<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on April 18, 1996
Securities Act File No. 33-58125
Investment Company Act File No. 811-07261
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 3 [x]
(Check appropriate box or boxes)
Warburg, Pincus Trust
......................................................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
........................................... ............
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
.........................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>2
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2)
of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
__________________________________
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933, as amended, pursuant to Section
(a)(1) of Rule 24f-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to the number or amount presently registered is added an
indefinite number or amount of such securities. The Rule 24f-2 Notice for
Registrant's fiscal year ended December 31, 1995 was filed on February 28,
1996.
<PAGE>3
WARBURG, PINCUS TRUST
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No. Prospectus Heading
-------- ------------------
1. Cover Page . . . . . . . Cover Page
2. Synopsis . . . . . . . . The Trust's Expenses
3. Condensed Financial
Information . . . . . . Financial Highlights
4. General Description of
Registrant . . . . . . . Cover Page; Investment
Objectives and Policies;
Special Risk Considerations
and Certain Investment
Strategies; Investment
Guidelines; General
Information
5. Management of the
Registrant . . . . . . . Management of the Portfolios
6. Capital Stock and Other
Securities . . . . . . . General Information
7. Purchase of Securities
Being Offered . . . . . How to Purchase and Redeem
Shares in the Portfolios;
Management of the Portfolios;
Net Asset Value
8. Redemption or Repurchase How to Purchase and Redeem
Shares in the Portfolios
9. Pending Legal Proceedings Not applicable
<PAGE>4
Part B Statement of Additional
Item No. Information Heading
-------- -----------------------
10. Cover Page . . . . . . . Cover Page
11. Table of Contents . . . Contents
12. General Information and
History . . . . . . . . Management of the Trust
13. Investment Objective and
Policies . . . . . . . . Investment Objectives;
Investment Policies
14. Management of the
Registrant . . . . . . . Management of the Trust
15. Control Persons and
Principal Holders of
Securities . . . . . . . Management of the Trust;
Miscellaneous; See Prospectus
-- "Management of the
Portfolios"
16. Investment Advisory and
Other Services . . . . . Management of the Trust; See
Prospectus--"Management of the
Portfolios"
17. Brokerage Allocation and
Other Practices . . . . Investment Policies--Portfolio
Transactions; See Prospectus
-- "Portfolio Transactions
and Turnover Rate"
18. Capital Stock and Other
Securities . . . . . . . Management of the Trust--
Organization of the Trust; See
Prospectus--"Additional
Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered . . . . . Additional Purchase and
Redemption Information; See
Prospectus--"How to Purchase
and Redeem Shares in the
Portfolios"; "Net Asset Value"
20. Tax Status . . . . . . . Additional Information
Concerning Taxes; See
Prospectus--"Dividends,
Distributions and Taxes"
<PAGE>5
21. Underwriters . . . . . . Investment Policies--Portfolio
Transactions; See Prospectus--
"Management of the Portfolios"
22. Calculation of
Performance Data . . . . Determination of Performance
23. Financial Statements . . Report of Independent
Accountants; Financial
Statements
Part C
Information required to be included in Part C is set forth
after the appropriate item, so numbered, in Part C to this
registration statement amendment.
<PAGE>
REGISTRANT'S PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION FOR THE SMALL COMPANY GROWTH PORTFOLIO
ARE INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON
FORM N-1A, FILED ON MARCH 4, 1996
<PAGE>
REGISTRANT'S PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION FOR THE INTERNATIONAL EQUITY PORTFOLIO
ARE INCORPORATED BY REFERENCE TO THE DEFINITIVE
MATERIALS FILED PURSUANT TO RULE 497(e) ON APRIL 3, 1996
<PAGE>
REGISTRANT'S COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION FOR THE SMALL COMPANY GROWTH PORTFOLIO
AND THE INTERNATIONAL EQUITY PORTFOLIO
ARE INCORPORATED BY REFERENCE TO POST-EFFECTIVE
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON
FORM N-1A, FILED ON MARCH 4, 1996
<PAGE>
[LOGO OF WARBURG PINCUS]
PROSPECTUS
JUNE , 1996
WARBURG PINCUS TRUST
[ ] EMERGING MARKETS PORTFOLIO
[ ] POST-VENTURE CAPITAL 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.
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 18, 1996
WARBURG PINCUS TRUST
P.O. BOX 9036
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 369-2728
June , 1996
PROSPECTUS
WARBURG PINCUS TRUST (the 'Trust') is an open-end management investment company
that currently offers four investment funds, two of which, the Emerging Markets
Portfolio and the Post-Venture Capital Portfolio, are offered pursuant to this
Prospectus (the 'Portfolios'):
EMERGING MARKETS PORTFOLIO seeks long-term growth of capital by investing
primarily in equity securities of non-United States issuers consisting of
companies in emerging securities markets. International investment entails
special risk considerations, including currency fluctuations, lower
liquidity, economic instability, political uncertainty and differences in
accounting methods.
POST-VENTURE CAPITAL PORTFOLIO seeks long-term growth of capital by
investing primarily in equity securities of issuers in their post-venture
capital stage of development and pursues an aggressive investment strategy.
Because of the nature of the Post-Venture Capital Portfolio's investments
and certain strategies it may use, an investment in the Portfolio involves
certain risks and may not be appropriate for all investors.
Shares of a 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 a Portfolio an investment option for Plan participants. A
Portfolio may not be available in every state due to various insurance
regulations.
This Prospectus briefly sets forth certain information about the Portfolios 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 each 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
THE TRUST'S EXPENSES
<TABLE>
<CAPTION>
EMERGING MARKETS POST-VENTURE
PORTFOLIO CAPITAL PORTFOLIO
---------------- -----------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................ 0 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees......................................................... .60% .64%
12b-1 Fees.............................................................. 0 0
Other Expenses*......................................................... .80% .76%
----- -----
Total Portfolio Operating Expenses (after fee waivers and expense
reimbursements)*...................................................... 1.40% 1.40%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE
<S> <C> <C>
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................................................................... $ 14 $ 14
3 years.................................................................. $ 44 $ 44
</TABLE>
- ------------
* Absent the anticipated waiver of fees by the Portfolios' investment adviser
and co-administrator, Management Fees for the Emerging Markets Portfolio and
the Post-Venture Captial Portfolio would each equal 1.25%; Other Expenses
would equal .75% and .81%, respectively; and Total Fund Operating Expenses
would equal 2.00% and 2.06%, respectively. Other Expenses for each Portfolio
are based on annualized estimates of expenses for the fiscal year ending
December 31, 1996, net of any fee waivers or expense reimbursements. The
investment adviser has undertaken to limit each Portfolio's Total Portfolio
Operating Expenses through December 31, 1996.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of a Portfolio. 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, each Portfolio's
actual performance will vary and may result in a return greater or less than 5%.
2
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Emerging Markets Portfolio and the
Post-Venture Capital Portfolio is to seek long-term growth of capital.
Each 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
that Portfolio. Any investment involves risk and, therefore, there can be no
assurance that any Portfolio will achieve its investment objective. See
'Portfolio Investments' and 'Certain Investment Strategies' for descriptions of
certain types of investments the Portfolios may make.
EMERGING MARKETS PORTFOLIO. The Emerging Markets Portfolio is a non-diversified
portfolio that pursues its investment objective by investing primarily in equity
securities of non-United States issuers consisting of companies in emerging
securities markets. An investment in the Portfolio may involve a greater degree
of risk than investment in other mutual funds that seek capital growth by
investing in larger, more developed markets.
