Series B 42,000 3,058,252
Astra AB Series B 148,150 3,967,861
Celsius Industrier AB Series B 131,650 3,030,110
Foreningsbanken AB Series A + 1,556,000 3,038,723
------------
13,094,946
------------
</TABLE>
See Accompanying Notes to Financial Statements.
5
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Switzerland (1.9%)
BBC Brown Boveri AG 4,164 $ 3,578,152
Danzas Holding AG 1,240 1,556,796
Immuno International AG 2,050 982,104
------------
6,117,052
------------
Taiwan (3.9%)
Baring International Taiwan Fund + 100,000 1,100,000
China Steel Corp. GDR + 101,500 1,852,375
Evergreen Marine Corp. Ltd. + 240,000 497,619
Grand Pacific Fund 1,200,000 463,063
Hocheng Corp. + 49,000 238,001
Hocheng Corp. GDR 32,200 934,605
Kwang Hua Growth Fund 1,000,000 483,797
President Enterprises GDS + 63,039 1,166,222
Taipei Fund A 31,000 2,750,010
Taipei Fund B IDR 19 1,685,490
Tuntex Distinct Corp. 779,800 907,232
Tuntex Distinct Corp. GDS + 86,306 949,366
------------
13,027,780
------------
Thailand (1.2%)
Egco 52,000 77,581
Industrial Finance Corp. of Thailand 1,077,100 2,801,329
Thai Military Bank Ltd. 249,050 1,164,911
------------
4,043,821
------------
United Kingdom (5.7%)
AAF Industries PLC + 208,500 139,768
British Air Authority PLC 475,820 4,029,862
Govett & Co., Ltd. 606,000 3,596,640
Queens Moat Houses PLC + 646,700 0
Singer & Friedlander Group PLC 2,210,000 2,854,547
Takare PLC 1,167,900 4,334,602
Thorn EMI PLC 207,783 3,312,321
Trio Holdings PLC 1,099,000 530,075
------------
18,797,815
------------
</TABLE>
See Accompanying Notes to Financial Statements.
6
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Zimbabwe (0.1%)
Delta Corp., Ltd. 10,500 $ 175,357
------------
TOTAL COMMON STOCK (Cost $254,042,619) 290,436,572
------------
PREFERRED STOCK (0.9%)
Austria (0.9%)
Maculan Holdings AG Vorzuege 31,100 3,175,390
------------
United Kingdom (0.0%)
Queens Moat Houses PLC, 7.50% Convertible + 15,300 0
------------
TOTAL PREFERRED STOCK (Cost $2,748,839) 3,175,390
------------
STOCK RIGHTS & WARRANTS (0.4%)
India (0.2%)
Hindalco Industries Ltd. Wts., 11/02/95 + 36,500 693,500
------------
Israel (0.0%)
Ampal-American Israel Corp. Class A Wts., 01/31/99 + 95,000 83,125
------------
Japan (0.2%)
Bandai Industries Wts., 11/04/97 + 440 566,500
------------
Malaysia (0.0%)
Arab-Malaysian Merchant Bank Rts., 11/08/94 + 54,000 8,456
------------
Switzerland (0.0%)
Danzas Holding AG Wts., 08/02/96 + 2,000 39,059
------------
TOTAL RIGHTS & WARRANTS (Cost $876,768) 1,390,640
------------
OPTIONS (0.4%) CONTRACTS
---------------
Korea (0.2%)
Korea Composite Index, 09/24/95 + 1,500,000 776,700
------------
Mexico (0.2%)
Mexico Inmex, 03/29/96 + 62,434 429,546
------------
TOTAL OPTIONS (Cost $629,520) 1,206,246
------------
</TABLE>
See Accompanying Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CONVERTIBLE BONDS/NOTES (4.6%) Par Value
--------------- ------------
Australia (0.3%)
BTR Nylex Ltd. 9.00%, 11/30/49 (A) 11,200,000 $ 831,376
------------
France (0.9%)
Scor SA 3.00%, 01/01/01 (B) 15,975,225 2,833,794
------------
India (0.2%)
Reliance Industries Ltd. 3.50%, 11/03/99 $ 500,000 675,000
------------
Japan (1.5%)
Matsushita Electric Works Ltd. 2.70%, 05/31/02 (C) 425,000,000 4,958,699
------------
New Zealand (0.2%)
Brierley Investments Ltd. 9.00%, 06/30/98 (D) 1,028,875 715,598
------------
Taiwan (1.5%)
United Microelectronics Corp. 1.25%, 06/08/04 $ 1,750,000 2,454,375
Yang Ming Marine Transport Corp. 2.00%, 10/06/01 2,400,000 2,622,000
------------
5,076,375
------------
TOTAL CONVERTIBLE BONDS/NOTES (Cost $14,488,426) 15,090,842
------------
SHORT-TERM INVESTMENTS (4.9%)
Repurchase agreement with J.P. Morgan dated 10/31/94 at 4.45% to be
repurchased at $16,374,024 on 11/01/94.
(Collateralized by $17,343,000 U.S. Treasury Note 4.25%, due
12/31/95, with a market value of $17,437,609) (Cost $16,372,000) 16,372,000 16,372,000
------------
TOTAL INVESTMENTS AT VALUE (98.9%) (Cost $289,158,172*) 327,671,690
OTHER ASSETS IN EXCESS OF LIABILITIES (1.1%) 3,625,522
------------
NET ASSETS (100.0%) (applicable to 20,269,033 shares) $331,297,212
------------
------------
NET ASSET VALUE, offering and redemption price per share
($331,297,212[div]20,269,033 shares) $16.34
</TABLE>
+ Non-income producing security.
* Also cost for Federal income tax purposes.
Unless as otherwise indicated below, all securities are denominated in $U.S.
(A) Denominated in Australian Dollars.
(B) Denominated in French Francs.
(C) Denominated in Japanese Yen.
(D) Denominated in New Zealand Dollars.
See Accompanying Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $464,361) $ 2,847,410
Interest 491,929
-----------
Total investment income 3,339,339
-----------
EXPENSES:
Investment advisory 1,736,864
Administrative services 447,793
Audit 15,649
Custodian/Sub-custodian 232,766
Directors 7,500
Insurance 7,863
Legal 20,031
Organizational 24,705
Printing 19,906
Registration 128,069
Transfer agent 31,953
Miscellaneous 13,334
-----------
2,686,433
Less fees waived (623,907)
-----------
Total expenses 2,062,526
-----------
Net investment income 1,276,813
-----------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS AND
FOREIGN CURRENCY RELATED ITEMS:
Net realized gain from security transactions 11,710,325
Net realized loss from foreign currency related items (456,151)
Net change in unrealized appreciation from investments and
foreign currency related items 22,452,714
-----------
Net realized and unrealized gain from investments and
foreign currency related items 33,706,888
-----------
Net increase in net assets resulting from operations $34,983,701
-----------
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
9
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
October 31, 1994 October 31, 1993
---------------- -------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,276,813 $ 383,504
Net realized gain from security transactions 11,710,325 1,240,473
Net realized gain (loss) from foreign currency related items (456,151) 88,756
Net change in unrealized appreciation from investments and foreign
currency related items 22,452,714 16,749,988
---------------- -------------------
Net increase in net assets resulting
from operations 34,983,701 18,462,721
---------------- -------------------
FROM DISTRIBUTIONS:
Dividends from net investment income (526,855) (236,392)
Distributions from capital gains (1,146,187) 0
---------------- -------------------
Net decrease from distributions (1,673,042) (236,392)
---------------- -------------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 196,715,545 72,675,006
Reinvested dividends 1,270,243 128,555
Net asset value of shares redeemed (9,279,255) (363,333)
---------------- -------------------
Net increase in net assets from capital share transactions 188,706,533 72,440,228
---------------- -------------------
Net increase in net assets 222,017,192 90,666,557
NET ASSETS:
Beginning of year 109,280,020 18,613,463
---------------- -------------------
End of year $331,297,212 $ 109,280,020
---------------- -------------------
---------------- -------------------
</TABLE>
See Accompanying Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
October 31,
----------------------------------------
1994 1993
------------------ ------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.49 $ 9.62
------- -------
Income from Investment Operations:
Net Investment Income .17 .10
Net Gain (Loss) from Securities and Foreign Currency Related
Items (both realized and unrealized) 2.87 3.87
------- -------
Total from Investment Operations 3.04 3.97
------- -------
Less Distributions:
Dividends from net investment income (.07) (.10)
Distributions from capital gains (.12) .00
------- -------
Total Distributions (.19) (.10)
------- -------
NET ASSET VALUE, END OF PERIOD $16.34 $13.49
------- -------
------- -------
Total Return 22.62% 41.61%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $331,297 $109,280
Ratios to average daily net assets:
Operating expenses .95% .95%
Net investment income .59% .75%
Decrease reflected in above expense ratios due to
waivers/reimbursements .29% .44%
Portfolio Turnover Rate 19.34% 19.40%
<CAPTION>
September 1, 1992
(Commencement of
Operations) through
October 31, 1992
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
Income from Investment Operations:
Net Investment Income .02
Net Gain (Loss) from Securities and Foreign Currency Related
Items (both realized and unrealized) (.40)
-------
Total from Investment Operations (.38)
-------
Less Distributions:
Dividends from net investment income .00
Distributions from capital gains .00
-------
Total Distributions .00
-------
NET ASSET VALUE, END OF PERIOD $ 9.62
-------
-------
Total Return (20.69%)*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $18,613
Ratios to average daily net assets:
Operating expenses .95%*
Net investment income 1.22%*
Decrease reflected in above expense ratios due to
waivers/reimbursements .85%*
Portfolio Turnover Rate 50.16%
</TABLE>
* Annualized
See Accompanying Notes to Financial Statements.
TAX STATUS OF 1994 DIVIDENDS (Unaudited)
Dividends paid by the Fund taxable as ordinary income amounted to $.18 per
share.
Long-term capital gains dividends paid by the Fund amounted to $.01 per share.
Because the Fund's fiscal year is not the calendar year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1995.
