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PROSPECTUS
APRIL 3, 1996
WARBURG PINCUS TRUST
[ ] INTERNATIONAL EQUITY PORTFOLIO
Warburg Pincus Trust shares are not available directly to individual investors
but may be offered only through certain insurance products and pension and
retirement plans.
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WARBURG PINCUS TRUST
P.O. BOX 9036
BOSTON MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 369-2728
April 3, 1996
PROSPECTUS
WARBURG PINCUS TRUST (the 'Trust') is an open-end management investment company
that currently offers two investment funds, one of which, the International
Equity Portfolio (the 'Portfolio'), is offered pursuant to this Prospectus.
The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of non-U.S. issuers.
International investment entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
Shares of the Portfolio are not available directly to individual investors but
may be offered only to certain (i) life insurance companies ('Participating
Insurance Companies') for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance contracts (together, 'Variable Contracts') and (ii) tax-qualified
pension and retirement plans ('Plans'), including participant-directed Plans
which elect to make the Portfolio an investment option for Plan participants.
The Portfolio may not be available in every state due to various insurance
regulations.
This Prospectus briefly sets forth certain information about the Portfolio that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. This Prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product that accompanies this Prospectus or with the Plan documents or
other informational materials supplied by Plan sponsors. Additional information
about the Portfolio, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission (the 'SEC') and is
available to investors without charge by calling the Trust at (800) 369-2728.
The Statement of Additional Information, as amended from time to time, bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
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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 TRUST'S EXPENSES
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Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................. 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees............................................................................. 0.27%
12b-1 Fees.................................................................................. 0
Other Expenses*............................................................................. 1.17%
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Total Portfolio Operating Expenses (after fee waivers and expense reimbursements)*.......... 1.44%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year...................................................................................... $ 15
3 years..................................................................................... $ 46
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* Management Fees, Other Expenses and Total Portfolio Operating Expenses are
based on actual expenses for the fiscal period ended December 31, 1995, net
of any fee waivers or expense reimbursements. Without such waivers or
reimbursements, Management Fees would have equalled 1.00%, Other Expenses
would have equalled 1.21% and Total Portfolio Operating Expenses would have
equalled 2.21%. The Portfolio's investment adviser had undertaken to reduce
or otherwise limit the Portfolio's Total Operating Expenses through December
31, 1995; there is no assurance that these undertakings will continue.
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The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of the Portfolio. THE TABLE DOES NOT
REFLECT ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE
VARIABLE CONTRACTS OR PLANS; SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE
PROSPECTUS OF THE SPONSORING PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT OR
IN THE PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIALS SUPPLIED BY PLAN
SPONSORS. The Example should not be considered a representation of past or
future expenses; actual Portfolio expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Portfolio's
actual performance will vary and may result in a return greater or less than 5%.
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FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the fiscal period ended December 31, 1995 has
been derived from information audited by Coopers & Lybrand L.L.P., independent
auditors, whose report dated February 13, 1996 appears in the Statement of
Additional Information. Further information about the performance of the
Portfolio is contained in the Trust's annual report, dated December 31, 1995,
copies of which appear in the Statement of Additional Information or may be
obtained without charge by calling the Trust at (800) 369-2728.
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FOR THE PERIOD
JUNE 30, 1995
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1995
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Net Asset Value, Beginning of Period.............. $ 10.00
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Income from Investment Operations
Net Investment Income........................... .03
Net Gain on Securities and Foreign Currency
Related Items
(both realized and unrealized)............... .70
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Total from Investment Operations................ .73
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Less Distributions
Dividends (from net investment income).......... (.01)
Distributions in Excess of Net Investment
Income....................................... (.07)
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Total Distributions............................. (.08)
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Net Asset Value, End of Period.................... $ 10.65
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Total Return...................................... 7.30%`D'
Ratios/Supplemental Data
Net Assets, End of Period (000s).................. $64,537
Ratios to Average Daily Net Assets:
Operating expenses.............................. 1.44%*
Net investment income........................... .48%*
Decrease reflected in above operating expense
ratio due to waivers/reimbursements.......... .77%*
Portfolio Turnover Rate........................... 16.49%*
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* Annualized.
`D' Non-annualized.
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INVESTMENT OBJECTIVES AND POLICIES
The International Equity Portfolio's investment objective is to seek
long-term capital appreciation.
The Portfolio's objective is a fundamental policy and may not be amended
without first obtaining the approval of a majority of the outstanding shares of
the Portfolio. Any investment involves risk and, therefore, there can be no
assurance that the Portfolio will achieve its investment objective. See
'Portfolio Investments' and 'Certain Investment Strategies' for descriptions of
certain types of investments the Portfolio may make.
The Portfolio is a diversified investment fund that pursues its investment
objective by investing primarily in a broadly diversified portfolio of equity
securities of companies, wherever organized, that in the judgment of Warburg,
Pincus Counsellors, Inc., the Portfolio's investment adviser ('Warburg'), have
their principal business activities and interests outside the United States. The
Portfolio will ordinarily invest substantially all of its assets -- but no less
than 65% of its total assets -- in common stocks, warrants and securities
convertible into or exchangeable for common stocks. Generally the Portfolio will
hold no less than 65% of its total assets in at least three countries other than
the United States. The Portfolio intends to be widely diversified across
securities of many corporations located in a number of foreign countries.
Warburg anticipates, however, that the Portfolio may from time to time invest a
significant portion of its assets in a single country such as Japan, which may
involve special risks. See 'Risk Factors and Special Considerations -- Japanese
Investments' below. In appropriate circumstances, such as when a direct
investment by the Portfolio in the securities of a particular country cannot be
made or when the securities of an investment company are more liquid than the
underlying portfolio securities, the Portfolio may, consistent with the
provisions of the Investment Company Act of 1940, as amended (the '1940 Act'),
invest in the securities of closed-end investment companies that invest in
foreign securities.
The Portfolio intends to invest principally in the securities of
financially strong companies with opportunities for growth within growing
international economies and markets through increased earning power and improved
utilization or recognition of assets. Investment may be made in equity
securities of companies of any size, whether traded on or off a national
securities exchange.
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. The Portfolio may invest up to 35% of its total assets in
investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. 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 appreciation when interest rates are expected
to decline. The success of such a strategy is dependent upon Warburg's ability
to accurately forecast changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ('Moody's') or Standard &
Poor's Ratings Group ('S&P') or, if unrated, is determined to be of comparable
quality by Warburg. Bonds rated in the fourth highest grade may have speculative
characteristics and changes in economic conditions or other
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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 the 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 events in its determination of whether the Portfolio should
continue to hold the securities.
When Warburg believes that a defensive posture is warranted, the Portfolio
may invest temporarily without limit in U.S. and foreign investment grade debt
obligations, other securities of U.S. companies and in domestic and foreign
money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Portfolio is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations and, for temporary
defensive purposes, may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Portfolio may enter into repurchase agreement
transactions on portfolio securities with member banks of the Federal Reserve
System and certain non-bank dealers. Repurchase agreements are contracts under
which the buyer of a security simultaneously commits to resell the security to
the seller at an agreed-upon price and date. Under the terms of a typical
repurchase agreement, the Portfolio would acquire any underlying security for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Portfolio to resell, the
obligation at an agreed-upon price and time, thereby determining the yield
during the Portfolio's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations 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 interest.
The 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, including the risk of a possible decline in the value of
the underlying securities during the period while the Portfolio seeks to assert
this right. Warburg, acting under the supervision of the Trust's Board of
Trustees (the 'Board'), monitors the creditworthiness of those bank and non-bank
dealers with which the Portfolio enters into repurchase agreements to evaluate
this risk. A repurchase agreement is considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the 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 Portfolio, Warburg or
the Portfolio's co-administrator, PFPC, Inc. ('PFPC'). As a shareholder in any
mutual fund, the Portfolio will bear its ratable share of the mutual fund's
expenses, including management fees, and will remain subject to payment of the
Portfolio's administra-
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tive fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. The obligations issued or guaranteed by the U.S.
government in which the Portfolio may invest include: direct obligations of the
U.S. Treasury, obligations issued by U.S. government agencies and
instrumentalities, including instruments that are supported by the full faith
and credit of the United States, instruments that are supported by the right of
the issuer to borrow from the U.S. Treasury and instruments that are supported
by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolio may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Portfolio's investments, see
'Portfolio Investments' beginning at page 4 and 'Certain Investment Strategies'
beginning at page 7.
JAPANESE INVESTMENTS. The Portfolio may from time to time have a large position
in Japanese securities and, as a result, would be subject to general economic
and political conditions in Japan. Japan is largely dependent upon foreign
economies for raw materials. International trade is important to Japan's
economy, as exports provide the means to pay for many of the raw materials it
must import. Because of its large trade surpluses Japan has entered a difficult
phase in its relations with certain trading partners, particularly with respect
to the United States, with whom the trade imbalance is the greatest.
The decline in the Japanese securities markets since 1989 has contributed
to a weakness in the Japanese economy, and the impact of a further decline
cannot be ascertained. The common stocks of many Japanese companies continue to
trade at high price-earnings ratios in comparison with those in the United
States.
Japan has a parliamentary form of government. Since mid-1993, there have
been several changes in leadership in Japan. What, if any, effect the current
political situation will have on prospective regulatory reforms on the economy
cannot be predicted. For additional information, see 'Investment
Policies -- Japanese Investments' in the Statement of Additional Information.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Portfolio may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the '1933 Act'), but that can be sold to 'qualified institutional buyers' in
accordance with Rule 144A under the 1933 Act ('Rule 144A Securities'). A Rule
144A Security will be considered illiquid and therefore subject to the
Portfolio's limitation on the purchase of illiquid securities, unless the Board
determines on an ongoing basis that an adequate trading market exists for the
security. In addition to an adequate trading market, the Board will also
consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Portfolio to the extent that qualified
institutional buyers become uninter-
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ested for a time in purchasing Rule 144A Securities. The Board will carefully
monitor any investments by the Portfolio in Rule 144A Securities. The Board may
adopt guidelines and delegate to Warburg the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although the Board will retain
ultimate responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. The 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. Further, companies whose securities are not publicly traded are
not subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. The 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.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The 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 to be in the best interests of the Portfolio. The
Portfolio will not consider portfolio turnover rate a limiting factor in making
investment decisions consistent with their investment objectives and policies.
High portfolio turnover rates (100% or more) may result in dealer mark ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See 'Dividends, Distributions and Taxes -- Taxes' below and 'Investment
Policies -- Portfolio Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the
Portfolio are placed by Warburg with broker-dealers that it selects, including
Counsellors Securities Inc., the Portfolio's distributor ('Counsellors
Securities'). The Portfolio may utilize Counsellors Securities in connection
with a purchase or sale of securities when Warburg believes that the charge for
the transaction does not exceed usual and customary levels and when doing so is
consistent with guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, the
Portfolio is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed-delivery, (ii) lending portfolio securities and (iii)
entering into reverse repurchase agreements and dollar rolls. The Portfolio may
engage in options or futures transactions for the purpose of hedging against a
decline in value of its portfolio holdings or to generate income to offset
expenses or increase return. Such transactions that are not considered hedging
should be considered speculative and may serve to increase the Portfolio's
investment risk. Detailed information concerning these strategies and their
related risks is contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The Portfolio will ordinarily hold no less than 65% of its
total assets in foreign securities. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in U.S. investments. These risks
include those resulting from fluctuations in currency exchange rates,
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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, 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 the 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 operating 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.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of the 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 THE PORTFOLIO'S INVESTMENT RISK.
Transaction costs and any premiums associated with these strategies, and any
losses incurred, will affect the Portfolio's net asset value and performance.
Therefore, an investment in the Portfolio may involve a greater risk than an
investment in other mutual funds that do not utilize these strategies. The
Portfolio's use of these strategies may be limited by position and exercise
limits established by securities and commodities exchanges and the National
Association of Securities Dealers, Inc. and by the Internal Revenue Code of
1986, as amended (the 'Code').
Securities and Stock Index Options. The 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. The Portfolio may also 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 has
the right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, the 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
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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 the Portfolio, force the
sale or purchase of portfolio securities at inopportune times or at less
advantageous prices, limit the amount of appreciation the Portfolio could
realize on its investments or require the Portfolio to hold securities it would
otherwise sell.
Futures Contracts and Commodity Options. The 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 change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although the Portfolio is limited
in the amount of assets that may be invested in futures transactions, there is
no overall limit on the percentage of the Portfolio's assets that may be at risk
with respect to futures activities.
Currency Exchange Transactions. The 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 exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. A hedge is designed to offset a loss on a portfolio
position with a gain in the hedge position; at the same time, however, a
properly correlated hedge will result in a gain in the portfolio position being
offset by a loss in the hedge position. As a result, the use of options, futures
contracts and currency exchange transactions for hedging purposes could limit
any potential gain from an increase in value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. The Portfolio will engage in hedging
transactions only when deemed advisable by Warburg, and successful use of
hedging transactions will depend on Warburg's ability to correctly predict
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that the 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
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above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out an option or futures position without
incurring substantial losses, if at all. The Portfolio is also subject to the
risk of a default by a counterparty to an off-exchange transaction.
Asset Coverage. The Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities and indexes; currency, interest
rate and stock index futures contracts and options on these futures contracts;
and forward currency contracts. The use of these strategies may require that the
Portfolio maintain cash or certain liquid high-grade debt obligations or other
assets that are acceptable as collateral to the appropriate regulatory authority
in a segregated account with its custodian or a designated sub-custodian to the
extent the Portfolio's obligations with respect to these strategies are not
otherwise 'covered' through ownership of the underlying security, financial
instrument or currency or by other portfolio positions or by other means
consistent with applicable regulatory policies. Segregated assets cannot be sold
or transferred unless equivalent assets are substituted in their place or it is
no longer necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
INVESTMENT GUIDELINES
The Portfolio may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. In addition, up to 5% of the Portfolio's total assets may
be invested in the securities of issuers which have been in continuous operation
for less than three years, and up to an additional 5% of its net assets may be
invested in warrants. The Portfolio may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Portfolio may
not exceed 30% of its total assets, and may pledge its assets to the extent
necessary to secure permitted borrowings. Whenever borrowings (including reverse
repurchase agreements) exceed 5% of the value of the 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 the Portfolio has adopted identifying additional
restrictions that cannot be changed without the approval of the majority of the
Portfolio's outstanding shares is contained in the Statement of Additional
Information.
MANAGEMENT OF THE PORTFOLIO
INVESTMENT ADVISER. The Trust employs Warburg as investment adviser to the
Portfolio. Warburg, subject to the control of the Trust's officers and the
Board, manages the investment and reinvestment of the assets of the Portfolio in
accordance with the Portfolio's investment objective and stated investment
policies. Warburg makes investment decisions for the Portfolio and places orders
to purchase or sell securities on behalf of the Portfolio. Warburg also employs
a support staff of management personnel to provide services to the Portfolio and
furnishes the Portfolio with office space, furnishings and equipment.
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For the services provided by Warburg, the Portfolio pays Warburg a fee
calculated at an annual rate of 1.00% of the Portfolio's average daily net
assets. Although this advisory fee is higher than that paid by most other
investment companies, including money market and fixed income funds, Warburg
believes that it is comparable to fees charged by other mutual funds with
similar policies and strategies. Warburg and the Trust's co-administrators may
voluntarily waive a portion of their fees from time to time and temporarily
limit the expenses to be paid by the Portfolio.
Warburg is a professional investment counselling firm which provides
investment services to investment endowment funds, foundations and other
institutions and individuals. As of January 31, 1996, Warburg managed
approximately $12.9 billion of assets, including approximately $7.1 billion of
assets of twenty-seven investment companies or portfolios. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership. E.M. Warburg, Pincus & Co.,
Inc. ('EMW') controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. The portfolio manager of the Portfolio is Richard H. King.
Mr. King is also portfolio manager of Warburg Pincus International Equity Fund
and the International Equity Portfolio of Warburg Pincus Institutional Fund,
Inc. and co-portfolio manager of Warburg Pincus Japan OTC Fund and Warburg
Pincus Emerging Markets Fund. Mr. King has been a managing director of EMW since
1989. From 1984 until 1988 he was chief investment officer and a director at
Fiduciary Trust Company International S.A. in London, with responsibility for
all international equity management and investment strategy. From 1982 to 1984
he was a director in charge of Far East equity investments at N.M. Rothschild
International Asset Management, a London merchant bank.
