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PROSPECTUS
February 27, 1998
As revised November 12, 1998
WARBURG PINCUS INSTITUTIONAL FUND, INC.
-------------- POST-VENTURE CAPITAL PORTFOLIO
-------------- SMALL COMPANY GROWTH PORTFOLIO
-------------- SMALL COMPANY VALUE PORTFOLIO
-------------- VALUE PORTFOLIO
[WARBURG PINCUS LOGO]
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PROSPECTUS February 27, 1998
As revised November 12, 1998
Warburg Pincus Institutional Fund, Inc. (the "Fund") is an open-end management
investment company that consists of eight managed investment funds, four of
which are offered pursuant to this Prospectus (the "Portfolios"):
POST-VENTURE CAPITAL PORTFOLIO seeks long-term growth of capital by investing
primarily in equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy. Because of the nature
of the Portfolio's investments and certain strategies it may use, an investment
in the Portfolio involves certain risks and may not be appropriate for all
investors.
SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing primarily in
equity securities of small-sized domestic companies.
SMALL COMPANY VALUE PORTFOLIO seeks long-term capital appreciation by investing
primarily in a portfolio of equity securities of small capitalization companies.
VALUE PORTFOLIO seeks total return by investing primarily in equity securities
of large-sized domestic companies.
The Fund is designed for institutional investors although, at 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"). The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund. The
Statement of Additional Information is also available upon request and without
charge by calling the Fund at (800) 369-2728. Information regarding the status
of shareholder accounts may also be obtained by calling the Fund at the same
number. Warburg Pincus Funds maintains a Web site at www.warburg.com. The
Statement of Additional Information relating to the Portfolios, as amended or
supplemented from time to time, bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE PORTFOLIOS' EXPENSES
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<TABLE>
<CAPTION>
Small Small
Post-Venture Company Company
Capital Growth Value Value
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............. 0 0 0 0
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees+................................. .64% .70% .56% .43%
12b-1 Fees....................................... 0 0 0 0
Other Expenses+.................................. .61% .29% .43% .32%
------- ---- ---- -----
Total Portfolio Operating Expenses (after fee
waivers)+...................................... 1.25% .99% .99% .75%
------- ---- ---- -----
------- ---- ---- -----
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 year.......................................... $13 $ 10 $10 $ 8
3 years......................................... $40 $ 32 $32 $24
5 years......................................... n.a. $ 55 n.a. n.a.
10 years......................................... n.a. $121 n.a. n.a.
</TABLE>
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+ Annual Portfolio Operating Expenses for the Small Company Growth Portfolio are
based on actual expenses for the fiscal year ended October 31, 1997, net of
any applicable fee waivers or expense reimbursements. Annual Portfolio
Expenses for the Post-Venture Capital, Small Company Value and Value
Portfolios are based on estimated expenses for the fiscal year ending October
31, 1998, net of any applicable fee waivers or expense reimbursements. Absent
such waivers and/or reimbursements, Management Fees for the Post-Venture
Capital, Small Company Growth, Small Company Value and Value Portfolios would
have equalled 1.10%, .90%, .90% and .75%, respectively; Other Expenses would
have equalled .71%, .29%, .53% and .42%, respectively; and Total Portfolio
Operating Expenses would have equalled 1.81%, 1.19%, 1.43% and 1.17%,
respectively. The investment adviser and co-administrator are under no
obligation to continue any waivers and/or reimbursements.
---------------------------
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%.
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FINANCIAL HIGHLIGHTS++
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The following information for the fiscal year ended October 31, 1997 and the
fiscal period ended October 31, 1996 has been audited by Coopers & Lybrand
L.L.P., independent accountants, whose report dated December 19, 1997 is
incorporated by reference in the Statement of Additional Information. Further
information about the performance of the Small Company Growth and Value
Portfolios is contained in the Fund's annual report dated October 31, 1997,
copies of which may be obtained without charge by calling the Fund at (800)
369-2728.
SMALL COMPANY GROWTH PORTFOLIO
<TABLE>
<CAPTION>
December 29, 1995
(Commencement of
For the Year Operations)
Ended through
October 31, 1997 October 31, 1996
---------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $12.92 $10.00
--------- ----------
Income from Investment Operations:
Net Investment (Loss).................................... (0.05) (0.01)
Net Gain on Securities (both realized and unrealized).... 3.02 2.93
--------- ----------
Total from Investment Operations......................... 2.97 2.92
--------- ----------
NET ASSET VALUE, END OF PERIOD............................. $15.89 $12.92
========= ==========
Total Return............................................... 22.99% 29.20%+
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000s)........................... $217,861 $96,827
Ratios to average daily net assets:
Operating expenses....................................... .99%@ .99%@*
Net investment income (loss)............................. (.53%) (.18%)*
Decrease reflected in above operating expense, ratios due
to waivers/reimbursements.............................. .20% .69%*
Portfolio Turnover Rate.................................... 91.59% 57.38%+
Average Commission Rate#................................... $0.0526 $0.0560
</TABLE>
VALUE PORTFOLIO
<TABLE>
<CAPTION>
June 30, 1997
(Commencement of
Operations) through
October 31, 1997
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $10.00
-----------
Net Investment Income.................................................. 0.03
Net Unrealized and Realized Gain on Securities......................... 0.61
-----------
Total from Investment Operations....................................... 0.64
-----------
NET ASSET VALUE, END OF PERIOD........................................... $10.64
===========
Total Return............................................................. 6.40%+
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000s)......................................... $15,565
Ratios to average daily net assets:
Operating expenses..................................................... .75%*
Net investment income (loss)........................................... 1.60%*
Decrease reflected in above operating expense, ratios due to
waivers/reimbursements............................................... 1.67%*
Portfolio Turnover Rate.................................................. 34.81%+
Average Commission Rate#................................................. $0.0599
</TABLE>
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@ Interest earned on uninvested cash balances is used to offset portions of the
transfer agent expense. These arrangements had no effect on the Portfolio's
expense ratio.
+ Non-annualized.
* Annualized.
