<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on April 19, 1996
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. 7 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 8 [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)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2)
of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
__________________________________
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933, as amended, pursuant to Section
(a)(1) of Rule 24f-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to the number or amount presently registered is added an
indefinite number or amount of such securities. The Rule 24f-2 Notice for
Registrant's fiscal year ended October 31, 1995 was filed on December 19,
1995.
<PAGE>3
WARBURG, PINCUS 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
JUNE , 1996
WARBURG PINCUS INSTITUTIONAL FUND, INC.
[ ] INTERNATIONAL EQUITY PORTFOLIO
[ ] FOREIGN DEVELOPED MARKETS PORTFOLIO
[ ] SMALL COMPANY GROWTH PORTFOLIO
[ ] GLOBAL FIXED INCOME PORTFOLIO
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 19, 1996
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 369-2728
PROSPECTUS June , 1996
WARBURG PINCUS INSTITUTIONAL FUND, INC. (the 'Fund') is an open-end management
investment company that consists of four managed investment funds (the
'Portfolios'):
INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation
by investing primarily in equity securities of non-United States issuers.
FOREIGN DEVELOPED MARKETS PORTFOLIO seeks long-term capital
appreciation by investing in equity securities of issuers in foreign
countries included in the Morgan Stanley Capital International EAFE Index.
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.
International investment entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. Investment in small companies, including
emerging growth companies and companies in 'special situations,' also entails
special risks. See 'Risk Factors and Special Considerations.'
Shares of the International Equity, Foreign Developed Markets 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 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.
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) 369-2728. Information regarding the status
of shareholder accounts may also be obtained by calling Warburg Pincus Funds at
(800) 369-2728. The Statement of Additional Information, as amended or
supplemented from time to time, bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
- --------------------------------------------------------------------------------
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 DEVELOPED MARKETS FOREIGN EQUITY
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>
<PAGE>
THE FUND'S EXPENSES
<TABLE>
<CAPTION>
FOREIGN
INTERNATIONAL DEVELOPED SMALL COMPANY GLOBAL FIXED
EQUITY MARKETS GROWTH INCOME
Shareholder Transaction Expenses PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price).................... 0 0 0 0
Annual Portfolio Operating Expenses (as a percentage of
average net assets)
Management Fees.................................... .60% .60% .40% .08%
12b-1 Fees......................................... 0 0 0 0
Other Expenses..................................... .35% .35% .59% .52%
--- --- ------ -----
Total Portfolio Operating Expenses (after fee
waivers)`D'...................................... .95% .95% .99% .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 $10 $10 $6
3 years................................................ $30 $30 $32 $19
5 years................................................ $53 n.a. n.a. n.a.
10 years................................................ $117 n.a. n.a. n.a.
</TABLE>
- ------------
`D' Management Fees, Other Expenses and Total Operating Expenses for the
International Equity Portfolio are based on actual expenses for the fiscal
year ended October 31, 1995, net of any fee waivers or expense
reimbursements. Without such waivers and/or reimbursements, Management Fees
would have equalled .80%, Other Expenses would have equalled .38% and Total
Portfolio Operating Expenses would have equalled 1.18%. Absent the
anticipated waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees for the Foreign Developed Markets
Portfolio, the Small Company Growth Portfolio and the Global Fixed Income
Portfolio would equal .80%, .90% and .65%, respectively, Other Expenses
would equal .38%, .75% and .63%, respectively, and Total Portfolio Operating
Expenses would equal 1.18%, 1.65% and 1.28%, respectively. Other Expenses
for the Foreign Developed Markets, Small Company Growth and Global Fixed
Income Portfolios are based on annualized estimates of expenses for the
fiscal year ending October 31, 1996, net of any fee waivers or expense
reimbursements. The Fund's investment adviser and co-administrator are under
no obligation to continue these waivers. For the Foreign Developed Markets
and Small Company Growth Portfolios, the investment adviser 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. Institutions also may
charge their clients fees in connection with investments in a Portfolio's
shares, which fees are not reflected in the table. 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>
<PAGE>
FINANCIAL HIGHLIGHTS`D'
INTERNATIONAL EQUITY PORTFOLIO
The following information for the three fiscal years or period ended
October 31, 1995 has been derived from information audited by Coopers & Lybrand
L.L.P., independent auditors, whose report dated December 14, 1995 appears in
the 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, 1996 is unaudited. Further information about the
performance of the International Equity Portfolio is contained in the Fund's
annual report, dated October 31, 1995, copies of which may be obtained without
charge by calling Warburg Pincus Funds at (800) 369-2728.
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 1, 1992
FOR THE PERIOD FOR THE YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
ENDED ---------------------------------------- OPERATIONS) THROUGH
APRIL 30, 1996 1995 1994 1993 OCTOBER 31, 1992
-------------- ------------ -------- -------- -------------------
<S> <C> <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.................. .15 .17 .10 .02
Net Gains (Loss) from Securities and
Foreign Currency Related Items (both
realized and unrealized)............ (.64) 2.87 3.87 (.40)
-------------- ------------ -------- -------- ----------
Total from Investment Operations....... (.49) 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........... $ 15.10 $ 16.34 $ 13.49 $ 9.62
-------------- ------------ -------- -------- ----------
-------------- ------------ -------- -------- ----------
Total Return............................. (2.83%) 22.62% 41.61% (20.69%)*
Ratios/Supplemental Data
Net Assets, End of Period (000s)......... $507,759 $331,297 $109,280 $18,613
Ratios to Average Daily Net Assets:
Operating expenses..................... .95% .95% .95% .95%*
Net investment income.................. 1.20% .59% .75% 1.22%*
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements.............. .23% .29% .44% .85%*
Portfolio Turnover Rate.................. 39.70% 19.34% 19.40% 50.16%
</TABLE>
3
<PAGE>
<PAGE>
SMALL COMPANY GROWTH PORTFOLIO (UNAUDITED)
Further information about the performance of the Small Company Growth
Portfolio is contained in the Fund's semi-annual report, dated April 30, 1996,
copies of which may be obtained without charge by calling Warburg Pincus Funds
at (800) 369-2728.
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 29, 1995
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1996
-------------------
<S> <C>
Net Asset Value, Beginning of Period......................................................... $ 10.00
-------
Income from Investment Operations
Net Investment Income...................................................................
Net Gains (Losses) from Securities and Foreign Currency Related Items
(both realized and unrealized)........................................................
-------
Total from Investment Operations........................................................
-------
Less Distributions
Dividends (from net investment income)..................................................
Distributions (from capital gains)......................................................
-------
Total Distributions.....................................................................
-------
Net Asset Value, End of Period............................................................... $
-------
-------
Total Return................................................................................. %*
Ratios/Supplemental Data
Net Assets, End of Period (000s)............................................................. $
Ratios to Average Daily Net Assets:
Operating expenses...................................................................... %*
Net investment income................................................................... %*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements................................................................ %*
Portfolio Turnover Rate................................................................. %*
</TABLE>
- ------------
`D' No financial highlights have been presented with respect to the Foreign
Developed Markets Portfolio or the Global Fixed Income Portfolio, which had
not commenced operations as of April 30, 1996. 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 December 18, 1995, together
with the reports of Coopers & Lybrand L.L.P., appear in the Statement of
Additional Information. The unaudited statement of assets and liabilities of
the Foreign Developed Markets Portfolio also appears in the Statement of
Additional Information.
* Annualized.
4
<PAGE>
<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 may invest in emerging, as well as developed, markets. 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, which is a diversified
portfolio, intends to hold securities of many corporations located in a number
of foreign countries. 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.
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.
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
Investment Company Act of 1940, as amended (the '1940 Act'), invest in the
securities of closed-end investment companies that invest in foreign securities.
When Warburg, Pincus Counsellors, Inc., the Portfolios' investment adviser
('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).
FOREIGN DEVELOPED MARKETS PORTFOLIO. The Foreign Developed Markets 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 in common stocks, warrants and securities
convertible into or exchangeable for common stocks of companies, wherever
organized, having their principal business activities and interests in countries
represented, from time to time, in the Morgan Stanley Capital International EAFE
Index (the 'EAFE Index').
The Portfolio is not an index fund and will not seek to match the
performance or country or industry weightings of the EAFE Index. The Portfolio
will not invest in U.S. companies except for temporary defensive purposes, in
which case the Portfolio may invest without limit in equity and debt securities
of U.S. issuers and money market obligations (described below). Except for these
investments in U.S. securities, the Portfolio will not invest in companies that
are not in EAFE Index-included countries.
The Portfolio currently intends to spread investments among countries to
reduce currency risk and, under normal circumstances, will invest in at least
three countries other than the United States. The Portfolio, which is a
diversified
5
<PAGE>
<PAGE>
portfolio, intends to hold securities of many corporations located in a number
of foreign countries, although from time to time a significant portion of the
Portfolio's assets may be invested in a single country, such as Japan. The
Portfolio intends to invest principally in the securities of companies with
opportunities for growth within international economies and markets. Investments
may be made in equity securities of companies of any size, whether traded on or
off a national securities exchange.
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 Portfolio. 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. Although there is no intention of doing so during the coming year,
the Portfolio is authorized to engage in reverse repurchase agreements and
dollar rolls.
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').
6
<PAGE>
<PAGE>
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
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 OBLIGATIONS. Each Portfolio is authorized to invest, under normal
circumstances, in domestic and foreign short-term (one year or less remaining to
maturity) and medium-term (five years or less remaining to maturity) money
market obligations, 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 or 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
7
<PAGE>
<PAGE>
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 bonds) and obligations issued by U.S. government
agencies and instrumentalities.
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 Foreign Developed Markets Portfolio, the
Small Company Growth Portfolio and the Global Fixed Income Portfolio. However,
the Foreign Developed Markets Portfolio's annual turnover rate should not exceed
75%, 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 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 in securities or options on behalf of a
Portfolio are placed by Warburg with broker-dealers that it selects.
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 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. 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.
Up to 5% of each of the International Equity, Foreign Developed Markets and
Small Company Growth Portfolio's net assets may be held in convertible
securities rated below investment grade. Up to 5% of the Global Fixed Income
Portfolio's net assets may be rated below investment grade at the time of
purchase. 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
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rated in the fourth highest grade have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade 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. Securities rated below
investment grade 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. A Portfolio 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.
FOREIGN SECURITIES. The International Equity Portfolio, Foreign Developed
Markets 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 experience
long delays between the trade and settlement dates of securities purchased or
sold. In addition, with respect to certain foreign countries, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of 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.
JAPANESE INVESTMENTS. Because the International Equity and Foreign Developed
Markets Portfolios may from time to time have large positions in Japanese
securities, they may be subject to general economic and political conditions in
Japan.
Securities in Japan are denominated and quoted in 'yen.' Yen are fully
convertible and transferable based on floating exchange rates. In determining
the net asset value of shares of a Portfolio, assets or liabilities initially
expressed in terms of Japanese yen will be translated into U.S. dollars at the
current selling rate of Japanese yen against U.S. dollars. As a result, the
value of a Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably
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by fluctuations in the value of Japanese yen relative to the U.S. dollar.
The decline in the Japanese securities markets since 1989 has contributed
to a weakness in the Japanese economy, and the impact of a further decline
cannot be ascertained. The common stocks of many Japanese companies continue to
trade at high price-earnings ratios in comparison with those in the United
States. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of large
trade surpluses, 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.
Since mid-1993, there have been several changes in leadership in Japan.