11
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Warburg Pincus Institutional Fund, Inc. (the 'Fund') is an open-end
management investment company and currently offers two managed investment funds
(the 'Portfolios'): International Equity Portfolio, which commenced operations
on September 1, 1992, seeks long-term capital appreciation by investing in
equity securities of principally non-United States issuers; and Global Fixed
Income Portfolio, which as of October 31, 1994, had not commenced operations,
seeks to maximize total investment return consistent with prudent investment
management while preserving capital by investing in investment grade fixed
income securities of issuers throughout the world, including United States
issuers.
The net asset values of the Portfolios are determined daily as of the close
of regular trading on the New York Stock Exchange. The Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are valued at the last
reported bid price. In the absence of a quoted market value, investments are
valued at fair value as determined by or under the direction of the Fund's Board
of Directors. Short-term investments that mature in 60 days or less are valued
on the basis of amortized cost, which approximates market value.
The books and records of the Portfolios are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are reported in the results of
operations for the current period. The Fund does not isolate that portion of
gains and losses on investments in equity securities which is due to changes in
the foreign exchange rate from that which is due to changes in market prices of
equity securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
The cost of investments sold is determined by use of the specific
indentification method for both financial reporting and income tax purposes.
Dividends from net investment income are declared and paid annually.
Distributions of net realized capital gains, if any, are declared annually.
However, to the extent that a net realized capital gain can be reduced by a
capital loss carryover, such gain will not be distributed.
The Fund intends to continue to comply with the special provisions of the
Internal Revenue Code available to investment companies and therefore no Federal
income tax provision is required.
Costs incurred by the Portfolios in connection with their organization have
been deferred and are being amortized over a period of five years from the date
each Portfolio commences its operations.
The Portfolios may enter into repurchase agreement transactions. Under the
terms of a typical repurchase agreement, the Portfolios acquire an underlying
security subject to an obligation of the seller
12
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
to repurchase. The value of the underlying security will be maintained at an
amount at least equal to the total amount of the purchase obligation, including
interest. The collateral is in the Portfolio's possession.
As of November 1, 1993, the Fund implemented AICPA Statement of Position
93-2 -- Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. Adoption of this standard results in the reclassification to paid-in
capital of permanent differences between tax and financial reporting of net
investment income and net realized gain (loss). The change has had no material
effect on paid-in capital or other components of the net assets of the Fund at
November 1, 1993. Distributions to shareholders and net asset values were not
affected by this change.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Counsellors'), a wholly owned
subsidiary of Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as
the Portfolios' investment adviser. The International Equity Portfolio pays
Counsellors an investment advisory fee calculated at an annual rate of .80% of
the Portfolio's average daily net assets. For the year ended October 31, 1994,
Counsellors earned $1,736,864 for investment advisory services to the
International Equity Portfolio, of which $542,549 was voluntarily waived. The
Global Fixed Income Portfolio will pay Counsellors an investment advisory fee
calculated at an annual rate of .65% of the Portfolio's average daily net
assets.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Counsellors, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as the Fund's co-administrators. For its
administrative services, CFSI receives a fee calculated at an annual rate of
.10% of the Fund's average daily net assets. For the year ended October 31,
1994, CFSI earned $188,503 in administrative services fees. For the year ended
October 31, 1994, PFPC earned $259,290 and voluntarily waived $81,358 in
administrative services fees.
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Counsellors, acts as distributor of the International Equity Portfolio's shares.
No compensation is payable by the International Equity Portfolio to CSI for its
distribution services.
3. INVESTMENTS IN SECURITIES
The International Equity Portfolio's purchases and sales of investment
securities for the year ended October 31, 1994 (excluding short-term
investments) were $203,964,620 and $38,657,383, respectively.
At October 31, 1994, with respect to the International Equity Portfolio,
the net unrealized appreciation from investments of $38,513,518 was comprised of
appreciation of $47,439,221 for those securities having an excess of value over
cost, and depreciation of $8,925,703 for those securities having an excess of
cost over value (based on cost for Federal income tax purposes).
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1994
- --------------------------------------------------------------------------------
4. FOREIGN FORWARD CURRENCY CONTRACTS
The Portfolios may enter into forward currency contracts for the purchase
or sale of a specific foreign currency at a fixed price on a future date. Risks
may arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Portfolios will enter into forward contracts primarily for hedging purposes. The
forward currency contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date. At October 31, 1994,
there were no open foreign forward currency contracts.
5. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue up to three billion full and fractional
shares of beneficial interest of separate series having a $.001 par value per
share. Shares of two series have been authorized, which constitute the interest
in the Portfolios.
Transactions in shares of the International Equity Portfolio were as
follows:
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
October 31, 1994 October 31, 1993
---------------- ----------------
<S> <C> <C>
Shares sold 12,686,666 6,187,485
Shares issued to shareholders on reinvestment of dividends 85,000 12,933
Shares redeemed (603,362) (35,261)
---------------- ----------------
Net increase in shares outstanding 12,168,304 6,165,157
---------------- ----------------
---------------- ----------------
</TABLE>
6. NET ASSETS
Net assets of the International Equity Portfolio at October 31, 1994,
consisted of the following:
<TABLE>
<S> <C>
Capital contributed, net $280,456,076
Accumulated net investment income 3,219,522
Accumulated net realized gain from security transactions 9,075,199
Net unrealized appreciation from investments and foreign currency related items 38,546,415
------------
Net assets $331,297,212
------------
------------
</TABLE>
14
- ------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (87.1%)
Argentina (2.5%)
Banco De Galicia & Buenos Aires SA 90,505 $ 371,516
Banco De Galicia & Buenos Aires SA ADR 16,525 266,466
Banco Frances del Rio de la Plata SA 107,200 681,538
Banco Frances del Rio de la Plata SA ADR 90,300 1,659,263
Capex SA GDR + 126,900 1,919,363
YPF SA ADR 227,000 4,596,750
------------
9,494,896
------------
Australia (4.6%)
BTR Nylex Ltd. 2,534,425 4,940,689
News Corp., Ltd. 204,028 991,379
Niugini Mining Ltd. + 283,000 895,466
Pasminco Ltd. + 1,012,000 1,089,471
Reinsurance Australia Corp., Ltd. + 1,788,600 3,122,466
United Construction Group Ltd. 300,000 139,661
Woodside Petroleum Ltd. 1,469,500 6,007,298
------------
17,186,430
------------
Austria (3.1%)
Bohler-Uddeholm 47,600 2,843,483
Maculan Holdings AG Vorzuege 9,290 389,996
V.A. Technologie AG + 77,300 8,537,141
------------
11,770,620
------------
Denmark (0.5%)
Copenhagen Airport 18,524 1,195,097
International Service System Class B 20,500 586,356
------------
1,781,453
------------
Finland (1.5%)
Metsa-Serla Class B 127,500 5,557,248
------------
</TABLE>
See Accompanying Notes to Financial Statements.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
COMMON STOCK (CONT'D)
<S> <C> <C>
France (8.2%)
Bouygues 26,555 $ 3,237,953
Cetelem 8,879 1,877,920
Fives-Lille (Compagnie De) 26,740 2,558,331
Lagardere Groupe 237,000 5,321,343
Scor SA 115,296 2,581,692
Societe Nationale Elf Aquitaine SA 4,470 357,327
Societe Nationale Elf Aquitaine SA ADR 178,400 7,091,400
Total Cie Franc Des Petroles Class B 124,825 7,805,850
------------
30,831,816
------------
Hong Kong (2.2%)
Hong Kong Electric 559,000 1,715,610
HSBC Holdings PLC 255,700 2,965,571
HSBC Holdings PLC (UK) 35,000 412,379
Jardine Matheson 404,800 3,218,160
------------
8,311,720
------------
India (1.7%)
Hindalco Industries Ltd. GDR 148,000 3,922,000
Reliance Industries Ltd. GDS 153,000 2,467,125
------------
6,389,125
------------
Indonesia (0.7%)
P.T. Dynaplast Ltd. 340,800 366,616
P.T. Modern Photo Film Co. 280,000 1,173,465
P.T. Tri Polyta Indonesia ADR + 51,600 1,109,400
------------
2,649,481
------------
Israel (0.8%)
Ampal-American Israel Corp. Class A + 233,000 1,485,375
ECI Telecommunications Ltd. 85,000 1,434,375
------------
2,919,750
------------
</TABLE>
See Accompanying Notes to Financial Statements.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
COMMON STOCK (CONT'D)
<S> <C> <C>
Japan (24.5%)
Canon Inc. 360,000 $ 5,957,143
Canon Inc. ADR 25,200 2,101,050
DDI Corp. 972 8,562,857
East Japan Railway Co. 1,813 9,431,917
Fujitsu Ltd. 385,000 3,937,083
Hitachi Ltd. 337,750 3,437,813
Japan Securities Finance Co., Ltd. 208,000 3,268,571
Kao Corp. 510,000 6,192,857
Kirin Beverage 35,000 545,833
Murata Mfg. Co., Ltd. 33,290 1,339,526
NEC Corp. 20,000 221,429
Nippon Communication Systems Corp. 275,300 3,834,536
Nippon Express Co., Ltd. 221,000 2,186,321
Nippon Telegraph & Telephone Corp. 863 7,633,440
Sankyo Co., Ltd. (Gunma) 19,000 1,101,548
Seikisui House Ltd. 282,000 3,726,429
Shin-Etsu Chemical Co., Ltd. 345,600 6,706,286
Sony Corp. 77,200 3,896,762
Sony Corp. ADR 36,900 1,877,288
TDK Corp. 158,000 7,222,857
Toho Co., Ltd. 22,000 3,954,762
Tsuchiya Home Co. 89,180 1,539,417
York-Benimaru Co., Ltd. 81,500 3,221,190
------------
91,896,915
------------
Korea (4.7%)
Daewoo Heavy Industries 83,394 1,028,340
Hana Bank 82,200 1,477,292
Hanil Bank 372,373 4,701,679
Korea Electric Power Corp. 72,300 2,778,471
Korea Europe Fund Ltd. 289 1,029,563
Korea Long Term Credit Bank 42,368 1,289,719
Samsung Electronics Co., Ltd. 10,328 1,792,572
Samsung Electronics Co., Ltd. GDR 18,964 933,957
Samsung Heavy Industries Co., Ltd. 82,010 2,452,877
------------
17,484,470
------------
</TABLE>
See Accompanying Notes to Financial Statements.