Under normal market conditions, the Portfolio will invest at least 65% of
its total assets in equity securities of issuers in Emerging Markets (as defined
below), and the Portfolio intends to acquire securities of many issuers located
in a number of foreign countries. The Portfolio will not necessarily seek to
diversify investments on a geographical basis or on the basis of the level of
economic development of any particular country. However, the Portfolio will at
all times, except during defensive periods, maintain investments in at least
three countries outside the United States. An equity security of an issuer in an
Emerging Market is defined as common stock and preferred stock (including
convertible preferred stock); bonds, notes and debentures convertible into
common or preferred stock; stock purchase warrants and rights; equity interests
in trusts and partnerships; and depositary receipts of an issuer: (i) the
principal securities trading market for which is in an Emerging Market; (ii)
which derives at least 50% of its revenues or earnings, either alone or on a
consolidated basis, from goods produced or sold, investments made or services
performed in an Emerging Market, or which has at least 50% of its total or net
assets situated in one or more Emerging Markets; or (iii) that is organized
under the laws of, and with a principal office in, an Emerging Market.
Determinations as to whether an issuer is an Emerging Markets issuer will be
made by Warburg, Pincus Counsellors, Inc., the Portfolio's investment adviser
('Warburg'), based on publicly available information and inquiries made to the
issuers.
As used in this Prospectus, an Emerging Market is any country (i) which is
generally considered to be an emerging or developing country by the World Bank
and the International Finance Corporation (the 'IFC') or by the United Nations
Development Programme or (ii) which is included in the IFC Investable Index or
the Morgan Stanley Capital International Emerging Markets Index or (iii) which
has a gross national product ('GNP') per capita of $2,000 or less, in each case
at the time of the Portfolio's investment. Among the countries which Warburg
currently considers to be Emerging Markets are the following: Algeria, Angola,
Antigua, Argentina, Armenia, Azerbaijan, Bangladesh, Barbados, Barbuda, Belarus,
Belize, Bhutan, Bolivia, Botswana, Brazil, Bulgaria, Cambodia, Chile, People's
Republic of China, Republic of China (Taiwan), Colombia, Cyprus, Czech Republic,
Dominica, Ecuador, Egypt, Estonia, Georgia, Ghana, Greece, Grenada, Guyana, Hong
Kong, Hungary, India, Indonesia, Israel, Ivory Coast, Jamaica, Jordan,
Kazakhstan, Kenya, Republic of Korea (South Korea), Latvia, Lebanon, Lithuania,
Malawi, Malaysia, Mauritius, Mexico, Moldova, Mongolia, Montserrat, Morocco,
Mozambique, Myanmar (Burma), Namibia, Nepal, Nigeria, Pakistan, Panama, Papua
New Guinea, Paraguay, Peru, Philippines, Poland, Portugal, Romania, Russia,
Saudi Arabia, Singapore, Slovakia, Slovenia,
3
<PAGE>
<PAGE>
South Africa, Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Vincent and the
Grenadines, Swaziland, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey,
Turkmenistan, Uganda, Ukraine, Uruguay, Uzbekistan, Venezuela, Vietnam,
Yugoslavia, Zambia and Zimbabwe. Among the countries that will not be
considered Emerging Markets are: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom and the United
States.
The Portfolio may invest in securities of companies of any size, whether
traded on or off a national securities exchange. Portfolio holdings may include
emerging growth companies, which are small- or medium-sized companies that have
passed their start-up phase and that show positive earnings and prospects for
achieving profit and gain in a relatively short period of time.
In appropriate circumstances, such as when a direct investment by the
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.
As a shareholder in a closed-end investment company, the Portfolio will bear its
ratable share of the investment company's expenses, including management fees,
and will remain subject to payment of the Portfolio's administration fees and
other expenses with respect to assets so invested.
POST-VENTURE CAPITAL PORTFOLIO. Because of the nature of the Post-Venture
Capital Portfolio's investments and certain strategies it may use, such as
investing in Private Funds (as defined below), an investment in the Portfolio
should be considered only for the aggressive portion of an investor's portfolio
and may not be appropriate for all investors.
The Post-Venture Capital Portfolio is a diversified portfolio that pursues
its investment objective by investing primarily in equity securities of
companies considered by Warburg, the Portfolio's investment adviser, to be in
their post-venture capital stage. Although the Portfolio may invest up to 10% of
its assets in venture capital and other investment funds, the Portfolio is not
designed primarily to provide venture capital financing. Rather, under normal
market conditions, the Portfolio will invest at least 65% of its total assets in
equity securities of 'post-venture capital companies.' A post-venture capital
company is a company that has received venture capital financing either (a)
during the early stages of the company's existence or the early stages of the
development of a new product or service or (b) as part of a restructuring or
recapitalization of the company. The investment of venture capital financing,
distribution of such company's securities to venture capital investors, or
initial public offering ('IPO'), whichever is later, will have been made within
ten years prior to the Portfolio's purchase of the company's securities.
Warburg believes that venture capital participation in a company's capital
structure can lead to revenue/earnings growth rates above those of older, public
companies such as those in the Dow Jones Industrial Average or the Fortune 500.
Venture capitalists finance start-up companies, companies in the early stages of
developing new products or services and companies undergoing a restructuring or
recapitalization, since these companies may not have access to conventional
forms of financing (such as bank loans or public issuances of stock). Venture
capitalists may hold substantial positions in companies that may have been
acquired at prices significantly below the initial public offering price. This
may create a potential adverse impact in the short-term on the market price of a
company's stock due to sales in the open market by a venture capitalist or
others who acquired the stock at lower prices prior to the company's IPO.
Warburg will consider the
4
<PAGE>
<PAGE>
impact of such sales in selecting post-venture capital investments. Venture
capitalists may be individuals or funds organized by venture capitalists which
are typically offered only to large institutions, such as pension funds and
endowments, and certain accredited investors. Venture capital participation in
a company is often reduced when the company engages in an IPO of its securities
or when it is involved in a merger, tender offer or acquisition.
Warburg has experience in researching smaller companies, companies in the
early stages of development and venture capital-financed companies. Its team of
analysts, led by Elizabeth Dater and Stephen Lurito, regularly monitors
portfolio companies whose securities are held by over 250 of the larger domestic
venture capital funds. Ms. Dater and Mr. Lurito have managed post-venture equity
securities in separate accounts for institutions since 1989 and currently manage
over $1 billion of such assets for institutions. The Portfolio will invest in
securities of post-venture capital companies that are traded on a national
securities exchange or in an organized over-the-counter market.
Private Fund Investments. Up to 10% of the Post-Venture Capital Portfolio's
assets may be invested in United States or foreign private limited partnerships
or other investment funds ('Private Funds') that themselves invest in equity or
debt securities of (a) companies in the venture capital or post-venture capital
stages of development or (b) companies engaged in special situations or changes
in corporate control, including buyouts. In selecting Private Funds for
investment, Abbott Capital Management, L.P., the Portfolio's sub-investment
adviser with respect to Private Funds ('Abbott'), attempts to invest in a mix of
Private Funds that will provide an above average internal rate of return (i.e.,
the discount rate at which the present value of an investment's future cash
inflows (dividend income and capital gains) are equal to the cost of the
investment). Warburg believes that the Portfolio's investments in Private Funds
offers individual investors a unique opportunity to participate in venture
capital and other private investment funds, providing access to investment
opportunities typically available only to large institutions and accredited
investors. Although the Portfolio's investments in Private Funds are limited to
a maximum of 10% of the Portfolio's assets, these investments are highly
speculative and volatile and may produce gains or losses in this portion of the
portfolio that are in excess of broader market movements.