What, if any, effect the current political situation will have on prospective
regulatory reforms on the economy in Japan cannot be predicted. Recent and
future developments in Japan and neighboring Asian countries may lead to changes
in policy that might adversely affect a Portfolio investing there. For
additional information, see 'Investment Policies -- Japanese Investments'
beginning at page 14 of the Statement of Additional Information.
EMERGING MARKETS. One or more Portfolios with authority to invest outside of the
United States may invest in securities of issuers located in less developed
countries considered to be 'emerging markets.' Investing in securities of
issuers located in emerging markets involves not only the risks described below
with respect to investing in foreign securities, but also other risks, including
exposure to economic structures that are generally less diverse and mature than,
and to political systems that can be expected to have less stability than, those
of developed countries. Other characteristics of emerging markets that may
affect investment there include certain national policies that may restrict
investment by foreigners in issuers or industries deemed sensitive to relevant
national interests and the absence of developed legal structures governing
private and foreign investments and private property. The typically small size
of the markets for securities of issuers located in emerging markets and the
possibility of a low or nonexistent volume of trading in those securities may
also result in a lack of liquidity and in price volatility of those securities.
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 a 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 and commodities 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
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purchase options on stocks and debt securities that are traded on U.S. and
foreign exchanges, as well as over-the-counter ('OTC') options. The purchaser of
a put option on a security has the right to compel the purchase by the writer of
the underlying security, while the purchaser of a call option 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, on foreign exchanges. These futures
contracts are standardized contracts for the future delivery of foreign currency
or an interest rate sensitive security or, in the case of stock index and
certain other futures contracts, are settled in cash with reference to a
specified multiplier times the change in the specified index, exchange rate or
interest rate. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although a Portfolio is limited in
the amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of a Portfolio's assets that may be at risk with
respect to futures activities.
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
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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 reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. 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 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 an off-exchange 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 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
obligations or other assets that are acceptable as collateral to the appropriate
regulatory authority in a segregated account with its custodian or a designated
sub-custodian to the extent the 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 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
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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-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 ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. In addition, up to 5% of a
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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). 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 each Portfolio and places
orders to purchase or sell securities on behalf of each such Portfolio. Warburg
also employs a support staff of management personnel to provide services to the
Fund and furnishes the Fund with office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee
calculated at an annual rate equal to percentages of the relevant Portfolio's
average daily net assets, as follows: International Equity Portfolio -- .80%,
Foreign Developed Markets Portfolio -- .80%, Small Company Growth
Portfolio -- .90% and Global Fixed Income Portfolio -- .65%. Although, in the
case of the International Equity, Foreign Developed Markets and Small Company
Growth Portfolios, 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 June , 1996,
Warburg managed approximately $11.9 billion of assets, including approximately
$6.2 billion of investment company assets. Incorporated in 1970, Warburg is a
wholly owned subsidiary of Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a
New York general partnership. 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 and
Foreign Equity Portfolios is Richard H. King, who has been portfolio manager of
the Portfolios since inception. Mr. King, a senior managing director of EMW, has
been with EMW since 1989, before which time he was chief investment officer and
a
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director at Fiduciary Trust Company International S.A. in London. Nicholas P.W.
Horsely, P. Nicholas Edwards, Harold W. Ehrlich and Vincent J. McBride have been
associate portfolio managers of the International Equity Portfolio since joining
Warburg and of the Foreign Equity Portfolio since its inception. 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,
a vice president of Warburg, 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 senior 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, furnishing 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, the Foreign Developed
Markets 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.
CUSTODIANS. Fiduciary Trust Company International ('Fiduciary') and PNC Bank,
National
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Association ('PNC') serve as custodians of the International Equity, Foreign
Developed Markets 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. No compensation is payable by
the Fund to Counsellors Securities for distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Fund, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO 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) 369-2728. 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, FOREIGN DEVELOPED MARKETS 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.
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HOW TO PURCHASE SHARES IN
THE PORTFOLIOS
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) 369-2728. 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.:
[Portfolio 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
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<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, the Foreign Developed Markets
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). 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 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.
PURCHASE THROUGH INTERMEDIARIES. The Fund understands that some broker-dealers
(other than Counsellors Securities), financial institutions, securities dealers
and other industry professionals may impose certain conditions on their clients
or customers that invest in the Fund which are in addition to or different than
those described in this Prospectus, and may charge their clients or customers
direct fees. Certain features of the Fund, such as the initial and subsequent
investment minimums, redemption fees and certain trading restrictions, may be
modified or waived in these programs, and administrative charges may be imposed
for the services rendered. Therefore, a client or customer should contact the
organization acting on 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. Pursuant to special arrangements,
registered investment advisers, financial consultants and other investment
professionals who purchase Fund shares through certain financial intermediaries
may aggregate funds of their clients or customers in order to meet a Portfolio's
initial or subsequent investment minimum. Certain organizations that have
entered into agreements with the Fund or its agent may enter confirmed purchase
orders on behalf of clients and customers, with payment to follow no later than
the Fund's pricing on the following business day. If payment is not received by
such time, the 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
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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 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) 369-2728 between 9:00 a.m. and 4:00 p.m. (Eastern time) on
any business day. An investor making a telephone withdrawal should state (i) the
name of the 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 redemption proceeds.
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. Except
as noted above, redemption proceeds will normally be mailed or wired to an
investor on the next business day following the date a redemption order is
effected. If, however, in the judgment of Warburg, immediate payment would
adversely affect a 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
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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 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. When an investor effects an exchange
of shares, the exchange is treated for federal income tax purposes as a
redemption. Therefore, the investor may realize a taxable gain or loss in
connection with the exchange. For further information regarding the exchange
privilege an investor should contact Warburg Pincus Funds at (800) 369-2728.
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) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
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
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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 investors 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. A Portfolio's investment activities, including
short sales of securities, will not result in unrelated business taxable income
to a tax-exempt investor. 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,
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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, 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.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
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-by-year, quarterly or current year-to-date basis).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that 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
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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) 369-2728.
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 and Foreign Developed Markets Portfolios, 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 Index;
in the case of the Small Company Growth Portfolio, with the Russell 2000 Small
Stock Index and the S&P 500 Index; and, in the case of the Global Fixed Income
Portfolio, with the J.P. Morgan Traded Index (an index of non-U.S. dollar bonds
of ten countries with active bond markets), the Salomon Brothers World
Government Bond Index (a hedged, market-capitalization weighted index designed
to track major government debt markets) and the Lipper General World Income
Average (an average of funds that invest primarily in non-U.S. dollar and U.S.
dollar debt instruments); 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. In addition, a Portfolio and its portfolio managers may
render periodic updates of Portfolio activity, which may include a discussion of
significant portfolio holdings and analysis of holdings by industry, country,
credit quality and other characteristics. Each Portfolio may also discuss
measures of risk, the continuum of risk and return relating to different
investments, and the potential impact of foreign stocks on a portfolio otherwise
composed of domestic securities. Morningstar, Inc. rates funds in broad
categories based on risk/reward analyses over various time periods. In addition,
each 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.
GENERAL INFORMATION
ORGANIZATION. 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 thirteen billion full and
fractional shares of capital stock, par value $.001 per share. Shares of four
series have been classified, which constitute the interests in the Portfolios.
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VOTING RIGHTS. Investors in each Portfolio are entitled to one vote for each
full share owned and fractional votes for fractional shares held. Shareholders
of each Portfolio 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 members of the Board 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. 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 March 29, 1996 because they may be deemed to possess or
share investment power over shares owned by clients of Warburg and certain other
entities.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
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 REPRE-SENTATIONS 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.
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TABLE OF CONTENTS
THE FUND'S EXPENSES ...................................................... 2
FINANCIAL HIGHLIGHTS ..................................................... 3
INVESTMENT OBJECTIVES AND POLICIES ....................................... 5
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 8
SPECIAL RISK CONSIDERATIONS
AND CERTAIN INVESTMENT STRATEGIES ..................................... 8
INVESTMENT GUIDELINES ................................................... 13
MANAGEMENT OF THE FUND .................................................. 14
HOW TO OPEN AN ACCOUNT IN THE FUND ...................................... 16
HOW TO PURCHASE SHARES IN THE
PORTFOLIOS ........................................................... 17
HOW TO REDEEM AND EXCHANGE SHARES
IN THE PORTFOLIOS .................................................... 18
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 20
NET ASSET VALUE ......................................................... 22
THE PORTFOLIOS' PERFORMANCE ............................................. 22
GENERAL INFORMATION ..................................................... 23
WPINS-1-0696
[LOGO]
WARBURG PINCUS
INSTITUTIONAL FUND, INC.
[ ] INTERNATIONAL EQUITY
PORTFOLIO
[ ] FOREIGN DEVELOPED
MARKETS PORTFOLIO
[ ] SMALL COMPANY GROWTH
PORTFOLIO
[ ] GLOBAL FIXED INCOME
PORTFOLIO
PROSPECTUS
JUNE , 1996
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 April 19, 1996
STATEMENT OF ADDITIONAL INFORMATION
June __, 1996
WARBURG PINCUS INSTITUTIONAL FUND, INC.
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 369-2728
Contents
Page
Investment Objectives . . . . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . . . . 2
Management of the Fund . . . . . . . . . . . . . . . . . . . 34
Additional Purchase and Redemption Information . . . . . . . 42
Exchange Privilege . . . . . . . . . . . . . . . . . . . . . 43
Additional Information Concerning Taxes . . . . . . . . . . . 43
Determination of Performance . . . . . . . . . . . . . . . . 46
Independent Accountants and Counsel . . . . . . . . . . . . . 49
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 49
Financial Statements . . . . . . . . . . . . . . . . . . . . 50
Appendix -- Description of Ratings . . . . . . . . . . . . A-1
Reports of Coopers & Lybrand L.L.P.,
Independent Accountants . . . . . . . . . . . . . . . A-5
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Warburg Pincus Institutional Fund, Inc.
(the "Fund") dated June __, 1996, as amended or supplemented from time to
time, and is incorporated by reference in its entirety into that Prospectus.
The Fund consists of four managed investment funds. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
the International Equity Portfolio, the Foreign Developed Markets Portfolio,
the Small Company Growth Portfolio or the Global Fixed Income Portfolio (the
"Portfolios") should be
<PAGE>2
made solely upon the information contained herein. Copies of the Fund's
Prospectus and information regarding each Portfolio's current performance may
be obtained by calling Warburg Pincus Funds at (800) 369-2728. Information
regarding the status of shareholder accounts may also be obtained by calling
the Fund at (800) 369-2728 or by writing to the Fund, P.O. Box 9030, Boston,
Massachusetts 02205-9030.
INVESTMENT OBJECTIVES
The investment objective of the International Equity Portfolio and
the Foreign Developed Markets 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").
Each 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 brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are
standardized as to contract size and delivery date.
At or before the maturity of a forward contract, 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.
Foreign Currency Exchange. Since the International Equity, Foreign
Developed Markets 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. A Portfolio may
use hedging techniques with the objective of protecting against loss through
the fluctuation of the value of foreign currencies against the U.S. dollar,
particularly the forward market in foreign exchange, currency options and
currency futures. See "Currency Transactions" and "Futures Activities" above.
<PAGE>13
Information. The majority 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 entity. Foreign companies are generally not subject to uniform
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies.
Political Instability. With respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Portfolio,
political or social instability, or domestic developments which could affect
U.S. investments in those countries.
Delays. Securities of some foreign companies are less liquid and
their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the
trade and settlement dates of securities purchased or sold. Due to the
increased exposure of 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.