4
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
COMMON STOCK (CONT'D)
<S> <C> <C>
Malaysia (0.4%)
Arab-Malaysian Merchant Bank BHD 24,000 $ 237,210
Westmont BHD 322,000 1,395,633
------------
1,632,843
------------
Mexico (1.8%)
Cemex SA de CV ADR 526,062 3,287,887
Grupo Financiero Banamex Accival SA de CV Class B 30,000 50,400
Grupo Financiero Banamex Accival SA de CV Class C 586,500 977,500
Telefonos de Mexico SA de CV ADR 86,400 2,613,600
------------
6,929,387
------------
New Zealand (5.6%)
Brierley Investments Ltd. 6,263,583 4,719,134
Fletcher Challenge Ltd. 2,244,050 6,038,290
Fletcher Forestry 1,497,900 2,095,886
Lion Nathan Ltd. 2,446,700 5,332,700
Wrightson Ltd. 3,271,735 2,641,075
------------
20,827,085
------------
Norway (2.1%)
Norsk Hydro AS ADR 198,144 7,950,528
------------
Pakistan (0.5%)
Pakistan Telecommunications Corp. 345 37,713
Pakistan Telecommunications Corp. GDR + 16,000 1,672,000
------------
1,709,713
------------
Singapore (1.8%)
DBS Land Ltd. 741,500 2,043,755
Development Bank of Singapore Ltd. 176,562 1,888,296
Development Bank of Singapore Ltd. ADR 34,750 1,489,906
IPC Corp., Ltd. + 2,216,000 1,192,937
------------
6,614,894
------------
</TABLE>
See Accompanying Notes to Financial Statements.
5
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
COMMON STOCK (CONT'D)
<S> <C> <C>
South Africa (0.0%)
Anglovaal Ltd. 4,800 $ 164,443
------------
Spain (3.6%)
Banco De Santander 30,300 1,108,657
Banco De Santander ADR 220,300 7,985,875
Repsol SA ADR 133,700 4,278,400
------------
13,372,932
------------
Sweden (3.4%)
Asea AB Series B 42,000 3,536,501
Astra AB Series B 168,750 4,806,039
Celsius Industrier Series B 117,550 1,843,744
Foreningsbanken AB Series A + 1,378,000 2,388,872
------------
12,575,156
------------
Switzerland (2.0%)
BBC Brown Boveri AG 6,594 6,513,375
Danzas Holding AG 1,369 1,123,895
------------
7,637,270
------------
Taiwan (1.2%)
Baring International Taiwan Fund + 100,000 1,000,000
Evergreen Marine Corp., Ltd. + 381,000 795,031
Kwang Hua Growth Fund 346,000 153,935
Tuntex Distinct Corp. 965,945 1,110,500
Tuntex Distinct Corp. GDS + 127,312 1,464,088
------------
4,523,554
------------
Thailand (1.1%)
Industrial Finance Corp. of Thailand 1,535,832 3,288,384
Thai Military Bank Ltd. 244,050 786,295
------------
4,074,679
------------
</TABLE>
See Accompanying Notes to Financial Statements.
6
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
COMMON STOCK (CONT'D)
<S> <C> <C>
United Kingdom (8.6%)
AAF Industries PLC + 208,500 $ 117,380
British Air Authority PLC 661,020 5,039,808
BTR PLC 1,183,400 6,262,511
Govett and Co., Ltd. 606,000 2,797,535
International Cabletel Inc. 5,500 162,250
Queens Moat Houses PLC + 646,700 0
Reckitt & Colman PLC 416,500 4,294,317
Singer and Friedlander Group PLC 2,210,000 2,986,019
Takare PLC 1,182,900 3,786,362
Thorn EMI PLC 339,362 6,206,471
Trio Holdings PLC 1,648,500 437,516
------------
32,090,169
------------
Zimbabwe (0.0%)
Delta Corp., Ltd. 10,500 146,867
------------
TOTAL COMMON STOCK (Cost $311,890,037) 326,523,444
------------
PREFERRED STOCK (1.2%)
Australia (0.4%)
News Corp. 350,825 1,549,006
------------
Austria (0.3%)
Maculan Holdings AG Vorzuege 31,100 1,283,238
------------
Korea (0.3%)
Samsung Electronics Co., Ltd. 12,135 1,092,651
------------
United Kingdom (0.2%)
Queens Moat Houses PLC, 7.50% Convertible + 15,300 0
Singer & Friedlander Group PLC, 8.50% Convertible 348,947 593,555
------------
593,555
------------
TOTAL PREFERRED STOCK (Cost $5,225,258) 4,518,450
------------
STOCK RIGHTS AND WARRANTS (0.2%)
India (0.1%)
Hindalco Industries Ltd. Wts., 11/02/95 + 36,500 419,750
------------
</TABLE>
See Accompanying Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
STOCK RIGHTS AND WARRANTS (CONT'D)
<S> <C> <C>
Israel (0.0%)
Ampal-American Israel Corp. Class A Wts., 01/31/99 + 95,000 $ 50,469
------------
Japan (0.1%)
Bandai Industries Wts., 11/04/97 + 440 220,000
------------
Switzerland (0.0%)
Danzas Holding AG Wts., 08/02/96 + 2,000 1,310
------------
Thailand (0.0%)
Thai Military Bank Rts., 05/08/95 + 48,810 97,540
------------
TOTAL STOCK RIGHTS AND WARRANTS (Cost $876,769) 789,069
------------
OPTIONS (0.4%) CONTRACTS
---------------
Japan (0.3%)
Topix Index, 03/08/96, strike price 1,251.24 + 3,647 497,597
Topix Index, 03/08/96, strike price 1,261.12 + 3,755 486,160
Topix Index, 03/08/96, strike price 1,349.00 + 1,830 139,085
------------
1,122,842
------------
Korea (0.1%)
Korea Composite Index, 09/24/95 + 1,500,000 338,550
------------
Mexico (0.0%)
Mexican Index, 09/95 + 48 1,200
Mexican Inmex, 03/29/96 + 62,434 1,249
------------
2,449
------------
TOTAL OPTIONS (Cost $1,626,261) 1,463,841
------------
CONVERTIBLE BONDS/NOTES (4.3%)
PAR
---
Argentina (0.3%)
Banco De Galicia 7.00%, 08/01/02 $ 1,574,000 1,101,800
------------
Australia (0.2%)
BTR Nylex 9.00%, 11/30/49 (C) 11,200,000 888,010
------------
India (0.1%)
Reliance Industries Ltd. 3.50%, 11/03/99 $ 500,000 505,000
------------
Japan (1.8%)
Matsushita Electric Works Ltd. 2.70%, 05/31/02 (B) 501,000,000 6,650,179
------------
</TABLE>
See Accompanying Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
PAR VALUE
--- -----
CONVERTIBLE BONDS/NOTES (CONT'D)
<S> <C> <C>
New Zealand (0.2%)
Brierley Investments Ltd. 9.00%, 06/30/98 (A) 1,028,875 $ 705,967
------------
Taiwan (1.7%)
United Microelectronics Corp. 1.25%, 06/08/04 $ 1,790,000 2,814,775
Yang Ming Marine Transport Corp. 2.00%, 10/06/01 3,372,000 3,456,300
------------
6,271,075
------------
TOTAL CONVERTIBLE BONDS/NOTES (Cost $14,556,972) 16,122,031
------------
SHORT-TERM INVESTMENTS (7.2%)
Repurchase agreement with State Street Bank & Trust Co. dated 04/28/95
at 5.87% to be repurchased at $27,144,272 on 05/01/95. (Collateralized
by $27,470,000 U.S. Treasury Note 6.25%, due 08/31/96, with a market
value of $27,676,025.) (Cost $27,131,000) 27,131,000 27,131,000
------------
TOTAL INVESTMENTS AT VALUE (100.4%) (Cost $361,306,297*) 376,547,835
OTHER LIABILITIES IN EXCESS OF ASSETS (0.4%) (1,458,789)
------------
NET ASSETS (100.0%) (applicable to 26,495,950 shares) $375,089,046
------------
------------
NET ASSET VALUE, offering and redemption price per share
($375,089,046[div]26,495,950) $14.16
------
------
</TABLE>
+ Non-income producing security.
* Also cost for Federal income tax purposes.
Unless as otherwise indicated below, all Convertible Bonds/Notes are
denominated in $U.S.
(A) Denominated in New Zealand Dollars.
(B) Denominated in Japanese Yen.
(C) Denominated in Australian Dollars.
See Accompanying Notes to Financial Statements.