Because Private Funds generally are investment companies for purposes of
the 1940 Act, the Portfolio's ability to invest in them will be limited. In
addition, Portfolio shareholders will remain subject to the Portfolio's expenses
while also bearing their pro rata share of the operating expenses of the Private
Funds. The ability of the Portfolio to dispose of interests in Private Funds is
very limited and will involve the risks described under 'Risk Factors and
Special Considerations -- Non-Publicly Traded Securities; Rule 144A Securities.'
In valuing the Portfolio's holdings of interests in Private Funds, the Portfolio
will be relying on the most recent reports provided by Abbott and by the Private
Funds themselves prior to calculation of the Portfolio's net asset value. These
reports, which may be provided by Abbott or by a Private Fund on an infrequent
basis (not less frequently than quarterly), often depend on the subjective
valuations of the managers of the Private Funds and, in addition, would not
reflect positive or negative subsequent developments affecting companies held by
the Private Fund. See 'Net Asset Value.' Debt securities held by a Private Fund
will tend to be rated below investment grade and may be rated as low as C by
Moody's Investors Service, Inc. ('Moody's') or D by Standard & Poor's Ratings
Group ('S&P'). For a discussion of the risks of investing in below investment
grade debt, see 'Risk Factors and Special Considerations -- Lower Rated
Securities' below and 'Investment Policies -- Below Investment Grade Debt
Securities' in the Statement of Additional
5
<PAGE>
<PAGE>
Information. For a discussion of the possible tax consequences of investing in
foreign Private Funds, see 'Additional Information Concerning Taxes --
Investment in Passive Foreign Investment Companies' in the Statement of
Additional Information.
The Portfolio may also hold non-publicly traded equity securities of
companies in the venture and post-venture stages of development, such as those
of closely-held companies or private placements of public companies. The portion
of the Portfolio's assets invested in these non-publicly traded securities will
vary over time depending on investment opportunities and other factors. The
Portfolio's illiquid assets, including interests in Private Funds and other
illiquid non-publicly traded securities, may not exceed 15% of assets.
Other Strategies. The Post-Venture Capital Portfolio may invest up to 35%
of its assets in exchange-traded and over-the-counter securities that do not
meet the definition of post-venture capital companies without regard to market
capitalization. Up to 10% of the Portfolio's assets may be invested, directly or
through Private Funds, in securities of issuers engaged at the time of purchase
in 'special situations,' such as a restructuring or recapitalization; an
acquisition, consolidation, merger or tender offer; a change in corporate
control or investment by a venture capitalist.
To attempt to reduce risk, the Portfolio will diversify its investments
over a broad range of issuers operating in a variety of industries. The
Portfolio may hold securities of companies of any size, and will not limit
capitalization of companies it selects to invest in. However, due to the nature
of the venture capital to post-venture cycle, the Portfolio anticipates that the
average market capitalization of companies in which it invests will be less than
$1 billion at the time of investment. Although the Portfolio will invest
primarily in U.S. companies, up to 20% of the Portfolio's assets may be invested
in securities of issuers located in any foreign country. Equity securities in
which the Portfolio will invest are common stock, preferred stock, warrants,
securities convertible into or exchangeable for common stock and partnership
interests. The Portfolio may engage in a variety of strategies to reduce risk or
seek to enhance return, including engaging in short selling (see 'Certain
Investment Strategies').
PORTFOLIO INVESTMENTS
DEBT. The Post-Venture Capital Portfolio may invest up to 20% of its total
assets in investment grade debt securities (other than money market obligations)
for the purpose of seeking growth of capital. The Emerging Markets Portfolio may
invest up to 35% of its total assets in debt securities (other than money market
obligations) for the purpose of seeking growth of capital. The interest income
to be derived may be considered as one factor in selecting debt securities for
investment by Warburg. Because the market value of debt obligations can be
expected to vary inversely to changes in prevailing interest rates, investing in
debt obligations may provide an opportunity for capital growth when interest
rates are expected to decline. The success of such a strategy is dependent upon
Warburg's ability to 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 or 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
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by a Portfolio, an issue of securities may cease to be rated or its
rating may be
6
<PAGE>
<PAGE>
reduced below the minimum required for purchase by the Portfolio. Neither event
will require sale of such securities, although Warburg will consider such event
in its determination of whether the Portfolio should continue to hold the
securities.
When Warburg believes that a defensive posture is warranted, each Portfolio
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
When such a defensive posture is warranted, the Emerging Markets Portfolio may
also invest temporarily without limit in other securities of U.S. companies.
Emerging Markets Portfolio. The Emerging Markets Portfolio may invest or
hold up to 35% of its net assets in fixed-income securities (including
convertible bonds) rated below investment grade (commonly referred to as 'junk
bonds') and as low as C by Moody's or D by S&P, or in unrated securities
considered to be of equivalent quality. Securities that are rated C by Moody's
are the lowest rated class and can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Debt rated D by S&P is
in default or is expected to default upon maturity or payment date.
Among the types of debt securities in which the Emerging Markets Portfolio
may invest are Brady Bonds, loan participations and assignments, asset-backed
securities and mortgage-backed securities:
Brady Bonds are collateralized or uncollateralized securities created
through the exchange of existing commercial bank loans to public and private
Latin American entities for new bonds in connection with certain debt
restructurings. Brady Bonds have been issued only recently and therefore do not
have a long payment history. However, in light of the history of commercial bank
loan defaults by Latin American public and private entities, investments in
Brady Bonds may be viewed as speculative.
Loan Participations and Assignments of fixed and floating rate loans
arranged through private negotiations between a foreign government as borrower
and one or more financial institutions as lenders will typically result in the
Emerging Markets Portfolio having a contractual relationship only with the
lender, in the case of a participation, or the borrower, in the case of an
assignment. The Portfolio may not directly benefit from any collateral
supporting a participation, and in the event of the insolvency of a lender will
be treated as a general creditor of the lender. As a result, the Portfolio
assumes the risk of both the borrower and the lender of a participation. The
Portfolio's rights and obligations as the purchaser of an assignment may differ
from, and be more limited than, those held by the assigning lender. The lack of
a liquid secondary market for both participations and assignments will have an
adverse impact on the value of such securities and on the Portfolio's ability to
dispose of participations or assignments.
Asset-backed securities are collateralized by interests in pools of
consumer loans, with interest and principal payments ultimately depending on
payments in respect of the underlying loans by individuals (or a financial
institution providing credit enhancement). Because market experience in these
securities is limited, the market's ability to sustain liquidity through all
phases of the market cycle had not been tested. In addition, there is no
assurance that the security interest in the collateral can be realized. The
Portfolio may purchase asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to
shifts in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect
7
<PAGE>
<PAGE>
the mortgage securities market as a whole. Prepayment, which occurs when
unscheduled or early payments are made on the underlying mortgages, may shorten
the effective maturities of these securities and may lower their returns.
MONEY MARKET OBLIGATIONS. Each 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 Portfolios may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement, a
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 each 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, each Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio, Warburg, the
Portfolios' co-administrator, PFPC Inc. ('PFPC') or, in the case of the
Post-Venture Capital Portfolio, with Abbott. As a shareholder in any mutual
fund, a 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
administrative 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 a 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
8
<PAGE>
<PAGE>
and instruments that are supported by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which a Portfolio may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. 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. Subsequent to purchase by a Portfolio, convertible
securities may cease to be rated or a rating may be reduced below the minimum
required for purchase by the Portfolio. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Portfolio should continue to hold the securities.