Nicholas P.W. Horsley, P. Nicholas Edwards, Harold W. Ehrlich and Vincent
McBride are associate portfolio managers and research analysts of the Portfolio.
Mr. Horsley is a senior vice president of Warburg and has been with Warburg
since 1993, before which time he was a director, portfolio manager and analyst
at Barclays deZoete Wedd in New York City. Mr. Edwards has been with Warburg
since August 1995, before which time he was a director at Jardine Fleming
Investment Advisers, Tokyo. He was a vice president of Robert Fleming Inc. in
New York City from 1988 to 1991. Mr. Ehrlich is a senior vice president of
Warburg and has been with Warburg since February 1995, before which time he was
a senior vice president, portfolio manager and analyst at Templeton Investment
Counsel Inc. Mr. McBride has been with Warburg since 1994. Prior to joining
Warburg, Mr. McBride was an international equity analyst at Smith Barney Inc.
from 1993 to 1994 and at General Electric Investment Corporation from 1992 to
1993. From 1989 to 1992 he was a portfolio manager/analyst at United Jersey
Bank.
CO-ADMINISTRATORS. The Portfolio employs Counsellors Funds Service, Inc., a
wholly owned subsidiary of Warburg ('Counsellors Service'), as a
co-administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Portfolio, including responding to shareholder inquiries
and providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Portfolio and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in other regulatory filings
as necessary and monitor-
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ing and developing compliance procedures for the Portfolio. As compensation, the
Portfolio pays Counsellors Service a fee calculated at an annual rate of .10% of
the Portfolio's average daily net assets.
The Trust employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp. ('PFPC'), as a co-administrator. As a co-administrator, PFPC calculates
the Portfolio's net asset value, provides all accounting services for the
Portfolio and assists in related aspects of the Portfolio's operations. As
compensation the International Equity Portfolio pays PFPC a fee calculated at an
annual rate of .12% of the Portfolio's first $250 million in average daily net
assets, .10% of the next $250 million in average daily net assets .08% of the
next $250 million in average daily net assets and .05% of average daily net
assets over $750 million, subject to a minimum annual fee and exclusive of
out-of-pocket expenses. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC'), serves as custodian of the
Portfolio's U.S. assets. State Street Bank and Trust Company ('State Street')
serves as international custodian of the Portfolio's non-U.S. assets. PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. 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 Portfolio. It has delegated
to Boston Financial Data Services, Inc., a 50% owned subsidiary ('BFDS'),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as distributor
of the shares of the Portfolio. Counsellors Securities is a wholly owned
subsidiary of Warburg and is located at 466 Lexington Avenue, New York, New York
10017-3147.
OTHER. From time to time Warburg or its affiliates may compensate Participating
Insurance Companies and Plans or their affiliates or entities that provide
services to them for providing a variety of record-keeping, administrative,
accounting, marketing, shareholder liaison and/or other services with respect to
investments made in the Trust. This compensation will be based on the net asset
value of shares held by the Participating Insurance Companies' Variable Contract
owners or Plan participants and will vary depending on the nature and extent of
the services provided. Such compensation will be paid from Warburg's or its
affiliates' own resources and will not represent an additional expense to the
Portfolio or its shareholders.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to qualified recipients who support the sale of shares of the
Portfolio, consisting of securities dealers who have sold Portfolio shares or
others, including banks and other financial institutions, under special
arrangements. In some instances, these incentives may be offered only to certain
institutions whose representatives provide services in connection with the sale
or expected sale of significant amounts of the Portfolio's shares.
TRUSTEES AND OFFICERS. The officers of the Trust manage the Portfolio's
day-to-day operations and are directly responsible to the Board. The Board sets
broad policies for the Portfolio and chooses the Trust's officers. A list of the
Trustees and officers 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 PURCHASE AND REDEEM
SHARES IN THE PORTFOLIO
Individual investors may not purchase or redeem shares of the Portfolio
directly; shares
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may be purchased or redeemed only through Variable Contracts offered by separate
accounts of Participating Insurance Companies or through Plans, including
participant-directed Plans which elect to make the Portfolio an investment
option for Plan participants. Please refer to the prospectus of the sponsoring
Participating Insurance Company separate account or to the Plan documents or
other informational materials supplied by Plan sponsors for instructions on
purchasing or selling a Variable Contract and on how to select the Portfolio as
an investment option for a Variable Contract or Plan.
PURCHASES. All investments in the Portfolio are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by the Portfolio. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of the Portfolio on
any day that the Portfolio calculates its net asset value (a 'business day').
That night, all orders received by the Participating Insurance Company prior to
the close of regular trading on the New York Stock Exchange Inc. (the 'NYSE')
(currently 4:00 p.m., Eastern time) on that business day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of the Portfolio during the morning of the next business day. These
orders are executed at the net asset value (described below under 'Net Asset
Value') computed at the close of regular trading on the NYSE on the previous
business day in order to provide a match between the contract owners' orders to
the Participating Insurance Company and that Participating Insurance Company's
orders to the Portfolio.
Plan participants may invest in shares of the Portfolio through their Plan
by directing the Plan trustee to purchase shares for their account. Participants
should contact their Plan sponsor for information concerning the appropriate
procedure for investing in the Portfolio.
The Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Warburg's opinion, they are of a size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely effect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing Variable
Contract owners and Plan participants would be permitted to continue to
authorize investment in the Portfolio and to reinvest any dividends or capital
gains distributions.
REDEMPTIONS. Shares of the Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company or
Plan prior to the close of regular trading on the NYSE on any business day and
transmitted to the Trust or its specified agent during the morning of the next
business day will be processed at the net asset value computed at the close of
regular trading on the NYSE on the previous business day. Redemption proceeds
will normally be wired to the Participating Insurance Company or Plan the
business day following receipt of the redemption order, but in no event later
than seven days after receipt of such order.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Portfolio's portfolio securities for the applicable period less
applicable expenses. The Portfolio declares dividends from its net investment
income annually. Net investment income earned on weekends and when the NYSE is
not open will be computed as of the next business day. Distributions of net
realized long-term and short-term capital gains are declared annually and, as a
general rule, will be distributed or paid after the end of the fiscal year in
which they are earned. Dividends and distributions will automatically be
reinvested in
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additional shares of the Portfolio at net asset value unless, in the case of a
Variable Contract, a Participating Insurance Company elects to have dividends or
distributions paid in cash.
TAXES. For a discussion of the tax status of a Variable Contract or Plan, refer
to the sponsoring Participating Insurance Company separate account prospectus or
Plan documents or other informational materials supplied by Plan sponsors.
The Portfolio intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. The Portfolio intends to distribute all
of its net income and capital gains to its shareholders (the Variable Contracts
and Plans).
Because shares of the Portfolio may be purchased only through Variable
Contracts and Plans, it is anticipated that any income dividends or capital gain
distributions from the Portfolio are taxable, if at all, to the Participating
Insurance Companies and Plans and will be exempt from current taxation of the
Variable Contract owner or Plan participant if left to accumulate within the
Variable Contract or Plan. Generally, withdrawals from Variable Contracts or
Plans may be subject to ordinary income tax and, if made before age 59 1/2, a
10% penalty tax.
Dividends and interest received by the 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. Shareholders will bear the cost of foreign tax withholding
in the form of increased expenses to the Portfolio, but generally will not be
able to claim a foreign tax credit or deduction for foreign taxes paid by the
Portfolio by reason of the tax-deferred status of Variable Contracts.
INTERNAL REVENUE SERVICE REQUIREMENTS. The Portfolio intends to comply with the
diversification requirements currently imposed by the Internal Revenue Service
on separate accounts of insurance companies as a condition of maintaining the
tax-deferred status of Variable Contracts. See the Statement of Additional
Information for more specific information.
NET ASSET VALUE
The Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to be closed on
New Year's Day, Washington's Birthday, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of the holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of the Portfolio
generally changes every day.
The net asset value per share of the Portfolio is computed by dividing the
value of the 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 on the basis of the
closing value on the date on which the valuation is made. Options and futures
contracts will be valued similarly. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
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PERFORMANCE
From time to time, the Portfolio may advertise its average annual total
return over various periods of time. These total return figures show the average
percentage change in value of an investment in the Portfolio from the beginning
of the measuring period to the end of the measuring 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).
Total returns quoted for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan. Accordingly, the prospectus of the
sponsoring Participating Insurance Company separate account or Plan documents or
other informational materials supplied by Plan sponsors should be carefully
reviewed for information on relevant charges and expenses. Excluding these
charges and expenses from quotations of the Portfolio's performance has the
effect of increasing the performance quoted, and the effect of these charges
should be considered when comparing the Portfolio's performance to that of other
mutual funds.
When considering average annual 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 the
Portfolio's return over a longer market cycle. The Portfolio may also advertise
its aggregate total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the specific
period (again reflecting changes in share prices and assuming reinvestment of
dividends and distributions). Aggregate and average total returns may be shown
by means of schedules, charts or graphs and may indicate various components of
total return (i.e., change in value of initial investment, income dividends and
capital gain distributions).
Investors should note that 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 the total return. Current
total return figures may be obtained by calling (800) 369-2728.
In reports or other communications to investors or in advertising material,
the Portfolio or a Participating Insurance Company or Plan sponsor may describe
general economic and market conditions affecting the Portfolio. Performance may
be compared with (i) that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar investment services that
monitor the performance of mutual funds or as set forth in the publications
listed below; (ii) the Morgan Stanley Capital International Europe, Australia
and Far East ('EAFE') Index, the Salomon Russell Global Equity Index, the
FT-Actuaries World Indices (jointly compiled by The Financial Times, Ltd.,
Goldman, Sachs & Co. and NatWest Securities Ltds.) and the S&P 500 Index, all of
which are unmanaged indexes; or (iii) other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The
Portfolio or a Participating Insurance Company may also include evaluations
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as The Wall Street Journal,
Investor's Daily, Money, Inc., Institutional Investor, Barron's, Fortune,
Forbes, Busi-
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ness Week, Mutual Fund Magazine, Morningstar, Inc. and Financial Times.
In reports or other communications to investors or in advertising, the
Portfolio or a Participating Insurance Company or Plan sponsor 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, the Portfolio and its portfolio managers may render periodic
updates of Portfolio activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Portfolio may also discuss the continuum of risk
and return relating to different investments and the potential impact of foreign
securities on a portfolio otherwise composed of domestic securities.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various periods of time. In addition, the Portfolio or a Participating
Insurance Company or Plan sponsor may from time to time compare the Portfolio's
expense ratio to that of investment companies with similar objectives and
policies, based on data generated by Lipper Analytical Services, Inc. or similar
investment services that monitor mutual funds.
GENERAL INFORMATION
TRUST ORGANIZATION. The Trust was organized on March 15, 1995 under the laws of
The Commonwealth of Massachusetts as a 'Massachusetts business trust.' The
Trust's Declaration of Trust authorizes the Board to issue an unlimited number
of full and fractional shares of beneficial interest, $.001 par value per share.
Shares of two series have been authorized, one of which constitutes the
interests in the Portfolio. The Board may classify or reclassify any of its
shares into one or more additional series without shareholder approval.
VOTING RIGHTS. When matters are submitted for shareholder vote, shareholders of
the Portfolio will have one vote for each full share held and fractional votes
for fractional shares held. Generally, shares of the Trust will vote by
individual portfolio on all matters except where otherwise required by law.
There will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the members
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Under current law, a Participating Insurance
Company is required to request voting instructions from Variable Contract owners
and must vote all Trust shares held in the separate account in proportion to the
voting instructions received. Plans may or may not pass through voting rights to
Plan participants, depending on the terms of the Plan's governing documents. For
a more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company separate account prospectus or the Plan
documents or other informational materials supplied by Plan sponsors.
CONFLICTS OF INTEREST. The Portfolio offers its shares to (i) Variable Contracts
offered through separate accounts of Participating Insurance Companies which may
or may not be affiliated with each other and (ii) Plans including
Participant-directed Plans which elect to make the Portfolio an investment
option for Plan participants. Due to differences of tax treatment and other
considerations, the interests of various Variable Contract owners and Plan
participants participating in the Portfolio may conflict. The
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Board will monitor the Portfolio for any material conflicts that may arise and
will determine what action, if any, should be taken. If a conflict occurs, the
Board may require one or more Participating Insurance Company separate accounts
and/or Plans to withdraw its investments in the Portfolio. As a result, the
Portfolio may be forced to sell securities at disadvantageous prices and orderly
portfolio management could be disrupted. In addition, the Board may refuse to
sell shares of the Portfolio to any Variable Contract or Plan or may suspend or
terminate the offering of shares of the Portfolio if such action is required by
law or regulatory authority or is in the best interests of the shareholders of
the Portfolio.
SHAREHOLDER COMMUNICATIONS. Participating Insurance Companies and Plan trustees
will receive semiannual and audited annual reports, each of which includes a
list of the investment securities held by the Portfolio and a statement of the
performance of the Portfolio. Periodic listings of the investment securities
held by the Portfolio may be obtained by calling the Trust at (800) 369-2728.
Since the prospectuses of the Trust's portfolios may be combined in a
single Prospectus, it is possible that the Portfolio may become liable for a
misstatement, inaccuracy or omission in the combined prospectus with regard to
the other portfolio.
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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 PORTFOLIO'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIO, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
SHARES OF THE PORTFOLIO IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
THE TRUST'S EXPENSES ......................................... 2
FINANCIAL HIGHLIGHTS ......................................... 3
INVESTMENT OBJECTIVES AND POLICIES ........................... 4
PORTFOLIO INVESTMENTS ........................................ 4
RISK FACTORS AND SPECIAL
CONSIDERATIONS ............................................ 6
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE ...................................................... 7
CERTAIN INVESTMENT STRATEGIES ................................ 7
INVESTMENT GUIDELINES ....................................... 10
MANAGEMENT OF THE PORTFOLIO ................................. 10
HOW TO PURCHASE AND REDEEM SHARES IN
THE PORTFOLIO ............................................ 12
DIVIDENDS, DISTRIBUTIONS AND TAXES .......................... 13
NET ASSET VALUE ............................................. 14
PERFORMANCE ................................................. 15
GENERAL INFORMATION ......................................... 16
WPTRU-1-0396
[LOGO]
WARBURG PINCUS TRUST
[ ] INTERNATIONAL EQUITY PORTFOLIO
PROSPECTUS
APRIL 3, 1996
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STATEMENT OF ADDITIONAL INFORMATION
April 3, 1996
WARBURG PINCUS TRUST
INTERNATIONAL EQUITY PORTFOLIO
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
CONTENTS
<TABLE>
<CAPTION>
Page
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Investment Objectives.............................................................. 2
Investment Policies................................................................ 2
Management of the Trust............................................................ 28
Additional Purchase and Redemption Information..................................... 34
Additional Information Concerning Taxes............................................ 35
Determination of Performance....................................................... 38
Independent Accountants and Counsel................................................ 41
Miscellaneous...................................................................... 41
Financial Statements............................................................... 41
Appendix -- Description of Ratings................................................. A-1
Annual Report and Report of Independent Accountants................................ A-3
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Waburg Pincus Trust (the "Trust") with
respect to the International Equity Portfolio, dated April 3, 1996, as amended
or supplemented from time to time, and is incorporated by reference in its
entirety into that Prospectus. The Trust currently offers two managed investment
funds, one of which, the International Equity Portfolio (the "Portfolio") is
described in this Statement of Additional Information. Shares of the Portfolio
are not available directly to individual investors but may be offered only to
certain (i) life insurance companies ("Participating Insurance Companies") for
allocation to certain of their separate accounts established for the purpose of
funding variable annuity contracts and variable life insurance policies
(together "Variable Contracts") and (ii) tax-qualified pension and retirement
plans ("Plans"), including participant-directed Plans which elect to make the
Portfolio an investment option for Plan participants. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
the Portfolio should be made solely upon the information contained herein.
Copies of the Trust's Prospectus and information regarding the Portfolio's
current performance may be obtained by calling the Trust at (800) 369-2728 or by
writing to the Trust, P.O. Box 9030, Boston, Massachusetts 02205-9030.