9
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $431,424) $ 2,592,602
Interest 1,173,175
------------
Total investment income 3,765,777
------------
EXPENSES:
Investment advisory 1,276,260
Administrative services 343,860
Audit 10,989
Custodian/Sub-custodian 164,491
Directors 3,719
Insurance 4,194
Legal 9,918
Organizational 10,561
Printing 9,518
Registration 66,274
Transfer agent 16,255
Miscellaneous 4,998
------------
1,921,037
Less fees waived (405,478)
------------
Total expenses 1,515,559
------------
Net investment income 2,250,218
------------
NET REALIZED AND UNREALIZED LOSS FROM INVESTMENTS AND
FOREIGN CURRENCY RELATED ITEMS:
Net realized loss from security transactions (6,965,517)
Net realized gain from foreign currency related items 686,529
Net change in unrealized appreciation (depreciation) from investments and
foreign currency related items (23,573,523)
------------
Net realized and unrealized loss from investments and
foreign currency related items (29,852,511)
------------
Net decrease in net assets resulting from operations $(27,602,293)
------------
------------
</TABLE>
See Accompanying Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended For the
April 30, 1995 Year Ended
(Unaudited) October 31, 1994
-------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 2,250,218 $ 1,276,813
Net realized gain (loss) from security transactions (6,965,517) 11,710,325
Net realized gain (loss) from foreign currency related items 686,529 (456,151)
Net change in unrealized appreciation (depreciation) from investments and
foreign currency related items (23,573,523) 22,452,714
-------------- ----------------
Net increase (decrease) in net assets resulting from operations (27,602,293) 34,983,701
-------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income (3,614,604) (526,855)
Distributions from capital gains (11,710,991) (1,146,187)
-------------- ----------------
Net decrease from distributions (15,325,595) (1,673,042)
-------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 99,767,308 196,715,545
Reinvested dividends 13,607,234 1,270,243
Net asset value of shares redeemed (26,654,820) (9,279,255)
-------------- ----------------
Net increase in net assets from capital share
transactions 86,719,722 188,706,533
-------------- ----------------
Net increase in net assets 43,791,834 222,017,192
NET ASSETS:
Beginning of period 331,297,212 109,280,020
-------------- ----------------
End of period $ 375,089,046 $331,297,212
-------------- ----------------
-------------- ----------------
</TABLE>
See Accompanying Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For the Year Ended September 1, 1992
Months Ended October 31, (Commencement of
April 30, 1995 --------------------- Operations) through
(Unaudited) 1994 1993 October 31, 1992
------------ ------- ---------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.34 $ 13.49 $ 9.62 $ 10.00
------------ ------- ---------- -------
Income from Investment Operations:
Net Investment Income .12 .17 .10 .02
Net Gain (Loss) from Securities and Foreign
Currency Related Items (both realized and
unrealized) (1.55) 2.87 3.87 (.40)
------------ ------- ---------- -------
Total From Investment Operations (1.43) 3.04 3.97 (.38)
------------ ------- ---------- -------
Less Distributions:
Dividends from net investment income (.18) (.07) (.10) .00
Distributions from capital gains (.57) (.12) .00 .00
------------ ------- ---------- -------
Total Distributions (.75) (.19) (.10) .00
------------ ------- ---------- -------
NET ASSET VALUE, END OF PERIOD $14.16 $ 16.34 $13.49 $ 9.62
------------ ------- ---------- -------
------------ ------- ---------- -------
Total Return (17.10%)* 22.62% 41.61% (20.69%)*
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $375,089 $331,297 $109,280 $18,613
Ratios to average daily net assets:
Operating expenses .95%* .95% .95% .95%*
Net investment income 1.41%* .59% .75% 1.22%*
Decrease reflected in above expense ratios due
to waivers/reimbursements .25%* .29% .44% .85%*
Portfolio turnover rate 25.43%* 19.34% 19.40% 50.16%
</TABLE>
* Annualized
12
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Warburg Pincus Institutional Fund, Inc. (the 'Fund') is an open-end
management investment company and currently offers two managed investment funds
(the 'Portfolios'): the International Equity Portfolio, which commenced
operations on September 1, 1992, which seeks long-term capital appreciation by
investing in equity securities of principally non-United States issuers; and the
Global Fixed Income Portfolio, which as of April 30, 1995 had not commenced
operations, which seeks to maximize total investment return consistent with
prudent investment management while preserving capital by investing in
investment grade fixed income securities of issuers throughout the world,
including United States issuers.
The net asset values of the Portfolios are determined daily as of the close
of regular trading on the New York Stock Exchange. The Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
last reported bid price. In the absence of market quotations, investments are
generally valued at fair value as determined by or under the direction of the
Fund's Board of Directors. Short-term investments that mature in 60 days or less
are valued on the basis of amortized cost, which attempts to approximate market
value.
The books and records of the Portfolios are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate.
Translation gains or losses resulting from changes in the exchange rate during
the reporting period and realized gains and losses on the settlement of foreign
currency transactions are reported in the results of operations for the current
period. The Fund does not isolate that portion of gains and losses on
investments in equity securities which is due to changes in the foreign exchange
rate from that which is due to changes in market prices of equity securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
The cost of investments sold is determined by use of the specific
indentification method for both financial reporting and income tax purposes.
Dividends from net investment income are declared and paid annually.
Distributions of net realized capital gains, if any, are declared annually.
However, to the extent that a net realized capital gain can be reduced by a
capital loss carryover, such gain will not be distributed. Income and capital
gain distributions are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
The Fund intends to continue to comply with the special provisions of the
Internal Revenue Code available to investment companies and therefore no Federal
income tax provision is required.
Costs incurred by the Portfolios in connection with their organization have
been deferred and are amortized over a period of five years from the date of
each Portfolio's commencement of operations.
13
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
Each Portfolio may enter into repurchase agreement transactions. Under the
terms of a typical repurchase agreement, a Portfolio acquires an underlying
security subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Portfolio's possession.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Counsellors'), a wholly owned
subsidiary of Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as
the Portfolios' investment adviser. The International Equity Portfolio pays
Counsellors an investment advisory fee calculated at an annual rate of .80% of
the Portfolio's average daily net assets. For the six months ended April 30,
1995, Counsellors earned $1,276,260 for investment advisory services to the
International Equity Portfolio, of which $352,604 was voluntarily waived. The
Global Fixed Income Portfolio will pay Counsellors an investment advisory fee
calculated at an annual rate of .65% of the Portfolio's average daily net
assets.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Counsellors, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as the Fund's co-administrators. For its
administrative services, CFSI receives a fee calculated at an annual rate of
.10% of the Fund's average daily net assets. For the six months ended April 30,
1995, CFSI earned $159,533 in administrative services fees. For the six months
ended April 30, 1995, PFPC earned $184,327 and voluntarily waived $52,874 in
administrative services fees.
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Counsellors, acts as distributor of the International Equity Portfolio's shares.
No compensation is payable by the International Equity Portfolio to CSI for its
distribution services.
3. INVESTMENTS IN SECURITIES
The International Equity Portfolio's purchases and sales of investment
securities for the six months ended April 30, 1995 (excluding short-term
investments) were $110,048,718 and $37,695,785, respectively.
At April 30, 1995, with respect to the International Equity Portfolio, the
net unrealized appreciation from investments of $15,241,538 was comprised of
appreciation of $39,391,026 for those securities having an excess of value over
cost, and depreciation of $24,149,488 for those securities having an excess of
cost over value (based on cost for Federal income tax purposes).
4. FOREIGN FORWARD CURRENCY CONTRACTS
The Portfolios may enter into forward currency contracts for the purchase
or sale of a specific foreign currency at a fixed price on a future date. Risks
may arise upon entering into these contracts
14
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
April 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
from the potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar. The Portfolios may enter into forward contracts for
hedging purposes or to increase income and total return. The forward currency
contracts are adjusted by the daily exchange rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as unrealized
until the contract settlement date.
At April 30, 1995, the Fund had the following open forward foreign currency
contract and had recorded an unrealized loss of $284,063:
<TABLE>
<CAPTION>
SETTLEMENT CURRENCY CURRENCY
DATE BOUGHT SOLD
---------- ---------------------- ------------------------
<S> <C> <C>
06/21/95 9,400,000 U.S. Dollars 807,554,000 Japanese Yen
</TABLE>
5. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue up to three billion full and fractional
shares of beneficial interest of separate series having a $.001 par value per
share. Shares of two series have been authorized, which constitute the interest
in the Portfolios.
Transactions in shares of the International Equity Portfolio were as
follows:
<TABLE>
<CAPTION>
For the Six
Months Ended For the
April 30, 1995 Year Ended
(Unaudited) October 31, 1994
-------------- ----------------
<S> <C> <C>
Shares sold 7,119,069 12,686,666
Shares issued to shareholders on reinvestment of dividends 939,078 85,000
Shares redeemed (1,831,230) (603,362)
-------------- ----------------
Net increase in shares outstanding 6,226,917 12,168,304
-------------- ----------------
-------------- ----------------
</TABLE>
6. NET ASSETS
Net assets of the International Equity Portfolio at April 30, 1995,
consisted of the following:
<TABLE>
<S> <C>
Capital contributed, net $367,175,798
Accumulated net investment income 2,541,665
Accumulated net realized loss from security transactions (9,601,309)
Net unrealized appreciation from investments and foreign currency related items 14,972,892
------------
Net assets $375,089,046
------------
------------
</TABLE>
15
- --------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND L.L.P.]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Warburg, Pincus Institutional Fund, Inc.
We have audited the accompanying Statement of Assets and Liabilities of
Warburg, Pincus Institutional Fund, Inc. - Small Company Growth Portfolio (the
"Fund") as of August 8, 1995. This financial statement is the responsibility
of the Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Institutional
Fund, Inc. - Small Company Growth Portfolio as of August 8, 1995 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 11, 1995
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of August 8, 1995
Assets:
Cash $ 1,000
Deferred Organizational Costs 45,000
Total Assets $46,000
Liabilities:
Accrued Organizational Costs 45,000
Net Assets $1,000
Net Asset Value, Redemption and
Offering Price Per Share (one billion
shares authorized - $.001 per share)
applicable to 100 shares outstanding. $10.00
The accompanying notes are an integral part of this financial statement.
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
Small Company Growth Portfolio
Notes to Financial Statements
August 8, 1995
1. Organization:
Warburg, Pincus Institutional Fund, Inc. (the "Fund") was organized on
May 13, 1992 under the laws of the State of Maryland. The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company currently consisting of shares of
three series: International Equity Portfolio, Global Fixed Income
Portfolio, and Small Company Growth Portfolio. The assets of each
portfolio are segregated, and a shareholder's interest is limited to the
portfolio in which shares are held. The Small Company Growth Portfolio
(the "Portfolio") has not commenced operations except those related to
organizational matters and the sale of 100 shares ("Initial Shares") of
common stock to Warburg, Pincus Counsellors, Inc., the Fund's investment
adviser (the "Adviser").