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 each Portfolio's investments, see
'Portfolio Investments' beginning at page 6 and 'Certain Investment Strategies'
beginning at page 11.
EMERGING MARKETS. The Emerging Markets Portfolio may invest in securities of
issuers located in less developed countries considered to be 'emerging markets.'
Investing in securities of issuers located in emerging markets involves not only
the risks described below, with respect to investing in foreign securities, but
also other risks, including exposure to economic structures that are generally
less diverse and mature than, and to political systems that can be expected to
have less stability than, those of developed countries. Other characteristics of
emerging markets that may affect investment there include certain national
policies that may restrict investment by foreigners in issuers or industries
deemed sensitive to relevant national interests and the absence of developed
legal structures governing private and foreign investments and private property.
The typically small size of the markets for securities of issuers located in
emerging markets and the possibility of a low or nonexistent volume of trading
in those securities may also result in a lack of liquidity and in price
volatility of those securities.
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of small-sized and
emerging growth companies may involve greater risks than investing in larger,
more established issuers since these securities may have limited marketability
and, thus, may be more volatile. Because small-and medium-sized companies
normally have fewer shares outstanding than larger companies, it may be more
difficult to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. Small- and medium-sized companies may
have limited product lines, markets or financial resources and may lack
management depth. In addition, small- and medium-sized companies are typically
subject to a greater degree of changes in earnings and business prospects than
are larger, more established companies. There is typically less publicly
available information concerning small- and medium-sized companies than for
larger, more established ones. Securities of issuers in 'special situations'
also may be more volatile, since the market value of these securities may
decline in value if the anticipated benefits do not materialize. Companies in
'special situations' include, but are not limited to, companies involved in an
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender
or exchange offer; a breakup or workout of a
9
<PAGE>
<PAGE>
holding company; litigation which, if resolved favorably, would improve the
value of the companies' securities; or a change in corporate control. Although
investing in securities of emerging growth companies or 'special situations'
offers potential for above-average returns if the companies are successful, the
risk exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in a
Portfolio may involve a greater degree of risk than an investment in other
mutual funds that seek capital growth by investing in better-known, larger
companies.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Portfolios may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the '1933 Act'), but that can be sold to 'qualified institutional
buyers' in accordance with Rule 144A under the 1933 Act ('Rule 144A
Securities'). An investment in Rule 144A Securities will be considered illiquid
and therefore subject to each 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 Portfolios
to the extent that qualified institutional buyers become uninterested for a time
in purchasing Rule 144A Securities. The Board will carefully monitor any
investments by the Portfolios 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 and
interests in Private Funds) 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 and a Portfolio may take longer to liquidate
these positions than would be the case for 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. A Portfolio's investment
in illiquid securities is subject to the risk that should the Portfolio desire
to sell any of these securities when a ready buyer is not available at a price
that is deemed to be representative of their value, the value of the Portfolio's
net assets could be adversely affected.
NON-DIVERSIFIED STATUS. The Emerging Markets Portfolio is classified as
non-diversified under the 1940 Act, which means that the Portfolio is not
limited by the 1940 Act in the proportion of its assets that it may invest in
the obligations of a single issuer. The Portfolio will, however, comply with
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the 'Code'), for qualification as a regulated investment company. Being
non-diversified means that the Portfolio may invest a greater proportion of its
assets in the obligations of a small number of issuers and, as a result, may be
subject to greater risk with respect to portfolio securities. To the extent that
the Portfolio assumes large positions in the securities of a small number of
issuers, its return may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
LOWER-RATED SECURITIES. The Emerging Markets Portfolio may invest or hold
lower-rated and comparable unrated securities (commonly referred to as 'junk
bonds') which (i) will likely have some quality and protective characteristics
that, in the judgment of the rating organizations,
10
<PAGE>
<PAGE>
are outweighed by large uncertainties or major risk exposures to adverse
conditions and (ii) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation. Private Fund investments of the Post-Venture Capital Portfolio may
also hold lower-rated and comparable unrated securities. The market values of
certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. The risk of
loss due to default by such issuers is significantly greater because medium- and
lower-rated securities and unrated securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The market value of securities in lower rating categories is more volatile
than that of higher quality securities. In addition, the Portfolio may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Portfolio's ability to dispose of particular
issues and may make it more difficult for the Portfolio to obtain accurate
market quotations for purposes of valuing the Portfolio and calculating its net
asset value.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
A Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the relevant Portfolio. The
Portfolios will not consider portfolio turnover rate a limiting factor in making
investment decisions consistent with their investment objectives and policies.
It is not possible to predict the Portfolios' turnover rate. However, it is
anticipated that each Portfolio's annual turnover rate should not exceed 100%.
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 a
Portfolio are placed by Warburg with broker-dealers that it selects, including
Counsellors Securities Inc., the Portfolios' distributor ('Counsellors
Securities'). A 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, each
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 Emerging
Markets Portfolio may also invest in zero coupon securities and stand-by
commitments, although the Portfolio currently anticipates that during the coming
year zero coupon securities or stand-by commitments will not exceed 5% of net
assets. Detailed information concerning these strategies and their related risks
is contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The Emerging Markets Portfolio will ordinarily hold no less
than 65% of its total assets in foreign securities, and the Post-
11
<PAGE>
<PAGE>
Venture Capital Portfolio may invest up to 20% of its total assets in the
securities of foreign issuers. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in U.S. investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, 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 Portfolios,
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. The risks associated with investing in securities of non-U.S.
issuers are generally heightened for investments in securities of issuers in
emerging markets.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of a Portfolio's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE A PORTFOLIO'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect a Portfolio's net asset value and performance. Therefore,
an investment in a Portfolio may involve a greater risk than an investment in
other mutual funds that do not utilize these strategies. A Portfolio's use of
these strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the National Association of Securities
Dealers, Inc. and by the Code.
Securities and Stock Index Options. The Post-Venture Capital Portfolio may
write put and call options on up to 25% of the net asset value of the stock and
debt securities in its portfolio and will realize fees (referred to as
'premiums') for granting the rights evidenced by the options. Each Portfolio may
utilize up to 10% of its assets to purchase options on stocks and debt
securities that are traded on U.S. and foreign exchanges, as well as
over-the-counter ('OTC') options. The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option has the right to purchase the underlying
security from the writer. In addition to purchasing and writing options on
securities, the Emerging Markets Portfolio and the Post-Venture
12
<PAGE>
<PAGE>
Capital Portfolio may also utilize up to 15% and 10%, respectively, of its total
assets to purchase exchange-listed and OTC put and call options on stock
indexes, and may also write such options. A stock index measures the movement of
a certain group of stocks by assigning relative values to the common stocks
included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
Futures Contracts and Commodity Options. Each Portfolio may enter into
foreign currency, interest rate and stock index futures contracts and purchase
and write (sell) related options that are traded on an exchange designated by
the Commodity Futures Trading Commission (the 'CFTC') or, if consistent with
CFTC regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although a Portfolio is limited in
the amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of a Portfolio's assets that may be at risk with
respect to futures activities.
Currency Exchange Transactions. Each Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing 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. Each Portfolio will engage in hedging
transactions only when deemed advisable by Warburg, and successful use of
hedging transactions will depend on Warburg's ability to correctly predict
movements in the hedge and the
13
<PAGE>
<PAGE>
hedged position and the correlation between them, which could prove to be
inaccurate. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends.