Foreign Taxes and Increased Expenses. The operating expenses of the
International Equity, Foreign Developed Markets and Global Fixed Income
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, Foreign Developed Markets
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.
General. In general, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. A Portfolio 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.
The risks of investing in foreign securities are exacerbated in the
case of investing in emerging securities markets. Although the Foreign
Developed Markets Portfolio invests in countries included in the Morgan
Stanley Capital International EAFE Index (the "EAFE Index"), which may, from
time to time, include countries that Warburg considers to be emerging, rather
than developed markets. Currently, the EAFE Index includes Hong
<PAGE>14
Kong, Malaysia and Singapore, three countries which Warburg considers to be
emerging markets. The Foreign Developed Markets Portfolio limits to 35% of
its assets the portion that may be invested in these three markets or in other
markets that, while included in the EAFE Index, are considered by Warburg to
be emerging markets. The International Equity and Global Fixed Income
Portfolios are not subject to any specific limitations on investing in
emerging securities markets.
JAPANESE INVESTMENTS (International Equity and Foreign Developed
Markets Portfolios). From time to time depending on current market
conditions, these Portfolios may invest a significant portion of their assets
in Japanese securities. Like any investor in Japan, a 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.
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 $120 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.
<PAGE>15
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>16
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>17
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>18
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
<S> <C> <C>
Tokyo Osaka Nagoya
--------------------------- ----------------------- ------------------------
1st 2nd 1st 2nd 1st 2nd
Sec. Sec. Sec. Sec. Sec. Sec.
---- ---- ---- ---- ---- ----
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 . . . . . . . . . . . . 256,296 386,395
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>19
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
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.
Below Investment Grade Securities. Each Portfolio may invest in
below investment grade convertible debt and preferred securities and it is not
required to dispose of securities downgraded below investment grade subsequent
to acquisition by the Portfolio. While the market values of medium- and
lower-rated securities and unrated securities of comparable quality tend to
react less to fluctuations in interest rate levels than do those of
<PAGE>20
higher-rated securities, the market values of certain of these securities also
tend to be more sensitive to individual corporate developments and changes in
economic conditions than higher-quality securities. In addition, medium- and
lower-rated securities and comparable unrated securities generally present a
higher degree of credit risk. Issuers of medium- and lower-rated securities
and unrated securities are often highly leveraged and may not have more
traditional methods of financing available to them so that their ability to
service their obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss due to
default by such issuers is significantly greater because medium- and lower-
rated securities and unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness.
The market for medium- and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers
of such securities to repay principal and pay interest thereon.
A Portfolio may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the
Portfolios anticipate that these securities could be sold only to a limited
number of dealers or institutional investors. To the extent a secondary
trading market for these securities does exist, it generally is not as liquid
as the secondary market for higher-rated securities. The lack of a liquid
secondary market, as well as adverse publicity and investor perception with
respect to these securities, may have an adverse impact on market price and a
Portfolio's ability to dispose of particular issues when necessary to meet the
Portfolio's liquidity needs or in response to a specific economic event such
as a deterioration in the creditworthiness of the issuer. The lack of a
liquid secondary market for certain securities also may make it more difficult
for a Portfolio to obtain accurate market quotations for purposes of valuing
the Portfolio and calculating its net asset value.
The market value of securities in medium- and lower-rated categories
is more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the
Portfolio's net asset value. The Fund will rely on the judgment, analysis and
experience of Warburg in evaluating the creditworthiness of an issuer. In
this evaluation, Warburg will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters. Normally, medium- and lower-rated and comparable unrated
securities are not intended for short-term investment. A Portfolio may incur
additional expenses to the extent it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings of
such securities. Recent adverse publicity regarding lower-rated securities
may have depressed the prices for such securities to some extent. Whether
investor perceptions will continue to have a negative effect on the price of
such securities is uncertain.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each Portfolio may invest
in securities of other investment companies to the extent permitted under the
Investment
<PAGE>21
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 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 affiliates of Warburg unless it has
applied for and received specific authority to do so from the SEC. Loans of
portfolio securities will be collateralized by cash, letters of credit or U.S.
Government Securities, which are maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Any gain
or loss in the market price of the securities loaned that might occur during
the term of the loan would be for the account of the 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
<PAGE>22
acquiring portfolio securities and not for the purpose of leverage, but may
sell the securities before the settlement date if Warburg deems it
advantageous to do so. The payment obligation and the interest rate that will
be received on when-issued securities are fixed at the time the buyer enters
into the commitment. Due to fluctuations in the value of securities purchased
or sold on a when-issued or delayed-delivery basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
When a 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.
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. 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 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
<PAGE>23
Portfolio will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS. The assets
of 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.
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 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
<PAGE>24
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, Warburg may consider, inter alia, the following factors: (i) the
unregistered nature of the security; (ii) the frequency of trades and quotes
for the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer
undertakings to make a market in the security and (v) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
BORROWING. 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 net assets. Although the principal of such borrowings will be
<PAGE>25
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.
Securities of Smaller Companies; Special Situation Companies (Small
Company Growth Portfolio). The Portfolio's investments involves
considerations that are not applicable to investing in securities of
established, larger-capitalization issuers, including reduced and less
reliable information about issuers and markets, less stringent accounting
standards, illiquidity of securities and markets, higher brokerage commissions
and fees and greater market risk in general.
The 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>26
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, FOREIGN DEVELOPED MARKETS 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, the Foreign Developed Markets
Portfolio and 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>27
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 and the
Foreign Developed Markets 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 and the
Foreign Developed Markets 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
<PAGE>28
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.
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 Warburg individually owns more than 1/2 of 1% of the
outstanding securities of such company and together they own beneficially more
than 5% of the securities.
15. Invest in warrants (other than warrants acquired by the
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.
<PAGE>29
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.
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.
<PAGE>30
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 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. The following and certain other non-fundamental investment
limitations are currently required by one or more states in which shares of
the Portfolios are sold. These may be more restrictive than the limitations
set forth above. 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. In addition, the relevant state may change or
eliminate its policy regarding such investment limitations.
1. The aggregate of all Rule 144A Securities, non-publicly traded
and illiquid securities and securities of companies (including predecessors)
that have been in continuous operation for three years or less is limited to
15% of the each Portfolio's total assets.
2. The aggregate of options on securities, indexes and currencies
purchased by the Small Company Portfolio is limited to 10% of the Portfolio's
assets.
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.
<PAGE>31
Securities listed on a U.S. securities exchange (including
securities traded through the NASDAQ National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence
of sales, at the mean between the bid and asked quotations. If there are no
such quotations, the value of the securities will be taken to be the highest
bid quotation on the exchange or market. Options or futures contracts will be
valued similarly. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Board. Amortized cost involves valuing a portfolio
instrument at its initial cost and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. The
amortized cost method of valuation may also be used with respect to debt
obligations with 60 days or less remaining to maturity. 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. 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.
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. 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 Portfolios' calculation of net asset value, in which case an adjustment
may be made by the Board or its delegates. 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.
<PAGE>32
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 and in doing so seeks to obtain the overall
best execution of portfolio transactions. In evaluating prices and
executions, Warburg will consider the factors it deems relevant, which may
include the breadth of the market in the security, the price of the security,
the financial condition and execution capability of a broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on
a continuing basis. Warburg may, in its discretion, effect transactions in
portfolio securities with dealers who provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to a Portfolio and/or other accounts over which Warburg exercises
investment discretion. Warburg may place portfolio transactions with a broker
or dealer with whom it has negotiated a commission that is in excess of the
commission another broker or dealer would have charged for effecting the
transaction if Warburg determines in good faith that such amount of commission
was reasonable in relation to the value of such brokerage and research
services provided by such broker or dealer viewed in terms of either that
particular transaction or of the overall responsibilities of Warburg.
Research and other services received may be useful to Warburg in serving both
the 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. Research may
include furnishing advice, either directly or through publications or
writings, as to the value of securities, the advisability of purchasing or
selling specific securities and the availability of securities or purchasers
or sellers of securities; furnishing seminars, information, analyses and
reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in
<PAGE>33
accounting practices, economic factors and trends and portfolio strategy;
access to research analysts, corporate management personnel, industry experts,
economists and government officials; comparative performance evaluation and
technical measurement services and quotation services; and products and other
services (such as third party publications, reports and analyses, and computer
and electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
For the fiscal year ended October 31, 1995, $46,558 of total brokerage
commissions was paid to brokers and dealers who provided such research and
other services on portfolio transactions of $475,286,009. Research received
from brokers or dealers is supplemental to Warburg's own research program.
The fees to Warburg under its advisory agreements with the Fund are not
reduced by reason of its receiving any brokerage and research services.
During the fiscal years ended October 31, 1993, October 31, 1994 and
October 31, 1995, the Fund, on behalf of the International Equity Portfolio,
paid an aggregate of approximately $305,110, $612,312 and $1,273,733,
respectively, in commissions to broker-dealers for execution of portfolio
transactions. The fiscal 1994 and 1995 commission increases were a result of
sharp increases in the volume of share-related activity as the Portfolio
received large inflows of capital.
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.
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
<PAGE>34
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 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.
<PAGE>35
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.
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 (69) . . . . . . . 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* (65) . . . . . Chairman of the Board and President
466 Lexington Avenue Vice Chairman and Director of E.M. Warburg,
New York, New York 10017-3147 Pincus & Co., Inc. ("EMW"); Associated with
EMW since 1970; Officer of other investment
companies advised by Warburg.
Thomas A. Melfe (64) . . . . . . 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.
Arnold M. Reichman* (47) . . . . Director and 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.
- ------------------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>36
Alexander B. Trowbridge (66) . . 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).
Dale C. Christensen (48) . . . . 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 and Foreign
New York, New York 10017-3147 Developed Markets Portfolios
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.
Eugene L. Podsiadlo (39) . . . . 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.
<PAGE>37
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.
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, Chief
Compliance Officer and Assistant Secretary
of Counsellors Securities; Vice President
and Secretary of other investment companies
advised by Warburg.
Howard Conroy (42) . . . . . Vice President, 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.
Janna Manes (28) . . . . . . . . Assistant Secretary
466 Lexington Avenue Associated with EMW since 1996; Associated
New York, New York 10017-3147 with the law firm of Willkie Farr &
Gallagher from 1993-1996; 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>38
Directors' Compensation
(for the fiscal year ended October 31, 1995)
<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**
Arnold M. Reichman None** None**
Richard N. Cooper $1,750 $41,083
Donald J. Donahue $2,000 $43,833
Jack W. Fritz $1,250 $35,333
Thomas A. Melfe $2,000 $43,583
Alexander B. Trowbridge $2,000 $43,833
</TABLE>
________________________
* Each Director also serves as a Director or Trustee of 19 other investment
companies advised by Warburg.
** Messrs. Furth and Reichman are considered to be interested persons 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 March 29, 1996, no Directors or officers of the Fund owned any
of the outstanding shares of the Portfolios. As of the same date, Mr. Furth
may be deemed to have beneficially owned 6.69% 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.
International Equity and Foreign Developed Markets Portfolios. Mr.
Richard H. King, vice president of the Fund and portfolio manager of the
International Equity and Foreign Developed Markets Portfolios, 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, the Emerging Markets Portfolio of Warburg Pincus Trust
and Warburg Pincus Japan OTC Fund. From 1968 to 1982, he worked 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
<PAGE>39
fund (FTIT) 1985-1986 which grew from $3 million to over $100 million during
this two-year period.