# Calculated by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charge.
++ No financial highlights have been presented with respect to the Post-Venture
Capital and Small Company Value Portfolios, which commenced operations on
October 31, 1997. The audited statements of assets and liabilities of these
Portfolios as of October 31, 1997, together with the report thereon of
Coopers & Lybrand L.L.P. dated December 19, 1997, are incorporated by
reference into the Statement of Additional Information.
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INVESTMENT OBJECTIVES AND POLICIES
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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.
POST-VENTURE CAPITAL PORTFOLIO
Because of the nature of the Post-Venture Capital Portfolio's investments and
certain strategies it may use, such as investing in Private Funds (as defined
below), an investment in the Portfolio should be considered only for the
aggressive portion of an investor's portfolio and may not be appropriate for all
investors.
The Post-Venture Capital Portfolio seeks long-term growth of capital. The
Portfolio is a diversified management investment company that pursues an
aggressive investment strategy. The Portfolio pursues its investment objective
by investing primarily in equity securities of companies considered by Warburg
to be in their post-venture capital stage of development. The Portfolio intends
to invest in securities of post-venture capital companies, as defined below,
that are traded on a national securities exchange or in an organized
over-the-counter market.
Although the Portfolio may invest up to 10% of its assets in venture capital
and other investment funds, the Portfolio is not designed primarily to provide
venture capital financing. Rather, under normal market conditions, the Portfolio
will invest at least 65% of its total assets in equity securities of "post-
venture capital companies." A post-venture capital company is a company that has
received venture capital financing either (a) during the early stages of the
company's existence or the early stages of the development of a new product or
service, or (b) as part of a restructuring or recapitalization of the company.
The investment of venture capital financing, distribution of such company's
securities to venture capital investors, or initial public offering ("IPO"),
whichever is later, will have been made within ten years prior to the
Portfolio's purchase of the company's securities.
Warburg Pincus Asset Management, Inc. ("Warburg"), the Portfolios' investment
adviser, believes that venture capital participation in a company's capital
structure can lead to revenue/earnings growth rates above those of older, public
companies such as those in the Dow Jones Industrial Average, the Fortune 500 or
the Morgan Stanley Capital International Europe, Australasia, Far East ("EAFE")
Index. Venture capitalists finance start-up companies, companies in the early
stages of developing new products or services and companies undergoing a
restructuring or recapitalization, since these companies may not have access to
conventional forms of financing (such as bank loans or public issuances of
stock). Venture capitalists may hold substantial
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positions in companies that may have been acquired at prices significantly below
the initial public offering price. This may create a potential adverse impact in
the short-term on the market price of a company's stock due to sales in the open
market by a venture capitalist or others who acquired the stock at lower prices
prior to the company's IPO. Warburg will consider the impact of such sales in
selecting post-venture capital investments. Venture capitalists may be
individuals or funds organized by venture capitalists which are typically
offered only to large institutions, such as pension funds and endowments, and
certain accredited investors. Outside of the United States, venture capitalists
may also consist of merchant banks and other banking institutions that provide
venture capital financing in a manner similar to U.S. venture capitalists.
Venture capital participation in a company is often reduced when the company
engages in an IPO of its securities or when it is involved in a merger, tender
offer or acquisition.
Warburg has experience in researching smaller companies, companies in the
early stages of development and venture capital-financed companies. Its team of
analysts, led by Elizabeth Dater and Stephen Lurito, regularly monitors
portfolio companies whose securities are held by over 400 of the larger domestic
venture capital funds. Ms. Dater and Mr. Lurito have managed post-venture equity
securities in separate accounts for institutions since 1989 and currently manage
over $1 billion of such assets for investment companies and other institutions.
PRIVATE FUND INVESTMENTS. Up to 10% of the Portfolio's assets may be invested
in United States or foreign private limited partnerships or other investment
funds ("Private Funds") that themselves invest in equity or debt securities of
(a) companies in the venture capital or post-venture capital stages of
development or (b) companies engaged in special situations or changes in
corporate control, including buyouts. In selecting Private Funds for investment,
Abbott Capital Management, LLC, the Portfolio's sub-investment adviser with
respect to Private Funds ("Abbott"), attempts to invest in a mix of Private
Funds that will provide an above average internal rate of return (i.e., the
discount rate at which the present value of an investment's future cash inflows
(dividend income and capital gains) are equal to the cost of the investment).
Warburg believes that the Portfolio's investments in Private Funds offer
individual investors a unique opportunity to participate in venture capital and
other private investment funds, providing access to investment opportunities
typically available only to large institutions and accredited investors.
Although the Portfolio's investments in Private Funds are limited to a maximum
of 10% of the Portfolio's assets, these investments are highly speculative and
volatile and may produce gains or losses in the portion of the Portfolio that
exceed those of the Portfolio's other holdings and of more mature companies
generally.
Because Private Funds generally are investment companies for purposes of the
Investment Company Act of 1940, as amended (the "1940 Act"), the Portfolio's
ability to invest in them will be limited. In addition, Portfolio
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<PAGE> 7
shareholders will remain subject to the Portfolio's expenses while also bearing
their pro rata share of the operating expenses of the Private Funds. The ability
of the Portfolio to dispose of interests in Private Funds is very limited and
will involve the risks described under "Special Risk Considerations and Certain
Investment Strategies -- Non-Publicly Traded Securities; Rule 144A Securities."
In valuing the Portfolio's holdings of interests in Private Funds, the Portfolio
will be relying on the most recent reports provided by the Private Funds
themselves prior to calculation of the Portfolio's net asset value. These
reports, which are provided on an infrequent basis, often depend on the
subjective valuations of the managers of the Private Funds and, in addition,
would not generally reflect positive or negative subsequent developments
affecting companies held by the Private Fund. See "Net Asset Value." Debt
securities held by a Private Fund will tend to be rated below investment grade
and may be rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D
by Standard & Poor's Ratings Services ("S&P"). Securities in these rating
categories are in payment default or have extremely poor prospects of attaining
any investment standing. For a discussion of the risks of investing in below
investment grade debt, see "Investment Policies -- Below Investment Grade Debt
Securities" in the Statement of Additional Information. For a discussion of the
possible tax consequences of investing in foreign Private Funds, see "Additional
Information Concerning Taxes -- Investment in Passive Foreign Investment
Companies" in the Statement of Additional Information.