Additional Considerations. To the extent that a Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out an option or futures position without
incurring substantial losses, if at all. A Portfolio is also subject to the risk
of a default by a counterparty to an off-exchange transaction.
Asset Coverage. Each Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities 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 a Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
SHORT SELLING. The Post-Venture Capital Portfolio may from time to time sell
securities short. A short sale is a transaction in which the Portfolio sells
borrowed securities in anticipation of a decline in the market price of the
securities. Possible losses from short sales differ from losses that could be
incurred from a purchase of a security, because losses from short sales may be
unlimited, whereas losses from purchases can equal only the total amount
invested. The current market value of the securities sold short will not exceed
10% of the Portfolio's assets.
When the Post-Venture Capital Portfolio makes a short sale, the proceeds it
receives from the sale are retained by a broker until the Portfolio replaces the
borrowed securities. To deliver the securities to the buyer, the Portfolio must
arrange through a broker to borrow the securities and, in so doing, the
Portfolio becomes obligated to replace the securities borrowed at their market
price at the time of replacement, whatever that price may be. The Portfolio may
have to pay a premium to borrow the securities and must pay any dividends or
interest payable on the securities until they are replaced.
The Post-Venture Capital Portfolio's obligation to replace the securities
borrowed in connection with a short sale will be secured by cash or U.S.
government securities deposited as collateral with the broker. In addition, the
Portfolio will place in a segregated account with its custodian or a qualified
subcustodian an amount of cash or U.S. government securities equal to the
difference, if any, between (i) the market value of the securities sold at the
time they were sold short and (ii) any cash or U.S. government securities
deposited as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Until it replaces the borrowed
securities, the Portfolio will maintain the segregated account daily at a level
so that (a) the amount deposited in the account plus the amount deposited with
the broker (not including the proceeds from the short sale) will equal the
current market value of the securities
14
<PAGE>
<PAGE>
sold short and (b) the amount deposited in the account plus the amount deposited
with the broker (not including the proceeds from the short sale) will not be
less than the market value of the securities at the time they were sold short.
Short Sales Against the Box. The Emerging Markets Portfolio and the
Post-Venture Capital Portfolio may enter into a short sale of securities such
that when the short position is open the Portfolio owns an equal amount of the
securities sold short or owns preferred stocks or debt securities, convertible
or exchangeable without payment of further consideration, into an equal number
of securities sold short. This kind of short sale, which is referred to as one
'against the box,' will be entered into by the Portfolio for the purpose of
receiving a portion of the interest earned by the executing broker from the
proceeds of the sale. The proceeds of the sale will generally be held by the
broker until the settlement date when the Portfolio delivers securities to close
out its short position. Although prior to delivery the Portfolio will have to
pay an amount equal to any dividends paid on the securities sold short, the
Portfolio will receive the dividends from the securities sold short or the
dividends from the preferred stock or interest from the debt securities
convertible or exchangeable into the securities sold short, plus a portion of
the interest earned from the proceeds of the short sale. The Portfolio will
deposit, in a segregated account with its custodian or a qualified subcustodian,
the securities sold short or convertible or exchangeable preferred stocks or
debt securities in connection with short sales against the box. The Portfolio
will endeavor to offset transaction costs associated with short sales against
the box with the income from the investment of the cash proceeds. Not more than
10% of the Portfolio's net assets (taken at current value) may be held as
collateral for short sales against the box at any one time.
The extent to which the Portfolio may make short sales may be limited by
Code requirements for qualification as a regulated investment company. See
'Dividends, Distributions and Taxes' for other tax considerations applicable to
short sales.
INVESTMENT GUIDELINES
Each 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 each 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. Each 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 a Portfolio's total assets, the
Portfolio will not make any investments (including roll-overs). Except for the
limitations on borrowing, the investment guidelines set forth in this paragraph
may be changed at any time without shareholder consent by vote of the Board,
subject to the limitations contained in the 1940 Act. A complete list of
investment restrictions that each 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.
15
<PAGE>
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
INVESTMENT ADVISERS. The Trust employs Warburg as investment adviser to each
Portfolio. The Post-Venture Capital Portfolio also employs Abbott as its
sub-investment adviser. Warburg, subject to the control of the Trust's officers
and the Board, manages the investment and reinvestment of the assets of each
Portfolio in accordance with the Portfolio's investment objective and stated
investment policies. Warburg makes investment decisions for each Portfolio,
places orders to purchase or sell securities on behalf of the Portfolio and,
with respect to the Post-Venture Capital Portfolio, supervises the activities of
Abbott. Warburg also employs a support staff of management personnel to provide
services to the Portfolios and furnishes each Portfolio with office space,
furnishings and equipment. Abbott, in accordance with the investment objective
and policies of the Post-Venture Capital Portfolio, makes investment decisions
for the Portfolio regarding investments in Private Funds, effects transactions
in interests in Private Funds on behalf of the Portfolio and assists in
administrative functions relating to investments in Private Funds.
For the services provided by Warburg, each Portfolio pays Warburg a fee
calculated at an annual rate of 1.25% of the relevant Portfolio's average daily
net assets. Warburg pays Abbott a fee of .55% per annum of the value of Private
Fund investments as of the last day of each calendar quarter. Although these
advisory fees are higher than that paid by most other investment companies,
including money market and fixed income funds, Warburg believes that they are
comparable to fees charged by other mutual funds with similar policies and
strategies. 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 a Portfolio.
Warburg is a professional investment counselling firm which provides
investment services to investment endowment funds, foundations and other
institutions and individuals. As of June , 1996, Warburg managed approximately
$13.5 billion of assets, including approximately $7.5 billion of investment
company assets. Incorporated in 1970, Warburg is a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a New York general
partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls Warburg through
its ownership of a class of voting preferred stock of Warburg. Warburg G.P. has
no business other than being a holding company of Warburg and its subsidiaries.
Warburg's address is 466 Lexington Avenue, New York, New York 10017-3147.
Abbott. Abbott, which was founded in 1986, is an independent specialized
investment firm with assets under management of approximately $3 billion. Abbott
is a registered investment adviser which concentrates on venture capital, buyout
and special situations partnership investments. Abbott's management team
provides full-service private equity programs to clients. Raymond L. Held,
Stanley E. Pratt and Gary H. Solomon are the general partners of Abbott and
Thaddeus I. Gray, CFA is a limited partner of Abbott. Messrs. Held, Pratt,
Solomon and Gray are also the investment managers of Abbott. The principal
business address of Abbott and Mr. Pratt is 50 Rowes Wharf, Suite 240, Boston,
Massachusetts 02110-3328 and that of Messrs. Held, Solomon and Gray is 1330
Avenue of the Americas, Suite 2800, New York, New York 10019.
For tax and other business purposes, the partners of Abbott plan to merge
Abbott with and into, or transfer all of the assets of Abbott to, a newly-formed
Delaware limited liability company ('Abbott LLC'), with Abbott LLC to survive
and assume all of the liabilities of Abbott as part of the transaction. This
transaction, which is expected to occur before September 30, 1996 and is subject
to certain contingencies, will not involve any material change in the
management, ownership, personnel, operations or activities of
16
<PAGE>
<PAGE>
Abbott. The present partners of Abbott will be members of Abbott LLC and will
hold officerships and other positions in Abbott LLC carrying responsibilities
generally commensurate with their present responsibilities. Pursuant to a new
sub-advisory agreement, Abbott LLC, as successor to Abbott, will perform the
services then being performed by Abbott. The new sub-advisory agreement will be
substantially identical to the current sub-advisory agreement among Warburg, the
Trust and Abbott, except for the change of the service provider from Abbott to
Abbott LLC.