2. Organizational Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Portfolio and are being
amortized over sixty months commencing with operations. In the event any
of the Initial Shares of the Portfolio are redeemed by any holder thereof
during the period that the Portfolio is amortizing its organizational
costs, the redemption proceeds payable to the holder thereof by the
Portfolio will be reduced by unamortized organizational costs in the same
ratio as the number of Initial Shares outstanding at the time of
redemption.
Certain officers and directors of the Fund are also officers of the
Adviser. Such officers and directors are paid no fees by the Fund for
serving as officers or directors of the Fund.
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND L.L.P.]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Warburg, Pincus Institutional Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Warburg, Pincus Institutional Fund, Inc. - Global Fixed Income Portfolio (the
"Fund") as of February 14, 1995. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Institutional
Fund, Inc. - Global Fixed Income Portfolio as of February 14, 1995 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1995
<PAGE>
WARBURG, PINCUS INSTUTIONAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of February 14, 1995
Global Fixed
Income
Portfolio
Assets:
Cash $ 1,000
Deferred Organizational Costs 25,000
-------
Total Assets $26,000
Liabilities:
Payable to International Equity Portfolio 25,000
-------
Net Assets $ 1,000
--------
--------
Net Asset Value, Redemption and Offering
Price Per Share (1 billion shares
authorized - $.001 par value)
applicable to 100 shares outstanding. $10.00
-------
-------
The accompanying notes are an integral part of the financial statement.
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
Global Fixed Income Portfolio
Notes to Financial Statements
February 14, 1995
1. Organization:
Warburg, Pincus Institutional Fund, Inc. (the "Fund") was organized on
May 13, 1992 under the laws of the State of Maryland. The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, management investment company consisting of shares of two
series - International Equity Portfolio and Global Fixed Income
Portfolio. The assets of each portfolio are segregated, and a
shareholder's interest is limited to the portfolio in which shares are
held. The Global Fixed Income Portfolio (the "Portfolio") has not
commenced operations except those related to organizational matters and
the sale of an aggregate of 100 shares ("initial shares") of beneficial
interest to E.M. Warburg, Pincus & Co., Inc. on July 28, 1992.
Subsequent to the sale of shares to E.M. Warburg Pincus & Co., Inc., the
initial shares were transferred to Warburg, Pincus Counsellors, Inc., the
Fund's Investment Adviser (the "Adviser").
2. Organizational Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Portfolio and will be
amortized over sixty months commencing with operations. In the event any
of the initial shares of the Portfolio are redeemed by any holder thereof
during the period that the Portfolio is amortizing its organizational
costs, the redemption proceeds payable to the holder thereof by the
Portfolio will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of the redemption.
Certain directors and officers of the Fund are also officers of the
Adviser. Such directors and officers are paid no fees by the Fund for
serving as directors or officers of the Fund.
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of July 31, 1995
(Unaudited)
Global Fixed
Income
Portfolio
------------
Assets:
Cash $ 1,000
Deferred Organizational Costs 25,000
--------
Total Assets $ 26,000
Liabilities:
Payable to International Equity Portfolio $ 25,000
-------
Net Assets $ 1,000
------
------
Net Asset Value, Redemption and Offering
Price Per Share (1 billion shares
authorized - $.001 par value)
applicable to 100 shares outstanding. $10.00
------
------
The accompanying notes are an integral part of the financial statement.
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
Global Fixed Income Portfolio
Notes to Financial Statements
(Unaudited)
July 31, 1995
1. Organization:
Warburg, Pincus Institutional Fund, Inc. (the "Fund") was organized on
May 13, 1992 under the laws of the State of Maryland. The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, management investment company consisting of shares of three
series - International Equity Portfolio, Small Company Growth Portfolio
and Global Fixed Income Portfolio. The assets of each portfolio are
segregated, and a shareholder's interest is limited to the portfolio in
which shares are held. The Global Fixed Income Portfolio (the
"Portfolio") has not commenced operations except those related to
organizational matters and the sale of an aggregate of 100 shares
("initial shares") of beneficial interest to E.M. Warburg, Pincus & Co.,
Inc. on July 28, 1992. Subsequent to the sale of shares to E.M. Warburg
Pincus & Co., Inc., the initial shares were transferred to Warburg,
Pincus Counsellors, Inc., the Fund's Investment Adviser (the "Adviser").
2. Organizational Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Portfolio and will be
amortized over sixty months commencing with operations. In the event any
of the initial shares of the Portfolio are redeemed by any holder thereof
during the period that the Portfolio is amortizing its organizational
costs, the redemption proceeds payable to the holder thereof by the
Portfolio will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of the redemption.
Certain directors and officers of the Fund are also officers of the
Adviser. Such directors and officers are paid no fees by the Fund for
serving as directors or officers of the Fund.
<PAGE>C-1
PART C
OTHER INFORMATION
Item 24. Financial Statement and Exhibits
(a) Financial Statements -- International Equity Portfolio
(1) Financial Statements included in Part A
(a) Financial Highlights
(2) Audited Financial Statements included in Part B
(a) Report of Coopers & Lybrand L.L.P., Independent Auditors
(b) Statement of Net Assets at October 31, 1994
(c) Statement of Operations for the year ended October 31,
1994
(d) Statement of Changes in Net Assets for the years ended
October 31, 1994 and October 31, 1993
(e) Financial Highlights (for a share of the International
Equity Portfolio outstanding throughout each period) for
the period from September 1, 1992 through October 31, 1992
and for the years ended October 31, 1993 and October 31,
1994
(f) Notes to Financial Statements
(3) Unaudited Financial Statements included in Part B
(a) Statement of Net Assets at April 30, 1995
(b) Statement of Operations for the six months ended April 30,
1995
(c) Statement of Changes in Net Assets for the year ended
October 31, 1994 and the six months ended April 30, 1995
(d) Financial Highlights (for a share of the International
Equity Portfolio outstanding throughout each period) for
the period from September 1, 1992 through October 31,
1992, for the years ended October 31, 1993 and October 31,
1994 and for the six months ended April 30, 1995
(e) Notes to Financial Statements
(b) Financial Statements included in Part B -- Small Company Growth
Portfolio
(1) Report of Coopers & Lybrand L.L.P., Independent Auditors
<PAGE>C-2
(2) Statement of Assets and Liabilities as of August 8, 1995
(3) Notes to Financial Statements
(c) Financial Statements included in Part B -- Global Fixed Income
Portfolio
(1) Report of Coopers & Lybrand L.L.P., Independent Auditors
(2) Statement of Assets and Liabilities as of February 14, 1995 and
Notes to Financial Statements (audited)
(3) Statement of Assets and Liabilities as of July 31, 1995 and
Notes to Financial Statements (unaudited)
(d) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.(1)
(b) Articles of Amendment.(1)
(c) Articles Supplementary.(1)
2 By-Laws.(1)
3 Not applicable.
4 Registrant's Forms of Stock Certificates.(1)
5(a) Investment Advisory Agreement--International Equity
Portfolio.(1)
(b) Investment Advisory Agreement--Small Company Growth
Portfolio.(1)
(c) Investment Advisory Agreement--Global Fixed Income
Portfolio.(1)
- ------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission (the "Commission") on August 18, 1995.
<PAGE>C-3
Exhibit No. Description of Exhibit
- ----------- ----------------------
6(a) Form of Distribution Agreement.(2)
(b) Form of Distribution Agreement pertaining to the Small
Company Growth Portfolio.(1)
7 Not applicable.
8(a) Custodian Agreement with PNC Bank, National
Association.(3)
(b) Custody Agreement with Fiduciary Trust Company--
International Equity Portfolio.(3)
(c) Amendment to Custody Agreement with
Fiduciary--International Equity Portfolio.(3)
(d) Custody Agreement with Fiduciary--Global Fixed Income
Portfolio.(3)
(e) Amendment to Custody Agreement with Fiduciary--Global
Fixed Income Portfolio.(3)
(f) Form of Custodian Contract with State Street Bank and
Trust Company ("State Street")--Small Company Growth
Portfolio.(4)
9(a) Form of Transfer Agency Agreement.(4)
(b) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of
- ------------------------
(2) 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)
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on August 26, 1992.
(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)
<PAGE>C-4
Exhibit No. Description of Exhibit
- ----------- ----------------------
the Small Company Growth Portfolio under the Transfer
Agency Agreement.(1)
(c) Form of Co-Administration Agreements with Counsellors
Funds Service, Inc.(4)
(d) Form of Co-Administration Agreements with PFPC Inc.(4)
10(a) Opinion of Willkie Farr & Gallagher, counsel to the Fund,
with respect to shares of the International Equity and
Global Fixed Income Portfolios.(5)
(b) Opinion of Willkie Farr & Gallagher relating to
establishment of the Small Company Growth Portfolio.(1)
(c) Consent of Willkie Farr & Gallagher.
11(a) Consent of Coopers & Lybrand L.L.P., Independent Auditors.
(b) Consent of Ernst & Young LLP, Independent Auditors.
12 Not applicable.
13(a) Purchase Agreement pertaining to the International Equity
Portfolio and Global Fixed Income Portfolio.(1)
13(b) Form of Purchase Agreement pertaining to the Small Company
Growth Portfolio.(1)
14 Retirement Plans.(6)
15 Not applicable.
- ------------------------
(5) Incorporated by reference to Opinion of Willkie Farr & Gallagher filed
with Registrant's Rule 24f-2 Notice filed on December 29, 1994.
(6) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Warburg, Pincus Managed Bond
Trust, filed on February 28, 1995 (Securities Act File No. 33-73672).
<PAGE>C-5
Exhibit No. Description of Exhibit
- ----------- ----------------------
16 Schedule for Computation of Total Return Performance Quotation
for the International Equity Portfolio.(1)
17 Financial Data Schedule.
Item 25. Persons Controlled by or Under Common Control
with Registrant
Warburg, Pincus Counsellors, Inc. ("Warburg"), Registrant's
investment adviser, may be deemed a controlling person of Registrant because
it possesses or shares investment or voting power with respect to more than
25% of the outstanding securities of Registrant. E.M. Warburg, Pincus & Co.,
Inc. controls Warburg through its ownership of a class of voting preferred
stock of Warburg. John L. Furth, director of the Fund, and Lionel I. Pincus
may be deemed to be controlling persons of the Fund because they may be deemed
to possess or share investment power over shares owned by clients of Warburg
and certain other entities.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of September 30, 1995
-------------- ------------------------
International Equity Portfolio- 284
shares of common stock
par value $.001 per share
Small Company Growth Portfolio- 1
shares of common stock
par value $.001 per share
Global Fixed Income Portfolio- 1
shares of common stock
par value $.001 per share
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 Post-Venture Capital Fund, Inc., filed on June 21, 1995.