Mr. Nicholas P.W. Horsley, associate portfolio manager and research
analyst of the International Equity and Foreign Developed Markets Portfolios,
is also a co-portfolio manager of Warburg Pincus Emerging Markets Fund, the
Emerging Markets Portfolio of Warburg Pincus Trust 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. P. Nicholas Edwards, associate portfolio manager and research
analyst of the International Equity and Foreign Developed Markets Portfolios,
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 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 and Foreign Developed Markets Portfolios,
is also an associate portfolio manager and research analyst of Warburg Pincus
International Equity Fund, Warburg Pincus Emerging Markets Fund and the
International Equity and Emerging Markets Portfolios of Warburg Pincus Trust.
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 and Foreign Developed Markets Portfolios,
is also an associate portfolio manager and research analyst of Warburg Pincus
International Equity Fund, Warburg Pincus Emerging Markets Fund and the
International Equity and Emerging Markets Portfolios of Warburg Pincus Trust.
Prior to joining Warburg in 1994, Mr. McBride was an international equity
analyst at Smith Barney Inc. from 1993 to 1994 and at General Electric
Investment 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
<PAGE>40
1987 to 1989. Mr. McBride earned a B.S. degree from the University of
Delaware and an M.B.A. degree from Rutgers University.
SMALL COMPANY GROWTH PORTFOLIO. Ms. Elizabeth B. Dater, co-
portfolio manager of the Small Company Growth Portfolio is also co-portfolio
manager of Warburg Pincus Emerging Growth Fund, Warburg Pincus Post-Venture
Capital Fund and the Post-Venture Capital Portfolio of Warburg Pincus Trust.
She is the former director of research for Warburg's 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 Company Growth Portfolio, is also co-
portfolio manager of Warburg Pincus Emerging Growth Fund, Warburg Pincus Post-
Venture Capital Fund and the Post-Venture Capital Portfolio of Warburg Pincus
Trust. 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.
GLOBAL FIXED INCOME PORTFOLIO. 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") and PFPC serve as co-
administrators 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
<PAGE>41
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 fiscal years ended October 31, 1993, October 31, 1994 and
October 31, 1995, Warburg earned $406,466, $1,736,864 and $3,095,950,
respectively, and voluntarily waived $195,081, $542,549 and $778,770,
respectively, in investment advisory fees. Counsellors Service earned
$24,631, $188,503 and $386,993, during the fiscal years ended October 31,
1993, October 31, 1994, and October 31, 1995, respectively. PFPC received
$60,970, $259,290 and $436,710, respectively, in fees and voluntarily waived
$29,253, $81,358 and $110,078 of such fees for the fiscal years ended October
31, 1993, October 31, 1994 and October 31, 1995, respectively. Since the
Foreign Developed Markets Portfolio the Small Company Growth Portfolio and the
Global Fixed Income Portfolio had not commenced investment operations as of
October 31, 1995, no fees were paid to Warburg, PFPC or Counsellors Service by
them.
CUSTODIANS AND TRANSFER AGENT
Fiduciary Trust Company International ("Fiduciary") serves as
custodian of each of the International Equity, Foreign Developed Markets 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.
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
<PAGE>42
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, Foreign Developed Markets 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.
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."
Shares of four series have been authorized, which constitute the interests in
the Portfolios.
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.
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
<PAGE>43
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 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 investment instruments which
may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or
other property, a shareholder would incur transaction costs in disposing of
the redemption proceeds. The Fund intends to comply with Rule 18f-1
promulgated under the 1940 Act with respect to redemptions in kind.
A Portfolio may, in certain circumstances and in its discretion,
accept securities as payment for the purchase of the Portfolio's shares from
an investor who has received such securities as redemption proceeds from
another Warburg Pincus Fund.
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.
<PAGE>44
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 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
<PAGE>45
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 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
<PAGE>46
credited against a taxpayer's federal income tax liability. Dividends and
distributions also may be subject to state and local taxes depending on each
shareholder's particular situation.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
If 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 annual total
return of the International Equity Portfolio for the fiscal year ended
October 31, 1995 was -2.83% (-3.01% without waivers), and the average annual
total return for the period beginning September 1, 1992 (inception) to
October 31, 1995 was 16.53% (16.26% 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
<PAGE>47
following formula: P (1 + T)[*GRAPHIC OMITTED-SEE FOOTNOTE BELOW] = ERV. For
purposes of this formula, "P" is a hypothetical investment of $1,000; "T" is
average annual total return; "n" is number of years; and "ERV" is the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
one-, five- or ten-year periods (or fractional portion thereof). Total return
or "T" is computed by finding the average annual change in the value of an
initial $1,000 investment over the period and assumes that all dividends and
distributions are reinvested during the period.
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.
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)[**GRAPHIC OMITTED-SEE FOOTNOTE BELOW]-1]
---
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
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.
Warburg believes that a diversified portfolio of international
equity securities, when combined with a similarly diversified portfolio of
domestic equity securities, tends to have a lower volatility than a portfolio
composed entirely of domestic securities. Furthermore, international equities
have been shown to reduce volatility in single asset portfolios regardless of
whether the investments are in all domestic equities or all domestic fixed-
income instruments, and research indicates that volatility can be
significantly decreased when international equities are added.
- ------------------------
* - The expression (1 + T) is being raised to the nth power.
** - The expression ( a-b + 1) is being raised to the 6th power.
<PAGE>48
To illustrate this point, the performance of international equity
securities, as measured by the EAFE Index, has equalled or exceeded that of
domestic equity securities, as measured by the Standard & Poor's 500 Composite
Stock Index (the "S & P 500 Index") in 14 of the last 23 years. The following
table compares annual total returns of the EAFE Index and the S & P 500 Index
for the calendar years shown.
EAFE Index vs. S&P 500 Index
1972-1995
Annual Total Return+
Year EAFE Index S&P 500 Index
---- ---------- -------------
1972* 33.28 14.43
1973* -16.82 -18.85
1974* -25.60 -30.96
1975* 31.21 27.81
1976 -.36 18.27
1977* 14.61 -9.64
1978* 28.92 5.01
1979 1.82 9.02
1980 19.01 27.71
1981* -4.85 -10.17
1982 -4.63 14.80
1983* 20.91 13.93
1984* 5.02 -1.22
1985* 52.97 29.45
1986* 66.80 14.97
1987* 23.18 .26
1988* 26.66 8.61
1989 9.22 28.81
1990 -24.71 -8.24
1991 10.19 27.94
1992 -13.89 4.43
1993* 30.49 7.22
1994* 6.24 -1.34
1995 9.42 34.71
_________________
+ Without reinvestment of dividends.
* The EAFE Index has outperformed the S&P 500 Index 15 out of the last 24
years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets
<PAGE>49
The quoted performance information shown above is not intended to
indicate the future performance of the International Equity or Foreign
Developed Markets Portfolios. Advertising or supplemental sales literature
relating to a Portfolio may describe the percentage decline from all-time high
levels for certain foreign stock markets. It may also describe how the
Portfolio differs from the EAFE Index in composition.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves
as independent accountants for the Fund. The financial statements for the
Portfolios that appear in this Statement of Additional Information have been
audited by Coopers & Lybrand, whose reports thereon appear elsewhere herein
and have been included herein in reliance upon the report of such firm of
independent accountants given upon their authority as experts in accounting
and auditing.
The financial statements of the International Equity Portfolio for
the period beginning with commencement of the Fund through October 31, 1992
have been audited by Ernst & Young LLP ("Ernst & Young"), independent
accountants, as set forth in their report, and have been included in reliance
on such report and upon the authority of such firm as experts in accounting
and auditing. Ernst & Young's address is 787 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 March 29, 1996, the names, addresses and percentage ownership
of each person that owned 5% or more of the outstanding shares of a Portfolio
are as follows:
<TABLE>
<CAPTION>
Percentage Owned as of
Portfolio Name and Address March 29, 1996
-------------------- ---------------- ----------------------
<S> <C> <C>
Small Company Growth Donations & Bequests for Church
Purposed Inc.
1335 Asylum Avenue, Hartford CT 06105-2203 55.46%
Warburg Pincus Counsellors Inc. 466 Lexington Avenue 44.49%
Attn: Stephen Distler New York NY 10017-3140
</TABLE>
<PAGE>50
No person owned of record 5% or more of the outstanding shares of
the other Portfolios.
Mr. Lionel I. Pincus, Chairman of the Board and Chief Executive
Officer of EMW, may be deemed to have beneficially owned 7.26% 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, 1995 and for the fiscal period ended April 30,
1996, the Small Company Growth Portfolio's unaudited financial statements for
the period from December 29, 1995 (commencement of operations) through April
30, 1996 and the statements of assets and liabilities for the Foreign
Developed Markets Portfolio as of April 17, 1996 (unaudited) and the Global
Fixed Income Portfolio as of December 18, 1995 follow the Reports of
Independent Accountants.
<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, B, CCC, CC and C - Debt rated BB and B are regarded, on balance,
as predominately speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB represents
a lower degree of speculation
<PAGE>A-2
than B, and CCC the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BBB rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt
rated D.
To provide more detailed indications of credit quality, the ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
<PAGE>A-3
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.
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.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
<PAGE>A-4
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
December 8, 1995
Dear Shareholder:
The objective of Warburg Pincus Institutional Fund -- International Equity
Portfolio (the 'Portfolio') is long-term capital appreciation. The Portfolio
aims to tap into the strong growth potential of today's world stock markets by
investing primarily in companies whose principal business activities and
interests are outside the United States.
For the 12 months ended October 31, 1995, the Portfolio fell 2.83%, vs.
losses of 0.61% in the Lipper International Fund Index and 0.37% in the Morgan
Stanley Europe, Australia and Far East ('EAFE') Index. Exposure to emerging
markets (the Lipper Emerging Markets Fund Index fell 18.35% during the period)
accounted for much of the Portfolio's underperformance. Shareholders should
note, though, that while the Portfolio underperformed the EAFE Index for the
fiscal year, its longer-term record is superior to that of the Index. From its
inception on September 1, 1992, through October 31, 1995, the Portfolio
generated an average annual return of 16.53%, compared to 11.22% for the EAFE
Index. Also noteworthy is the fact that the Fund managed to outperform its
benchmark with a lower level of volatility.
After a disappointing first half of its fiscal year, the Portfolio showed a
considerable improvement in performance in the second half, aided greatly by a
sharp rebound in its Japanese holdings (27.8% of the Portfolio through October).
Particularly strong gains were recorded by the Portfolio's Japanese technology
issues. We believe that these stocks still hold considerable upside potential,
and that most of the broader Japanese market remains significantly undervalued
based on traditional long-term measures of value (e.g., price relative to book
value, sales and cash flow).
Other Asian countries we remain positive on are South Korea and Taiwan, two
emerging markets that have suffered in 1995. Taiwan has seen its stock market
lose roughly a third of its value since the year began, the result of ongoing
political tensions with China. This has created particularly attractive values
in Taiwan's market, and we have used the opportunity to increase our Taiwanese
stake, adding to positions in well-managed companies in the shipping and
industrial sectors. In general, we feel that emerging markets have been
oversold, given their outstanding long-term attractions.
The Portfolio's European holdings contributed positively to its performance
over the trailing 12 months, supported by falling interest rates. By country,
our largest weightings as of October 31 were in the United Kingdom and France
(8.0% and 6.0%, respectively, of the Portfolio). Our British holdings were
strong performers during the period. French issues generated less impressive
results, hampered by concerns regarding fiscal policies of the Chirac
administration and doubts about the country's ability to meet the criteria for
European economic and monetary union in 1999. But we remain positive on the
outlook for the French companies held in the Portfolio, believing they are
strong, well-managed businesses.