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INVESTMENT OBJECTIVES
The investment objective of the International Equity Portfolio is
long-term capital appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of the
Portfolio's investment objective and policies in the Prospectus.
Options, Futures and Currency Exchange Transactions
Securities Options. The Portfolio may write covered put and call
options on stock and debt securities and may purchase such options that are
traded on foreign and U.S. exchanges, as well as over-the-counter ("OTC").
The Portfolio realizes fees (referred to as "premiums") for
granting the rights evidenced by the options it has written. A put option
embodies the right of its purchaser to compel the writer of the option to
purchase from the option holder an underlying security at a specified price for
a specified time period or at a specified time. In contrast, a call option
embodies the right of its purchaser to compel the writer of the option to sell
to the option holder an underlying security at a specified price for a specified
time period or at a specified time.
The principal reason for writing covered options on a security is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the
Portfolio as the writer of a covered call option forfeits the right to any
appreciation in the value of the underlying security above the strike price for
the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the Portfolio as a put or call writer retains the risk
of a decline in the price of the underlying security. The size of the premiums
that the Portfolio may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or increase their
option-writing activities.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
In the case of options written by the Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the
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time required to convert or exchange and obtain physical delivery of the
underlying common stock with respect to which the Portfolio has written options
may exceed the time within which the Portfolio must make delivery in accordance
with an exercise notice. In these instances, the Portfolio may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Portfolio will not bear any market risk, since the Portfolio
will have the absolute right to receive from the issuer of the underlying
security an equal number of shares to replace the borrowed securities, but the
Portfolio may incur additional transaction costs or interest expenses in
connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities
for which the Portfolio may write covered call options. For example, if the
Portfolio writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, the Portfolio will compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of mortgage-backed securities.
Options written by the Portfolio will normally have expiration
dates between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolio may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., the Portfolio's investment
adviser ("Warburg"), expects that the price of the underlying security will
remain flat or decline moderately during the option period, (ii) at-the-money
call options when Warburg expects that the price of the underlying security will
remain flat or advance moderately during the option period and (iii)
out-of-the-money call options when Warburg expects that the premiums received
from writing the call option plus the appreciation in market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be used in the same market
environments that such call options are used in equivalent transactions. To
secure its obligation to deliver the underlying security when it writes a call
option, the Portfolio will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on which
the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Portfolio prior
to the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Portfolio may realize a profit or loss
from the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. When the Portfolio has purchased an
option and
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engages in a closing sale transaction, whether the Portfolio realizes a profit
or loss will depend upon whether the amount received in the closing sale
transaction is more or less than the premium the Portfolio initially paid for
the original option plus the related transaction costs. Similarly, in cases
where the Portfolio has written an option, it will realize a profit if the cost
of the closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. The Portfolio may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to which it has written
an option from being called or put or, in the case of a call option, to unfreeze
an underlying security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's expiration). The
obligation of the Portfolio under an option it has written would be terminated
by a closing purchase transaction, but the Portfolio would not be deemed to own
an option as a result of the transaction. So long as the obligation of the
Portfolio as the writer of an option continues, the Portfolio may be assigned an
exercise notice by the broker-dealer through which the option was sold,
requiring the Portfolio to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Portfolio effects a closing purchase transaction. The Portfolio can no longer
effect a closing purchase transaction with respect to an option once it has been
assigned an exercise notice.
There is no assurance that sufficient trading interest will exist
to create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Portfolio's
ability to terminate options positions established in the over-the-counter
market may be more limited than for exchange-traded options and may also involve
the risk that securities dealers participating in over-the-counter transactions
would fail to meet their obligations to the Portfolio. The Portfolio, however,
intends to purchase over-the-counter options only from dealers whose debt
securities, as determined by Warburg, are considered to be investment grade. If,
as a covered call option writer, the Portfolio is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise. In either case, the Portfolio would continue to be at
market risk on the security and could face higher transaction costs, including
brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless
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of whether the options are written on the same or different securities exchanges
or are held, written or exercised in one or more accounts or through one or more
brokers). It is possible that the Trust or the Portfolio and other clients of
Warburg and certain of its affiliates may be considered to be such a group. A
securities exchange may order the liquidation of positions found to be in
violation of these limits and it may impose certain other sanctions. These
limits may restrict the number of options the Portfolio will be able to purchase
on a particular security.
Stock Index Options. The Portfolio may purchase and write
exchange-listed and OTC put and call options on stock indexes. The aggregate
value of the securities underlying the options on stock indexes written by the
Portfolio, determined as of the date the options are sold, when added to the
value of the securities underlying the options on securities written by the
Portfolio, may not exceed 25% the Portfolio's net assets. A stock index measures
the movement of a certain group of stocks by assigning relative values to the
common stocks included in the index, fluctuating with changes in the market
values of the stocks included in the index. Some stock index options are based
on a broad market index, such as the NYSE Composite Index, or a narrower market
index such as the Standard & Poor's 100. Indexes may also be based on a
particular industry or market segment.
Options on stock indexes are similar to options on stock except
that (i) the expiration cycles of stock index options are monthly, while those
of stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (b) a fixed "index multiplier." Receipt
of this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the index and the exercise
price of the option times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Stock index options may be offset by entering into closing transactions as
described above for securities options.
OTC Options. The Portfolio may purchase OTC or dealer options or
sell covered OTC options. Unlike exchange-listed options where an intermediary
or clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Portfolio, the Portfolio would
lose the premium it paid for the option and the expected benefit of the
transaction.
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Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Portfolio will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Portfolio writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Portfolio originally wrote the option. Although the Portfolio will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Portfolio, there can be no assurance that the Portfolio will be able to
liquidate a dealer option at a favorable price at any time prior to expiration.
The inability to enter into a closing transaction may result in material losses
to the Portfolio. Until the Portfolio, as a covered OTC call option writer, is
able to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair the Portfolio's ability to
sell portfolio securities or, with respect to currency options, currencies at a
time when such sale might be advantageous. In the event of insolvency of the
other party, the Portfolio may be unable to liquidate a dealer option.
Futures Activities. The Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return.
The Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolio reserve the right to engage in transactions
involving futures contracts and options on futures contracts to the extent
allowed by CFTC regulations in effect from time to time and in accordance with
the Portfolio's policies. Although the Portfolio is limited in the amount of
assets it may invest in futures transactions (as described above and in the
Prospectus), there is no overall limit on the percentage of Portfolio assets
that may be at risk with respect to futures activities. The ability of the
Portfolio to trade in futures contracts and options on futures contracts may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), applicable to a regulated investment company.
Futures Contracts. A foreign currency futures contract provides
for the future sale by one party and the purchase by the other party of a
certain amount of a specified non-U.S. currency at a specified price, date, time
and place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate sensitive financial instrument (debt security) at a specified
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price, date, time and place. Stock indexes are capitalization weighted indexes
which reflect the market value of the stock listed on the indexes. A stock index
futures contract is an agreement to be settled by delivery of an amount of cash
equal to a specified multiplier times the difference between the value of the
index at the close of the last trading day on the contract and the price at
which the agreement is made.
No consideration is paid or received by the Portfolio upon
entering into a futures contract. Instead, the Portfolio is required to deposit
in a segregated account with its custodian an amount of cash or cash
equivalents, such as U.S. government securities or other liquid high-grade debt
obligations, equal to approximately 1% to 10% of the contract amount (this
amount is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Portfolio upon termination of the futures contract,
assuming all contractual obligations have been satisfied. The broker will have
access to amounts in the margin account if the Portfolio fails to meet its
contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the currency, financial instrument or
stock index underlying the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "marking-to-market." The Portfolio will also incur brokerage costs in
connection with entering into futures transactions.
At any time prior to the expiration of a futures contract, the
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio's existing position in the contract.
Positions in futures contracts and options on futures contracts (described
below) may be closed out only on the exchange on which they were entered into
(or through a linked exchange). No secondary market for such contracts exists.
Although the Portfolio intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting the Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
the Portfolio had insufficient cash, it might have to sell securities to meet
daily variation margin requirements at a time when it would be disadvantageous
to do so. In addition, if the transaction is entered into for hedging purposes,
in such circumstances the Portfolio may realize a loss on a futures contract or
option that is not offset by an increase in the value of the hedged position.
Losses incurred in futures transactions and the costs of these transactions will
affect the Portfolio's performance.
Options on Futures Contracts. The Portfolio may purchase and
write put and call options on foreign currency, interest rate and stock index
futures contracts and may enter
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into closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be effected;
the ability to establish and close out positions on such options will be subject
to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Portfolio.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of the Portfolio that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any non-U.S. currency
into U.S. dollars or into other appropriate currencies. The Portfolio will
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options.
Forward Currency Contracts. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract as agreed upon by
the parties, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
At or before the maturity of a forward contract, the Portfolio
may either sell a portfolio security and make delivery of the currency, or
retain the security and fully or partially offset its contractual obligation to
deliver the currency by negotiating with its trading partner to purchase a
second, offsetting contract. If the Portfolio retains the portfolio security and
engages in an offsetting transaction, the Portfolio, at the time of execution of
the offsetting
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transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
Currency Options. The Portfolio may purchase exchange-traded put
and call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
Currency Hedging. The Portfolio's currency hedging will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward currency with
respect to specific receivables or payables of the Portfolio generally accruing
in connection with the purchase or sale of its portfolio securities. The
Position hedging is the sale of forward currency with respect to portfolio
security positions. The Portfolio may not position hedge to an extent greater
than the aggregate market value (at the time of entering into the hedge) of the
hedged securities.
A decline in the U.S. dollar value of a foreign currency in which
the Portfolio's securities are denominated will reduce the U.S. dollar value of
the securities, even if their value in the foreign currency remains constant.
The use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. For example, in order to protect against diminutions in
the U.S. dollar value of securities it holds, the Portfolio may purchase
currency put options. If the value of the currency does decline, the Portfolio
will have the right to sell the currency for a fixed amount in dollars and will
thereby offset, in whole or in part, the adverse effect on the U.S. dollar value
of its securities that otherwise would have resulted. Conversely, if a rise in
the U.S. dollar value of a currency in which securities to be acquired are
denominated is projected, thereby potentially increasing the cost of the
securities, the Portfolio may purchase call options on the particular currency.
The purchase of these options could offset, at least partially, the effects of
the adverse movements in exchange rates. The benefit to the Portfolio derived
from purchases of currency options, like the benefit derived from other types of
options, will be reduced by premiums and other transaction costs. Because
transactions in currency exchange are generally conducted on a principal basis,
no fees or commissions are generally involved. Currency hedging involves some of
the same risks and considerations as other transactions with similar
instruments. Although currency hedges limit the risk of loss due to a decline in
the value of a hedged currency, at the same time, they also limit any potential
gain that might result should the value of the currency increase. If a
devaluation is generally anticipated, the Portfolio may not be able to contract
to sell a currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of the Portfolio's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Portfolio's
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investments denominated in that currency. A currency hedge, for example, should
protect a Yen-denominated bond against a decline in the Yen, but will not
protect the Portfolio against a price decline if the issuer's creditworthiness
deteriorates.
Hedging. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, the Portfolio may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by the
Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether the Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Portfolio's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, the
Portfolio's hedge positions may be in a greater or lesser dollar amount than the
dollar amount of the hedged position. Such "over hedging" or "under hedging" may
adversely affect the Portfolio's net investment results if market movements are
not as anticipated when the hedge is established. Stock index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the stock index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in the stock index and movements in the price of
stock index futures, a correct forecast of general market trends by Warburg
still may not result in a successful hedging transaction.
The Portfolio will engage in hedging transactions only when
deemed advisable by Warburg, and successful use by the Portfolio of hedging
transactions will be subject to Warburg's ability to predict trends in currency,
interest rate or securities markets, as the case may be, and to correctly
predict movements in the directions of the hedge and the hedged
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position and the correlation between them, which predictions could prove to be
inaccurate. This requires different skills and techniques than predicting
changes in the price of individual securities, and there can be no assurance
that the use of these strategies will be successful. Even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
trends. Losses incurred in hedging transactions and the costs of these
transactions will affect the Portfolio's performance.
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. As described in the Prospectus, the Portfolio will comply
with guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Portfolio on securities and indexes; and currency, interest rate and
index futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Portfolio of cash or
liquid high-grade debt securities or other securities that are acceptable as
collateral to the appropriate regulatory authority.
For example, a call option written by the Portfolio on securities
may require the Portfolio to hold the securities subject to the call (or
securities convertible into the securities without additional consideration) or
to segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Portfolio on
an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Portfolio could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Portfolio. If the Portfolio holds a futures or
forward contract, the Portfolio could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. The Portfolio may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
Additional Information on Investment Practices
Foreign Investments. Investors should recognize that investing
in foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S. issuers.
Foreign Currency Exchange. Since the Portfolio will be investing
in securities denominated in currencies other than the U.S. dollar, and since
the Portfolio may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Portfolio's investments in
foreign companies may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the
dollar. A change in the value of a foreign currency relative to the U.S. dollar
will result in a corresponding change in the dollar value of the Portfolio's
assets
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denominated in that foreign currency. Changes in foreign currency exchange rates
may also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and gains, if any,
to be distributed by the Portfolio with respect to its foreign investments. The
rate of exchange between the U.S. dollar and other currencies is determined by
the forces of supply and demand in the foreign exchange markets. Changes in the
exchange rate may result over time from the interaction of many factors directly
or indirectly affecting economic and political conditions in the United States
and a particular foreign country, including economic and political developments
in other countries. Of particular importance are rates of inflation, interest
rate levels, the balance of payments and the extent of government surpluses or
deficits in the United States and the particular foreign country, all of which
are in turn sensitive to the monetary, fiscal and trade policies pursued by the
governments of the United States and foreign countries important to
international trade and finance. Governmental intervention may also play a
significant role. National governments rarely voluntarily allow their currencies
to float freely in response to economic forces. Sovereign governments use a
variety of techniques, such as intervention by a country's central bank or
imposition of regulatory controls or taxes, to affect the exchange rates of
their currencies. The Portfolio may use hedging techniques with the objective of
protecting against loss through the fluctuation of the valuation of foreign
currencies against the U.S. dollar, particularly the forward market in foreign
exchange, currency options and currency futures. See "Currency Transactions" and
"Futures Transactions" above.
Information. The majority of the foreign securities held by the
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally not subject to uniform financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.
Political Instability. In addition, with respect to some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Portfolio, political
or social instability, or domestic developments which could affect U.S.
investments in those countries.
Delays. Securities of some foreign companies are less liquid and
their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. Due to the increased
exposure of the Portfolio to market and foreign exchange fluctuations brought
about by such delays, and due to the corresponding negative impact on the
Portfolio's liquidity, the Portfolio will avoid investing in countries which are
known to experience settlement delays which may expose the Portfolio to
unreasonable risk of loss.
Increased Expenses. The operating expenses of the Portfolio can
be expected to be higher than that of an investment company investing
exclusively in U.S. securities, since the expenses of the Portfolio, such as
custodial costs, valuation costs and communication costs,
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as well as the rate of the investment advisory fees, though similar to such
expenses of some other international funds, are higher than those costs incurred
by other investment companies.
General. In general, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. The Portfolio may invest in
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such investments
as well.
Japanese Investments. From time to time depending on current
market conditions, the Portfolio may invest a significant portion of its assets
in Japanese securities. Like any investor in Japan, the Portfolio will be
subject to general economic and political conditions in the country. In addition
to the considerations discussed above, these include future political and
economic developments, the possible imposition of, or changes in, exchange
controls or other Japanese governmental laws or restrictions applicable to such
investments, diplomatic developments, political or social unrest and natural
disasters.
THE INFORMATION SET FORTH IN THIS SECTION HAS BEEN EXTRACTED FROM
VARIOUS GOVERNMENTAL PUBLICATIONS AND OTHER SOURCES. THE TRUST MAKES NO
REPRESENTATION AS TO THE ACCURACY OF THE INFORMATION, NOR HAS THE TRUST
ATTEMPTED TO VERIFY IT. IN SOME CASES, CURRENT INFORMATION IS NOT PRESENTED AND
MAY VARY SUBSTANTIALLY FROM THE HISTORICAL DATA SHOWN. FURTHERMORE, NO
REPRESENTATION IS MADE THAT ANY CORRELATION EXISTS BETWEEN JAPAN OR ITS ECONOMY
IN GENERAL AND THE PERFORMANCE OF THE PORTFOLIO.