<PAGE>C-6
Item 28. Business and Other Connections of
Investment Adviser
Warburg, a wholly owned subsidiary of Warburg, Pincus Counsellors
G.P., acts as investment adviser to Registrant. Warburg renders investment
advice to a wide variety of individual and institutional clients. The list
required by this Item 28 of officers and directors of Warburg, together with
information as to their other business, profession, vocation or employment of
a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Warburg (SEC File No. 801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for The RBB Fund, Inc.;
Warburg, Pincus Capital Appreciation Fund; Warburg, Pincus Cash Reserve Fund;
Warburg, Pincus Emerging Growth Fund; Warburg, Pincus Emerging Markets Fund;
Warburg, Pincus Fixed Income Fund; Warburg, Pincus Global Fixed Income Fund;
Warburg, Pincus 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
Trust.
(b) For information relating to each director, officer or partner
of Counsellors Securities, reference is made to Form BD (SEC File No. 8-32482)
filed by Counsellors Securities under the Securities Exchange Act of 1934.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's Articles of Incorporation, by-laws and minute books)
(2) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
<PAGE>C-7
(records relating to its functions as investment adviser)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)
(5) Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048
(records relating to its functions as custodian)
(6) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as custodian, transfer agent
and dividend disbursing agent)
(7) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as custodian)
(8) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
Item 31. Management Services
Not applicable.
Item 32. Undertakings.
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York and the State of New York, on the 31st day of October, 1995.
WARBURG, PINCUS
INSTITUTIONAL FUND, INC.
By:/s/ John L. Furth
John L. Furth
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ John L. Furth Chairman of the Board
John L. Furth and President October 31, 1995
/s/ Stephen Distler Vice President and October 31, 1995
Stephen Distler Chief Financial
Officer
/s/ Howard Conroy Vice President, October 31, 1995
Howard Conroy Treasurer and Chief
Accounting Officer
/s/ Richard N. Cooper Director October 31, 1995
Richard N. Cooper
/s/ Donald J. Donahue Director October 31, 1995
Donald J. Donahue
/s/ Jack W. Fritz Director October 31, 1995
Jack W. Fritz
/s/ Thomas A. Melfe Director October 31, 1995
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director October 31, 1995
Alexander B. Trowbridge
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.(1)
(b) Articles of Amendment.(1)
(c) Articles Supplementary.(1)
2 By-Laws.(1)
3 Not applicable.
4 Registrant's Forms of Stock Certificates.(1)
5(a) Investment Advisory Agreement--International Equity
Portfolio.(1)
(b) Investment Advisory Agreement--Small Company Growth
Portfolio.(1)
(c) Investment Advisory Agreement--Global Fixed Income
Portfolio.(1)
- ------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission (the "Commission") on August 18, 1995.
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
6(a) Form of Distribution Agreement.(2)
(b) Form of Distribution Agreement pertaining to the Small
Company Growth Portfolio.(1)
7 Not applicable.
8(a) Custodian Agreement with PNC Bank, National
Association.(3)
(b) Custody Agreement with Fiduciary Trust Company--
International Equity Portfolio.(3)
(c) Amendment to Custody Agreement with
Fiduciary--International Equity Portfolio.(3)
(d) Custody Agreement with Fiduciary--Global Fixed Income
Portfolio.(3)
(e) Amendment to Custody Agreement with Fiduciary--Global
Fixed Income Portfolio.(3)
(f) Form of Custodian Contract with State Street Bank and
Trust Company ("State Street")--Small Company Growth
Portfolio.(4)
9(a) Form of Transfer Agency Agreement.(4)
(b) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of
- ------------------------
(2) 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)
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on August 26, 1992.
(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)
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
the Small Company Growth Portfolio under the Transfer
Agency Agreement.(1)
(c) Form of Co-Administration Agreements with Counsellors
Funds Service, Inc.(4)
(d) Form of Co-Administration Agreements with PFPC Inc.(4)
10(a) Opinion of Willkie Farr & Gallagher, counsel to the Fund,
with respect to shares of the International Equity and
Global Fixed Income Portfolios.(5)
(b) Opinion of Willkie Farr & Gallagher relating to
establishment of the Small Company Growth Portfolio.(1)
(c) Consent of Willkie Farr & Gallagher.
11(a) Consent of Coopers & Lybrand L.L.P., Independent Auditors.
(b) Consent of Ernst & Young LLP, Independent Auditors.
12 Not applicable.
13(a) Purchase Agreement pertaining to the International Equity
Portfolio and Global Fixed Income Portfolio.(1)
13(b) Form of Purchase Agreement pertaining to the Small Company
Growth Portfolio.(1)
14 Retirement Plans.(6)
15 Not applicable.
- ------------------------
(5) Incorporated by reference to Opinion of Willkie Farr & Gallagher filed
with Registrant's Rule 24f-2 Notice filed on December 29, 1994.
(6) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Warburg, Pincus Managed Bond
Trust, filed on February 28, 1995 (Securities Act File No. 33-73672).
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
16 Schedule for Computation of Total Return Performance Quotation
for the International Equity Portfolio.(1)
17 Financial Data Schedule.
<PAGE>1
SERVICES AGREEMENT
Gentlemen:
We have an agreement (the "Distribution Agreement") with each of several
open-end investment companies, or series thereof, for which Warburg, Pincus
Counsellors, Inc. ("Counsellors") provides investment advisory services
(together with such other open-end investment companies, or series thereof,
for which Counsellors may provide advisory services in the future, the
"Funds"). Pursuant to the Distribution Agreements, we act as the distributor
of shares of common stock of the Funds designated "Common Shares"
(collectively, the "Shares"). You provide recordkeeping and administrative
services to certain employee benefit plans and retirement plans (together, the
"Plans") that include or propose to include certain of the Funds as an
investment alternative. The terms "Prospectus" and "Statement" as used herein
refer respectively to the then current prospectus and statement of additional
information relating to the Shares forming parts of the Registration Statement
on Form N-1A of a Fund under the Securities Act of 1933, as amended (the "1933
Act").
As used herein, unless the context otherwise requires, "we," "ours"
and/or "us" refer to Counsellors Securities Inc. and "you", "your" and "yours"
refer to the company that is the counterparty to this Agreement.
1. Services. As applicable, you agree to provide the administrative,
shareholder and/or other services set forth on Schedule A hereto, as amended
from time to time. In providing such services, you shall not, except as
specifically provided herein, have any authority to act as agent for us or any
Fund, but shall act only as agent of the Plans and the Plan participants who
from time to time beneficially own Shares of one or more Funds and as an
independent contractor and not as an employee or agent of the Funds,
Counsellors or us.
You will maintain all records required by law, including records
detailing the services you provide in return for the fees to which you are
entitled under this Agreement. Such records shall be preserved, maintained
and made available to the extent required and
<PAGE>2
in accordance with the Investment Company Act of 1940, as amended (the "1940
Act"), and the rules thereunder. Upon request by a Fund or us, you agree to
promptly make copies or, if required, originals of such of these records
available to the Fund or us, as the case may be. You also agree to promptly
notify the Fund or us if you experience any difficulty in maintaining the
records described in the foregoing in an accurate and complete manner. This
provision shall survive the termination of this Agreement.
You agree to furnish the Funds, Counsellors and us with such information
as we may reasonably request (including, without limitation, periodic
certifications confirming the provision to Plans and Plan participants of the
services described herein). Moreover, you agree to provide to the Funds,
Counsellors and us access to you and your personnel at our reasonable request
during normal business hours to confirm compliance with the provisions of this
Agreement and applicable law. In performing services hereunder, you agree
that you will not engage in any activities set forth in Schedule B.
You shall take all steps necessary to ensure that the arrangements
provided for in this Agreement are properly disclosed to the Plans. You agree
to inform Plans and that they and Plan participants may look only to you for
resolution of problems or that they are transacting business with you and not
with us, Counsellors or the Funds, discrepancies in their accounts or between
those accounts and your omnibus accounts (the "Accounts") at the Funds. You
and your employees will, upon request, be available during normal business
hours to consult with the Funds, Counsellors and us or our designees
concerning the performance of your responsibilities under this Agreement.
In no way shall the provisions of this Agreement limit the authority of
any Fund or us to take such action as such entity may deem appropriate or
advisable in respect of all matters pertaining to the continuous offering of
Shares. We have full authority to take such action as we may deem advisable
in respect of all matters pertaining to the continuous offering of Shares. We
reserve the right in our sole discretion and without notice to you to suspend
sales or withdraw the offering of Shares. To the extent reasonably
practicable, we or the relevant Fund will provide you with notice of any such
suspension or withdrawal and you will use your best efforts to cause
compliance with any such notice.
You shall maintain at all times general liability and other insurance
coverage, including errors and omissions coverage, that is reasonable and
customary in light of your duties hereunder, with limits of not less than $5
million. Such insurance coverage shall be issued by a qualified insurance
carrier with a Best's rating of
<PAGE>3
at least "A" or with the highest rating of a nationally recognized statistical
rating organization.
We may enter into other similar agreements with any other person or
persons without your consent.
2. Orders for Shares. Orders received from you for Shares of a Fund
will be accepted by us only at the public offering price applicable to each
order, as set forth in the relevant Prospectus and Statement. All orders by
you for a Fund's Shares will be held through the Accounts with the Fund; and
you agree to make available on a monthly basis to the Funds records necessary
to determine the number of Plans and Plan participants in each Account
(indicating the number of new accounts opened during the month, as well as the
number of ongoing accounts) and the times of receipt of Plan participant
orders. You agree to use your best efforts to assist us in identifying
"market timers" or investors who engage in a pattern of short-term trading.