Richard H. King
Portfolio Manager
2
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
GROWTH OF $10,000 INVESTED IN
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
SINCE INCEPTION AS OF OCTOBER 31, 1995
The graph below illustrates the hypothetical investment of $10,000 in
Warburg Pincus Institutional Fund, Inc. -- International Equity Portfolio (the
'Portfolio') from September 1, 1992 (inception) to October 31, 1995, assuming
the reinvestment of dividends and capital gains at net asset value, compared to
the Morgan Stanley -- Europe, Australia, and Far East Index ('EAFE')* for the
same time period.
[GRAPH]
<TABLE>
<CAPTION>
FUND
-----
<S> <C>
1 Year Total Return (9/30/94-9/30/95).............................................. -0.16%
Average Annual Total Return Since Inception (9/01/92-9/30/95)...................... 17.87%
</TABLE>
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost. Without waivers or reimbursement of Portfolio expenses,
average annual total returns for the periods ending 9/30/95 and 10/31/95
respectively, would have been -0.36% and -3.01% for 1 year and 17.59% and 16.26%
since inception.
- ------------
* EAFE is an unmanaged index of international equities with no defined
investment objective that is compiled by Morgan Stanley Capital International.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
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,
1995, and the related statement of operations for the year then ended, and the
statements of changes in net assets for each of the two years, and the financial
highlights for each of the three 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, 1995, 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, 1995, and the results of its operations for the year then ended, and
the changes in its net assets for each of the two years and its financial
highlights for each of the three 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 14, 1995
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (90.3%)
Argentina (3.0%)
Banco de Galicia & Buenos Aires SA 90,505 $ 427,697
Banco de Galicia & Buenos Aires SA ADR 9,325 178,341
Banco Frances del Rio de la Plata SA 112,200 816,675
Banco Frances del Rio de la Plata SA ADR 162,700 3,559,063
Capex SA GDR + 95,400 1,156,725
Telefonica de Argentina SA ADR 170,100 3,529,575
YPF SA ADR 311,000 5,325,875
------------
14,993,951
------------
Australia (2.5%)
BTR Nylex Ltd. 1,040,575 2,828,860
Niugini Mining Ltd. 283,000 588,328
Pasminco Ltd. 911,000 1,005,903
Reinsurance Australia Corp., Ltd. 1,788,600 3,405,047
Woodside Petroleum Ltd. 991,500 4,749,121
------------
12,577,259
------------
Austria (3.1%)
Boehler-Uddeholm AG + 70,250 4,953,480
Maculan Holdings AG Vorzuege 9,290 174,557
V.A. Technologie AG 92,300 10,704,152
------------
15,832,189
------------
Brazil (0.5%)
Panamerican Beverages, Inc. Class A 100,500 2,751,189
------------
Denmark (0.9%)
International Service System A/S Class B 215,150 4,412,929
------------
Finland (1.7%)
Metra Oy Class B 29,250 1,268,801
Metsa-Serla Class B 127,500 4,749,164
Valmet Corp. Class A 92,500 2,573,200
------------
8,591,165
------------
</TABLE>
See Accompanying Notes to Financial Statements.
5
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
France (5.9%)
Bouygues SA 78,533 $ 8,366,556
Cetelem 13,458 2,150,633
Fives-Lille (Compagnie De) 26,740 2,163,962
Lagardere Groupe 294,800 5,514,288
Scor SA 97,251 2,904,978
Total Cie Franc Des Petroles Class B 143,347 8,875,121
------------
29,975,538
------------
Germany (2.7%)
Deutsche Bank AG 169,300 7,642,933
SGL Carbon AG + 94,000 6,168,207
------------
13,811,140
------------
Hong Kong (3.4%)
Citic Pacific Ltd. 513,000 1,602,461
HSBC Holdings PLC 390,125 5,676,876
HSBC Holdings PLC (UK) 35,935 534,410
Jardine Matheson Holdings Ltd. ADR 1,116,915 6,813,182
Jilin Chemical Industrial Co., Ltd. 5,656,000 1,185,161
Jilin Chemical Industrial Co., Ltd. ADR + 75,500 1,557,188
------------
17,369,278
------------
India (2.2%)
Hindalco Industries Ltd. GDR 184,500 5,904,000
Reliance Industries Ltd. GDS 263,100 4,109,622
The India Fund, Inc. 144,000 1,206,000
------------
11,219,622
------------
Indonesia (1.6%)
P.T. Bank International Indonesia 314,500 1,102,900
P.T. Dynaplast Ltd. 334,800 295,368
P.T. Mulia Industrindo 1,088,000 3,215,527
P.T. Semen Gresik 497,500 1,294,773
P.T. Tri Polyta Indonesia ADR + 136,500 2,115,750
------------
8,024,318
------------
</TABLE>
See Accompanying Notes to Financial Statements.
6
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Israel (1.4%)
Ampal-American Israel Corp. Class A + 233,000 $ 1,310,625
ECI Telecommunications Limited Designs 299,850 5,697,150
------------
7,007,775
------------
Japan (26.1%)
Canon Inc. 470,000 8,047,158
Canon Inc. ADR 25,200 2,148,300
Daimaru Inc. 90,000 572,351
DDI Corp. 972 7,883,651
East Japan Railway Co. 413 1,951,658
Fujitsu Ltd. 522,000 6,230,701
Hitachi Ltd. 552,750 5,678,383
Kao Corp. 500 6,066
Keyence Corp. 30,000 3,698,268
Kirin Beverage Corp. 144,000 2,183,739
Kyocera Corp. 66,000 5,411,212
Murata Mfg. Co., Ltd. 70,290 2,468,849
NEC Corp. 496,000 6,551,218
Nikon Corp. 664,000 9,484,786
Nippon Communication Systems Corp. 405,300 4,282,595
Nippon Telegraph & Telephone Corp. 1,437 11,795,087
NTT Data Communications Systems Co. 314 7,864,593
Orix Corp. 109,600 3,860,288
Rohm Co. 106,000 6,440,270
Shin-Etsu Chemical Co., Ltd. 118,600 2,425,144
Sony Corp. 98,900 4,451,032
Sony Corp. ADR 36,900 1,688,175
TDK Corp. 169,000 8,713,727
Toho Co., Ltd. 25,850 3,641,914
Tokyo Electron Ltd. 166,000 7,211,036
Tsuchiya Home Co. 78,180 1,109,099
Uny Co., Ltd. 205,500 3,538,597
York-Benimaru Co., Ltd. 107,400 3,404,520
------------
132,742,417
------------
</TABLE>
See Accompanying Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Malaysia (0.2%)
Westmont BHD 353,000 $ 1,222,751
------------
Mexico (0.6%)
Gruma SA de CV Class B + 982,000 2,896,348
------------
New Zealand (5.6%)
Brierley Investments Ltd. 8,145,083 6,339,546
Fletcher Challenge Ltd. 1,985,050 5,250,449
Fletcher Forestry 3,506,251 4,833,591
Lion Nathan Ltd. 2,549,700 5,785,330
Sky City Ltd. 175,615 3,648,823
Wrightson Ltd. 3,271,735 2,632,804
------------
28,490,543
------------
Norway (1.6%)
Norsk Hydro AS ADR 198,144 7,925,760
------------
Pakistan (0.3%)
Pakistan Telecommunications Corp. + 345 33,678
Pakistan Telecommunications Corp. GDR + 16,000 1,528,000
------------
1,561,678
------------
Singapore (1.4%)
DBS Land Ltd. 741,500 2,194,315
Development Bank of Singapore Ltd. 176,562 2,024,994
Development Bank of Singapore Ltd. ADR 34,750 1,598,500
IPC Corp., Ltd. 2,216,000 1,513,940
------------
7,331,749
------------
</TABLE>
See Accompanying Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
South Korea (5.5%)
Daewoo Electronics Co., Ltd. + 244,650 $ 3,261,574
Daewoo Electronics Co., Ltd. New + 4,120 52,503
Daewoo Heavy Industries 78,194 1,016,900
Hana Bank 206,780 4,497,215
Hanil Bank 390,013 5,064,919
Korea Europe Fund Ltd. 289 1,336,625
Korea Long Term Credit Bank 42,858 1,386,513
Mando Machinery Corp. + 6,000 398,066
Samsung Electronics Co., Ltd. 28,222 6,320,902
Samsung Electronics Co., Ltd. GDR 6,226 410,916
Samsung Electronics Co., Ltd. GDR New 53 6,360
Samsung Electronics Co., Ltd. New 1,705 383,007
Samsung Electronics Co., Ltd. Second Series 520 114,385
Samsung Heavy Industries Co., Ltd. 112,453 3,424,591
------------
27,674,476
------------
Spain (3.5%)
Banco de Santander 30,300 1,322,254
Banco de Santander ADR 220,300 9,500,438
Repsol SA ADR 243,500 7,213,688
------------
18,036,380
------------
Sweden (2.7%)
Asea AB Series B 56,700 5,597,531
Astra AB Series B 220,800 7,986,978
------------
13,584,509
------------
Switzerland (1.8%)
BBC Brown Boveri AG 6,824 7,915,455
Danzas Holding AG 1,369 1,205,742
------------
9,121,197
------------
</TABLE>
See Accompanying Notes to Financial Statements.