The Portfolio may also hold non-publicly traded equity securities of companies
in the venture and post-venture stages of development, such as those of closely
held companies or private placements of public companies. The portion of the
Portfolio's assets invested in these non-publicly traded securities will vary
over time depending on investment opportunities and other factors. The
Portfolio's illiquid assets, including interests in Private Funds and other
illiquid non-publicly traded securities, may not exceed 15% of the Portfolio's
net assets.
OTHER STRATEGIES. The Portfolio may invest up to 35% of its assets in
exchange-traded and over-the-counter securities that do not meet the definition
of post-venture capital companies without regard to market capitalization. Up to
10% of the Portfolio's assets may be invested, directly or through Private
Funds, in securities of issuers engaged at the time of purchase in "special
situations," such as a restructuring or recapitalization; an acquisition,
consolidation, merger or tender offer; a change in corporate control or
investment by a venture capitalist.
To attempt to reduce risk, the Portfolio will diversify its investments over a
broad range of issuers operating in a variety of industries. The Portfolio may
hold securities of companies of any size, and will not limit capitalization of
companies it selects to invest in. However, due to the nature of the venture
capital to post-venture cycle, the Portfolio anticipates that the average market
capitalization of companies in which it invests will be less than $1 billion at
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the time of investment. Although the Portfolio will invest primarily in
U.S. companies, up to 20% of the Portfolio's assets may be invested in
securities of issuers located in foreign countries. Equity securities in which
the Portfolio will invest are common stock, preferred stock, warrants,
securities convertible into or exchangeable for common stock and partnership
interests. The Portfolio may engage in a variety of strategies to reduce risk or
seek to enhance return, including engaging in short selling (see "Special Risk
Considerations and Certain Investment Strategies").
SMALL COMPANY GROWTH PORTFOLIO
The Small Company Growth Portfolio's investment objective is capital growth.
The Portfolio is a non-diversified portfolio that will pursue its investment
objective by investing primarily in a portfolio of equity securities of small
market capitalization domestic 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 considers a "small" company to be one that has a
market capitalization, measured at the time the Portfolio purchases a security
of that company, within the range of capitalizations of companies represented in
the Russell 2000 Index. (As of January 31, 1998, the Russell 2000 Index included
companies with market capitalizations between $23.7 million and $2.7 billion.)
Companies whose capitalization no longer meets this definition after purchase
continue to be considered small companies for purposes of the Portfolio's policy
of investing at least 65% of its assets in small companies. In addition, the
Portfolio has the flexibility to invest in companies with a market
capitalization of any size when the 65% policy is met. As a result of these
policies, the average market capitalization of the Portfolio at any particular
time may exceed $2.7 billion, particularly at times when the market values of
small company stocks are rising. 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, which are not included within the Portfolio's 65% policy on
investing in small companies described above. The Portfolio may also invest in
convertible debt and preferred stock. 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 companies of any size 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 gener-
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ally stand to benefit from new products or services, technological
developments or changes in management and other factors.
SMALL COMPANY VALUE PORTFOLIO
The Small Company Value Portfolio seeks long-term capital appreciation. The
Portfolio is a diversified management investment company that pursues its
investment objective by investing primarily in a portfolio of equity securities
of small capitalization companies that Warburg considers to be relatively
undervalued. Current income is a secondary consideration in selecting portfolio
investments. Under normal market conditions the Portfolio will invest at least
65% of its total assets in common stocks, preferred stocks, debt securities
convertible into common stocks, warrants and other rights of small companies.
The Portfolio considers a "small" company to be one that has a market
capitalization, measured at the time the Portfolio purchases a security of that
company, within the range of capitalizations of companies represented in the
Russell 2000 Index. (As of January 31, 1998, the Russell 2000 Index included
companies with market capitalizations between $23.7 million and $2.7 billion.)
Companies whose capitalization no longer meets this definition after purchase
continue to be considered small companies for purposes of the Portfolio's policy
of investing at least 65% of its assets in small companies. In addition, the
Portfolio has the flexibility to invest in companies with a market
capitalization of any size when the 65% policy is met. As a result of these
policies, the average market capitalization of the Portfolio at any particular
time may exceed $2.7 billion, particularly at times when the market values of
small company stocks are rising.
Warburg will determine whether a company is undervalued based on a variety of
measures, including price/earnings ratio, price/book ratio, price/cash flow
ratio, earnings growth and debt/capital ratio. Other relevant factors, including
a company's asset value, franchise value and quality of management, will also be
considered. The Portfolio will invest primarily in companies whose securities
are traded on U.S. stock exchanges or in the U.S. over-the-counter market, but
may invest up to 20% of its assets in foreign securities, which are not included
within the Portfolio's 65% policy on investing in small companies described
above.
VALUE PORTFOLIO
The Value Portfolio's investment objective is total return. The Portfolio is a
diversified portfolio that pursues its investment objective by investing
primarily in a portfolio of equity securities of large capitalization domestic
companies that Warburg considers to be relatively undervalued. Current income is
a secondary consideration in selecting portfolio investments. The Portfolio
intends to invest at least 80% of its total assets in common stocks, preferred
stocks, warrants and other rights and securities convertible into or
exchangeable for common stocks of large companies (i.e., companies having stock
market capitalizations of $1 billion or greater at the time of initial purchase)
and, under normal market conditions, will invest at least 65% of its total
assets in such securities.
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The Value Portfolio's general investment policy is to invest in equity
securities that, in Warburg's opinion, are available for purchase at prices
below their intrinsic value. Warburg will determine whether a company is
undervalued based upon research and analysis, taking into account, among other
factors, price/earnings ratio, price/book ratio, price/cash flow ratio, earnings
growth, debt/capital ratio and multiples of earnings of comparable securities.
Other relevant factors, including a company's asset value, franchise value and
quality of management, will also be considered. These factors are not applied to
prospective investments in a mechanical way; rather, Warburg analyzes each
security individually, taking all relevant factors into account. The Portfolio
may invest in the securities of companies in any industry sector and will not
concentrate in any one industry. The Portfolio will invest primarily in
companies whose securities are traded on U.S. stock exchanges or in the U.S.
over-the-counter market, but may invest up to 20% of its assets in foreign
securities.