Economic Background. Over the past 30 years Japan has experienced
significant economic development. During the era of high economic growth in the
1960's and early 1970's the expansion was based on the development of heavy
industries such as steel and shipbuilding. In the 1970's Japan moved into
assembly industries which employ high levels of technology and consume
relatively low quantities of resources, and since then has become a major
producer of electrical and electronic products and automobiles. Moreover, since
the mid-1980's Japan has become a major creditor nation. With the exception of
the periods associated with the oil crises of the 1970's, Japan has generally
experienced very low levels of inflation. On January 17, 1995, the Great Hanshin
Earthquake severely damaged Kobe, Japan's largest container port. The government
has announced a $5.9 billion plan to repair the port and estimated that damage
to the region equals $120 billion. However, the long-term economic effects of
the earthquake on the Japanese economy as a whole and on the Portfolio's
investments cannot be predicted.
Japan is largely dependent upon foreign economies for raw
materials. For instance, almost all of its oil is imported, the majority from
the Middle East. Oil prices therefore have a major impact on the domestic
economy, as is evidenced by the current account deficits triggered by the two
oil crises of the 1970's. Oil prices have declined mainly due to a worldwide
easing of demand for crude oil. The stabilized price of oil contributed to
Japan's sizeable current account surplus and stability of wholesale and consumer
prices since
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<PAGE>
<PAGE>
1981. While Japan is working to reduce its dependence on foreign materials, its
lack of natural resources poses a significant obstacle to this effort.
International trade is important to Japan's economy, as exports
provide the means to pay for many of the raw materials it must import. Japan's
trade surplus has increased dramatically in recent years, exceeding $100 billion
per year since 1991 and reaching a record high of $145 billion in 1994. In 1995,
however, the trade surplus decreased due to a drop in exports. The reduced
exports are due primarily to the strength of the yen and the impact of
threatened U.S. trade sanctions. Because of the concentration of Japanese
exports in highly visible products such as automobiles, machine tools and
semiconductors, and the large trade surpluses resulting therefrom, Japan has
entered a difficult phase in its relations with its trading partners,
particularly with respect to the United States, with whom the trade imbalance is
the greatest. The United States and Japan have engaged in "economic framework"
negotiations to help raise United States' share in Japanese markets and reduce
Japan's current account surplus but progress in the negotiations has been
hampered by recent political upheaval in Japan. On June 28, 1995, the United
States agreed not to impose trade sanctions in return for a modest commitment by
Japan to buy more American cars and auto parts. Any trade sanctions imposed upon
Japan by the United States as a result of the current friction or otherwise
could adversely impact Japan and the Portfolio's investments there.
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years
shown.
CURRENT ACCOUNT
TRADE
<TABLE>
<CAPTION>
Current
Year Exports Imports Trade Balance Balance
---- ------- ------- ----- ------- -------
(U.S. dollars in millions)
<S> <C> <C> <C> <C>
1989 269,570 192,653 76,917 57,157
1990 280,374 216,846 63,528 35,761
1991 306,557 203,513 103,044 72,901
1992 330,850 198,502 132,348 117,551
1993 351,292 209,778 141,514 131,448
1994 384,176 283,232 145,944 129,140
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of Japan
Economic Trends. The following tables set forth Japan's gross
domestic product, wholesale price index and consumer price index for the years
shown.
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<PAGE>
GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GDP (yen billions) 469,149 465,972 463,145 451,297 424,537 396,197
(Expenditures)
Change in GDP
from Preceding
Year
Nominal terms 0.7% 0.6% 2.6% 6.3% 7.2% 6.7%
Real Terms 0.5% -0.2% 1.1% 4.3% 4.8% 4.7%
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of Japan
WHOLESALE PRICE INDEX
<TABLE>
<CAPTION>
Change from
All Preceding
Year Commodities Year
---- ----------- ---------
(Base year: 1990)
<S> <C> <C>
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 (2.1)
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of Japan
CONSUMER PRICE INDEX
<TABLE>
<CAPTION>
Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
<S> <C> <C>
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
1992 105.0 1.6
1993 106.4 1.3
1994 107.1 0.7
</TABLE>
Source: Institute of Fiscal and Monetary Policy, Ministry of Finance of Japan
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<PAGE>
Securities Markets. There are eight stock exchanges in Japan.
Of these, the Tokyo Stock Exchange is by far the largest, followed by the Osaka
Stock Exchange and the Nagoya Stock Exchange. These exchanges divide the market
for domestic stocks into two sections, with newly listed companies and smaller
companies assigned to the Second Section and larger companies assigned to the
First Section.
The following table sets forth the number of Japanese companies
listed on the three major Japanese stock exchanges as of the end of 1994.
NUMBER OF LISTED DOMESTIC COMPANIES
<TABLE>
<CAPTION>
Tokyo Osaka Nagoya
----- ------ ------
<S> <C> <C> <C> <C> <C>
1st 2nd 1st 2nd 1st 2nd
Sec. Sec. Sec. Sec. Sec. Sec.
---- ---- ---- ---- ---- ----
1,235 454 855 344 431 129
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995
The following table sets forth the trading volume and value of
Japanese stocks on the eight Japanese stock exchanges for the years shown.
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>
Year Volume Value
---- ------- -----
<S> <C> <C>
1989...... 256,296 (Y)386,395
1990...... 145,837 231,837
1991...... 107,844 134,160
1992...... 82,563 80,456
1993...... 101,173 106,123
1994...... 105,937 114,622
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995; Tokyo Stock Exchange New York
Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a
composite index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. TOPIX reflects the change in the aggregate market value of the
common stocks as compared to the aggregate market value of those stocks as of
the close on January 4, 1968.
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<PAGE>
<PAGE>
The following table sets forth the high, low and year-end TOPIX
for the years shown.
TOPIX
(January 4, 1968=100)
<TABLE>
<CAPTION>
Year Year-end High Low
---- -------- ---- ---
<S> <C> <C> <C>
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995
U.S. Government Securities. The Portfolio may invest in debt obligations
of varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. government securities"). Direct obligations
of the U.S. Treasury include a variety of securities that differ in their
interest rates, maturities and dates of issuance. U.S. government securities
also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, General Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association, Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board and Student Loan Marketing
Association. The Portfolio may also invest in instruments that are supported by
the right of the issuer to borrow from the U.S. Treasury and instruments that
are supported by the credit of the instrumentality. Because the U.S. government
is not obligated by law to provide support to an instrumentality it sponsors,
the Portfolio will invest in obligations issued by such an instrumentality only
if Warburg determines that the credit risk with respect to the instrumentality
does not make its securities unsuitable for investment by the Portfolio.
Securities of Other Investment Companies. The Portfolio may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Portfolio may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Portfolio's total assets and
(iii) when added to all other investment company securities held by the
Portfolio, do not exceed 10% of the value of the Portfolio's total assets.
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<PAGE>
Lending of Portfolio Securities. The Portfolio may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Trust's Board of Trustees (the "Board"). These loans, if and when made, may not
exceed 20% of the Portfolio's total assets taken at value. The Portfolio will
not lend portfolio securities to affiliates of Warburg unless it has applied for
and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of credit or U.S. government
securities, which are maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio involved. From time to time,
the Portfolio may return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Portfolio and that is acting as a "finder."
By lending its securities, the Portfolio can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Portfolio, income
received could be used to pay the Portfolio's expenses and would increase its
total return. The Portfolio will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the Portfolio must receive at least 100%
cash collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) the Portfolio must be able to terminate the loan at any time;
(iv) the Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Portfolio's ability to recover the loaned
securities or dispose of the collateral for the loan.
When-Issued Securities and Delayed-Delivery Transactions. The Portfolio
may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days. The
Portfolio will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage, but may sell the
securities before the settlement date if Warburg deems it advantageous to do so.
The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the yields obtained on such securities
may be higher or lower than
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<PAGE>
<PAGE>
the yields available in the market on the dates when the investments are
actually delivered to the buyers.
When the Portfolio agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations or other securities that are acceptable
as collateral to the appropriate regulatory authority equal to the amount of the
commitment in a segregated account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Portfolio may be required subsequently to place additional assets in the
segregated account in order to ensure that the value of the account remains
equal to the amount of the Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. When the Portfolio engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure of
the seller to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
American, European and Continental Depositary Receipts. The assets of
the Portfolio may be invested in the securities of foreign issuers in the form
of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in
Europe typically by non-U.S. banks and trust companies that evidence ownership
of either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs and CDRs in bearer form are
designed for use in European securities markets.
Short Sales "Against the Box." In a short sale, the Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
The Portfolio may engage in a short sale if at the time of the short sale the
Portfolio owns or has the right to obtain without additional cost an equal
amount of the security being sold short. This investment technique is known as a
short sale "against the box." If the Portfolio engages in a short sale, the
collateral for the short position will be maintained by the Portfolio's
custodian or qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Portfolio's long position. Not more than 10% of the Portfolio's net assets
(taken at current value) may be held as collateral for such short sales at any
one time.
The Portfolio does not intend to engage in short sales against the box
for investment purposes. The Portfolio may, however, make a short sale as a
hedge, when it believes that the
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<PAGE>
price of a security may decline, causing a decline in the value of a security
owned by the Portfolio (or a security convertible or exchangeable for such
security), or when the Portfolio wants to sell the security at an attractive
current price, but also wishes to defer recognition of gain or loss for U.S.
federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Code. In such case, any
future losses in the Portfolio's long position should be offset by a gain in the
short position and, conversely, any gain in the long position should be reduced
by a loss in the short position. The extent to which such gains or losses are
reduced will depend upon the amount of the security sold short relative to the
amount the Portfolio owns. There will be certain additional transaction costs
associated with short sales against the box, but the Portfolio will endeavor to
offset these costs with the income from the investment of the cash proceeds of
short sales.
Warrants. The Portfolio may invest up to 5% of net assets in warrants,
provided that not more than 2% of net assets may be invested in warrants not
listed on a recognized U.S. or foreign stock exchange. Because a warrant does
not carry with it the right to dividends or voting rights with respect to the
securities which it entitles a holder to purchase, and because it does not
represent any rights in the assets of the issuer, warrants may be considered
more speculative than certain other types of investments. Also, the value of a
warrant does not necessarily change with the value of the underlying securities
and a warrant ceases to have value if it is not exercised prior to its
expiration date.
Non-Publicly Traded and Illiquid Securities. The Portfolio may not
invest more than 15% of its net assets in illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market, repurchase agreements which have a maturity of longer than seven days
and time deposits maturing in more than seven days. Securities that have legal
or contractual restrictions on resale but have a readily available market are
not considered illiquid for purposes of this limitation. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
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<PAGE>
<PAGE>
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by the
SEC allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act for
resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
Warburg will monitor the liquidity of restricted securities in the
Portfolio under the supervision of the Board. In reaching liquidity decisions,
Warburg may consider, inter alia, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Borrowing. The Portfolio may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Portfolio's net
assets. Although the principal of such borrowings will be fixed, the Portfolio's
assets may change in value during the time the borrowing is outstanding. The
Portfolio expects that some of its borrowings may be made on a secured basis. In
such situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender.
Other Investment Limitations
The investment limitations numbered 1 through 10 may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations 11 through 17
may be changed by a vote of the Board at any time.
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<PAGE>
The Portfolio may not:
1. Borrow money except that the Portfolio may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Portfolio may not exceed 30% of the value of the
Portfolio's total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options, futures
contracts, options on futures contracts, forward commitment transactions and
dollar roll transactions that are not accounted for as financings (and the
segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Purchase any securities which would cause 25% or more of the value of
the Portfolio's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. Purchase the securities of any issuer, if as a result more than 5% of
the value of the Portfolio's total assets would be invested in the securities of
such issuer, except that this 5% limitation does not apply to U.S. government
securities and except that up to 25% of the value of the Portfolio's total
assets may be invested without regard to this 5% limitation.
4. Make loans, except that the Portfolio may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
5. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the sale of securities in accordance
with the Portfolio's investment objective, policies and limitations may be
deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Portfolio may invest in (a)
securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. Make short sales of securities or maintain a short position, except
that the Portfolio may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and make short sales
"against the box".
8. Purchase securities on margin, except that the Portfolio may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
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<PAGE>
9. Invest in commodities, except that the Portfolio may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies on a forward commitment or delayed-delivery
basis.
10. Issue any senior security except as permitted in these investment
limitations.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
12. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the writing of covered put
and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
13. Invest more than 15% of the Portfolio's net assets in securities
which may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities.
14. Purchase any security if as a result the Portfolio would then have
more than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
15. Purchase or retain securities of any company if, to the knowledge of
the Trust, any of the Portfolio's officers or Trustees or any officer or
director of Warburg individually owns more than 1/2 of 1% of the outstanding
securities of such company and together they own beneficially more than 5% of
the securities.
16. Invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 5%
of the value of the Portfolio's net assets.
17. Make additional investments (including roll-overs) if the
Portfolio's borrowings exceed 5% of its net assets.
General. Certain other non-fundamental investment limitations are
currently required by one or more states in which shares of the Portfolio are
sold. These may be more restrictive than the limitations set forth above. Should
the Portfolio determine that any such commitment is no longer in the best
interest of the Portfolio and its shareholders, the Portfolio will revoke the
commitment by terminating the sale of its shares in the state involved. In
addition, the
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<PAGE>
relevant state may change or eliminate its policy regarding such investment
limitations. If a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Portfolio's assets will not constitute a violation of such restriction.
Portfolio Valuation
The Prospectus discusses the time at which the net asset value of the
Portfolio is determined for purposes of sales and redemptions. The following is
a description of the procedures used by the Portfolio in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
as of the time the valuation is made or, in the absence of sales, at the mean
between the bid and asked quotations. If there are no such quotations, the value
of the securities will be taken to be the highest bid quotation on the exchange
or market. Options or futures contracts will be valued similarly. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to debt obligations with 60 days or less remaining to maturity. In
determining the market value of portfolio investments, the Portfolio may employ
outside organizations (a "Pricing Service") which may use a matrix formula or
other objective method that takes into consideration market indexes, matrices,
yield curves and other specific adjustments. The procedures of Pricing Services
are reviewed periodically by the officers of the Trust under the general
supervision and responsibility of the Board, which may replace a Pricing Service
at any time. Securities, options and futures contracts for which market
quotations are not available and certain other assets of the Portfolio will be
valued at their fair value as determined in good faith pursuant to consistently
applied procedures established by the Board. In addition, the Board or its
delegates may value a security at fair value if it determines that such
security's value determined by the methodology set forth above does not reflect
its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the NYSE is open for trading). In addition, securities
trading in a particular country or countries may not take place on all business
days in New York. Furthermore, trading takes place in various foreign markets on
days which are not business days in New York and days on which the Portfolio's
net asset value is not calculated. As a result, calculation of the Portfolio's
net asset value may not take place contemporaneously with the determination of
the prices of certain portfolio securities used in such calculation. Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of regular trading on the
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NYSE will not be reflected in the Portfolio's calculation of net asset value, in
which case an adjustment may be made by the Board or its delegates. All assets
and liabilities initially expressed in foreign currency values will be converted
into U.S. dollar values at the prevailing rate as quoted by a Pricing Service.
If such quotations are not available, the rate of exchange will be determined in
good faith pursuant to consistently applied procedures established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where necessary,
modifying the Portfolio's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Portfolio to underwriters of newly issued securities usually
includes a concession paid by the issuer to the underwriter, and purchases of
securities from dealers, acting as either principals or agents in the after
market, are normally executed at a price between the bid and asked price, which
includes a dealer's mark-up or mark-down. Transactions on U.S. stock exchanges
and some foreign stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. On most foreign exchanges,
commissions are generally fixed. There is generally no stated commission in the
case of securities traded in domestic or foreign over-the-counter markets, but
the price of securities traded in over-the-counter markets includes an
undisclosed commission or mark-up. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Portfolio and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to
the Portfolio and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction or
of the overall responsibilities of Warburg. Research and other services received
may be useful to Warburg in serving both the Portfolio and its other clients
and, conversely, research
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<PAGE>
or other services obtained by the placement of business of other clients may be
useful to Warburg in carrying out its obligations to the Portfolio. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services; and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Warburg in carrying out its
responsibilities. For the fiscal period ended December 31, 1995, $6,172 of total
brokerage commissions was paid to brokers and dealers by the Portfolio who
provided such research and other services. Research received from brokers or
dealers is supplemental to Warburg's own research program. The fees to Warburg
under its advisory agreements with the Trust are not reduced by reason of its
receiving any brokerage and research services.