9
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
COMMON STOCK (CONT'D)
Taiwan (3.0%)
China Steel Corp. + 1,043,000 $ 823,268
Evergreen Marine Corp., Ltd. 419,100 628,999
Kwang Hua Growth Fund 346,000 119,885
Taiwan Semiconductor Mfg. Co. + 1,543,000 4,803,113
Ton Yi Industrial Corp. + 2,898,000 3,844,669
Tuntex Distinct Corp. + 1,238,334 784,714
Tuntex Distinct Corp. GDS + 152,774 954,840
Yang Ming Marine Transport Corp. 3,159,000 3,476,832
------------
15,436,320
------------
Thailand (1.2%)
Industrial Finance Corp. of Thailand 1,535,832 5,050,065
Thai Military Bank Ltd. 248,560 980,767
------------
6,030,832
------------
United Kingdom (7.9%)
AAF Industries PLC + 208,500 85,673
British Air Authority PLC 643,834 5,006,175
BTR PLC 473,457 2,514,125
Cookson Group PLC 750,200 3,473,855
Govett & Co., Ltd. 606,000 2,327,265
Grand Metropolitan PLC 1,209,000 8,368,882
Prudential Corp. PLC 903,200 5,652,572
Reckitt & Coleman PLC 437,285 4,651,003
Singer & Freidlander Group PLC 2,210,000 3,702,245
Takare PLC 1,182,900 3,832,383
Trio Holdings PLC 1,648,500 312,635
------------
39,926,813
------------
Zimbabwe
Delta Corp., Ltd. 105,000 165,547
------------
TOTAL COMMON STOCK (Cost $435,130,761) 458,713,673
------------
</TABLE>
See Accompanying Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C>
PREFERRED STOCK (0.5%)
Austria (0.1%)
Maculan Holdings AG Vorzuege 31,100 $ 565,512
------------
South Korea (0.3%)
Samsung Electronics Co., Ltd. 10,130 1,257,306
Samsung Electronics Co., Ltd. New 2,004 244,990
------------
1,502,296
------------
United Kingdom (0.1%)
Singer & Friedlander Group PLC 8.50% Convertible 348,947 714,161
------------
TOTAL PREFERRED STOCK (Cost $3,961,744) 2,781,969
------------
STOCK WARRANTS (0.1%)
Australia
Niugini Mining Ltd., 12/08/95 + 70,750 37,713
------------
Hong Kong
Jardine Strategic Holdings Ltd., 05/02/98 + 384,600 13,183
------------
Israel
Ampal-American Israel Corp. Class A, 01/31/99 + 95,000 38,594
------------
Japan
Bandai Industries, 11/04/97 + 440 429,000
------------
Switzerland
Danzas Holding AG, 08/02/96 + 2,000 793
------------
TOTAL STOCK WARRANTS (Cost $846,880) 519,283
------------
CALL OPTIONS (0.5%) CONTRACTS
---------------
Japan
Topix Index, 03/08/96, (Strike price $1,251.24) + 3,647 646,723
Topix Index, 03/08/96, (Strike price $1,261.12) + 3,755 634,933
Topix Index, 03/08/96, (Strike price $1,349.00) + 1,830 188,687
Topix Index, 05/10/96, (Strike price $1,323.64) + 3,126 372,932
Topix Index, 06/14/96, (Strike price $1,275.00) + 3,141 520,966
------------
2,364,241
------------
Mexico
Mexican Inmex, 03/29/96, (Strike price $56.60) + 62,434 1,249
------------
TOTAL CALL OPTIONS (Cost $1,992,096) 2,365,490
------------
</TABLE>
See Accompanying Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR= VALUE
--------------- ------------
<S> <C> <C>
CONVERTIBLE BONDS/NOTES (2.7%)
Argentina (0.3%)
Banco de Galicia & Buenos Aires SA 7.00%, 08/01/02 $ 1,574,000 $ 1,267,070
------------
Australia (0.3%)
BTR Nylex Ltd. 9.00%, 11/29/49 (A) 11,200,000 1,274,203
------------
India (0.1%)
Reliance Industries Ltd. 3.50%, 11/03/99 $ 500,000 511,250
------------
Japan (1.1%)
Matsushita Electric Works Ltd. 2.70%, 05/31/02 (B) 521,000,000 5,821,172
------------
New Zealand (0.1%)
Brierley Investments Ltd. 9.00%, 06/30/98 (C) 1,028,875 732,938
------------
Taiwan (0.8%)
Yang Ming Marine Transport Corp. 2.00%, 10/06/01 $ 3,952,000 4,218,760
------------
TOTAL CONVERTIBLE BONDS/NOTES (Cost $13,605,553) 13,825,393
------------
SHORT-TERM INVESTMENTS (2.7%)
Repurchase agreement with State Street Bank & Trust Co. dated 10/31/95
at 5.83% to be repurchased at $13,533,191 on 11/01/95. (Collateralized
by $13,650,000 U.S. Treasury Note 6.875%, due 10/31/96, with a market
value of $13,820,625.) (Cost $13,531,000) 13,531,000 13,531,000
------------
TOTAL INVESTMENTS AT VALUE (96.8%) (Cost $469,068,034*) 491,736,808
OTHER ASSETS IN EXCESS OF LIABILITIES (3.2%) 16,022,083
------------
NET ASSETS (100.0%) (applicable to 33,636,024 shares) $507,758,891
------------
------------
NET ASSET VALUE, offering and redemption price per share
($507,758,891[div]33,636,024 shares) $15.10
------
------
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
GDR = Global Depository Receipt
GDS = Global Depository Share
+ Non-income producing security.
* Cost for Federal income tax purposes is $469,247,283.
= Unless otherwise indicated below, all bonds are denominated in U.S. Dollars.
(A) Denominated in Australian Dollars.
(B) Denominated in Japanese Yen.
(C) Denominated in New Zealand Dollars.
See Accompanying Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC. -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $839,844) $ 6,755,792
Interest 1,580,534
-----------
Total investment income 8,336,326
-----------
EXPENSES:
Investment advisory 3,095,950
Administrative services 823,703
Audit 24,460
Custodian/Sub-custodian 358,800
Directors 9,000
Insurance 13,869
Legal 34,103
Organizational 21,349
Printing 17,811
Registration 104,903
Miscellaneous 61,340
-----------
4,565,288
Less fees waived (888,848)
-----------
Total expenses 3,676,440
-----------
Net investment income 4,659,886
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS AND FOREIGN CURRENCY RELATED
ITEMS:
Net realized loss from security transactions (1,094,116)
Net realized gain from foreign currency related items 3,076,737
Net change in unrealized appreciation from investments and
foreign currency related items (6,017,482)
-----------
Net realized and unrealized loss from investments and
foreign currency related items (4,034,861)
-----------
Net increase in net assets resulting from operations $ 625,025
-----------
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
<PAGE>
<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, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 4,659,886 $ 1,276,813
Net realized gain (loss) from security transactions (1,094,116) 11,710,325
Net realized gain (loss) from foreign currency related items 3,076,737 (456,151)
Net change in unrealized appreciation from investments and foreign
currency related items (6,017,482) 22,452,714
---------------- ----------------
Net increase in net assets resulting
from operations 625,025 34,983,701
---------------- ----------------
FROM DISTRIBUTIONS:
Dividends from net investment income (3,614,605) (526,855)
Distributions from capital gains (11,710,991) (1,146,187)
---------------- ----------------
Net decrease from distributions (15,325,596) (1,673,042)
---------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 253,425,787 196,715,545
Reinvested dividends 13,607,235 1,270,243
Net asset value of shares redeemed (75,870,772) (9,279,255)
---------------- ----------------
Net increase in net assets from capital share transactions 191,162,250 188,706,533
---------------- ----------------
Net increase in net assets 176,461,679 222,017,192
NET ASSETS:
Beginning of year 331,297,212 109,280,020
---------------- ----------------
End of year $507,758,891 $331,297,212
---------------- ----------------
---------------- ----------------
</TABLE>
See Accompanying Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
<PAGE>
<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,
--------------------------------------------------------------
1995 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 .15 .17 .10
Net Gain (Loss) from Securities and Foreign Currency
Related Items (both realized and unrealized) (.64) 2.87 3.87
------- ------- -------
Total from Investment Operations (.49) 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 $15.10 $16.34 $13.49
------- ------- -------
------- ------- -------
Total Return (2.83%) 22.62% 41.61%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $507,759 $331,297 $109,280
Ratios to average daily net assets:
Operating expenses .95% .95% .95%
Net investment income 1.20% .59% .75%
Decrease reflected in above expense ratios due to
waivers/reimbursements .23% .29% .44%
Portfolio Turnover Rate 39.70% 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 1995 DIVIDENDS (Unaudited)
Dividends paid by the Portfolio taxable as ordinary income amounted to $.54 per
share.
Long-term capital gains dividends paid by the Portfolio amounted to $.21 per
share.
Because the Portfolio's fiscal year is not the calendar year, amounts to be used
by calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1996.
15
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
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, 1995, 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 Portfolio'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 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 are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
equity securities. The Fund isolates that portion of gains and losses on
investments in debt securities which are due to changes in the foreign exchange
rate from that which are due to changes in market prices of debt securities.
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
The cost of investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes.
Dividends from net investment income and distributions of net realized
capital gains, if any, are declared and paid annually. However, to the extent
that a net realized capital gain can be reduced by a capital loss carryover,
such gain will not be distributed. Income and capital gain distributions are
determined in accordance with Federal income tax regulations which may differ
from generally accepted accounting principles.
No provision is made for Federal taxes as it is the Fund's intention to
have each portfolio continue to qualify for and elect the tax treatment
applicable to regulated investment companies under the Internal Revenue Code and
make the requisite distributions to its shareholders which will be sufficient to
relieve it from Federal income and excise taxes.
16
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
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, 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. At October 31, 1995 the International Equity
Portfolio had $13,531,000 invested in repurchase agreements.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as the Portfolios'
investment adviser. The International Equity Portfolio pays Warburg 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, 1995, Warburg earned
$3,095,950 for investment advisory services to the International Equity
Portfolio, of which $778,770 was voluntarily waived.
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as the Portfolios' co-administrators. For its
administrative services, CFSI receives a fee calculated at an annual rate of
.10% of the Portfolios' average daily net assets. For the year ended October 31,
1995, CFSI earned $386,993 in administrative services fees. For its
administrative services, PFPC receives a fee based on the following fee
structure:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
- ------------------------------------------------------- ---------------------------------
<S> <C>
First $250 million..................................... .12% of average daily net assets
Second $250 million.................................... .10% of average daily net assets
Third $250 million..................................... .08% of average daily net assets
Over $750 million...................................... .05% of average daily net assets
</TABLE>
For the year ended October 31, 1995, PFPC earned $436,710 for
administrative services to the International Equity Portfolio, of which $110,078
was voluntarily waived.
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, 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, 1995 (excluding short-term
investments) were $331,790,859 and $143,495,150, respectively.
At October 31, 1995, the International Equity Portfolio had net unrealized
appreciation from investments of $22,489,525 which was comprised of appreciation
of $55,824,134 for those securities
17
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
having an excess of value over cost, and depreciation of $33,334,609 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 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. Each
Portfolio 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, 1995, the International Equity Portfolio had the following
open forward foreign currency contracts:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN/(LOSS)
- ------------------------------------ ---------- --------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
French Francs 11/15/95 40,000,000 $ 8,026,165 $ 8,192,860 $ (166,695)
French Francs 11/16/95 19,483,750 3,993,611 3,990,691 2,920
German Marks 11/16/95 17,000,000 12,096,631 12,095,340 1,291
German Marks 05/17/96 12,252,420 8,600,000 8,794,444 (194,444)
Japanese Yen 03/21/96 1,362,480,000 14,000,000 13,625,563 374,437
Japanese Yen 03/21/96 941,409,750 9,345,873 9,414,625 (68,752)
Japanese Yen 03/21/96 941,409,740 9,341,468 9,414,625 (73,157)
Japanese Yen 03/21/96 259,280,500 2,575,370 2,592,950 (17,580)
Japanese Yen 05/13/96 1,281,760,000 16,000,000 12,918,637 3,081,363
Japanese Yen 05/16/96 2,774,310,000 33,000,000 27,974,026 5,025,974
Japanese Yen 05/16/96 711,908,000 8,600,000 7,178,337 1,421,663
Japanese Yen 09/18/96 932,000,000 10,000,000 9,572,179 427,821
------------ ------------ ----------------
$135,579,118 $125,764,277 $9,814,841
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE PURCHASED AMOUNT VALUE GAIN/(LOSS)
- ------------------------------------ ---------- --------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
German Marks 11/16/95 5,500,000 $3,993,610 $3,913,198 $(80,412)
</TABLE>
5. EQUITY SWAP TRANSACTIONS
The International Equity Portfolio (the 'Portfolio') entered into a
Taiwanese equity swap agreement (which represents approximately .006% of the
Portfolio's net assets at October 31, 1995) dated August 11, 1995, where the
Portfolio receives a quarterly payment, representing the total return (defined
as market appreciation and dividend income) on a basket of three Taiwanese
common stocks ('Common Stocks'). In return, the Portfolio pays quarterly the
Libor rate (London Interbank Offered Rate), plus 1.25% per annum (7.125% on
October 31, 1995) on the initial stock purchase amount
18
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS INSTITUTIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
October 31, 1995
- --------------------------------------------------------------------------------
('Notional amount') of $2,949,474. The Notional amount is marked to market on
each quarterly reset date. In the event that the Common Stocks decline in value,
the Portfolio will be required to pay quarterly, the amount of any depreciation
in value from the notional amount. The equity swap agreement will terminate on
August 11, 1996.