ADDITIONAL INVESTMENTS
MONEY MARKET OBLIGATIONS. Each Portfolio is authorized to invest, under normal
circumstances, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) and medium-term (five years or less
remaining to maturity) money market obligations, 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.
Repurchase Agreements. The Portfolios may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Under the terms of a typical repurchase agreement, a Portfolio
would acquire an underlying security for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Portfolio to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Portfolio's holding period. The value
of the underlying securities will at all times be at least equal to the total
amount of the purchase obligation, including accrued interest. A Portfolio bears
a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations or becomes bankrupt and the Portfolio is delayed or
prevented from exercising its right to dispose of the collateral securities.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to a Portfolio and appropriate considering the factors of return and liquidity,
the Portfolio may invest up to 5% of its assets in securities of money market
mutual funds that are unaffiliated with the Fund or Warburg. As a shareholder in
any mutual fund, the Portfolio will bear its ratable share of the
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mutual fund's expenses, including management fees, and will remain subject to
payment of the Portfolio's administration fees and other expenses with respect
to assets so invested.
DEBT SECURITIES. Each Portfolio may invest in debt securities. The interest
income to be derived may be considered as one factor in selecting debt
securities for investment by Warburg. Because the market value of debt
obligations can be expected to vary inversely to changes in prevailing interest
rates, investing in debt obligations may provide an opportunity for capital
growth when interest rates are expected to decline. The success of such a
strategy is dependent upon Warburg's ability to forecast accurately changes in
interest rates. The market value of debt obligations may also be expected to
vary depending upon, among other factors, the ability of the issuer to repay
principal and interest, any change in investment rating and general economic
conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's or S&P or, if unrated, is determined to be of
comparable quality by Warburg. Securities rated in the fourth highest grade may
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. 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, although 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.
When Warburg believes that a defensive posture is warranted, each Portfolio
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
U.S. GOVERNMENT SECURITIES. 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, including instruments that are supported by the full faith
and credit of the United States, instruments that are supported by the right of
the issuer to borrow from the U.S. Treasury and instruments that are supported
by the credit of the instrumentality.
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WARRANTS. Each Portfolio may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
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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. It is not
possible to predict the portfolio turnover rates for the Portfolios. However,
the Post-Venture Capital Portfolio's turnover rate should not exceed 150% and
the Small Company Value Portfolio's annual turnover rate should not exceed 100%.
High portfolio turnover rates (100% or more) may result in higher dealer
mark-ups or underwriting commissions as well as other transaction costs,
including correspondingly higher brokerage commissions. In addition, short-term
gains realized from portfolio turnover may be taxable to shareholders as
ordinary income. See "Dividends, Distributions and Taxes -- Taxes" 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
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In attempting to achieve its investment objective, a Portfolio may engage in
one or more of the strategies set forth below. Although there is no intention of
doing so during the coming year, the Post-Venture Capital and Small Company
Value Portfolios are authorized to invest in mortgage backed securities issued
by U.S. government entities, the Small Company Value Portfolio is authorized to
purchase securities on a when-issued basis and purchase or sell securities for
delayed delivery and each Portfolio is authorized to engage in the following
strategies (i) lending portfolio securities and (ii) entering into reverse
repurchase agreements and dollar rolls. Detailed information concerning these
strategies and their related risks is contained in the Statement of Additional
Information.
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolios may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
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changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
FOREIGN SECURITIES. Each 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, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
International Depositary Receipts ("IDRs"), instruments that evidence ownership
of underlying securities issued by a foreign corporation. ADRs, EDRs and IDRs
may not necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe and IDRs (sometimes referred to as Global Depositary Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies.
REITS. The Value Portfolio may invest up to 15% of its total assets in real
estate investment trusts ("REITs"), which are pooled investment vehicles that
invest primarily in income-producing real estate or real estate related loans or
interests. Like regulated investment companies such as the Fund, REITs are not
taxed on income distributed to shareholders provided they comply with
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several requirements of the Internal Revenue Code of 1986, as amended (the
"Code"). By investing in a REIT, the Portfolio will indirectly bear its
proportionate share of any expenses paid by the REIT in addition to the expenses
of the Portfolio.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, the possibilities of failing to qualify
for the exemption from tax for distributed income under the Code and failing to
maintain their exemptions from the 1940 Act. REITs are also subject to interest
rate risks.
SMALL CAPITALIZATION AND EMERGING GROWTH COMPANIES; UNSEASONED
ISSUERS. Investing in securities of emerging growth and small- and medium-sized
companies and companies with continuous operations of less than three years
("unseasoned issuers") may involve greater risks than investing in larger, more
established companies since these securities may have limited marketability and,
thus, may be more volatile than securities of larger, more established companies
or the market averages in general. Because these issuers normally have fewer
shares outstanding than larger companies, it may be more difficult for a
Portfolio to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. These issuers may have limited product
lines, markets or financial resources and may lack management depth. In
addition, these issuers are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning these issuers
than for larger, more established ones. Securities of issuers in "special
situations" also may be more volatile, since the market value of these
securities may decline in value if the anticipated benefits do not materialize.
Companies in "special situations" include, but are not limited to, companies
involved in an acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash, securities or other assets; a
tender or exchange offer; a breakup or workout of a holding company; litigation
which, if resolved favorably, would improve the value of the companies'
securities; or a change in corporate control. Although investing in securities
of small- and medium-sized and emerging growth companies, unseasoned issuers or
issuers in "special situations" offers potential for above-average returns if
the companies are successful, the risk exists that the companies will not
succeed and the prices of the companies' shares could significantly decline in
value. Therefore, an investment in a Portfolio may involve a greater degree of
risk than an investment in other mutual funds that seek growth of capital or
capital appreciation by investing in better-known, larger companies.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
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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 other applicable regulatory
authorities.
Securities Options and Stock Index Options. Each Portfolio may write put and
call options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as "premiums")
for granting the rights evidenced by the options. Each Portfolio may utilize up
to 10% of its assets to purchase options on stocks and debt securities that are
traded on U.S. and foreign exchanges, as well as over-the-counter ("OTC")
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option on a security has the right to purchase the underlying security from the
writer. In addition to purchasing and writing options on securities, each
Portfolio may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to 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 Related Options. Each Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the
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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.