PORTFOLIO MANAGERS. Richard H. King and Nicholas P.W. Horsley are co-portfolio
managers of the Emerging Markets Portfolio, and Harold W. Ehrlich and Vincent J.
McBride are associate portfolio managers and research analysts.
Mr. King, a senior 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. 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. Ehrlich is a senior vice president of Warburg and has been with Warburg
since February 1995, before which time he was a senior vice president, portfolio
manager and analyst at Templeton Investment Counsel Inc. Mr. McBride, a vice
president of Warburg, has been with Warburg since 1994. Prior to joining
Warburg, Mr. McBride was an international equity analyst at Smith Barney Inc.
from 1993 to 1994 and at General Electric Investment Corporation from 1992 to
1993. From 1989 to 1992 he was a portfolio manager/analyst at United Jersey
Bank.
The co-portfolio managers of the Post-Venture Capital Portfolio are
Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater is a senior managing
director of EMW and has been a portfolio manager of Warburg since 1978. Mr.
Lurito is a managing director of EMW and has been with Warburg since 1987,
before which time he was a research analyst at Sanford C. Bernstein & Company,
Inc.
Robert S. Janis and Christopher M. Nawn, vice presidents of Warburg, are
associate portfolio managers and research analysts for the Post-Venture Capital
Portfolio. Mr. Janis has been with Warburg since October 1994, before which time
he was a vice president and senior research analyst at U.S. Trust Company of New
York. Mr. Nawn has been with Warburg since September 1994, before which time he
was a senior sector analyst and portfolio manager at the Dreyfus Corporation.
Raymond L. Held and Gary H. Solomon, investment managers and general
partners of Abbott, manage the Post-Venture Capital Portfolio's investments in
Private Funds. Abbott also acts as sub-investment adviser for the Warburg Pincus
Post-Venture Capital Fund.
CO-ADMINISTRATORS. The Portfolios employ 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 Portfolios, including responding to shareholder
inquiries and providing information on shareholder investments. Counsellors
Service also performs a variety of other services, including furnishing certain
executive and administrative services, acting as liaison between the Portfolios
and their 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 monitoring and developing compliance
procedures for the Portfolios. As compensation, each Portfolio
17
<PAGE>
<PAGE>
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., as a co-administrator. As a co-administrator, PFPC calculates each
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 Emerging Markets 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, and the Post-Venture Capital Portfolio pays PFPC a fee calculated at an
annual rate of .10% of the Portfolio's average daily net assets, in each case
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. State Street Bank and Trust Company ('State Street') serves as
custodian of the Emerging Market Portfolio's assets. PNC Bank, National
Association ('PNC'), serves as custodian of the Post-Venture Capital Portfolio's
U.S. assets and Fiduciary Trust Company International ('Fiduciary') serves as
custodian of the Portfolio's non-U.S. assets. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. Fiduciary's principal
business address is Two World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Portfolios. 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 Portfolios. 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
Portfolios or their shareholders.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to qualified recipients who support the sale of shares of a
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 a Portfolio's shares.
TRUSTEES AND OFFICERS. The officers of the Trust manage each Portfolio's
day-to-day operations and are directly responsible to the Board. The Board sets
broad policies for each 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.
18
<PAGE>
<PAGE>
HOW TO PURCHASE AND REDEEM
SHARES IN THE PORTFOLIOS
Individual investors may not purchase or redeem shares of a Portfolio
directly; shares 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 a 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 a
Portfolio as an investment option for a Variable Contract or Plan.
PURCHASES. All investments in the Portfolios are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by a Portfolio. Each Participating Insurance Company receives orders
from its contract owners to purchase or redeem shares of a 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 one or both Portfolios 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 a Portfolio.
Plan participants may invest in shares of a 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.
Each 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 a Portfolio. A Portfolio may discontinue sales
of its shares if management believes that a substantial further increase in
assets may adversely effect that 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 such Portfolio and to reinvest any dividends or capital
gains distributions.
REDEMPTIONS. Shares of a 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. Each 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. Each 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
19
<PAGE>
<PAGE>
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 additional shares of the relevant 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.
Each Portfolio intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Portfolio intends to distribute
all of its net income and capital gains to its shareholders (the Variable
Contracts and Plans).
Because shares of the Portfolios may be purchased only through Variable
Contracts and Plans, it is anticipated that any income dividends or capital gain
distributions from a 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.
Special Tax Matters. Certain provisions of the Code may require that a gain
recognized by a Portfolio upon the closing of a short sale be treated as a
short-term capital gain, and that a loss recognized by the Portfolio upon the
closing of a short sale be treated as a long-term capital loss, regardless of
the amount of time that the Portfolio held the securities used to close the
short sale. A Portfolio's use of short sales may also affect the holding periods
of certain securities held by the Portfolio if such securities are
'substantially identical' to securities used by the Portfolio to close the short
sale. The Portfolio's short selling activities will not result in unrelated
business taxable income to a tax-exempt investor.
INTERNAL REVENUE SERVICE REQUIREMENTS. Each 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
Each 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 each
Portfolio generally changes every day.
The net asset value per share of each 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 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. Investments in Private Funds initially be valued at cost
and, thereafter, will be valued in accordance with
20
<PAGE>
<PAGE>
periodic reports received by Abbott and the Private Funds (not less frequently
than quarterly). Interim changes in value of underlying holdings of Private
Funds will not be monitored and, as a result, will not generally be reflected in
the Post-Venture Capital Portfolio's net asset 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.
PERFORMANCE
From time to time, each 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 Portfolios include the effect of deducting
each 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 each Portfolio's performance has the
effect of increasing the performance quoted, and the effect of these charges
should be considered when comparing a 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 a
Portfolio's return over a longer market cycle. Each 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,
a 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) in the case of the Emerging Markets Portfolio, with the IFC
Emerging Market Free Index, the IFC Investible Index and the
21
<PAGE>
<PAGE>
Morgan Stanley Capital International Emerging Markets Index and, in the case of
the Post-Capital Venture Portfolio, with the Venture Capital 100 Index (compiled
by Venture Capital Journal), the Russell 2000 Small Stock Index and the S&P 500
Index, all of which are unmanaged indexes of common stocks; or (iii) other
appropriate indexes of investment securities or with data developed by Warburg
derived from such indexes. The Post-Venture Capital Portfolio may also make
comparisons using data and indexes compiled by the National Venture Capital
Association, Venture-One and Private Equity Analysts Newsletter and similar
organizations and publications. A 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, Business Week, Mutual Fund Magazine, Morningstar, Inc. and
Financial Times.
In reports or other communications to investors or in advertising, each
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, a Portfolio and its portfolio managers may render periodic updates
of Portfolio activity, which may include a discussion of significant portfolio
holdings and analysis of holdings by industry, country, credit quality and other
characteristics. The Post-Venture Capital Portfolio may discuss characteristics
of venture capital financed companies and the benefits expected to be achieved
from investing in these companies. Each Portfolio may also discuss 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, each 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 four series have been authorized, two of which constitute the
interests in the Portfolios. 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
each 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%
22
<PAGE>
<PAGE>
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. Each 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 a 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 a Portfolio may conflict. The Board will monitor
the Portfolios 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 one or both Portfolios. As a result, a 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 a Portfolio to any Variable Contract or Plan or may suspend or terminate the
offering of shares of a 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 Portfolios may be obtained by calling the Trust at (800) 369-2728.