During the term of the equity swap transaction, changes in the value of the
Common Stocks as compared to the Notional amount is recognized as unrealized
gain or loss. Dividend income for the Common Stocks are recorded on the
ex-dividend date. Interest expense is accrued daily. At October 31, 1995, the
Portfolio has recorded an unrealized gain of $123,391 and interest payable of
$47,284 on the equity swap transaction.
6. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue up to three billion full and fractional
shares of common stock 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, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
Shares sold 17,573,932 12,686,666
Shares issued to shareholders on reinvestment of dividends 939,078 85,000
Shares redeemed (5,146,019) (603,362)
---------------- ----------------
Net increase in shares outstanding 13,366,991 12,168,304
---------------- ----------------
---------------- ----------------
</TABLE>
7. NET ASSETS
Net assets of the International Equity Portfolio at October 31, 1995,
consisted of the following:
<TABLE>
<S> <C>
Capital contributed, net $471,618,325
Accumulated net investment income 7,450,054
Accumulated net realized loss from security transactions (3,838,421)
Net unrealized appreciation from investments and foreign currency related items 32,528,933
------------
Net assets $507,758,891
------------
------------
</TABLE>
8. CAPITAL LOSS CARRYOVER
At October 31, 1995, the International Equity Portfolio had a capital loss
carryover of $3,020,261 expiring in 2003 to offset possible future capital
gains.
<PAGE>
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>1
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.
19
<PAGE>
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. - Global Fixed Income Portfolio (the
"Fund") as of December 18, 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 December 18, 1995 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 20, 1995
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND,INC.
STATEMENT OF ASSETS AND LIABILITIES
as of December 18, 1995
Global Fixed
Income
Portfolio
------------
Assets:
Cash $ 689
Deferred Organizational Costs 25,000
Other Receivable 311
------
Total Assets 26,000
Liabilities:
Payable to International Equity 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
December 18, 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 common stock
to E.M. Warburg, Pincus & Co., Inc. ("EMW") on July 28, 1992. Subsequent
to the sale of shares to EMW, 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 officers and a director of the Fund are also officers and a
director of the Adviser. These officers and director are paid no fees by
the Fund for serving as an officer or director of the Fund.
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of April 17, 1996
Foreign Developed
Markets Portfolio
-----------------
Assets:
Cash 0
Deferred Organizational Costs 0
-
Total Assets 0
Liabilities: 0
-
Net Assets 0
=
Net Asset Value, Redemption and Offering:
Price Per Share (1 billion shares authorized $10.00
- $.001 par value) applicable to 1 ======
share outstanding.
0107155.01
<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) Financial Statements included in Part B
(a) Report of Coopers & Lybrand L.L.P., Independent
Accountants
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements
(b) Financial Statements included in Part B -- Small Company Growth
Portfolio
(1) Report of Coopers & Lybrand L.L.P., Independent Accountants
(2) Statement of Assets and Liabilities
(3) Notes to Financial Statement
(c) Financial Statements included in Part B -- Global Fixed Income
Portfolio
(1) Report of Coopers & Lybrand L.L.P., Independent Accountants
(2) Statement of Assets and Liabilities
(3) Notes to Financial Statement
(d) Financial Statements included in Part B -- Foreign Developed Markets
Portfolio
(1) Statement of Assets and Liabilities (Unaudited)
(e) Exhibits:
<PAGE>C-2
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.(1)
(b) Articles of Amendment.(1)
(c) Articles Supplementary.(1)
(d) Articles Supplementary increasing the number of authorized
shares
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)
(d) Investment Advisory Agreement -- Foreign Developed Markets
Portfolio.
6(a) Form of Distribution Agreement.(2)
(b) Form of Distribution Agreement pertaining to the Small
Company Growth Portfolio.(1)
7 Not applicable.
- -------------------------
(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.
(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 Warburg,
Pincus Cash Reserve Fund, Inc. filed on June 28, 1995 (Securities Act
File No. 2-94840)
<PAGE>C-3
8(a) Form of Custodian Agreement with PNC Bank, National
Association.(4)
(b) Form of Custody Agreement with Fiduciary Trust Company--
International Equity Portfolio.(3)
(c) Form of Custody Agreement with Fiduciary Trust Company
International--Global Fixed Income Portfolio.(3)
(d) Form of Custodian Contract with State Street Bank and
Trust Company ("State Street")--Small Company Growth
Portfolio.(4)
(e) Form of Custody Agreement with Fiduciary Trust Company
International -- Foreign Developed Markets Portfolio.(3)
9(a) Form of Transfer Agency Agreement.(4)
(b) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of the Small Company Growth
Portfolio under the Transfer Agency Agreement.(1)
(c) Form of Co-Administration Agreements with Counsellors
Funds Service, Inc.(4)
(d)(1) Form of Co-Administration Agreements with PFPC Inc.(4)
(2) Form of Letter Agreement with PFPC Inc. relating to the
Foreign Developed Markets Portfolio.
- -------------------------
(3) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Post-
Effective Amendment No. 10 to the Registration Statement on Form N-1A of
Warburg, Pincus International Equity Fund, Inc., filed on September 25,
1995 (Securities Act File No. 33-27031).
(4) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Warburg, Pincus Trust filed on June 14, 1995 (Securities Act File No. 33-
58125).
<PAGE>C-4
(e) Form of Services Agreement.(5)
10(a) Opinion of Willkie Farr & Gallagher, counsel to the Fund,
with respect to the shares of the International Equity,
Global Fixed Income and Small Company Growth
Portfolios.(6)
(b) Consent of Willkie Farr & Gallagher, counsel to the Fund
and Opinion of Willkie Farr & Gallagher relating to
establishment of the Foreign Developed Markets Portfolio.
11(a) Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
(b) Consent of Ernst & Young LLP, Independent Accountants.
12 Not applicable.
13(a) Purchase Agreement pertaining to the International Equity
Portfolio and Global Fixed Income Portfolio.(1)
(b) Form of Purchase Agreement pertaining to the Small Company
Growth Portfolio.(1)
(c) Form of Purchase Agreement pertaining to the Foreign
Developed Markets Portfolio.
14 Retirement Plans.(7)
- -----------------------------
(5) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Warburg, Pincus Japan Growth Fund, Inc. filed on December 18, 1995
(Securities Act File No. 33-63655).
(6) Incorporated by reference to Opinion of Willkie Farr & Gallagher filed
with Registrant's Rule 24f-2 Notice filed on December 19, 1995.
(7) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Warburg, Pincus Trust, filed on
March 4, 1996 (Securities Act File No. 33-58125).
<PAGE>C-5
15 Not applicable.
16 Schedule for Computation of Total Return Performance
Quotation for the International Equity Portfolio.(8)
17 Financial Data Schedule.
Item 25. Persons Controlled by or Under Common Control
with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of March 29, 1996
-------------- ------------------------
International Equity Portfolio- 305
shares of common stock
par value $.001 per share
Small Company Growth Portfolio- 8
shares of common stock
par value $.001 per share
Global Fixed Income Portfolio- 0
shares of common stock
par value $.001 per share
Foreign Developed Markets
Portfolio-shares of common
stock par value $.001 0
Item 27. Indemnification
Registrant, officers and directors or trustees of Warburg, of
Counsellors Securities Inc. ("Counsellors Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. Discussion of this coverage is
- -----------------------------
(8) Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement, filed on December 27, 1995.
<PAGE>C-6
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.
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 each Portfolio. 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 Japan Growth 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 Small Company Value
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)
<PAGE>C-7
(2) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(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.
(a) Registrant hereby undertakes to file a post-effective amendment,
with financial statements of the Foreign Developed Markets
<PAGE>C-8
Portfolio which need not be certified, within four to six months from the
effective date of this Registration Statement Amendment.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the latest annual report to
shareholders for the relevant Portfolio, upon request and without charge.
(c) Registrant hereby undertakes to call a meeting of its shareholders
for the purpose of voting upon the question of removal of a director or
directors of Registrant when requested in writing to do so by the holders of
at least 10% of Registrant's outstanding shares. Registrant undertakes
further, in connection with the meeting, to comply with the provisions of
Section 16(c) of the 1940 Act relating to communications with the shareholders
of certain common-law trusts.
<PAGE>C-9
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 16th day of April, 1996.
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 April 16, 1996
/s/ Stephen Distler Vice President and April 16, 1996
Stephen Distler Chief Financial
Officer
/s/ Howard Conroy Vice President, April 16, 1996
Howard Conroy Treasurer and Chief
Accounting Officer
/s/ Richard N. Cooper Director April 16, 1996
Richard N. Cooper
/s/ Donald J. Donahue Director April 16, 1996
Donald J. Donahue
/s/ Jack W. Fritz Director April 16, 1996
Jack W. Fritz
/s/ Thomas A. Melfe Director April 16, 1996
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director April 16, 1996
Alexander B. Trowbridge
<PAGE>C-10
/s/ Arnold M. Reichman Director and Executive April 16, 1996
Arnold M. Reichman Vice President
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(d) Articles Supplementary increasing the number of authorized
shares.
5(d) Investment Advisory Agreement -- Foreign Developed Markets
Portfolio.
9(d)(2) Form of Letter Agreement with PFPC Inc. relating to the Foreign
Developed Markets Portfolio.
10(b) Consent of Willkie Farr & Gallagher, counsel to the Fund, and
Opinion of Willkie Farr & Gallagher relating to establishment of
the Foreign Developed Markets Portfolio.
11(a) Consent of Coopers & Lybrand L.L.P., Independent Accountants.
(b) Consent of Ernst & Young LLP, Independent Accountants.
13(c) Form of Purchase Agreement pertaining to the Foreign Developed
Markets Portfolio.
17 Financial Data Schedule.
<PAGE>
ARTICLES SUPPLEMENTARY
OF
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
WARBURG, PINCUS INSTITUTIONAL FUND, INC. (the "Fund"), a
Maryland corporation with its principal corporate offices in the State of
Maryland in Baltimore, Maryland, hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The aggregate number of shares of capital stock of the
Fund is increased by ten billion (10,000,000,000) shares of Common Stock, of
which one billion (1,000,000,000) shares are classified as a Series of stock to
be known as the "Foreign Developed Markets Portfolio." Nine billion
(9,000,000,000) shares will be authorized as initially unclassified shares of
the Fund. The shares of the Foreign Developed Markets Portfolio, as so
classified by the Board of Directors, shall have the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as set forth in Article
V, Section 4 of the Articles of Incorporation (the "Articles") and shall be
subject to all provisions of the Articles relating to shares generally.
SECOND: Immediately before the increase, the Fund was
authorized to issue three billion (3,000,000,000) shares of capital stock, all
of which was Common Stock par value $.001 per share, such shares having the
following designations:
Number of Shares Designations
- ---------------- ------------
1,000,000,000 International Equity Portfolio
1,000,000,000 Global Fixed Income Portfolio
1,000,000,000 Small Company Growth Portfolio
and having an aggregate par value of Three Million Dollars ($3,000,000). As
increased, the Fund is authorized to issue a total of thirteen billion
(13,000,000,000) shares of capital stock, all of which is Common Stock par value
$.001 per share, having an aggregate par value of Thirteen Million Dollars
($13,000,000). Immediately after the increase and giving effect to the
classification of shares set forth in Article First hereof, such shares were
classified as follows:
<PAGE>2
Number of Shares Designations
- ---------------- ------------
1,000,000,000 International Equity Portfolio
1,000,000,000 Global Fixed Income Portfolio
1,000,000,000 Small Company Growth Portfolio
1,000,000,000 Foreign Developed Markets Portfolio
9,000,000,000 Unclassified
THIRD: The Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
FOURTH: The Board of Directors of the Fund increased the total
number of shares of capital stock that the Fund has authority to issue pursuant
to Section 2-105(c) of the Maryland General Corporation Law and classified the
shares of the Foreign Developed Markets Portfolio under the authority
contained in Article V, Section 2 of the Articles.