During the fiscal period ended December 31, 1995, the Trust, on behalf
of the Portfolio, paid an aggregate of approximately $224,678 in commissions to
broker-dealers for execution of portfolio transactions. As of December 31, 1995,
the Portfolio had outstanding a repurchase agreement in the amount of $4,060,000
with State Street Boston Securities, one of the Portfolio's regular
broker-dealers and an affiliate of its transfer agent.
Investment decisions for the Portfolio concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as the
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which Warburg believes to be equitable to each client, including the
Portfolio. In some instances, this investment procedure may adversely affect the
price paid or received by the Portfolio or the size of the position obtained or
sold for the Portfolio. To the extent permitted by law, Warburg may aggregate
the securities to be sold or purchased for the Portfolio with those to be sold
or purchased for such other investment clients in order to obtain best
execution.
Any portfolio transaction for the Portfolio may be executed through
Counsellors Securities Inc., the Trust's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the
Portfolio a commission rate consistent with those charged by Counsellors
Securities to comparable unaffiliated customers in similar transactions. All
transactions with affiliated brokers will comply with Rule 17e-1 under the 1940
Act. In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities or any affiliated person of such companies.
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<PAGE>
Transactions for the Portfolio may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Portfolio will deal directly with the dealers who make
a market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
The Portfolio may participate, if and when practicable, in bidding for
the purchase of securities for the Portfolio's portfolio directly from an issuer
in order to take advantage of the lower purchase price available to members of
such a group. The Portfolio will engage in this practice, however, only when
Warburg, in its sole discretion, believes such practice to be otherwise in the
Portfolio's interest.
Portfolio Turnover
The Portfolio does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the
Portfolio deems it desirable to sell or purchase securities. The Portfolio's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Portfolio could result in
high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold.
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MANAGEMENT OF THE TRUST
Officers and Board of Trustees
The names (and ages) of the Trust's Trustees and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard N. Cooper (61).........................Trustee
Room 7E47OHB Professor at Harvard University;
Central Intelligence Agency Director or Trustee of Circuit
930 Dolly Madison Blvd. City Stores, Inc. (retail electronics and
McClain, Virginia 22107 appliances) and Phoenix Home Life Insurance Co.
Donald J. Donahue (71).........................Trustee
99 Indian Field Road Chairman of Magma Copper Company since
Greenwich, Connecticut 06830 January 1987; Director or Trustee of GEV
Corporation and Signet Star
Reinsurance Company; Chairman and
Director of NAC Holdings from
September 1990-June 1993.
Jack W. Fritz (68).............................Trustee
2425 North Fish Creek Road Private investor; Consultant
P.O. Box 483 and Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and operators
of radio stations); Director of Advo, Inc.
(direct mail advertising).
John L. Furth* (65)............................Chairman of the Board and Trustee
466 Lexington Avenue Vice Chairman and Director of EMW;
New York, New York 10017-3147 Associated with E.M. Warburg, Pincus & Co.,
Inc. ("EMW") since 1970; Officer of other
investment companies advised by Warburg.
Thomas A. Melfe (63)...........................Trustee
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton & Irvine; Director of
Municipal Fund for New York Investors, Inc.
</TABLE>
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<TABLE>
<S> <C>
Arnold M. Reichman* (47).......................Trustee and President
466 Lexington Avenue Managing Director and Assistant
New York, New York 10017-3147 Secretary of EMW; Associated with EMW *since
1984; Senior Vice President, Secretary and
Chief Operating Officer of Counsellors
Securities; Officer of other investment
companies advised by Warburg.
Alexander B. Trowbridge (66)...................Trustee
1317 F Street, N.W. President of Trowbridge Partners, Inc.
Suite 500 (business consulting) from January 1990-
Washington, DC 20004 January 1994; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), P.H.H. Corporation
(fleet auto management; housing and plant
relocation service), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), SunResorts International Ltd.
(hotel and real estate management), Harris
Corp. (electronics and communications
equipment), The Gillette Co. (personal care
products) and Sun Company Inc. (petroleum
refining and marketing).
Eugene L. Podsiadlo (38).......................Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with
New York, New York 10017-3147 EMW since 1991; Vice President of Citibank,
N.A. from 1987-1991; Senior Vice President of
Counsellors Securities and other investment
companies advised by Warburg.
Stephen Distler (42)...........................Vice President and Chief Financial Officer
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of EMW; Associated with EMW since
1984; Treasurer of Counsellors Securities;
Vice President, Treasurer and Chief Accounting
Officer or Vice President and Chief Financial
Officer of other investment companies advised
by Warburg.
</TABLE>
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* Indicates a Trustee who is an "interested person" of the Trust as defined
in the 1940 Act.
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<TABLE>
<S> <C>
Eugene P. Grace (44)...........................Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April
1994; life insurance agent, New
York Life Insurance Company from
1993-1994; General Counsel and
Secretary, Home Unity Savings
Bank from 1991-1992; Vice
President and Chief Compliance
Officer of Counsellors
Securities; Vice President and
Secretary of other investment
companies advised by Warburg.
Howard Conroy (42).............................Vice President, Treasurer and Chief
466 Lexington Avenue Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992; Associated
with Martin Geller, C.P.A. from 1990-1992;
Vice President, Finance with Gabelli/Rosenthal
& Partners, L.P. until 1990; Vice President,
Treasurer and Chief Accounting Officer of
other investment companies advised by Warburg.
Karen Amato (32)...............................Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987; Assistant
New York, New York 10017-3147 Secretary of other investment companies
advised by Warburg.
</TABLE>
No employee of Warburg or PFPC Inc., the Trust's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Trust
for acting as an officer or Trustee of the Trust. Each Trustee who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500 and $250 for each meeting of the Board
attended by him for his services as Trustee and is reimbursed for expenses
incurred in connection with his attendance at Board meetings.
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Trustees' Compensation
(estimated for the fiscal year ended December 31, 1996)`D'
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Trust Managed by Warburb*
- ---------------------------- ----------------- --------------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $42,500
Donald J. Donahue $1,500 $42,500
Jack W. Fritz $1,500 $42,500
Thomas A. Melfe $1,500 $42,500
Alexander B. Trowbridge $1,500 $42,500
</TABLE>
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`D' Estimates of future payments to be made pursuant to existing arrangements.
* Each Trustee also serves as a Director or Trustee of 20 other investment
companies advised by Warburg.
** Mr. Furth and Mr. Reichman are considered to be interested persons of the
Trust and Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receive no compensation from the Trust or any other investment
company managed by Warburg.
As of January 31, 1996, no Trustees or officers of the Trust owned any
of the outstanding shares of the Portfolio.
Portfolio Managers
Mr. Richard H. King, portfolio manager of the Portfolio, earned a
B.A. degree from Durham University in England. Mr. King is also portfolio
manager of Warburg Pincus International Equity Fund and the International Equity
Portfolio of Warburg Pincus Institutional Fund, Inc. and a co-portfolio manager
of Warburg Pincus Emerging Markets Fund and Warburg Pincus Japan OTC Fund. From
1968 to 1982, he worked at W.I. Carr Sons & Company (Overseas), a leading
international brokerage firm. He resided in the Far East as an investment
analyst from 1970 to 1977, became director, and later relocated to the U.S.
where he became founder and president of W.I. Carr (America), based in New York.
From 1982 to 1984 Mr. King was a director in charge of the Far East equity
investments at N.M. Rothschild International Asset Management, a London merchant
bank. In 1984 Mr. King became chief investment officer and director for all
international investment strategy
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with Fiduciary Trust Company International S.A., in London. He managed an EAFE
mutual fund (FTIT) 1985-1986 which grew from $3 million to over $100 million
during this two-year period.
Mr. Nicholas P.W. Horsley, associate portfolio manager and
research analyst of the Portfolio, is also a co-portfolio manager of Warburg
Pincus Emerging Markets Fund and Warburg Pincus Japan OTC Fund and an associate
portfolio manager and research analyst of Warburg Pincus International Equity
Fund and the International Equity Portfolio of Warburg Pincus Institutional
Fund, Inc. From 1981 to 1984 Mr. Horsley was a securities analyst at Barclays
Merchant Bank in London, UK and Johannesburg, RSA. From 1984 to 1986 he was a
senior analyst with BZW Investment Management in London. From 1986 to 1993 he
was a director, portfolio manager and analyst at Barclays deZoete Wedd in New
York City. Mr. Horsley earned B.A. and M.A. degrees with honors from University
College, Oxford.
Mr. P. Nicholas Edwards, associate portfolio manager and research
analyst of the Portfolio, is also portfolio manager of Warburg Pincus Japan
Growth Fund and a co-portfolio manager and research analyst of Warburg Pincus
International Equity Fund and an associate portfolio manager and research
analyst of the International Equity Portfolio of Warburg Pincus Institutional
Fund, Inc. Prior to joining Warburg in August 1995, Mr. Edwards was a director
at Jardine Fleming Investment Advisers, Tokyo. He was a vice president of Robert
Fleming Inc. in New York City from 1988 to 1991. Mr. Edwards earned M.A. degrees
from Oxford University and Hiroshima University in Japan.
Mr. Harold W. Ehrlich, associate portfolio manager and research
analyst of the Portfolio, is also an associate portfolio manager and research
analyst of Warburg Pincus Emerging Markets Fund, Warburg Pincus International
Equity Fund and the International Equity Portfolio of Warburg Pincus
Institutional Fund, Inc. Prior to joining Warburg, Mr. Ehrlich was a senior vice
president, portfolio manager and analyst at Templeton Investment Counsel Inc.
from 1987 to 1995. He was a research analyst and assistant portfolio manager at
Fundamental Management Corporation from 1985 to 1986 and a research analyst at
First Equity Corporation of Florida from 1983 to 1985. Mr. Ehrlich earned a
B.S.B.A. degree from University of Florida and earned his Chartered Financial
Analyst designation in 1990.
Mr. Vincent J. McBride, associate portfolio manager and research
analyst of the Portfolio, is also an associate portfolio manager and research
analyst of Warburg Pincus Emerging Markets Fund, Warburg Pincus International
Equity Fund and the International Equity Portfolio of Warburg Pincus
Institutional Fund, Inc. Prior to joining Warburg in 1994, Mr. McBride was an
international equity analyst at Smith Barney Inc. from 1993 to 1994 and at
General Electric Investment Corporation from 1992 to 1993. He was also a
portfolio manager/analyst at United Jersey Bank from 1989 to 1992 and a
portfolio manager at First Fidelity Bank from 1987 to 1989. Mr. McBride earned a
B.S. degree from the University of Delaware and an M.B.A. degree from Rutgers
University.
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Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Portfolio,
Counsellors Funds Service, Inc. ("Counsellors Service") serves as a
co-administrator to the Trust and PFPC serves as a co-administrator to the Trust
pursuant to separate written agreements (the "Advisory Agreements," the
"Counsellors Service Co-Administration Agreements" and the "PFPC
Co-Administration Agreements," respectively). The services provided by, and the
fees payable by the Trust to, Warburg under the Advisory Agreements, Counsellors
Service under the Counsellors Service Co-Administration Agreements and PFPC
under the PFPC Co-Administration Agreements are described in the Prospectus.
During the fiscal period ended December 31, 1996, Warburg earned
$120,130 in investment advisory fees with respect to the Portfolio. Warburg
voluntarily waived $47,206 of such fees and reimbursed $39,973 in expenses.
Counsellors Service earned $12,013 in co-administration fees with respect to the
Portfolio. PFPC received $14,416 in co-administration fees with respect to the
Portfolio, and voluntarily waived $5,665 of such fees.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC") and State Street Bank and
Trust Company ("State Street") serve as custodians of the Portfolio's U.S. and
foreign assets, respectively, pursuant to separate custodian agreements (the
"Custodian Agreements"). Under the Custodian Agreements, PNC and State Street
each (i) maintains a separate account or accounts in the name of the Portfolio,
(ii) holds and transfers portfolio securities on account of the Portfolio, (iii)
makes receipts and disbursements of money on behalf of the Portfolio, (iv)
collects and receives all income and other payments and distributions on account
of the Portfolio's portfolio securities held by it and (v) makes periodic
reports to the Board concerning the Trust's custodial arrangements. PNC may
delegate its duties under its Custodian Agreement with the Trust to a wholly
owned direct or indirect subsidiary of PNC or PNC Bank Corp. upon notice to the
Trust and upon the satisfaction of certain other conditions. With the approval
of the Board, State Street is authorized to select one or more foreign banking
institutions and foreign securities depositaries as sub-custodian on behalf of
the Portfolio; State Street is not relieved of any responsibility or liability
to the Trust on account of any actions or omissions of any such sub-custodian.
PNC is an indirect, wholly owned subsidiary of PNC Bank Corp., and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101. The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110.
State Street also serves as the shareholder servicing, transfer
and dividend disbursing agent of the Trust pursuant to a Transfer Agency and
Service Agreement, under which State Street (i) issues and redeems shares of the
Portfolio, (ii) addresses and mails all communications by the Trust to record
owners of Portfolio shares, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders, (iii)
maintains shareholder accounts and, if requested, sub-accounts and
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<PAGE>
(iv) makes periodic reports to the Board concerning the transfer agent's
operations with respect to the Trust. State Street has delegated to Boston
Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility
for most shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, Boston, Massachusetts 02171.
Organization of the Trust
The Trust was organized as an unincorporated Massachusetts
business trust under the name "Warburg, Pincus Trust."
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Portfolio.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration of Trust provides for indemnification from the
Portfolio's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio would be unable to meet its
obligations, a possibility that Warburg believes is remote and immaterial. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
relevant Portfolio. The Trustees intend to conduct the operations of the Trust
in such a way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trust.
All shareholders of the Portfolio, upon liquidation, will
participate ratably in the Portfolio's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can elect all Trustees. Shares are transferable but
have no preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As described in the Prospectus, shares of the Portfolio may not
be purchased or redeemed by individual investors directly may be purchased or
redeemed only through Variable Contracts offered by separate accounts of
Participating Insurance Companies and through Plans, including
participant-directed Plans which elect to make the Portfolio an investment
option for Plan participants. The offering price of the Portfolio's shares is
equal to its per share net asset value. Additional information on how to
purchase and redeem the Portfolio's shares and how such shares are priced is
included in the Prospectus under "Net Asset Value."
Under the 1940 Act, the Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a
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result of which disposal or fair valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Portfolio may also suspend or postpone the recordation of an exchange of its
shares upon the occurrence of any of the foregoing conditions.)
If the Board determines that conditions exist which make payment
of redemption proceeds wholly in cash unwise or undesirable, the Portfolio may
make payment wholly or partly in securities or other investment instruments
which may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. The Trust intends to comply with Rule 18f-1 promulgated
under the 1940 Act with respect to redemptions in kind.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Trust and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult the sponsoring Participating
Insurance Company separate account prospectus or the Plan documents or other
informational materials supplied by Plan sponsors and their own tax advisers
with respect to the particular tax consequences to them of an investment in the
Portfolio.
The Portfolio intends to qualify as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a regulated
investment company, the Portfolio will pay no federal income taxes on its
taxable net investment income (that is, taxable income other than net realized
capital gains) and its net realized capital gains that are distributed to
shareholders. To qualify under Subchapter M, the Portfolio must, among other
things: (i) distribute to its shareholders at least 90% of its taxable net
investment income (for this purpose consisting of taxable net investment income
and net realized short-term capital gains); (ii) derive at least 90% of its
gross income from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of securities, or other
income (including, but not limited to, gains from options, futures, and forward
contracts) derived with respect to its business of investing in securities;
(iii) derive less than 30% of its annual gross income from the sale or other
disposition of securities, options, futures or forward contracts held for less
than three months; and (iv) diversify its holdings so that, at the end of each
fiscal quarter of the Portfolio (a) at least 50% of the market value of the
Portfolio's assets is represented by cash, U.S. government securities and other
securities, with those other securities limited, with respect to any one issuer,
to an amount no greater in value than 5% of the Portfolio's total assets and to
not more than 10% of the outstanding voting securities of the issuer, and (b)
not more than 25% of the market value of the Portfolio's assets is invested in
the securities of any one issuer (other than U.S. government securities or
securities of other regulated investment companies) or of two or more issuers
that the Portfolio controls and that are determined to be in the same or similar
trades or businesses or related trades or businesses.