Since the prospectuses of the Portfolios are combined in this single
Prospectus, it is possible that a Portfolio may become liable for a
misstatement, inaccuracy or omission in this Prospectus with regard to the other
Portfolio.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE PORTFOLIOS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIOS, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
SHARES OF THE PORTFOLIOS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
23
<PAGE>
<PAGE>
TABLE OF CONTENTS
THE TRUST'S EXPENSES ......................................... 2
INVESTMENT OBJECTIVES AND POLICIES ........................... 3
PORTFOLIO INVESTMENTS ........................................ 6
RISK FACTORS AND SPECIAL
CONSIDERATIONS ............................................ 9
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE ..................................................... 11
CERTAIN INVESTMENT STRATEGIES ............................... 11
INVESTMENT GUIDELINES ....................................... 15
MANAGEMENT OF THE PORTFOLIOS ................................ 16
HOW TO PURCHASE AND REDEEM SHARES IN
THE PORTFOLIOS ........................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES .......................... 19
NET ASSET VALUE ............................................. 20
PERFORMANCE ................................................. 21
GENERAL INFORMATION ......................................... 22
WPTRU-1-0696
[LOGO OF WARBURG PINCUS]
WARBURG PINCUS TRUST
[ ] EMERGING MARKETS PORTFOLIO
[ ] POST-VENTURE CAPITAL PORTFOLIO
PROSPECTUS
JUNE , 1996
<PAGE>1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>1
Subject to Completion, dated April 18, 1996
STATEMENT OF ADDITIONAL INFORMATION
June , 1996
WARBURG PINCUS TRUST
Emerging Markets Portfolio
Post-Venture Capital Portfolio
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 369-2728
Contents
Page
Investment Objectives . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . 2
Management of the Trust . . . . . . . . . . . . . . . . 31
Additional Purchase and Redemption Information . . . . 39
Additional Information Concerning Taxes . . . . . . . . 40
Determination of Performance . . . . . . . . . . . . . 43
Independent Accountants and Counsel . . . . . . . . . . 44
Financial Statements . . . . . . . . . . . . . . . . . 44
Appendix -- Description of Ratings . . . . . . . . . . A-1
Statement of Assets and Liabilities (Unaudited) . . . . A-5
Warburg Pincus Trust (the "Trust") currently offers four managed
investment funds, two of which, the Emerging Markets Portfolio and the Post-
Venture Capital Portfolio (together the "Portfolios" and each a "Portfolio"),
are described in this Statement of Additional Information. This Statement of
Additional Information is meant to be read in conjunction with the combined
Prospectus for the Portfolios, dated June , 1996, as amended or supplemented
from time to time, and is incorporated by reference in its entirety into that
Prospectus. Shares of a 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 a Portfolio an investment
option for Plan participants. Because this Statement of Additional
Information is not itself a prospectus, no investment in shares of a Portfolio
should be made solely upon the information contained herein. Copies of the
Trust's Prospectus for the Portfolios and information regarding each of the
Portfolios' 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.
<PAGE>2
INVESTMENT OBJECTIVES
The investment objective of each Portfolio is long-term growth of
capital.
INVESTMENT POLICIES
The following policies supplement the descriptions of each
Portfolio's investment objective and policies in the Prospectus.
Options, Futures and Currency Exchange Transactions
Securities Options. The Post-Venture Capital Portfolio may write
covered put and call options on stock and debt securities and each Portfolio
may purchase such options that are traded on foreign and U.S. exchanges, as
well as over-the-counter ("OTC").
The Post-Venture Capital 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 Post-
Venture Capital 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 Post-Venture Capital Portfolio
that are deemed covered by virtue of the Portfolio's holding convertible or
exchangeable preferred stock or debt securities, the time required to convert
or exchange and obtain physical delivery of the underlying common stock with
respect to which the Portfolio has written options may exceed the time within
which the Portfolio must make delivery in accordance with an exercise notice.
In these instances, the Portfolio may purchase or temporarily
<PAGE>3
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 Post-Venture Capital 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 Post-Venture Capital 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
Post-Venture Capital Portfolio may write (i) in-the-money call options when
Warburg, Pincus Counsellors, Inc., the Portfolios' investment adviser
("Warburg"), expects that the price of the underlying security will remain
flat or decline moderately during the option period, (ii) at-the-money call
options when Warburg expects that the price of the underlying security will
remain flat or advance moderately during the option period and
(iii) out-of-the-money call options when Warburg expects that the premiums
received from writing the call option plus the appreciation in market price of
the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to
the relation of exercise price to market price) may be used in the same market
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 Post-Venture Capital 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 Emerging
Markets Portfolio or the Post-Venture Capital Portfolio prior to the exercise
of options that it has purchased or, with respect to the Post-Venture Capital
Portfolio, 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 a
<PAGE>4
Portfolio has purchased an option and engages in a closing sale transaction,
whether the Portfolio realizes a profit or loss will depend upon whether the
amount received in the closing sale transaction is more or less than the
premium the Portfolio initially paid for the original option plus the related
transaction costs. Similarly, in cases where the Post-Venture Capital
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 Post-Venture Capital 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 Post-Venture Capital 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 Post-Venture Capital
Portfolio effects a closing purchase transaction. The Post-Venture Capital
Portfolio can no longer effect a closing purchase transaction with respect to
an option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary
market may exist. A liquid secondary market in an option may cease to exist
for a variety of reasons. In the past, for example, higher than anticipated
trading activity or order flow or other unforeseen events have at times
rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions in particular options.
Moreover, a Portfolio's ability to terminate options positions established in
the over-the-counter market may be more limited 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
Post-Venture Capital 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.
<PAGE>5
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group
of investors acting in concert (regardless of whether the options are written
on the same or different securities exchanges or are held, written or
exercised in one or more accounts or through one or more brokers). It is
possible that the Trust or a Portfolio and other clients of Warburg and
certain of its affiliates may be considered to be such a group. A securities
exchange may order the liquidation of positions found to be in violation of
these limits and it may impose certain other sanctions. These limits may
restrict the number of options a Portfolio will be able to purchase on a
particular security.
Stock Index Options. Each Portfolio may purchase and write
exchange-listed and OTC put and call options on stock indexes. A stock index
measures the movement of a certain group of stocks by assigning relative
values to the common stocks included in the index, fluctuating with changes in
the market values of the stocks included in the index. Some stock index
options are based on a broad market index, such as the NYSE Composite Index,
or a narrower market index such as the Standard & Poor's 100. Indexes may
also be based on a particular industry or market segment.
Options on stock indexes are similar to options on stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the index and
the exercise price of the option times a specified multiple. The writer of
the option is obligated, in return for the premium received, to make delivery
of this amount. Stock index options may be offset by entering into closing
transactions as described above for securities options.