IN WITNESS WHEREOF, the undersigned have executed these
Articles Supplementary on behalf of Warburg, Pincus Institutional Fund, Inc. and
acknowledge that it is the act and deed of the Fund and state, under penalty of
perjury, to the best of the knowledge, information and belief of each of them,
that the matters contained herein with respect to the approval thereof are true
in all material respects.
Dated: April 17, 1996 WARBURG, PINCUS INSTITUTIONAL
FUND, INC.
By:/s/ Eugene L. Podsiadlo
Name: Eugene L. Podsiadlo
Title: SVP
ATTEST:
/s/ Janna Manes
Name: Janna Manes
Title: Assistant Secretary
<PAGE>
INVESTMENT ADVISORY AGREEMENT
_____________, 1996
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Institutional Fund, Inc., a corporation
organized under the laws of the State of Maryland (the "Fund"), is an open-end,
management investment company that currently offers four portfolios, one of
which is the Foreign Developed Markets Portfolio (the "Portfolio"). The Fund
on behalf of the Portfolio herewith confirms its agreement with Warburg,
Pincus Counsellors, Inc. (the "Adviser") as follows:
1. Investment Description; Appointment
The Fund desires to employ the capital of the Portfolio by
investing and reinvesting in investments of the kind and in accordance with the
limitations specified in its Articles of Incorporation, as may be amended from
time to time, and in its Prospectus and Statement of Additional Information
relating to the Portfolio as from time to time in effect, and in such manner and
to such extent as may from time to time be approved by the Board of Directors of
the Fund. Copies of the Fund's Prospectus and Statement of Additional
Information relating to the Portfolio and Articles of Incorporation, as each may
be amended from time to time, have been or will be submitted to the Adviser. The
Fund desires to employ and hereby appoints the Adviser to act as investment
adviser to the Portfolio. The Adviser accepts the appointment and agrees to
furnish the services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of
Directors of the Fund, the Adviser will (a) act in strict conformity with the
Fund's Articles of Incorporation, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Portfolio in accordance with the Portfolio's investment objective
and policies as stated in the Fund's Prospectus and Statement of Additional
Information relating to the Portfolio as from time to time in effect, (c) make
investment decisions for the Portfolio and (d) place purchase and sale orders
for securities on behalf of the Portfolio. In providing those services, the
Adviser will provide investment research and supervision of the Portfolio's
investments and conduct a
<PAGE>
continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Portfolio's assets. In addition, the
Adviser will furnish the Fund with whatever statistical information the Fund may
reasonably request with respect to the securities that the Portfolio may hold or
contemplate purchasing.
3. Brokerage
In executing transactions for the Portfolio and selecting
brokers or dealers, the Adviser will use its best efforts to seek the best
overall terms available. In assessing the best overall terms available for any
portfolio transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of any commission for the specific transaction
and for transactions executed through the broker or dealer in the aggregate. In
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as the same may from time to time be
amended) provided to the Portfolio and/or other accounts over which the Adviser
or an affiliate exercises investment discretion.
4. Information Provided to the Fund
The Adviser will keep the Fund informed of developments
materially affecting the Portfolio, and will, on its own initiative, furnish the
Fund from time to time with whatever information the Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
or the Portfolio in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to protect
the Adviser against any liability to the Fund or the Portfolio or to
shareholders of the Fund or the Portfolio to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Portfolio will pay the Adviser an annual fee
<PAGE>
calculated at an annual rate of .80% of the Portfolio's average daily net
assets. The fee for the period from the date the Fund's registration statement
amendment relating to the Portfolio becomes effective by the Securities and
Exchange Commission to the end of the year during which such registration
statement amendment becomes effective shall be prorated according to the
proportion that such period bears to the full yearly period. Upon any
termination of this Agreement before the end of a year, the fee for such part
of that year shall be prorated according to the proportion that such period
bears to the full yearly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Adviser, the value of the Portfolio's net assets shall be computed at the
times and in the manner specified in the Fund's Prospectus or Statement of
Additional Information relating to the Portfolio as from time to time in
effect.
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Portfolio will bear its
proportionate share of certain other expenses to be incurred in its operation,
including: investment advisory and administration fees; taxes, interest,
brokerage fees and commissions, if any; fees of Directors of the Fund who are
not officers, directors, or employees of the Adviser or any of its affiliates;
fees of any pricing service employed to value shares of the Portfolio;
Securities and Exchange Commission fees and state blue sky qualification fees;
charges of custodians and transfer and dividend disbursing agents; the
Portfolio's proportionate share of insurance premiums; outside auditing and
legal expenses; costs of maintenance of the Portfolio's existence; costs
attributable to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and meetings of the
shareholders of the Portfolio and of the officers or Board of Directors of the
Fund; and any extraordinary expenses.
The Portfolio will be responsible for nonrecurring expenses
which may arise, including costs of litigation to which the Portfolio is a party
and of indemnifying officers and Directors of the Fund with respect to such
litigation and other expenses as determined by the Directors.
<PAGE>
8. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Portfolio
(including fees pursuant to this Agreement and the Portfolio's administration
agreements, but excluding interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Portfolio, the Adviser will reimburse the
Portfolio for such excess expense. The Adviser's expense reimbursement
obligation will be limited to the amount of its fees received pursuant to this
Agreement. Such expense reimbursement, if any, will be estimated, reconciled and
paid on a monthly basis.
9. Services to Other Companies or Accounts
The Fund understands that the Adviser now acts, will continue
to act and may act in the future as investment adviser to fiduciary and other
managed accounts and to one or more other investment companies or series of
investment companies, and the Fund has no objection to the Adviser so acting,
provided that whenever the Portfolio and one or more other accounts or
investment companies or portfolios advised by the Adviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed to be equitable to each entity. The Fund
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Portfolio. In addition, the Fund understands
that the persons employed by the Adviser to assist in the performance of the
Adviser's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right of the
Adviser or any affiliate of the Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
10. Term of Agreement
This Agreement shall continue until April 17, 1997 and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (a) the Board of
Directors of the Fund or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Portfolio's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Directors who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Board of Directors of the
Fund or by vote of holders of a majority of the Portfolio's shares, or upon 90
days' written notice, by the Adviser. This
<PAGE>
Agreement will also terminate automatically in the event of
its assignment (as defined in said Act).
11. Representation by the Fund
The Fund represents that a copy of its Articles of
Incorporation filed on May 13, 1992, together with all amendments thereto, is on
file in the Department of Assessments and Taxation of the State of Maryland.
12. Miscellaneous
The Fund recognizes that directors, officers and employees of
the Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Fund agrees that, at the Adviser's request, the Fund's
license to use the words "Warburg, Pincus" will terminate and that the Fund will
take all necessary action to change the name of the Fund and the Portfolio to
names not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS INSTITUTIONAL
FUND, INC.
By:____________________________
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:_____________________________
Name:
Title:
<PAGE>
________ __, 1996
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
Ladies and Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to PFPC Inc. ("PFPC") under the terms of a
Co-Administration Agreement dated , 1996 between you (the "Fund"), on behalf
of the Foreign Developed Markets Portfolio (the "Portfolio"), and PFPC.
Pursuant to Paragraph 11 of that Agreement, and in consideration of the
services to be provided to you, you will pay PFPC an annual co-administration
fee, to be calculated daily and paid monthly. You will also reimburse PFPC for
its out-of-pocket expenses incurred on behalf of the Portfolio, including, but
not limited to: postage and handling, telephone, telex, FedEx and outside
pricing service charges.
The annual administration and accounting fee shall .10% of
the Portfolio's average daily net assets, with a minimum annual fee of
$75,000.
In each month the Portfolio shall pay to PFPC the greater of
the asset based fee as calculated above or the minimum fee. The fee for the
period from the day of the year this agreement is entered into until the end
of that year shall be pro-rated according to the proportion which such period
bears to the full annual period.
If the foregoing accurately sets forth our agreement, and
you intend to be legally bound thereby, please execute a copy of this letter
and return it to us.
Very truly yours,
PFPC INC.
By:________________________
Name:
Title:
<PAGE>
Accepted:
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
By:___________________________
Name:
Title:
<PAGE>
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Sreeet
New York, New York 10022-4677
April 18, 1996
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Institutional Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland, in
connection with the Fund's establishment of a new series, the Foreign
Developed Markets Portfolio (the "Portfolio").
We have examined copies of the Fund's Articles of Incorporation, as amended or
supplemented (the "Articles"), the Fund's By-Laws, the Fund's Registration
Statement, as amended, on Form N-1A, Securities Act File No. 33-58125 and
Investment Company Act File No. 811-6670 (the "Registration Statement"), and all
resolutions adopted by the Fund's Board of Directors at the Portfolio's
organizational meeting held on April 16, 1996. We have also examined such other
records, documents, papers, statutes and authorities as we have deemed necessary
to form a basis for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Based upon the foregoing, we are of the opinion that the shares of common stock
of the Portfolio, par value $.001 per share (collectively, the "Shares") when
duly sold, issued and paid for in accordance with the terms of the Articles, the
Fund's By-Laws and the Registration Statement, will be validly issued and will
be fully paid and non-assessable shares of common stock of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to
<PAGE>
Warburg, Pincus Institutional Fund, Inc.
April 18, 1996
Page 2
us in the statement of additional information included as part of the
Registration Statement and to the filing of this opinion as an exhibit to any
application made by or on behalf of the Fund or any distributor or dealer in
connection with the registration or qualification of the Fund or the Shares
under the securities laws of any state or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the following with respect to Post-Effective Amendment No. 7
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.
2. The inclusion of our report dated December 20, 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 14, 1995 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 "Independent Accountants and Counsel" in this filing.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 18, 1996
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Accountants and Counsel" and to the use of our
report dated December 15, 1992 in this Registration Statement (Form N-1A No.
33-47880) of Warburg, Pincus Institutional Fund, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
April 18, 1996
<PAGE>
PURCHASE AGREEMENT
Warburg, Pincus Institutional Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, with respect to
the Foreign Developed Markets Portfolio (the "Portfolio") and Warburg, Pincus
Counsellors, Inc. ("Counsellors") hereby agree as follows:
1. The Fund offers Counsellors and Counsellors hereby purchases
one share of common stock of the Portfolio, having a par value of $.001 per
share, at a price of $10.00 per Share (the "Initial Share"). Counsellors
hereby acknowledges receipt of a certificate representing the Initial Share,
and the Fund hereby acknowledges receipt from Counsellors of $10.00 in full
payment for the Initial Share.
2. Counsellors represents and warrants to the Fund that the
Initial Share is being acquired for investment purposes and not for the
purpose of distribution.
3. Counsellors agrees that if the holder of the Initial Share
redeems the Initial Share in the Portfolio before five years after the date
upon which the Portfolio commences its investment activities, the redemption
proceeds will be reduced by the amount of unamortized organizational expenses.
The parties hereby acknowledge that any shares acquired by Counsellors other
than the Initial Share have not been acquired to fulfill the requirements of
Section 14 of the Investment Company Act of 1940, as amended, and, if
redeemed, their redemption proceeds will not be subject to reduction based on
the unamortized organizational expenses of the Portfolio.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1996.
WARBURG, PINCUS INSTITUTIONAL
FUND, INC.
By:_____________________________
Name:
Title:
ATTEST:
_____________________________
103678.01
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