Currency Exchange Transactions. Each Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing or writing exchange-traded or OTC currency options. A forward
currency contract involves an obligation to purchase or sell a specific currency
at a future date at a price set at the time of the contract. An option on a
foreign currency operates similarly to an option on a security. Risks associated
with currency forward contracts and purchasing currency options are similar to
those described in this Prospectus for futures contracts and securities and
stock index options. In addition, the use of currency transactions could result
in losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
Hedging Considerations. Each Portfolio may engage in options, futures and
currency transactions for, among other 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 predict correctly 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 a position without incurring
substantial losses, if at
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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 liquid securities 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.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. A Portfolio may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the "Securities Act"), but that can be sold to "qualified institutional buyers"
in accordance with Rule 144A under the Securities Act ("Rule 144A Securities").
A Rule 144A Security will be considered illiquid and therefore subject to the
Portfolio's 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 interests in Private Funds and Rule 144A Securities) may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less than those originally paid by the Portfolio. In addition, companies
whose securities are not publicly traded are not subject to the disclosure and
other investor protection requirements that would be applicable if their
securities were publicly traded. A Portfolio's investment in illiquid securities
is subject to the risk that should the Portfolio desire to sell any of these
securities when a ready buyer is not available at a price that is deemed to be
representative of their value, the value of the Portfolio's net assets could be
adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment but increases an
investor's risk in the event of a decline in the value of the underlying
security and can result in a complete loss of the amount invested in the
warrant. In addition, the price of a warrant tends to be more volatile than, and
may not correlate exactly to, the price of the underlying security. If the
market price of
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the underlying security is below the exercise price of the warrant on its
expiration date, the warrant will generally expire without value.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each Portfolio
(except the Small Company Value 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. 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 prices of such
securities may be higher or lower than the prices available in the market on the
dates when the investments are actually delivered to the buyers.
Each Portfolio will establish a segregated account with its custodian
consisting of cash or liquid securities in an amount equal to the amount if its
when-issued and delayed-delivery purchase commitments and will segregate the
securities underlying commitments to sell securities for delayed delivery.
SHORT SELLING. The Post-Venture Capital Portfolio may from time to time sell
securities short. A short sale is a transaction in which the Portfolio sells
securities it does not own in anticipation of a decline in the market price of
the securities. The current market value of the securities sold short (excluding
short sales "against the box") will not exceed 10% of the Portfolio's assets.
To deliver the securities to the buyer, the Portfolio must arrange through a
broker to borrow the securities and, in so doing, the Portfolio becomes
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Portfolio will make a profit or
incur a loss as a result of a short sale depending on whether the price of the
security decreases or increases between the date of the short sale and the date
on which the Portfolio purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Portfolio is required to pay in
connection with a short sale.
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by cash or liquid securities deposited as
collateral with the broker. In addition, the Portfolio will place in a
segregated account with its custodian or a qualified subcustodian an amount of
cash or liquid securities equal to the difference, if any, between (i) the
market value of the securities sold at the time they were sold short and (ii)
any cash or liquid securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the sort sale).
Until it replaces the borrowed securities, the Portfolio will maintain the
segregated account daily at a level so
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that (a) the amount deposited in the account plus the amount deposited with the
broker (not including the proceeds from the short sale) will equal the current
market value of the securities sold short and (b) the amount deposited in the
account plus the amount deposited with the broker (not including the proceeds
from the short sale) will not be less than the market value of the securities at
the time they were sold short.
Short Sales Against the Box. Each Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an equal
amount of the securities sold short or owns preferred stock or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one "against the box," may be entered into by a Portfolio to, for
example, lock in a sale price for a security the Portfolio does not wish to sell
immediately. A Portfolio will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities in connection with short
sales against the box. Not more than 10% of a Portfolio's net assets (taken at
current value) may be held as collateral for such sales at any one time.
BELOW INVESTMENT GRADE SECURITIES. Each of the Post-Venture Capital and Small
Company Value Portfolios may invest up to 20% of its total assets in only
investment grade debt securities. The Value Portfolio may invest or hold up to
10% of its net assets in fixed-income securities (including convertible bonds)
rated below investment grade.
Up to 5% of the net assets of the Small Company Growth Portfolio may be held
in convertible securities rated below investment grade. Up to 5% of the net
assets of the Small Company Value Portfolio and up to 10% of the net assets of
the Value Portfolio may be invested in convertible securities rated below
investment grade at the time of purchase.
Below investment grade debt securities may be rated as low as C by Moody's or
D by S&P, or be deemed by Warburg to be of equivalent quality. Securities that
are rated C by Moody's are the lowest rated class and can be regarded as having
extremely poor prospects of ever attaining any real investment standing. A
security rated D by S&P is in default or is expected to default upon maturity or
payment date. Below investment grade securities (commonly referred to as "junk
bonds") (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
investment grade securities. In addition, these securities generally present a
higher degree of credit risk. The risk of loss due to default is
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significantly greater because these securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The market values of below investment grade securities are more volatile than
those of investment grade securities. In addition, the Portfolio may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Portfolio's ability to dispose of particular
issues and may make it more difficult for the Portfolio to obtain accurate
market quotations for purposes of valuing the Portfolio and calculating its net
asset value.
NON-DIVERSIFIED STATUS. The Small Company Growth Portfolio is classified as
"non-diversified" 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 Code, for qualification as
a regulated investment company. As a non-diversified portfolio, 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.
INVESTMENT GUIDELINES
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Each of the Post-Venture Capital and Value Portfolios may invest up to 15% of
its net assets and each other Portfolio may invest up to 10% of its 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. 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.
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MANAGEMENT OF THE FUND
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INVESTMENT ADVISERS. The Fund employs Warburg as investment adviser to each
Portfolio and, with respect to the Post-Venture Capital Portfolio, Abbott as its
sub-investment adviser. 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 the Portfolio and,
with respect to the Post-Venture Capital Portfolio, supervises the activities of
Abbott. 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. Abbott, in accordance with the investment objective and policies of
the Post-Venture Capital Portfolio, makes investment decisions for the Portfolio
regarding investments in Private Funds, effects transactions in Private Funds on
behalf of the Portfolio and assists in other administrative functions relating
to investments in Private Funds.