On each day on which a Fund calculates its net asset value (a "Business
Day"), you shall aggregate and calculate the net purchase and redemption
orders for each Account maintained by the Fund in which Plan participant
assets are invested. Net orders shall only reflect Plan participant orders
that you have received prior to the close of regular trading on the New York
Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on that
Business Day. Orders that you have received after the close of regular
trading on the NYSE shall be treated as though received on the next Business
Day. Each communication of orders by you shall constitute a representation
that such orders were received by you prior to the close of regular trading on
the NYSE on the Business Day on which the purchase or redemption order is
priced in accordance with Rule 22c-1 under the 1940 Act. Other procedures
relating to the handling of orders shall be in accordance with the Prospectus
and Statement of the relevant Fund or with oral or written instructions that
we or the relevant Fund shall forward to you from time to time.
Subject to the terms and conditions of this Agreement and the procedures
referred to above, you shall be appointed to act, and you by indicating next
to your signature below have agreed to act as agent of each Fund for the
purpose specifically set forth in this paragraph. Provided that you comply
with the foregoing, you shall be deemed to be an agent of each Fund to the
extent orders refer to such Fund for the sole purpose of receiving
instructions from yourself as Plan agent for the purchase and redemption of
Shares prior to the close of regular trading each Business Day and
communicating orders based on such instructions to the Fund's transfer agent,
all as specified herein, and the Business Day on which you receive such
instructions prior to the close of regular
<PAGE>4
trading on the NYSE shall be the Business Day on which such orders will be
deemed to be received by us or the Fund's transfer agent as a result of such
instructions.
Dividends and capital gains distributions will be automatically
reinvested at net asset value in accordance with each Fund's prospectus.
Payment for Shares of a Fund ordered from us must be received together
with your order unless we agree otherwise. All orders are subject to
acceptance or rejection by us or the relevant Fund in the sole discretion of
either, or by the relevant Fund's transfer agent acting on our behalf, and
orders shall be effective only upon receipt in proper form. The Funds may, if
necessary, delay redemption of Shares to the extent permitted by the 1940 Act.
3. Fees. For the services and facilities provided by you hereunder, we
agree to pay you beginning on the effective date indicated next to our
signature below an amount calculated at the rate and in the manner set forth
in Schedule C, as amended from time to time. We will provide you, at least
monthly, a written report detailing amounts so calculated with respect to each
Fund.
You agree that during the term of this Agreement, you will not assess
against or collect from Plans or Plan participants any transaction fee upon
the purchase or redemption of any Fund's Shares that are considered in
calculating the fee due pursuant to this Agreement.
4. Counsellors Securities' Responsibilities; Limitation of Liability for
Claims. Any printed information that we furnish to you other than the
Prospectus, the Statement, information supplemental to the Prospectus and the
Statement, periodic reports and proxy solicitation materials are our sole
responsibility, and not the responsibility of any Fund, and you agree that the
Funds, the shareholders of the Funds and the officers and governing Boards of
the Funds shall have no liability or responsibility to you in these respects.
You also agree that the payment of compensation to you under this Agreement
is, except as set forth in Schedule C hereto, solely our responsibility and
not that of any Fund, and you agree that the Funds, the shareholders of the
Funds and the officers and governing Boards of the Funds shall have no
liability or responsibility to you with respect to any indebtedness, liability
or obligation hereunder. Further, it is understood, in the case of each Fund
that is organized as a Massachusetts business trust or series thereof, that
the declarations of trust for each trust refers to the trustees collectively
as trustees and not as individuals personally, and that the declaration of
trust provides that no shareholder, trustee, officer, employee or agent of the
trust shall
<PAGE>5
be subject to claims against or obligations of the trust to any extent
whatsoever, but that the trust estate only shall be liable. No Fund shall be
liable for the obligations or liabilities of any other Fund. No series of any
Fund, if any, shall be liable for obligations of any other series.
5. Pricing Errors. In the event adjustments are required to correct any
error in the computation of the net asset value of a Fund's Shares, the Fund
or we shall notify you as soon as practicable after discovering the need for
those adjustments that result in an aggregate reimbursement of $150 or more to
the Accounts maintained by the Fund for Plan participants. Any such notice
shall state for each day for which an error occurred the incorrect price, the
correct price and, to the extent communicated to the Fund's shareholders, the
reason for the price change. You may send this notice or a derivation thereof
(so long as such derivation is approved in advance by Counsellors) to Plan
participants and Customers whose accounts are affected by the price change.
If the Accounts maintained by the Fund for Plan participants received
amounts in excess of the amounts to which it otherwise would have entitled
prior to an adjustment for an error, you, at our request, will make a good
faith attempt to collect such excess amounts from Plan participants. In no
event, however, shall you be liable to the Funds or us for any such amounts.
If an adjustment is to be made in accordance with the first paragraph of
this section 5, the relevant Fund shall make all necessary adjustments (within
the parameters specified in that first paragraph) to the number of Shares
owned in the Accounts and distribute to you the amount of such underpayment
for credit to Plan participants' accounts.
6. Termination; Assignment. This Agreement shall be terminable without
penalty upon 30 days' written notice to us by you and upon 30 days' written
notice to you by us; provided, however, that any termination of this Agreement
shall not affect any unpaid obligations under this Agreement and you shall be
entitled to receive all fees earned up to and including the effective date of
termination.
This Agreement shall not be assignable by either us or you without the
prior written consent of the Funds. Nothing in this Agreement is intended to
confer upon any person other than the Funds and the parties hereto and their
permitted assigns and successors any rights or remedies under or by reason of
this Agreement.
7. Publicity. CSI will provide you on a timely basis with investment
performance information for each Fund, including total
<PAGE>6
return for the preceding calendar month and calendar quarter, the calendar
year to date, and the prior one-year, five-year, and ten-year (or life of the
Fund) periods. You may, based on the Securities and Exchange Commission-
mandated information supplied by CSI, prepare communications for Plan
participants ("Participant Materials"). You shall provide copies of all
Participant Materials to CSI concurrently with their first use for CSI's
internal recordkeeping purposes. It is understood that neither CSI nor any
Fund shall be responsible for errors or omissions in, or the content of,
Participant Materials.
8. Standard of Care; Indemnification. In carrying out your and our
obligations under this Agreement, you and we each agree to act in good faith
and without negligence.
You agree to and do release, indemnify and hold each Fund, its investment
adviser and their and our respective officers, trustees, directors and
controlling persons harmless from and against any and all direct or indirect
claims, liabilities, expenses or losses resulting from requests, directions,
actions or inactions of or by you or your officers, employees or agents
regarding your responsibilities hereunder. Without limiting the generality of
the foregoing, you agree that this provision will apply to claims,
liabilities, expenses or losses arising out of (a) your making any statement
or representation concerning the Shares that is not contained in the relevant
Prospectus or Statement or in such printed material issued by us or a Fund as
information supplemental to the Prospectus and Statement (including, without
limitation, any statement, representation or omission contained in Participant
Materials) and (b) a sale of Shares in any state or jurisdiction in which such
Shares are not qualified for sale or exempt from the requirements of the
relevant securities laws or in which you are not properly licensed or
authorized to make offers or sales. The Funds and CSI, in each case solely to
the extent relating to such party's responsibilities hereunder, agree to and
do release, indemnify and hold you and your officers, directors and
controlling persons harmless from and against any and all direct or indirect
claims, liabilities, expenses or losses resulting from requests, directions,
actions or inactions of or by us, any Fund or our respective officers,
employees or agents.
This provision shall survive the termination of this Agreement.
9. Representations and Warranties. Each party hereby represents and
warrants to the other that it is duly authorized by all necessary action,
approval or authorization to enter into this Agreement and that it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is
<PAGE>7
organized.
You further represent, warrant and agree that:
(i) you are fully authorized by applicable law and regulation
and by any agreement you may have with any Plan, Customer or client for whom
you may act pursuant to this Agreement to perform the services and receive the
compensation therefor described in this Agreement;
(ii) in performing the services described in this Agreement, you
will comply with all applicable laws, rules and regulations;
(iii) if you are not duly registered as a broker-dealer under
Section 15 of the Securities Exchange Act of 1934, as amended (the "1934
Act") and applicable state securities laws and regulations, you are not
required to be so registered and will not be required to be so registered
in order to perform this Agreement;
(iv) neither you nor any of your "affiliates" (as such term is
defined in 29 C.F.R. Section 2510.3-21(e)) is a "fiduciary" of any Plan
as such term is defined in section 3(21) of the Employment Retirement
Income Security Act of 1974, as amended ("ERISA"), and section 4975 of
the Internal Revenue Code of 1986, as amended (the "Code");
(v) the receipt of fees hereunder will not constitute a "prohibited
transaction" as such term is defined in section 406 of ERISA and section
4975 of the Code; and
(vi) you are duly registered as a transfer agent under Section 17A
of the 1934 Act and applicable state securities laws and regulations, and
such registrations shall continue to be in full force and effect
throughout the term of this Agreement.
10. Governing Law; Complete Agreement. This Agreement shall be governed
by and construed in accordance with the laws (except the conflict of law
rules) of the State of New York.
This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises, statements,
arrangements, agreements, warranties and understandings between the parties
with respect to the subject matter hereof, whether oral or written, express or
implied.
11. Amendment. This Agreement, including the Schedules
<PAGE>8
thereto, may be modified or amended and the terms of this Agreement may be
waived only by writings signed by each of the parties.
12. Notices. All notices and communications shall be mailed or
telecopied to you to the address set forth below and to us at 466 Lexington
Avenue, New York, New York 10017, Attention: Eugene P. Grace (Fax No.: 212-
878-9351), or in any case to such other address as a party may request by
giving written notice to the other.
COUNSELLORS SECURITIES INC.