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In meeting these requirements, the Portfolio may be restricted in the selling of
securities held by the Portfolio for less than three months and in the
utilization of certain of the investment techniques described above and in the
Trust's Prospectus. As a regulated investment company, the Portfolio will be
subject to a 4% non-deductible excise tax measured with respect to certain
undistributed amounts of ordinary income and capital gain required to be but not
distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Portfolio's taxable ordinary income for the calendar year and at least
98% of the excess of its capital gains over capital losses realized during the
one-year period ending October 31 during such year, together with any
undistributed, untaxed amounts of ordinary income and capital gains from the
previous calendar year. The Portfolio expects to pay the dividends and make the
distributions necessary to avoid the application of this excise tax.
In addition, the Portfolio intends to comply with the
diversification requirements of Section 817(h) of the Code related to the
tax-deferred status of insurance company separate accounts. To comply with
regulations under Section 817(h) of the Code, the Portfolio will be required to
diversify its investments so that on the last day of each calendar quarter no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments and no more than 90% is represented by any
four investments. Generally, all securities of the same issuer are treated as a
single investment. For the purposes of Section 817(h), obligations of the United
States Treasury and each U.S. government instrumentality are treated as
securities of separate issuers. The Treasury Department has indicated that it
may issue future pronouncements addressing the circumstances in which a Variable
Contract owner's control of the investments of a separate account may cause the
Variable Contract owner, rather than the Participating Insurance Company, to be
treated as the owner of the assets held by the separate account. If the Variable
Contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the Variable Contract owner's gross income. It is not known what
standards will be set forth in such pronouncements or when, if at all, these
pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Portfolio will be able to operate as
currently described, or that the Trust will not have to change the investment
goal or investment policies of the Portfolio. While the Portfolio's investment
goal is fundamental and may be changed only by a vote of a majority of the
Portfolio's outstanding shares, the Board reserves the right to modify the
investment policies of the Portfolio as necessary to prevent any such
prospective rules and regulations from causing a Variable Contract owner to be
considered the owner of the shares of the Portfolio underlying the separate
account.
The Portfolio's transactions, if any, in foreign currencies,
forward contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Portfolio (i.e., may affect whether gains or losses are
ordinary or capital), accelerate recognition of income to the Portfolio, defer
Portfolio losses and cause the Portfolio to be subject to hyperinflationary
currency rules.
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These rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (i) will require the
Portfolio to mark-to-market certain types of its positions (i.e., treat them as
if they were closed out) and (ii) may cause the Portfolio to recognize income
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes. The Portfolio will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment so that (a) neither the Portfolio nor its
shareholders will be treated as receiving a materially greater amount of capital
gains or distributions than actually realized or received, (b) the Portfolio
will be able to use substantially all of its losses for the fiscal years in
which the losses actually occur and (c) the Portfolio will continue to qualify
as a regulated investment company.
As described in the Prospectus, because shares of the Portfolio
may only be purchased through Variable Contracts and Plans, it is anticipated
that dividends and distributions will be exempt from current taxation if left to
accumulate within the Variable Contracts or Plans.
Investment in Passive Foreign Investment Companies
If the Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed by the Portfolio to its shareholders, the Variable
Contracts and Plans. In addition, gain on the disposition of shares in a PFIC
generally is treated as ordinary income even though the shares are capital
assets in the hands of the Portfolio. Certain interest charges may be imposed on
the Portfolio with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Portfolio may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Portfolio compared to a
fund that did not make the election. In addition, information required to make
such an election may not be available to the Portfolio.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice indicating
that final regulations will provide that regulated investment companies may
elect the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of the Portfolio is unclear. If the Portfolio is not able to make
the foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if it were sold for fair market value). Such an
-37-
<PAGE>
<PAGE>
election could result in acceleration of income to the Portfolio. Recently
proposed legislation would codify the mark-to-market election for regulated
investment companies.
DETERMINATION OF PERFORMANCE
From time to time, the Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. The
actual total return of the Portfolio for the fiscal period ended December 31,
1995 (since June 30, 1995 inception) was 7.30% (7.11% without waivers) (14.91%
and 14.50%, respectively, on an annualized basis). Total return is calculated by
finding the average annual compounded rates of return for the one-, five-, and
ten- (or such shorter period as the Portfolio has been offered) year periods
that would equate the initial amount invested to the ending redeemable value
according to the following formula: P (1 + T)'pp'n = ERV. For purposes of this
formula, "P" is a hypothetical investment of $1,000; "T" is average annual total
return; "n" is number of years; and "ERV" is the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the one-, five- or ten-year
periods (or fractional portion thereof). Total return or "T" is computed by
finding the average annual change in the value of an initial $1,000 investment
over the period and assumes that all dividends and distributions are reinvested
during the period.
The Portfolio may advertise, from time to time, comparisons of
its performance with that of one or more other mutual funds with similar
investment objectives. The Portfolio may advertise average annual
calendar-year-to-date and calendar quarter returns, which are calculated
according to the formula set forth in the preceding paragraph, except that the
relevant measuring period would be the number of months that have elapsed in the
current calendar year or most recent three months, as the case may be. Investors
should note that this performance may not be representative of the Portfolio's
total return in longer market cycles.
The Portfolio's performance will vary from time to time depending
upon market conditions, the composition of its portfolio and operating expenses
allocable to it. As described above, total return is based on historical
earnings and is not intended to indicate future performance. Consequently, any
given performance quotation should not be considered as representative of
performance for any specified period in the future. Performance information may
be useful as a basis for comparison with other investment alternatives. However,
the Portfolio's performance will fluctuate, unlike certain bank deposits or
other investments which pay a fixed yield for a stated period of time.
Performance quotations for the Portfolio includes the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan, which would reduce the returns
described in this section. See the Prospectus, "Performance."
The Portfolio intends to diversify its assets among countries,
and in doing so, would expect to be able to reduce the risk arising from
economic problems affecting a single country. Warburg also believes that a
diversified portfolio of international equity securities, when combined with a
similarly diversified portfolio of domestic equity securities, tends to have a
lower volatility than a portfolio composed entirely of domestic securities.
-38-
<PAGE>
<PAGE>
Furthermore, international equities have been shown to reduce volatility in
single asset portfolios regardless of whether the investments are in all
domestic equities or all domestic fixed-income instruments.
To illustrate this point, the performance of international equity
securities, as measured by the Morgan Stanley Capital International (EAFE)
Europe, Australia and Far East Index (the "MS-EAFE Index"), has equalled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S & P 500 Index") in 14 of the last 23
years. The following table compares annual total returns of the MS-EAFE Index
and the S & P 500 Index for the calendar years shown.
-39-
<PAGE>
<PAGE>
MS-EAFE INDEX VS. S&P 500 INDEX
1972 - 1995
ANNUAL TOTAL RETURN`D'
<TABLE>
<CAPTION>
YEAR MS-EAFE INDEX S&P 500 INDEX
---- ------------- -------------
<S> <C> <C>
1972* 33.28 14.43
1973* -16.82 -18.85
1974* -25.60 -30.96
1975* 31.21 27.81
1976 -.36 -9.64
1978* 28.92 5.01
1979 1.82 9.02
1980 19.01 27.71
1981* -4.85 -10.17
1982 -4.63 14.80
1983* 20.91 13.93
1984* 5.02 -1.22
1985* 52.97 29.45
1986* 66.80 14.97
1987* 23.18 .26
1988* 26.66 8.61
1989 9.22 28.81
1990 -24.71 -8.24
1991 10.19 27.94
1992 -13.89 4.43
1993* 30.49 7.22
1994* 6.24 -1.34
1995 9.42 34.71
</TABLE>
- -----------------
`D' Without reinvestment of dividends.
* The MS-EAFE Index has outperformed the S&P 500 Index 15 out of the last 24
years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets
The quoted performance information shown above is not intended to
indicate the future performance of the Portfolio. Advertising or supplemental
sales literature relating to the Portfolio may describe the percentage decline
from all-time high levels for certain foreign stock markets. It may also
describe how the Portfolio differs from the MS-EAFE Index in composition.
-40-
<PAGE>
<PAGE>
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Trust. The financial statements for the
Portfolio that appear in this Statement of Additional Information have been
audited by Coopers & Lybrand, whose report thereon appears elsewhere herein and
have been included herein in reliance upon the report of such firm of
independent accountants given upon their authority as experts in accounting and
auditing.
Willkie Farr & Gallagher serves as counsel for the Trust as well
as counsel to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of January 31, 1996, the name, address and percentage
ownership of each person that owned of record 5% or more of the Portfolio's
outstanding shares were as follows: Nationwide Life Insurance Company
("Nationwide"), on behalf of its separate account Nationwide Variable Account
II, c/o IPO Portfolio Accounting, P.O. Box 182029, Columbus, OH 43218-2029 --
97.29%. Nationwide is not the beneficial owner of these shares.
FINANCIAL STATEMENTS
The Trust's financial statements and Report of Independent
Accountants for the fiscal period ended December 31, 1995 are attached to this
Statement of Additional Information.
-41-
<PAGE>
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Group
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Although they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher-rated
categories.
To provide more detailed indications of credit quality, the ratings from
"AA" to "BBB" may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
A-1
<PAGE>
<PAGE>
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
A-2
<PAGE>
<PAGE>
[Logo]
[Logo]
ANNUAL REPORT
DECEMBER 31, 1995
WARBURG PINCUS TRUST
[ ] INTERNATIONAL EQUITY PORTFOLIO
[ ] SMALL COMPANY GROWTH PORTFOLIO
The Warburg Pincus Trust (the 'Trust') Shares are not available directly to
individual investors but may be offered only through certain insurance Products
and Pension and Retirement Plans.
A prospectus containing more complete information, including management fees and
expenses and, where applicable, the special considerations and risks associated
with international investing, may be obtained by calling 1-800-369-2728 or by
writing to Warburg Pincus Funds, P.O. Box 9030, Boston, MA 02205-9030. Investors
should read the prospectus carefully before investing.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
February 23, 1996
Dear Shareholder:
The objective of Warburg Pincus Trust -- International Equity Portfolio
(the 'Portfolio') is long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in a broadly diversified portfolio of equity
securities of companies that have their principal business activities and
interests outside the U.S. The Portfolio may invest in equity securities of
companies of any size, whether traded on or off a national securities exchange.
For the six months ended December 31, 1995 (the Portfolio commenced
operations on June 30, 1995), the Portfolio gained 7.30%, vs. gains of 6.62% in
the Lipper International Fund Index and 8.39% in the Morgan Stanley Europe,
Australia and Far East ('EAFE') Index.
A major contributor to the Portfolio's performance for the period was its
weighting in Japan (28.6% of the Portfolio at year end). The Japanese market
rebounded strongly in the second half of 1995, with technology stocks showing
particularly strong gains. These issues are well-represented in the Portfolio,
and we believe that they continue to hold considerable upside potential. We
believe that much of the broader Japanese market is undervalued as well based on
traditional long-term measures of value (e.g., price relative to book value,
sales and cash flow), hence our general outlook on Japan remains positive.
Other Asian markets whose prospects we view favorably are South Korea and
Taiwan (4.9% and 4.2% of the Portfolio, respectively, as of December 31, 1995),
two emerging markets that suffered in 1995. Taiwan's market lost roughly a third
of its value last year, largely the result of ongoing political tensions with
China. This created particularly attractive values in Taiwan's market, and we
used the opportunity to increase the Portfolio's Taiwanese stake, adding to
positions in well-managed companies in the shipping and industrial sectors. In
general, we believe that emerging markets were oversold in 1995, given their
outstanding long-term attractions.
The Portfolio's European holdings in general contributed positively to its
returns during the reporting period, supported by falling interest rates. By
country, the Portfolio's largest European weightings at the close of the year
were the United Kingdom (6.4% of the Portfolio) and France (4.5%). Our British
holdings were strong performers during the period. French issues generated less-
impressive results, hampered by concerns regarding fiscal policies of the Chirac
administration and doubts about the country's ability to meet the criteria for
European economic and monetary union in 1999. But we remain positive in our
outlook for the French companies held in the Portfolio, believing that they are
strong, well-managed businesses.
Richard H. King
Portfolio Manager
The views of the Trust's Management are as of the date of this letter and
Portfolio holdings described in this annual report are as of December 31, 1995;
these views and positions may have changd subsequent to these dates.
2
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SHARES OF
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
SINCE INCEPTION AS OF DECEMBER 31, 1995
The graph below illustrates the hypothethical investment of $10,000 in
Shares of Warburg Pincus Trust -- International Equity Portfolio (the
'Portfolio') from June 30, 1995 (inception) to December 31, 1995, assuming the
reinvestment of dividends and capital gains at net assets value, compared to the
Morgan Stanley Europe, Australia and Far East Index* ('EAFE') for the same time
period.
Total Returns for period ending 12/31/95
Since Inception (6/30/95) 7.30%+
6/30/95 12/31/95
------- --------
Fund $10,000 $10,730
EAFE $10,000 $10,839
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost. Without waivers or reimbursements of Portfolio expenses,
aggregate total return since inception for the period ending 12/31/95 would have
been 7.11%.
- ------------
* EAFE is an unmanaged index of international equities with no defined
investment objective that is compiled by Morgan Stanley Capital International.
+ Non-annualized
3
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
February 23, 1996
Dear Shareholder:
The objective of Warburg Pincus Trust -- Small Company Growth Portfolio
(the 'Portfolio') is capital growth. The Portfolio pursues its objective by
investing primarily in equity securities of small-sized domestic companies
(i.e., companies having stock-market capitalizations of between $25 million and
$1 billion at the time of purchase). The Portfolio may also invest in securities
of emerging growth companies, which can be either small or medium-sized
companies that have passed the start-up phase, show positive earnings and are
deemed to have prospects of achieving significant profits within a relatively
short period of time.
For the six months ended December 31, 1995 (the Portfolio commenced
operations on June 30, 1995), the Portfolio gained 25.10%, vs. gains of 12.26%
in the Russell 2000 Index and 13.89% in the Lipper Small Company Growth Fund
Index.
The Portfolio's relatively strong returns for the six-month span reflect
timely stock selection, particularly in our more heavily weighted areas. Our
technology position, which represents a diversified mix of companies spanning a
number of industries, showed good performance for the period, the sector's
correction in the fourth quarter notwithstanding. Our emphasis on these stocks
is not a short-term sector bet, but rather a direct result of our research
process, which seeks companies possessing a catalyst or dynamic of change (e.g.,
new management, a new product or distribution channel, etc.) that has the
potential to lead to accelerated earnings growth. A considerable number of such
companies are involved in technology and related areas, hence their significant
weighting in the Portfolio. Top performers for the Portfolio during the
reporting period included Maxim Integrated Products, Synopsys and System
Software Associates.
A second area of emphasis is health care. Health care in the U.S. is
fraught with inefficiencies, and this, coupled with an aging population,
presents vast opportunities for smaller companies nimble and innovative enough
to provide solutions to the industry's problems. We see great potential, in
particular, for companies able to bring technological applications to the
health-care industry, and we hold the stocks of a number of promising companies
in this area. We are also positive on the prospects of selected pharmaceutical
companies.
Another area of concentration in the Portfolio is in companies benefiting
from the marriage of telecommunications to computer technology. This includes
firms that manufacture and service computer hardware and software, telephones
and telephone equipment, as well as those involved in broadcasting, publishing,
and music and entertainment. Strong performers for the Portfolio during the six
months included Glenayre Technologies and Paging Network.
4
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Looking ahead, we think that the outlook is favorable for the
small-capitalization market as a whole. We believe that small-cap stocks, in
aggregate, are less than midway through a multiyear cycle of outperformance
relative to larger-company stocks, and that the potential exists for further,
substantial gains over the next several years. Set within this context, we will
continue to strive to identify those stocks that have the best prospects for
above-average returns.
Elizabeth B. Dater Stephen J. Lurito
Co-Portfolio Manager Co-Portfolio Manager
The views of the Trust's Management are as of the date of this letter and
Portfolio holdings described in this annual report are as of December 31, 1995;
these views and positions may have changed subsequent to these dates.