For the services provided by Warburg, the Small Company Growth, Small Company
Value and Value Portfolios pay Warburg a fee calculated at an annual rate of
.90%, .90% and .75%, respectively, of the relevant Portfolio's average daily net
assets. For the services provided by Warburg, the Post-Venture Capital Portfolio
pays Warburg a fee calculated at an annual rate of 1.10% of the Portfolio's
average daily net assets, out of which Warburg pays Abbott for sub-investment
advisory services. 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. Warburg is a professional investment advisory firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of January 31,
1998, Warburg managed approximately $19.9 billion of assets, including
approximately $11.2 billion of investment company assets. Incorporated in 1970,
Warburg is indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has
no business other than being a holding company of Warburg and its affiliates.
Lionel I. Pincus, the managing partner of WP&Co., may be deemed to control both
WP&Co. and Warburg. Warburg's address is 466 Lexington Avenue, New York, New
York 10017-3147.
Abbott. Abbott is an independent specialized investment firm with assets under
management of approximately $2.3 billion. Abbott is a registered investment
adviser which concentrates on venture capital, buyout and special situations
partnership investments. Abbott's management team provides full-service private
equity programs to clients. The predecessor firm to Abbott was organized in 1986
as a Delaware limited partnership and converted to a Delaware limited liability
company effective July 1, 1997. Abbott's principal office is located at 50 Rowes
Wharf, Suite 240, Boston, Massachusetts 02110-3328.
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PORTFOLIO MANAGERS.
Post-Venture Capital Portfolio. Elizabeth B. Dater and Stephen J. Lurito have
been the Co-Portfolio Managers for the Post-Venture Capital Portfolio since its
inception. Ms. Dater is a Managing Director of Warburg and has been a portfolio
manager of Warburg since 1978. Mr. Lurito is a Managing Director of Warburg and
has been with Warburg since 1987.
Robert S. Janis and Christopher M. Nawn are Associate Portfolio Managers and
Research Analysts for the Portfolio. Mr. Janis is a Senior Vice President of
Warburg and has been with Warburg since October 1994, before which time he was a
vice president and senior research analyst at U.S. Trust Company of New York.
Mr. Nawn is also a Senior Vice President of Warburg and has been with Warburg
since September 1994, before which time he was a senior sector analyst and
portfolio manager at the Dreyfus Corporation.
Raymond L. Held and Thaddeus I. Gray, Investment Managers and Managing
Directors of Abbott, manage the Portfolio's investments in Private Funds. Mr.
Held and Mr. Gray have been associated with Abbott and its predecessor firm
since 1986 and 1989, respectively.
Small Company Growth Portfolio. Ms. Dater and Mr. Lurito, described above,
have also been Co-Portfolio Managers of the Small Company Growth Portfolio since
its inception.
Small Company Value Portfolio. Kyle F. Frey is the Portfolio Manager of the
Small Company Value Portfolio. Mr. Frey, a Senior Vice President of Warburg, has
been with Warburg since 1989.
Value Portfolio. The Portfolio Manager of the Value Portfolio is Brian S.
Posner, who has been the portfolio manager of the Value Portfolio since its
inception. Mr. Posner, a Managing Director of Warburg since January 1997, was an
employee of Fidelity Investments ("Fidelity") from 1987 until December 1996. He
was the vice president and portfolio manager of the Fidelity Equity-Income II
Fund (1992-December 1996); the portfolio manager of the Fidelity Value Fund
(1990-1992); assistant portfolio manager of the Fidelity Equity-Income Fund
(1989-1990); assistant portfolio manager of the Fidelity Capital Appreciation
Fund (1989); portfolio manager of the Fidelity Select Property-Casualty
Insurance Portfolio (1987-1990) and an equity analyst (1987).
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 and semiannual reports, assisting in the preparation of
tax returns and developing and monitoring compliance procedures for the
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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. ("PFPC"), an indirect, wholly owned subsidiary of
PNC Bank Corp., 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, each Portfolio pays PFPC a fee calculated at an annual rate of
.10% of the Portfolio's first $500 million in average daily net assets, .075% of
the next $1 billion in average daily net assets, and .05% of average daily net
assets over $1.5 billion. PFPC has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ("PNC") serves as custodian of each
Portfolio's U.S. assets. Like PFPC, PNC is an indirect wholly owned subsidiary
of PNC Bank Corp., and its principal business address is 1600 Market Street,
Philadelphia, Pennsylvania 19103.
State Street Bank and Trust Company ("State Street") serves as custodian of
each Portfolio's non-U.S assets. State Street's principal business address is
225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. It has delegated to
Boston Financial Data Services, Inc. ("BFDS"), a 50% owned subsidiary,
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 for qualified recipients 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. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Funds. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. 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.
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<PAGE> 24
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 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
the Fund at (800) 369-2728. An investor may also obtain an account application
by writing to:
Warburg Pincus Institutional Fund, Inc.
P.O. Box 4906
Grand Central Station
New York, New York 10163
Attn: Institutional Services
OR
Overnight to:
Warburg, Pincus Institutional Fund, Inc.
335 Madison Avenue
15th Floor
New York, New York 10017
Attn: Institutional Services
Completed and signed account applications should be sent to the above.
RETIREMENT PLANS. For information about investing in a Portfolio through a
tax-advantaged retirement plan, such as an Individual Retirement Account
("IRA"), an investor should telephone the Fund at (800) 369-2728 or write to the
Fund at an address set forth above. Investors should consult their own tax
advisers about the establishment of retirement plans.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration, address and/or privileges, an
investor should telephone (800) 369-2728. Shareholders are responsible for
maintaining current account registrations and addresses with the Fund. No
interest will be payable on amounts represented by uncashed distribution or
redemption checks.
THE FUND IS DESIGNED FOR INSTITUTIONAL INVESTORS ALTHOUGH, IN ITS DISCRETION,
THE FUND MAY PERMIT SHARES TO BE PURCHASED BY INDIVIDUALS, AS WELL AS
INSTITUTIONS, WHO MEET THE MINIMUM INVESTMENT REQUIREMENTS.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares of the Portfolios may be purchased either by mail or, with special
advance instructions, by wire. Shares of the Fund are sold without a sales
charge. The minimum initial investment in each Portfolio is $1,000,000 and there
is no minimum subsequent investment. The minimum initial investment
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<PAGE> 25
for any group of related persons is an aggregate of $4,000,000.