Date:_____________ __, 1995 By:________________________________
Name:
Title:
Effective Date: _________, 1995
WARBURG, PINCUS INTERMEDIATE
MATURITY GOVERNMENT FUND
WARBURG, PINCUS INTERMEDIATE MUNICIPAL
FUND
WARBURG, PINCUS FIXED INCOME FUND
WARBURG, PINCUS GLOBAL FIXED INCOME FUND
WARBURG, PINCUS CAPITAL APPRECIATION FUND
WARBURG, PINCUS INTERNATIONAL EQUITY FUND
WARBURG, PINCUS EMERGING GROWTH FUND
WARBURG, PINCUS EMERGING MARKETS FUND
WARBURG, PINCUS JAPAN OTC FUND
<PAGE>9
WARBURG, PINCUS SHORT-TERM TAX-ADVANTAGED
BOND FUND
By: __________________________________
Name:
Title:
WARBURG, PINCUS BALANCED FUND
WARBURG, PINCUS GROWTH & INCOME FUND
By: ___________________________________
Name:
Title:
Please indicate your confirmation and acceptance of this Agreement as of
the date written above by signing below and returning one copy of this
Agreement to Counsellors Securities Inc., 466 Lexington Avenue, New York, New
York 10017, Attention: Eugene P. Gr0ace.
Accepted and Agreed:
By:
Name (Print):
Title:
Address:
Telephone No.: (215) 246-7479
Fax No.: (215) 246-4463
INDICATE INTENTION TO ACT AS AGENT
AS SET FORTH IN THIS AGREEMENT:
We agree to act as agent for the sole purpose of and to the extent set forth
in paragraph 2 of this Agreement. Yes ____ No ____
<PAGE>10
Capitalized terms used herein and not otherwise defined shall
have the meaning set forth in the body of the Services Agreement.
SCHEDULE A
Administrative Services
(i) receiving from the Plans and Plan participants, by the close of
regular trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time) on any business day (i.e., a day on which the New York Stock Exchange is
open for trading), instructions for the purchase and redemption of shares;
aggregating and processing purchase and redemption requests for Shares from
Plan participants and Customers and placing net purchase and redemption orders
with CSI or its designee; payment for net purchase orders must be received at
the time the order is placed; communicating orders in a timely manner to CSI
or its designee and promptly delivering, or instructing the Plans to deliver,
appropriate documentation to CSI or its designee;
(ii) providing Plan participants with a service that invests the assets
of their accounts in Shares;
(iii) providing information periodically to Plans and Plan
participants showing their positions in Shares;
(iv) arranging for bank wires;
(v) providing sub-accounting with respect to Shares beneficially owned
by Plans and Plan participants;
(vi) if required by law, forwarding shareholder communications from the
relevant Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Plans and
Plan participants at your expense, with such material to be provided to you by
CSI to the extent reasonably practicable upon ten Business Days' notice;
(vii) withholding taxes on non-resident alien accounts and otherwise
as appropriate;
(viii) maintaining records of dividends and distributions; and
disbursing dividends and distributions and reinvesting such in the relevant
Fund for Plans and Plan participants;
(ix) preparing and delivering to Plans, Plan participants and state and
federal regulatory authorities, including the U.S. Internal Revenue Service,
such information respecting dividends
<PAGE>11
and distributions paid by the relevant Fund as may be required by law;
(x) maintaining adequate records for each Plan reflecting Shares
purchased and redeemed, including dates and prices for all transactions, and
Share balances;
(xi) preparing and delivering to Plan participants periodic account
statements on a quarterly basis showing the total dollar amount (contract
value) of Shares held as of the statement closing date;
(xii) on behalf of and to the extent instructed by each Plan, at your
expense deliver to Plan participants (or deliver to the Plans for distribution
to Plan participants) and Customers prospectuses, statements of additional
information and other materials provided to you by CSI to the extent
reasonably practicable upon ten Business Days' notice;
(xiii) maintain quarterly purchase summaries (expressed in dollar
amounts) for each Plan;
(xiv) settle orders in accordance with the terms of the Prospectus
and Statement of the Funds; and
(xv) transmit to us, or to the Funds if so instructed by us, such
occasional and periodic reports as we shall reasonably request from time to
time to enable us or the Funds to comply with applicable laws and regulations.
<PAGE>12
Shareholder Services
(i) responding to Plans, Plan participant and Customer inquiries;
(ii) providing information on Plan, Plan participant and Customer
investments;
(iii) providing other shareholder liaison services;
(iv) providing office space and equipment, telephone facilities and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide services to Plans and
Customers under this Agreement;
(v) send confirmations of orders to the Plans and Plan participants and
Customers as required by Rule 10b-10 of the Securities Exchange Act of 1934
(the "1934 Act") and paying any costs in connection therewith;
(vi) using all reasonable efforts to ensure that taxpayer identification
numbers provided by you on behalf of the Plans, Plan participants and
Customers are correct; and
(vii) providing the Plans, Plan participants and Customers a
confirming Prospectus following an acquisition of Shares to the extent
required by law.
Other Services
(i) providing all other services as may be incidental to the
Administrative Services and Shareholder Services enumerated above;
(ii) providing such other services as may be normal or customary for
service providers performing substantially similar services; and
(iii) providing such other services as may be mutually agreed by the
parties to the extent permitted under applicable statutes, rules and
regulations.
<PAGE>13
SCHEDULE B
Prohibited Activities
(i) You shall not withhold placing orders for the Shares received from
Plan participants and Customers so as to profit yourself as a result of such
withholding.
(ii) You shall not place orders for Shares unless you have already
received purchase orders for Shares at the applicable public offering price
and subject to the terms hereof.
(iii) You agree that you will not offer or sell any Shares except
under circumstances that will result in compliance with applicable federal and
state securities laws and that in connection with sales and offers to sell
Shares you will furnish to each person to whom any such sale or offer is made,
at or prior to the time of offering or sale, a copy of the relevant Prospectus
and, if requested, the corresponding Statement (each as then amended or
supplemented) and will not furnish to any person any information relating to a
Fund that is inconsistent in any respect with the information contained in the
Prospectus and Statement (each as then amended or supplemented).
(iv) You shall not make any representations concerning the Shares except
those contained in the relevant Prospectus and Statement and in such printed
information subsequently issued by us or a Fund as information supplemental to
the Prospectus and Statement.
<PAGE>14
SCHEDULE C
<TABLE>
<CAPTION>
Total Annual Fee as % of
Average Net Assets of:
Name of Fund Plans with (i) less Plans with (i) greater
than $1,000,000 than $1,000,000
Invested in the Invested in the
Funds and Funds or (ii) more
(ii) fewer than than 1,000
1,000 Participants Participants
<S> <C> <C>
Warburg Pincus
New York Intermediate Bond .15 .15
Intermediate Maturity .15 .15
Government
Short-Term Tax-Advantaged .15 .15
Bond .15 .15
Fixed Income .15 .15
Global Fixed Income .15 .15
Growth & Income .15 .20
International Equity .15 .20
Emerging Growth .15 .20
Capital Appreciation .15 .20
Japan OTC .15 .20
Balanced Fund .15 .20
Emerging Markets .15 .20
</TABLE>
CSI or another of the Funds' designees shall pay the Fee to you, and
shall be reimbursed by each Fund for a portion of the Fee due with respect to
that Fund to be determined from time to time ("Fund Portion"). The difference
between the Fee due minus the Fund Portion shall not be reimbursed by the
Funds, but shall be borne by CSI or another of the Funds' designees.
These fees will be computed by CSI and paid monthly. For purposes of
determining the fees payable hereunder, the average net assets of the Plans'
and Customers' Shares will be computed in the manner specified in the relevant
Fund's registration statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes
of purchases and redemptions.
In computing your fee, one-twelfth of the applicable fee rate
<PAGE>15
set forth above shall be applied to the average aggregate monthly net asset
value of shares of the applicable Funds in accounts for which you provide
services for the month in question. Each month's fee shall be determined
independently of every other month's fee. For the month in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during the month. In addition, if in any period the aggregate amount payable
to you is less than $200, we may, in our discretion, defer the payment of such
amount until it, together with a subsequent payment or payments, exceeds $200.
<PAGE>1
CONSENT OF COUNSEL
Warburg, Pincus Institutional Fund, Inc.
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 5 (the "Amendment") to
the Registration Statement on Form N-1A (Securities Act File No. 33-47880,
Investment Company Act File No. 811-6670) of Warburg, Pincus Institutional
Fund, Inc. (the "Fund") under the caption "Auditors and Counsel" and to
the Fund's filing a copy of this Consent as an exhibit to the Amendment.
Willkie Farr & Gallagher
October 31, 1995
New York, New York
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to Post-Effective Amendment No. 5
pursuant to the Securities Act of 1933, as amended, to the Registration
Statement on Form N-1A of Warburg, Pincus Institutional Fund, Inc. (File No.
33-47880):
1. The inclusion of our report dated August 11, 1995 on our audit
of the Statement of Assets and Liabilities of Warburg, Pincus
Institutional Fund, Inc. - Small Company Growth Portfolio as of
August 8, 1995.
2. The inclusion of our report dated February 14, 1995 on our
audit of the Statement of Assets and Liabilities of Warburg,
Pincus Institutional Fund, Inc. - Global Fixed Income
Portfolio.
3. The inclusion of our report dated December 12, 1994 on our
audit of the financial statements and financial highlights of
Warburg, Pincus Institutional Fund, Inc. - International Equity
Portfolio.
4. The reference to our Firm under the captions "Financial
Highlights" and "Auditors and Counsel" in this filing.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 31, 1995
<PAGE>1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Auditors and Counsel" in the Statement of
Additional Information and to the incorporation by reference of our report
dated December 15, 1992, in this Registration Statement (Form N-1A No. 33-
478880) of Warburg Pincus Institutional Fund, Inc.
ERNST & YOUNG LLP
New York, New York
October 31, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000887589
<NAME> WARBURG PINCUS INSTITUTIONAL FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 361306297
<INVESTMENTS-AT-VALUE> 376547835
<RECEIVABLES> 2274234
<ASSETS-OTHER> 3366315
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 382188384
<PAYABLE-FOR-SECURITIES> 6248689
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