5
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SHARES OF
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
SINCE INCEPTION AS OF DECEMBER 31, 1995
The graph below illustrates the hypothethical investment of $10,000 in
Shares of Warburg Pincus Trust -- Small Company Growth Portfolio (the
'Portfolio') from June 30, 1995 (inception) to December 31, 1995, assuming the
reinvestment of dividends and capital gains at net assets value, compared to the
Lipper Small Company Growth Fund Index* ('Lipper') and the Russell 2000 Index**
('Russell') for the same time period.
Total Returns for period ending 12/31/95
Since Inception (6/30/95) 25.10%+
6/30/95 12/31/95
------- --------
Fund $10,000 $12,510
Lipper $10,000 $11,389
Russell $10,000 $11,301
All figures cited here represent past performance and do not guarantee
future results. Investment return and principal value of an investment will
fluctuate so that an investor's shares upon redemption may be worth more or less
than original cost. Without waivers or reimbursements of Portfolio expenses,
aggregate total return since inception for the period ending 12/31/95 would have
been 25.00%.
- ------------
* The Lipper Small Company Growth Fund Index is an equally weighted index of
the 30 largest Small Company Growth Funds.
** The Russell 2000 Index represents 2000 of the smallest securities in the
Russell 3000 Index. The Russell 3000 Index is composed of 3,000 U.S.
companies representing approximately 98% of the U.S. Equity Market.
+ Non-annualized
6
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (93.3%)
Argentina (3.8%)
Telefonica de Argentina SA ADR 45,700 $1,245,325
YPF SA ADR 52,500 1,135,313
----------
2,380,638
----------
Australia (2.2%)
Lend Lease Corp., Ltd. 87,300 1,264,846
Woodside Petroleum Ltd. 25,400 129,841
----------
1,394,687
----------
Austria (2.6%)
Bohler-Uddeholm AG + 8,645 659,662
V.A. Technologie AG 7,885 1,000,178
----------
1,659,840
----------
Brazil (2.3%)
Panamerican Beverages Inc., Class A 45,000 1,440,000
----------
Denmark (1.3%)
International Service System A/S Class B 36,665 825,714
----------
Chile (1.0%)
Banco de A. Edwards ADR + 16,000 314,000
Compania Telecomunication Chile SA ADR 3,550 294,206
----------
608,206
----------
Finland (2.4%)
Metra Oy Class B 16,445 681,140
Valmet Corp. Class A 33,200 825,073
----------
1,506,213
----------
France (4.5%)
Bouygues SA 7,370 742,570
Lagardere Groupe 50,800 933,824
Total Cie Franc Des Petroles Class B 16,085 1,085,802
Total Petroles SA ADR 3,200 108,800
----------
2,870,996
----------
Germany (2.9%)
Adidas AG + 5,400 284,765
Adidas AG ADS + 13,300 349,790
Deutsche Bank AG 4,476 212,341
SGL Carbon AG + 12,317 960,992
----------
1,807,888
----------
</TABLE>
See Accompanying Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (CONT'D)
Hong Kong (4.4%)
Citic Pacific Ltd. 439,200 $1,502,437
HSBC Holdings PLC 12,800 193,689
Jardine Matheson Holdings Ltd. 131,200 898,720
Jilin Chemical Industrial Co., Ltd. + 47,200 9,767
Jilin Chemical Industrial Co., Ltd. ADR + 6,950 149,424
----------
2,754,037
----------
India (2.1%)
Hindalco Industries Ltd. GDR 300 10,239
Reliance Industries Ltd. GDS 96,185 1,346,590
----------
1,356,829
----------
Indonesia (2.4%)
P.T. Bank International Indonesia 20,000 66,331
P.T. Mulia Industrindo 64,500 182,148
P.T. Semen Cibinong 215,000 536,559
P.T. Semen Gresik 47,000 131,698
P.T. Telekomunikasi Indonesia + 101,500 133,319
P.T. Telekomunikasi Indonesia ADR + 14,200 358,550
P.T. Tri Polyta Indonesia ADR 8,200 112,750
----------
1,521,355
----------
Israel (1.6%)
Ampal-American Israel Corp. Class A 15,500 81,375
ECI Telecommunications Limited Designs 40,450 922,766
----------
1,004,141
----------
Japan (28.6%)
Canon Inc. 50,000 906,008
Circle K Japan Co., Ltd. + 18,000 793,605
Daibiru Corp. 15,000 170,058
Daimaru Inc. 65,000 503,876
DDI Corp. 115 891,473
Hankyu Realty 74,000 601,609
Hitachi Ltd. 34,000 342,636
Itochu Corp. 70,000 471,415
Jusco Co. 26,000 677,713
Keyence Corp. 3,500 403,585
Kirin Beverage Corp. 34,000 457,946
Kyocera Corp. 7,000 520,252
Mitsubishi Corp. 60,000 738,372
Mitsubishi Estate Co., Ltd. 50,000 625,000
Mitsubishi Heavy Industries Ltd. 111,000 885,203
NEC Corp. 68,000 830,233
</TABLE>
See Accompanying Notes to Financial Statements.
8
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<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (CONT'D)
Nikko Securities Co., Ltd. 58,000 $ 747,481
Nikon Corp. 55,000 746,124
Nippon Communication Systems Corp. 30,000 316,860
Nippon Telegraph & Telephone Corp. 83 669,456
Nitta Corp. 18,000 279,070
NTT Data Communications Systems Co. 17 571,609
Orix Corp. 26,200 1,078,973
Rohm Co., Ltd. 6,000 338,953
Sony Corp. 13,900 833,731
TDK Corp. 10,000 510,659
Tokyo Electron Ltd. 7,000 271,318
Uny Co., Ltd. 33,000 620,348
Yokogawa Electric Corp. 106,000 1,002,480
York-Benimaru Co., Ltd. 6,300 241,133
----------
18,047,179
----------
Malaysia (0.1%)
Westmont BHD 19,000 65,848
----------
Mexico (0.6%)
Gruma SA de CV Class B + 125,500 353,682
----------
New Zealand (5.8%)
Brierley Investments Ltd. 1,544,800 1,221,528
Fletcher Forestry 993,500 1,415,370
Lion Nathan Ltd. 437,400 1,043,319
----------
3,680,217
----------
Singapore (1.1%)
DBS Land Ltd. 85,000 287,341
Development Bank of Singapore Ltd. 27,000 336,068
IPC Corp., Ltd. 144,000 95,728
----------
719,137
----------
South Korea (4.9%)
Daewoo Electronics Co., Ltd. 96,720 1,072,310
Daewoo Electronics Co., Ltd. New 16,000 175,326
Hanil Bank 25,000 288,204
Inchon Iron & Steel Co., Ltd. 27,950 1,059,340
Samsung Electronics Co., Ltd. GDR 4,545 438,592
Ssangyong Investment & Securities Co., Ltd. 5,500 99,265
----------
3,133,037
----------
</TABLE>
See Accompanying Notes to Financial Statements.
9
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (CONT'D)
Spain (3.3%)
Banco de Santander ADR 24,800 $1,221,400
Repsol SA ADR 25,900 851,463
----------
2,072,863
----------
Sweden (1.7%)
Asea AB Series B 3,742 364,281
Astra AB Series B 18,135 718,743
----------
1,083,024
----------
Switzerland (1.8%)
Ciba Geigy AG 130 114,430
Ciba Geigy AG B 1,132 991,519
----------
1,105,949
----------
Taiwan (4.2%)
China Steel Corp. 791,000 631,965
GP-Taiwan Index Fund + 600,000 489,000
Phoenixtec Power Co., Ltd. 99,000 199,553
Taiwan Semiconductor Manufacturing Co. 15,000 47,002
Ton Yi Industrial Corp. 424,560 558,590
Yang Ming Marine Transport Corp. 609,000 709,749
----------
2,635,859
----------
Thailand (1.3%)
Bangkok Bank Co., Ltd. 36,100 439,578
Industrial Finance Corp. of Thailand 36,000 122,483
Ruam Pattana Fund II 212,500 128,954
Thai Military Bank Ltd. 28,500 115,679
----------
806,694
----------
United Kingdom (6.4%)
British Air Authority PLC 84,950 639,436
Cookson Group PLC 241,000 1,144,538
Grand Metropolitan PLC 140,200 1,009,619
Prudential Corp. PLC 68,000 437,974
Reckitt & Colman PLC 45,350 501,833
Takare PLC 119,880 333,036
----------
4,066,436
----------
TOTAL COMMON STOCK (Cost $57,786,508) 58,900,469
----------
</TABLE>
See Accompanying Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
COMMON STOCK (CONT'D)
PAR VALUE
--- -----
ZERO COUPON BONDS (0.3%)
Taiwan
President Enterprises, 07/22/01
(Cost $204,404) $ 160,000 $ 210,400
----------
SHORT-TERM INVESTMENTS (6.4%)
Repurchase agreement with State Street Bank & Trust Co., dated 12/29/95 at 5.40% to be
repurchased at $4,062,436 on 01/02/96. (Collateralized by $3,515,000 U.S. Treasury Note
at 7.50%, due 11/15/16, with a market value of $4,143,317.) (Cost $4,060,000) 4,060,000 4,060,000
----------
TOTAL INVESTMENTS (100.0%) (Cost $62,050,912*) $63,170,869
----------
----------
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
ADS = American Depository Share
GDR = Global Depository Receipt
GDS = Global Depository Share
+ Non-income producing security.
* Cost for Federal income tax purposes is $62,063,294.
See Accompanying Notes to Financial Statements.
11
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (93.4%)
BASIC INDUSTRIES
Aerospace & Defense (0.8%)
BVR Technologies + 72,800 $ 737,100
-----------
Engineering & Construction (0.9%)
Jacobs Engineering Group, Inc. + 36,000 900,000
-----------
Industrial Mfg. & Processing (0.7%)
Stratasys, Inc. + 35,000 656,250
-----------
Real Estate (1.1%)
NHP Inc. + 58,500 1,082,250
-----------
CAPITAL GOODS
Capital Equipment (2.3%)
Applied Power Inc. Class A 30,500 915,000
Idex Corp. 10,500 430,500
Roper Industries, Inc. 23,900 878,325
-----------
2,223,825
-----------
Computers (20.3%)
Arbor Software Corp. + 5,500 259,875
Auspex Systems, Inc. + 52,700 961,775
BMC Software, Inc. + 18,000 769,500
Checkfree Corp. + 32,000 688,000
Clarify Inc. + 10,000 300,000
Cognex Corp. + 62,000 2,154,500
Continuum, Inc. + 36,800 1,453,600
Davidson & Associates, Inc. + 43,800 963,600
FileNet Corp. + 21,100 991,700
Harbinger Corp. + 39,200 901,600
Hyperion Software Corp. + 22,600 480,250
Logic Works, Inc. + 15,200 190,000
National Instruments Corp. + 41,500 840,375
Network Appliance, Inc. + 20,000 802,500
Network General Corp. + 32,000 1,068,000
Platinum Technology, Inc. + 70,000 1,286,250
Shared Medical Systems Corp. 22,800 1,239,750
Spacetec IMC Corp. + 35,000 411,250
Sync Research, Inc. + 5,000 226,250
Synopsys, Inc. + 38,000 1,444,000
System Software Associates, Inc. 57,750 1,256,063
Vantive Corp. + 16,500 371,250
Wonderware Corp. + 38,000 650,750
-----------
19,710,838
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
12
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (CONT'D)
Electronics (6.4%)
Burr-Brown Corp. + 37,100 $ 946,050
ESS Technologies Inc. + 5,000 115,000
Glenayre Technologies, Inc. + 25,500 1,587,375
Maxim Integrated Products, Inc. + 74,800 2,879,800
Methode Electronics Inc. Class A 48,000 684,000
-----------
6,212,225
-----------
Office Equipment & Supplies (1.5%)
Viking Office Products, Inc. + 32,200 1,497,300
-----------
CONSUMER
Business Services (10.4%)
American Management Systems, Inc. + 31,000 930,000
Catalina Marketing Corp. + 13,300 834,575
CDI Corp. + 50,000 900,000
Checkpoint Systems, Inc. + 23,900 893,263
Copart, Inc. + 36,800 966,000
DST Systems, Inc. + 31,000 883,500
Fritz Companies Inc. + 22,600 937,900
HPR Inc. + 2,900 87,363
Norrell Corp. 20,900 613,937
On Assignment, Inc. + 20,300 664,825
QuickResponse Services, Inc. + 44,300 814,013
Solectron Corp. + 36,900 1,628,213
-----------
10,153,589
-----------
Consumer Non-Durables (2.3%)
Central Garden & Pet Co. + 87,000 826,500
Nature's Sunshine Products, Inc. 35,000 883,750
Oakley, Inc. + 14,300 486,200
-----------
2,196,450
-----------
Consumer Services (2.0%)
DEVRY Inc. + 26,700 720,900
ITT Educational Services, Inc. + 25,000 615,625
Sylvan Learning Systems, Inc. + 21,000 624,750
-----------
1,961,275
-----------
Food, Beverages & Tobacco (0.7%)
Manhattan Bagel Company + 40,000 720,000
-----------
See Accompanying Notes to Financial Statements.
13
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (CONT'D)
Health Care (8.3%)
EMCare Holdings, Inc. + 34,400 $ 825,600
Endosonics Corp. + 49,200 744,150
HealthCare Compare Corp. + 20,600 896,100
Health Management Systems Inc. + 10,800 421,200
Healthsource, Inc. + 24,400 878,400
IDX Systems Corp. + 13,000 451,750
Molecular Devices Corp. + 110,000 1,155,000
National Surgical Centers, Inc. + 17,000 391,000
Quorum Health Group, Inc. + 16,300 358,600
ThermoTrex Corp. + 20,000 1,000,000
Total Renal Care Holdings + 20,000 590,000
United Dental Care, Inc. + 8,000 330,000
-----------
8,041,800
-----------
Leisure & Entertainment (0.5%)
Family Golf Centers, Inc. + 25,000 456,250
-----------
Lodging & Restaurants (1.9%)
Doubletree Corp. + 38,300 1,005,375
Renaissance Hotel Group NV + 35,000 892,500
-----------
1,897,875
-----------
Pharmaceuticals (4.8%)
Alpharma, Inc. Class A 35,000 914,375
Gilead Sciences, Inc. + 60,000 1,920,000
Medeva PLC ADR 64,500 1,096,500
Ostex International, Inc. + 39,300 756,525
-----------
4,687,400
-----------
Retail (4.2%)
Borders Group, Inc. + 71,000 1,313,500
Micro Warehouse Inc. + 24,200 1,046,650
Neostar Retail Group, Inc. + 64,300 474,212
PETsMART, Inc. + 41,800 1,295,800
-----------
4,130,162
-----------
See Accompanying Notes to Financial Statements.
14
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (CONT'D)
ENERGY AND RELATED
Energy (3.9%)
Barrett Resources Corp. + 31,300 $ 919,437
Brown (Tom), Inc. + 61,600 900,900
Cairn Energy USA, Inc. + 59,700 835,800
Texas Meridian Resources Corp. + 82,200 1,119,975
-----------
3,776,112
-----------
Oil Services (4.3%)
Input/Output, Inc. + 27,600 1,593,900
Nabors Industries, Inc. + 79,400 883,325
Petroleum Geo Services ADR + 42,200 1,055,000
Pogo Producing Co. 25,000 706,250
-----------
4,238,475
-----------
FINANCE
Banks & Savings & Loans (2.4%)
Banco Latinoamericano de Exportaciones SA Class E 15,600 725,400
Cullen Frost Bankers, Inc. 15,300 765,000
Great Financial Corp. 35,700 838,950
-----------
2,329,350
-----------
Financial Services (5.8%)
Aames Financial Corp. 26,800 747,050
Capmac Holdings Inc. + 25,000 628,125
Penncorp Financial Group, Inc. 22,000 646,250
Sirrom Capital Corp. 37,200 702,150
Transactions Systems Architects, Inc. Class A + 2,000 67,500
T. Rowe Price Associates, Inc. 18,000 886,500
United Companies Financial Corp. 44,900 1,184,237
Vesta Insurance Group Inc. 15,100 822,950
-----------
5,684,762
-----------
MEDIA
Communications & Media (1.9%)
Central European Media Enterprises Ltd. Class A + 58,100 1,191,050
Harte-Hanks Communications Inc. 34,850 688,288
-----------
1,879,338
-----------
Publishing (1.1%)
Scholastic Corp. + 14,300 1,111,825
-----------
See Accompanying Notes to Financial Statements.