The investment minimums may be waived for accounts in which employees of
Warburg or its affiliates have an interest or for investors maintaining advisory
accounts with Warburg or brokerage accounts with Counsellors Securities. The
Fund reserves the right to change the initial investment minimum requirements or
impose a subsequent investment minimum at any time. Existing investors will be
given 15 days' notice by mail of any subsequent investment minimum.
After an investor has made an initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined below. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the 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.
BY MAIL. If the investor desires to purchase shares by mail, a check or money
order made payable to Warburg Pincus Institutional Fund, Inc. (in U.S. currency)
should be sent along with the completed account application to the address set
forth above and should indicate the Portfolio in which shares are to be
purchased. Checks payable to the investor and endorsed to the order of the Fund
will not be accepted as payment and will be returned to the sender. If payment
is received in proper form prior to the close of regular trading on The New York
Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on a day
that the Fund calculates its net asset value (a "business day"), the purchase
will be made at the relevant Portfolio's net asset value calculated at the end
of that day. If payment is received at or after the close of the NYSE, 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 payment is received. Checks or money orders in payment for
more than one Portfolio 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.
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<PAGE> 26
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 using
the following wire address:
State Street Bank and Trust Company
ABA #0110 000 28
Attn: Mutual Funds/Custody Department
Warburg Pincus Institutional Fund, Inc.:
[Portfolio name]
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
If a telephone order is received prior to the close of regular trading on the
NYSE and payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the shares will be priced
according to the net asset value of the relevant Portfolio on that day and are
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 at or
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 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.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application,
transactions may be conducted by telephone. Investors should realize that in
conducting transactions by telephone they may be giving up a measure of security
that they may have if they were to conduct such transactions in writing. 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 designed to give reasonable assurance
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.
PURCHASES THROUGH INTERMEDIARIES. The Portfolios may be available through
certain broker-dealers, financial institutions and other industry professionals,
(collectively, "Service Organizations"), which may impose certain conditions on
their clients or customers that invest in the Portfolios, which are in addition
to or different than those described in this Prospectus. Certain features of the
Portfolios may be modified or waived by Service Organizations. Service
Organizations may impose transaction or administrative charges or other direct
fees, which charges and fees would not be imposed if Portfolio shares are
purchased directly from the Fund. Therefore, a client or customer
25
<PAGE> 27
should contact the Service Organization acting on its behalf concerning the fees
(if any) charged in connection with a purchase, exchange or redemption of
Portfolio shares and should read this Prospectus in light of the terms governing
its accounts with the Service Organization. Service Organizations will be
responsible for promptly transmitting client or customer purchase and redemption
orders to the Portfolio in accordance with their agreements with the Portfolio
and with clients or customers.
Service Organizations or, if applicable, their designees may enter confirmed
purchase or redemption orders on behalf of clients and customers, with payment
to follow no later than the Portfolio's pricing on the following business day.
If payment is not received by such time, the Service Organization could be held
liable for resulting fees or losses. A Portfolio may be deemed to have received
a purchase or redemption order when a Service Organization, or, if applicable,
its authorized designee, accepts the order. Such orders received by a Portfolio
in proper form will be priced at the Portfolio's net asset value next computed
after they are accepted by the Service Organization or its authorized designee.
GENERAL. Each Portfolio reserves the right to reject any specific purchase
order, including certain purchases made by exchange. (See "How to Redeem and
Exchange Shares -- Exchange of Shares" below.) Purchase orders may be refused
if, in Warburg's judgment, a Portfolio would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. A Portfolio may discontinue sales
of its shares if management believes that a substantial further increase in
assets may adversely affect that Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing shareholders
would be permitted to continue to authorize investment in such Portfolio and to
reinvest any dividends or capital gains distributions.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
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. If an
investor desires to redeem shares by mail, a written request for redemption
should be sent to an address indicated above under "How to Open an Account." 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. Payment of redemption proceeds may be delayed in connection with account
changes. 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 the Fund
at (800) 369-2728. An investor making a telephone withdrawal should state (i)
the name of the relevant Portfolio, (ii) the account
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<PAGE> 28
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
currently does not 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 the Fund by telephone, an investor may
deliver the redemption request to the Fund by mail at an address shown above
under "How to Open an Account." Although the Fund will redeem shares purchased
by check before the check has cleared, payment of the redemption proceeds will
be delayed for up to 10 days from the date of purchase. Investors should
consider purchasing shares using a certified or bank check, money order or
federal funds wire if they anticipate an immediate need for redemption proceeds.
If a redemption order is received by a Portfolio or its agent 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 at or 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 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.
EXCHANGE OF SHARES. An investor may exchange shares of one Portfolio for
shares of another Portfolio at their respective net asset values. Exchanges may
27
<PAGE> 29
be effected by mail or by telephone in the manner described under
"Redemption of Shares" above. If an exchange request is received by Warburg
Pincus Funds or its agent prior to the close of regular trading on the NYSE, 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. A Portfolio may
refuse exchange purchases at any time without notice.
Currently, shares of the Portfolios may be exchanged for shares of the
following portfolios of the Fund, which are described in a separate prospectus:
- - EMERGING MARKETS PORTFOLIO -- an equity portfolio seeking long-term growth of
capital by investing primarily in equity securities of non-United States
issuers consisting of companies in emerging securities markets;
- - GLOBAL FIXED INCOME PORTFOLIO -- a bond portfolio seeking 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; and
- - INTERNATIONAL EQUITY PORTFOLIO -- an equity portfolio seeking long-term
capital appreciation by investing primarily in equity securities of non-United
States issuers;
- - JAPAN GROWTH PORTFOLIO -- an equity portfolio seeking long-term growth of
capital by investing primarily in equity securities of Japanese issuers;
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. Investors wishing to exchange shares of a
Portfolio for shares in another portfolio of the Fund should review the
prospectus of the other portfolio prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another portfolio of the Fund, an investor should contact the Fund at (800)
369-2728.
Each Portfolio reserves the right to refuse exchange purchases by any person
or group if, in Warburg's judgment, a Portfolio would be unable to invest the
money effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when a Portfolio receives or anticipates receiving
large exchange orders at or about the same time and when a pattern of exchanges
within a short period of time (often associated with a market timing strategy)
is discerned. The Portfolios reserve the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.
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<PAGE> 30
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 less 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 the Fund at an address set forth under "How to Open an Account" or by
calling the Fund at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Portfolio intends to qualify each year as a "regulated investment
company" within the meaning of the Code. A Portfolio, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Portfolio expects to pay such additional dividends and to
make such additional distributions as are necessary to avoid the application of
this tax.
Dividends paid from net investment income and distributions derived from net
realized short-term capital gains are taxable to investors as ordinary income
whether received in cash or reinvested in additional Portfolio shares.
Distributions derived from net realized long-term capital gains will be taxable
to investors as long-term capital gains, regardless of how long 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.
The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20%
29
<PAGE> 31
for most assets (including long-term capital gains recognized by shareholders on
the sale or redemption of Portfolio shares that were held as capital assets).
This 20% rate applies to sales on or after July 29, 1997 only if the asset was
held for more than 18 months at the time of disposition. Capital gains on the
disposition of assets on or after July 29, 1997 held for more than one year and
up to 18 months at the time of disposition will be taxed as "mid-term gain" at a
maximum rate of 28%. A rate of 18% instead of 20% will apply after December 31,
2000 for assets held for more than five years. However, the 18% rate applies
only to assets acquired after December 31, 2000 unless the taxpayer elects to
treat an asset held prior to such date as sold for fair market value on January
1, 2001. In the case of individuals whose ordinary income is taxed at a 15%
rate, the 20% rate is reduced to 10% and the 10% rate for assets held for more
than five years is reduced to eight percent. Each Portfolio will provide
information relating to that portion of a "capital gain dividend" that may be
treated by investors as eligible for the reduced capital gains rate for capital
assets held for more than 18 months.
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. A Portfolio's dividends may
qualify for the dividends received deduction for corporations to the extent they
are derived from dividends attributable to certain types of stock issued by U.S.
domestic corporations.
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 deduc-
30
<PAGE> 32
tions. Certain limitations will be imposed on the extent to which the credit
(but not the deduction) for foreign taxes may be claimed.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of 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, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, 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. Investments in Private Funds will be valued initially at
cost and, thereafter, in accordance with periodic reports received by Abbott
from the Private Funds (generally quarterly). Because the issuers of securities
held by Private Funds are generally not subject to the reporting requirements of
the federal securities laws, interim changes in value of investments in Private
Funds will not generally be reflected in the Post-Venture Capital Portfolio's
net asset value. However, Warburg will report to the Board information about
certain holdings of Private Funds that, in its judgment, could have a material
impact on the valuation of a Private Fund. The Board will take these reports
into account in valuing Private Funds. Securities, options and futures contracts
for which market quotations are not readily available and other assets,
including Private Funds, 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.
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<PAGE> 33
THE PORTFOLIOS' PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, a Portfolio may advertise its average annual total return
over various periods of time. 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 components of total return (i.e.,
change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine each Portfolio's
total return. Current total return figures may be obtained by calling the Fund
at (800) 369-2728.
A Portfolio 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
Post-Venture Capital Portfolio, with the Venture Capital 100 Index (compiled by
Venture Capital Journal), appropriate indexes prepared by Frank Russell Company
relating to securities represented in the Portfolio and the S&P 500 Index, which
are unmanaged indexes of common stocks; in the case of the Small Company Growth
Portfolio, with appropriate indexes prepared by Frank Russell Company relating
to securities represented in the Portfolio and the S&P 500 Index; in the case of
the Small Company Value Portfolio, with appropriate indexes prepared by Frank
Russell Company relating to securities represented in the Portfolio, or the T.
Rowe Price New Horizons Fund Index and the S&P 500 Index, which are unmanaged
indexes; and, in the case of the Value Portfolio, with appropriate indexes
prepared by Frank Russell Company relating to securities represented in the
Portfolio and the S&P 500 Index; or
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<PAGE> 34
(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 such as Barron's, Business Week, Financial Times, Forbes,
Fortune, Inc., Institutional Investor, Investor's Business Daily, Money,
Morningstar, Mutual Fund Magazine, SmartMoney, The Wall Street Journal and
Worth. 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.
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 updates of Portfolio activity, which may include a discussion of
significant portfolio holdings; analysis of holdings by industry, country,
credit quality and other characteristics; and comparison and analysis of the
Portfolio with respect to relevant market and industry benchmarks. The
Post-Venture Capital Portfolio may discuss characteristics of venture capital
financed companies and the benefits expected to be achieved from investing in
these companies. 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.
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 nine
series have been classified, four of which constitute the interests in the
Portfolios.
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. Lionel I. Pincus,
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the managing partner of WP&Co., may be deemed to be a controlling person
of each of the Post-Venture Capital and Small Company Value Portfolios because
he may be deemed to possess or share investment power over shares owned by
clients of Warburg and by companies that WP&Co. may be deemed to control.
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. Periodic listings of the
investment securities held by a Portfolio, as well as certain statistical
characteristics of a Portfolio, may be obtained by calling the Fund at (800)
369-2728 or on the Warburg Pincus Funds Web site at www.warburg.com.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF SHARES OF THE PORTFOLIOS, AND IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF SHARES IN ANY STATE
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Portfolios' Expenses................................. 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 4
Portfolio Transactions and Turnover Rate................. 11
Special Risk Considerations and Certain Investment
Strategies............................................. 11
Investment Guidelines.................................... 19
Management of the Fund................................... 20
How to Open an Account................................... 23
How to Purchase Shares................................... 23
How to Redeem and Exchange Shares........................ 26
Dividends, Distributions and Taxes....................... 29
Net Asset Value.......................................... 31
The Portfolios' Performance.............................. 32
General Information...................................... 33
</TABLE>
[WARBURG PINCUS LOGO]
P.O. BOX 4906, GRAND CENTRAL STATION
NEW YORK, NY 10163
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPINU-1-0298B