15
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
COMMON STOCK (CONT'D)
Telecommunications & Equipment (4.0%)
Allen Group, Inc. 37,000 $ 827,875
Network Equipment Technologies, Inc. + 31,700 867,787
Objective Systems Integrator + 6,500 355,875
Paging Network, Inc. + 49,500 1,206,562
Stratacom, Inc. + 8,100 595,350
-----------
3,853,449
-----------
Transportation (0.9%)
Mark VII Inc. + 53,400 827,700
-----------
TOTAL COMMON STOCK (Cost $79,082,582) 90,965,600
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.9%)
Repurchase agreement with State Street Bank & Trust Co., dated 12/29/95 at 5.40% to be
repurchased at $5,778,465 on 01/02/96. (Collateralized by $5,710,000 U.S. Treasury Note
at 6.00%, due 08/31/97, with a market value of $5,891,641.) (Cost $5,775,000) $5,775,000 5,775,000
-----------
TOTAL INVESTMENTS AT VALUE (99.3%) (Cost $84,857,582*) 96,740,600
OTHER ASSETS IN EXCESS OF LIABILITIES (0.7%) 704,314
-----------
NET ASSETS (100.0%) (applicable to 7,791,765 shares outstanding) $97,444,914
-----------
-----------
NET ASSET VALUE, offering and redemption price per share $12.51
------
------
</TABLE>
+ Non-income producing security.
* Cost for Federal income tax purposes is $84,989,331.
See Accompanying Notes to Financial Statements.
16
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $62,050,912) $63,170,869
Receivable for Portfolio shares sold 3,898,943
Foreign currency (Cost $234,121) 234,128
Receivable for investment securities sold 214,472
Receivable for unrealized gain on forward contracts (Note 4) 212,261
Deferred organizational costs (Note 1) 55,816
Dividends, interest and foreign taxes receivable 51,478
-----------
Total assets 67,837,967
-----------
LIABILITIES
Payable for investment securities purchased 3,092,677
Accrued expenses 148,055
Payable for Portfolio shares redeemed 517
Other liabilities 59,850
-----------
Total liabilities 3,301,099
-----------
NET ASSETS applicable to 6,058,621 shares outstanding $64,536,868
-----------
-----------
NET ASSET VALUE, offering and redemption price per share
($64,536,868[div]6,058,621) $10.65
------
------
</TABLE>
See Accompanying Notes to Financial Statements.
17
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST
STATEMENTS OF OPERATIONS
For the Period Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period June 30, 1995
(Commencement of Operations)
through December 31, 1995
----------------------------------------
International Equity Small Company
Portfolio Growth Portfolio
-------------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 166,997 $ 56,873
Interest 84,104 159,881
Foreign taxes withheld (20,004) 0
---------- ------------
Total investment income 231,097 216,754
---------- ------------
EXPENSES:
Investment advisory 120,130 218,618
Administrative services 26,429 48,582
Audit 12,500 9,000
Custodian 51,905 30,905
Legal 5,000 7,500
Organizational 6,258 6,249
Printing 9,946 5,000
Registration 25,345 33,300
Transfer agent 6,194 3,759
Trustees 1,625 1,625
Miscellaneous 500 500
---------- ------------
265,832 365,038
Less: fees waived and expenses reimbursed (92,844) (61,402)
---------- ------------
Total expenses 172,988 303,636
---------- ------------
Net investment income (loss) 58,109 (86,882)
---------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
AND FOREIGN CURRENCY RELATED ITEMS:
Net realized loss from security transactions (66,288) (791,236)
Net realized gain from foreign currency related items 179,901 0
Net change in unrealized appreciation from investments and foreign
currency related items 1,335,993 11,883,018
---------- ------------
Net realized and unrealized gain from investments and foreign
currency related items 1,449,606 11,091,782
---------- ------------
Net increase in net assets resulting from operations $1,507,715 $ 11,004,900
---------- ------------
---------- ------------
</TABLE>
See Accompanying Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period June 30, 1995
(Commencement of Operations)
through December 31, 1995
----------------------------------------
International Equity Small Company
Portfolio Growth Portfolio
-------------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 58,109 $ (86,882)
Net realized loss from security transactions (66,288) (791,236)
Net realized gain from foreign currency related items 179,901 0
Net change in unrealized appreciation from investments and foreign
currency related items 1,335,993 11,883,018
------------ ------------
Net increase in net assets resulting from operations 1,507,715 11,004,900
------------ ------------
FROM DISTRIBUTIONS:
Dividends from net investment income (58,109) 0
Distributions in excess of net investment income (327,277) 0
------------ ------------
Net decrease from distributions (385,386) 0
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 63,501,464 101,359,554
Reinvested dividends 385,386 0
Net asset value of shares redeemed (522,311) (14,969,540)
------------ ------------
Net increase in net assets from capital share transactions 63,364,539 86,390,014
------------ ------------
Net increase in net assets 64,486,868 97,394,914
NET ASSETS:
Beginning of period 50,000 50,000
------------ ------------
End of period $ 64,536,868 $ 97,444,914
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
June 30, 1995
(Commencement of
Operations) through
December 31, 1995
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
--------
Income from Investment Operations:
Net Investment Income .03
Net Gain on Securities and Foreign Currency Related Items
(both realized and unrealized) .70
--------
Total from Investment Operations .73
--------
Less Distributions:
Dividends from Net Investment Income (.01)
Distributions in Excess of Net Investment Income (.07)
--------
Total Distributions (.08)
--------
NET ASSET VALUE, END OF PERIOD $ 10.65
--------
--------
Total Return 7.30%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 64,537
Ratios to average daily net assets:
Operating expenses 1.44%*
Net investment income .48%*
Decrease reflected in above operating expense ratio due
to waivers/reimbursements .77%*
Portfolio Turnover Rate 16.49%*
</TABLE>
* Annualized
+ Non-annualized
See Accompanying Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout the Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
June 30, 1995
(Commencement of
Operations) through
December 31, 1995
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
--------
Income from Investment Operations:
Net Investment Loss (.01)
Net Gain on Securities (both realized and unrealized) 2.52
--------
Total from Investment Operations 2.51
--------
Less Distributions:
Dividends from Net Investment Income .00
Distributions from Capital Gains .00
--------
Total Distributions .00
--------
NET ASSET VALUE, END OF PERIOD $ 12.51
--------
--------
Total Return 25.10%+
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 97,445
Ratios to average daily net assets:
Operating expenses 1.25%*
Net investment loss (.36)%*
Decrease reflected in above operating expense ratio due
to waivers/reimbursements .25%*
Portfolio Turnover Rate 67.57%*
</TABLE>
* Annualized
+ Non-annualized
See Accompanying Notes to Financial Statements.
21
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Warburg Pincus Trust (the 'Trust') is an open-end management investment
company registered under the Investment Company Act of 1940, as amended, and
currently offers two investment funds (the 'Portfolios'): International Equity
Portfolio is a diversified investment fund that seeks long-term capital
appreciation by investing in equity securities of non-U.S. issuers; Small
Company Growth Portfolio is a non-diversified investment fund that seeks capital
appreciation by investing in equity securities of small-sized domestic
companies. Shares of a Portfolio are not available directly to individual
investors but may be offered only to certain (a) life insurance companies for
allocation to certain of their separate accounts established for the purpose of
funding variable annuity contracts and variable life insurance contracts and (b)
tax-qualified pension and retirement plans ('Plans'), including
participant-directed Plans which elect to make a Portfolio an investment option
for Plan participants.
The net asset value of each Portfolio is determined daily as of the close
of regular trading on the New York Stock Exchange. Each Portfolio's investments
are valued at market value, which is currently determined using the last
reported sales price. If no sales are reported, investments are generally valued
at the mean between the last reported bid and ask prices. In the absence of
market quotations, investments are generally valued at fair value as determined
by or under the direction of the Trust's governing Board. Short-term investments
that mature in 60 days or less are valued on the basis of amortized cost, which
approximates market value.
The books and records of the Portfolios are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are reported in the results of
operations for the current period. The Portfolios do not isolate that portion of
gains and losses on investments in equity securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
equity securities. The Portfolios isolate that portion of gains and losses on
investments in debt securities which are due to changes in the foreign exchange
rate from that which are due to changes in market prices of debt securities.
Security transactions are accounted for on trade date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date. The cost of investments sold is determined by use of the
specific identification method for both financial reporting and income tax
purposes.
Dividends from net investment income and distributions of net realized
capital gains, if any, are declared and paid annually. However, to the extent
that a net realized capital gain can be reduced by a capital loss carryover,
such gain will not be distributed. Income and capital gain distributions are
determined in accordance with Federal income tax regulations which may differ
from generally accepted accounting principles.
22
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
No provision is made for Federal income taxes as it is each Portfolio's
intention to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Costs incurred by the Portfolios in connection with their organization have
been deferred and are being amortized over a period of five years from the date
each Portfolio commenced its operations.
The Portfolios may enter into repurchase agreement transactions. Under the
terms of a typical repurchase agreement, a Portfolio acquires an underlying
security subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Portfolio's possession. At December 31, 1995, the International Equity
Portfolio and the Small Company Growth Portfolio had $4,060,000 and $5,775,000,
respectively, invested in repurchase agreements.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each
Portfolio's investment adviser. For its investment advisory services, the
International Equity Portfolio and the Small Company Growth Portfolio pay
Warburg a fee calculated at an annual rate of 1.00% and .90%, respectively, of
each Portfolio's average daily net assets. For the period ended December 31,
1995, investment advisory fees, waivers and reimbursements were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
PORTFOLIO ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
--------- ------------ ------- ------------ --------------
<S> <C> <C> <C> <C>
International Equity $120,130 $47,206 $ 72,924 $ 39,973
Small Company Growth 218,618 47,601 171,017 8,512
</TABLE>
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, and PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PNC'), serve as each Portfolio's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate of .10% of each Portfolio's average daily net assets. For the period ended
December 31, 1995, administrative services fees earned by CFSI were as follows:
<TABLE>
<CAPTION>
PORTFOLIO CO-ADMINISTRATION FEE
--------- ---------------------
<S> <C>
International Equity $12,013
Small Company Growth 24,291
</TABLE>
For its administrative services, PFPC currently receives a fee calculated
at an annual rate of .10% of the average daily net assets of the Small Company
Growth Portfolio. For the International Equity Portfolio, PFPC currently
receives a fee calculated at an annual rate of .12% on the Portfolio's first
$250 million in average daily net assets, .10% on the next $250 million in
average daily net assets, .08% on the next $250 million in average daily net
assets and .05% of the average daily net assets over $750
23
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<PAGE>
<PAGE>
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WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
million. For the period ended December 31, 1995, administrative service fees
earned and waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
PORTFOLIO CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
--------- --------------------- ------ ---------------------
<S> <C> <C> <C>
International Equity $14,416 $5,665 $ 8,751
Small Company Growth 24,291 5,289 19,002
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Portfolio's distributor. No compensation is paid by the
Portfolios to CSI for distribution services.
3. INVESTMENT IN SECURITIES
For the period ended December 31, 1995, purchases and sales of investment
securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
--------- ----------- -----------
<S> <C> <C>
International Equity $60,011,892 $ 1,953,019
Small Company Growth 95,138,849 15,265,032
</TABLE>
At December 31, 1995, the net unrealized appreciation from investments for
those securities having an excess value over cost and net unrealized
depreciation from investments for those securities having an excess of cost over
value (based on cost for Federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
--------- ------------ ------------ --------------
<S> <C> <C> <C>
International Equity $ 2,878,321 $ (1,770,746) $ 1,107,575
Small Company Growth 13,903,171 (2,151,902) 11,751,269
</TABLE>
4. FORWARD FOREIGN CURRENCY CONTRACTS
The Portfolios may enter into forward currency contracts for the purchase
or sale of a specific foreign currency at a fixed price on a future date. Risks
may arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Portfolios will enter into forward contracts primarily for hedging purposes. The
forward currency contracts are adjusted daily by the daily exchange rate of the
underlying currency and any gains and losses are recorded for financial
statement purposes as unrealized until the contract settlement date. At December
31, 1995, the International Equity Portfolio had the following open forward
currency contracts:
24
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<PAGE>
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WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
December 31, 1995
- --------------------------------------------------------------------------------
4. FORWARD FOREIGN CURRENCY CONTRACTS (CONT'D)
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
- ----------------- ---------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
French Francs 03/21/96 8,350,000 $ 1,703,213 $ 1,707,881 $ (4,668)
French Francs 03/21/96 4,468,500 900,000 913,972 (13,972)
Japanese Yen 03/21/96 351,750,000 3,500,000 3,449,206 50,794
Japanese Yen 03/21/96 257,898,000 2,650,000 2,528,908 121,092
Japanese Yen 03/21/96 178,000,000 1,752,831 1,745,440 7,391
Japanese Yen 03/21/96 110,937,100 1,100,567 1,087,832 12,735
Japanese Yen 03/21/96 14,905,900 148,170 146,165 2,005
Japanese Yen 09/18/96 51,111,500 550,000 513,116 36,884
----------- ----------- --------
$12,304,781 $12,092,520 $212,261
----------- ----------- --------
----------- ----------- --------
</TABLE>
5. CAPITAL SHARE TRANSACTIONS
The International Equity Portfolio and the Small Company Growth Portfolio
are each authorized to issue an unlimited number of full and fractional shares
of beneficial interest, par value of $.001 per share.
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
For the Period June 30, 1995
(Commencement of Operations)
through December 31, 1995
----------------------------------------
International Equity Small Company
Portfolio Growth Portfolio
-------------------- ----------------
<S> <C> <C>
Shares sold 6,066,626 9,104,528
Shares issued to shareholders on reinvestment of dividends 37,056 0
Shares redeemed (50,061) (1,317,763)
--------- ----------
Net increase in shares outstanding 6,053,621 7,786,765
--------- ----------
--------- ----------
</TABLE>
6. NET ASSETS
Net assets at December 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
International Equity Small Company
Portfolio Growth Portfolio
-------------------- ----------------
<S> <C> <C>
Capital contributed, net $ 63,414,539 $ 86,353,132
Accumulated net investment loss (147,376) 0
Accumulated net realized loss from security transactions (66,288) (791,236)
Net unrealized appreciation from investments and foreign currency
related items 1,335,993 11,883,018
------------ ------------
Net assets $ 64,536,868 $ 97,444,914
------------ ------------
------------ ------------
</TABLE>
7. CAPITAL LOSS CARRYOVER
At December 31, 1995, the International Equity Portfolio and the Small
Company Growth Portfolio had capital loss carryovers of $53,906 and $659,487,
respectively, expiring in 2003 to offset possible future capital gains of each
Portfolio.
25
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<PAGE>
<PAGE>
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WARBURG PINCUS TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the
Warburg Pincus Trust:
We have audited the accompanying statement of assets and liabilities including
the schedule of investments of the International Equity Portfolio and the
accompanying statement of net assets of the Small Company Growth Portfolio of
the Warburg Pincus Trust (the 'Trust') as of December 31, 1995, and the related
statements of operations, changes in net assets and the financial highlights for
the period from June 30, 1995 (commencement of operations) through December 31,
1995. These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
each portfolio of the Warburg Pincus Trust as of December 31, 1995, and the
results of their operations, the changes in their net assets and their financial
highlights for the period from June 30, 1995 (commencement of operations)
through December 31, 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 13, 1996
26
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<PAGE>
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INVESTMENT ADVISER
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
DISTRIBUTOR
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
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<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
PROSPECTUSES
1-800-369-2728
[LOGO]
[LOGO]
ANNUAL REPORT
DECEMBER 31, 1995
WARBURG PINCUS TRUST
[ ] INTERNATIONAL EQUITY PORTFOLIO
[ ] SMALL COMPANY GROWTH PORTFOLIO
WPTRU-2-1295
STATEMENT OF DIFFERENCES
------------------------
The dagger footnote symbol shall be expressed as `D'
The division sign shall be expressed as [div]
Mathematical powers normally expressed as superscript shall be preceded by 'pp'
<PAGE>