OTC Options. The Portfolios may purchase OTC or dealer options or
sell covered OTC options. Unlike exchange-listed options where an
intermediary or clearing corporation, such as the Clearing Corporation,
assures that all transactions in such options are properly executed, the
responsibility for performing all transactions with respect to OTC options
rests solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying stock to
the clearing organization if the option is exercised, and the clearing
organization is then obligated to pay the writer the exercise price of the
option. If a Portfolio were to purchase a dealer option, however, it would
rely on the dealer from whom it purchased the option to perform if the option
were exercised. If the dealer fails to honor the exercise of the option by
the Portfolio, the
<PAGE>6
Portfolio would lose the premium it paid for the option and the expected
benefit of the transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Portfolio will generally be able
to realize the value of a dealer option it has purchased only by exercising it
or reselling it to the dealer who issued it. Similarly, when the Portfolio
writes a dealer option, it generally will be able to close out the option
prior to its expiration only by entering into a closing purchase transaction
with the dealer to which the Portfolio originally wrote the option. Although
the Portfolios will seek to enter into dealer options only with dealers who
will agree to and that are expected to be capable of entering into closing
transactions with the Portfolios, there can be no assurance that the Portfolio
will be able to liquidate a dealer option at a favorable price at any time
prior to expiration. The inability to enter into a closing transaction may
result in material losses to a Portfolio. Until the Portfolio, as a covered
OTC call option writer, is able to effect a closing purchase transaction, it
will not be able to liquidate securities (or other assets) used to cover the
written option until the option expires or is exercised. This requirement may
impair the Portfolio's ability to sell portfolio securities or, with respect
to currency options, currencies at a time when such sale might be
advantageous. In the event of insolvency of the other party, the Portfolio
may be unable to liquidate a dealer option.
Futures Activities. Each Portfolio may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes
including hedging against changes in the value of portfolio securities due to
anticipated changes in currency values, interest rates and/or market
conditions and increasing return.
A Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolios reserve the right to engage in transactions
involving futures contracts and options on futures contracts to the extent
allowed by CFTC regulations in effect from time to time and in accordance with
a Portfolio's policies. Although each Portfolio is limited in the amount of
assets it may invest in futures transactions (as described above and in the
Prospectus), there is no overall limit on the percentage of Portfolio assets
that may be at risk with respect to futures activities. The ability of the
Portfolio to trade in futures contracts and options on futures contracts may
be limited by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable to a regulated investment company.
<PAGE>7
Futures Contracts. A foreign currency futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified non-U.S. currency at a specified price, date, time and
place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate sensitive financial instrument (debt security) at a specified
price, date, time and place. Stock indexes are capitalization weighted
indexes which reflect the market value of the stock listed on the indexes. A
stock index futures contract is an agreement to be settled by delivery of an
amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract
and the price at which the agreement is made.
No consideration is paid or received by a Portfolio upon entering
into a futures contract. Instead, the Portfolio is required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt obliga-
tions, equal to approximately 1% to 10% of the contract amount (this amount
is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the
contract which is returned to the Portfolio upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The
broker will have access to amounts in the margin account if the Portfolio
fails to meet its contractual obligations. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the
currency, financial instrument or stock index underlying the futures contract
fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as "marking-to-market." The Portfolios will
also incur brokerage costs in connection with entering into futures
transactions.
At any time prior to the expiration of a futures contract, a
Portfolio may elect to close the position by taking an opposite position,
which will operate to terminate the Portfolio's existing position in the
contract. Positions in futures contracts and options on futures contracts
(described below) may be closed out only on the exchange on which they were
entered into (or through a linked exchange). No secondary market for such
contracts exists. Although the Portfolios intend to enter into futures
contracts only if there is an active market for such contracts, there is no
assurance that an active market will exist at any particular time. Most
futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
day. It is possible that futures contract prices could move to the daily
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions at an advantageous price
and subjecting a Portfolio to substantial losses. In such event, and in the
event of adverse price movements, the Portfolio would be required to make
daily cash payments of variation margin. In such situations, if the Portfolio
had insufficient cash, it might have to sell securities to meet daily
variation margin requirements at a time when it would be
<PAGE>8
disadvantageous to do so. In addition, if the transaction is entered into for
hedging purposes, in such circumstances the Portfolio may realize a loss on a
futures contract or option that is not offset by an increase in the value of
the hedged position. Losses incurred in futures transactions and the costs of
these transactions will affect the Portfolio's performance.
Options on Futures Contracts. Each Portfolio may purchase and write
put and call options on foreign currency, interest rate and stock index
futures contracts and may enter into closing transactions with respect to such
options to terminate existing positions. There is no guarantee that such
closing transactions can be effected; the ability to establish and close out
positions on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives
the purchaser the right, in return for the premium paid, to assume a position
in a futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise
of an option, the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Portfolio.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of a Portfolio that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any non-U.S. currency
into U.S. dollars or into other appropriate currencies. Each Portfolio will
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering
into futures contracts or 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
<PAGE>9
futures contracts are traded on commodities exchanges and are standardized as
to contract size and delivery date.
At or before the maturity of a forward contract, the Portfolio may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to
deliver the currency by negotiating with its trading partner to purchase a
second, offsetting contract. If the Portfolio retains the portfolio security
and engages in an offsetting transaction, the Portfolio, at the time of
execution of the offsetting transaction, will incur a gain or a loss to the
extent that movement has occurred in forward contract prices.
Currency Options. The Portfolios may purchase exchange-traded put
and call options on foreign currencies. Put options convey the right to sell
the underlying currency at a price which is anticipated to be higher than the
spot price of the currency at the time the option is exercised. Call options
convey the right to buy the underlying currency at a price which is expected
to be lower than the spot price of the currency at the time the option is
exercised.
Currency Hedging. The Portfolios' currency hedging will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect
to specific receivables or payables of a Portfolio generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. A Portfolio may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
A decline in the U.S. dollar value of a foreign currency in which
the Portfolio's securities are denominated will reduce the U.S. dollar value
of the securities, even if their value in the foreign currency remains
constant. The use of currency hedges does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. For example, in order to protect against
diminutions in the U.S. dollar value of securities it holds, a Portfolio may
purchase currency put options. If the value of the currency does decline, the
Portfolio will have the right to sell the currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on
the U.S. dollar value of its securities that otherwise would have 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.
<PAGE>10
Although currency hedges limit the risk of loss due to a decline in the value
of a hedged currency, at the same time, they also limit any potential gain
that might result should the value of the currency increase. If a devaluation
is generally anticipated, the Portfolio may not be able to contract to sell a
currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value
of the Portfolio's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Portfolio's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the
Portfolio against a price decline if the issuer's creditworthiness
deteriorates.
Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income
to offset expenses or increase return, each Portfolio may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position.
A hedge is designed to offset a loss in a portfolio position with a gain in
the hedged position; at the same time, however, a properly correlated hedge
will result in a gain in the portfolio position being offset by a loss in the
hedged position. As a result, the use of options, futures, contracts and
currency exchange transactions for hedging purposes could limit any potential
gain from an increase in the value of the position hedged. In addition, the
movement in the portfolio position hedged may not be of the same magnitude as
movement in the hedge. With respect to futures contracts, since the value of
portfolio securities will far exceed the value of the futures contracts sold
by the Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether a Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market
segment, rather than movements in the price of a particular stock. The risk
of imperfect correlation increases as the composition of the Portfolio's
portfolio varies from the composition of the index. In an effort to
compensate for imperfect correlation of relative movements in the hedged
position and the hedge, the Portfolio's hedge positions may 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
<PAGE>11
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of the possibility of price distortions in the futures market and the
imperfect correlation between movements in the stock index and movements in
the price of stock index futures, a correct forecast of general market trends
by Warburg still may not result in a successful hedging transaction.
A Portfolio will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Portfolio of hedging
transactions will be subject to Warburg's ability to predict trends in
currency, interest rate or securities markets, as the case may be, and to
correctly predict movements in the directions of the hedge and the hedged
position and the correlation between them, which predictions could prove to be
inaccurate. This requires different skills and techniques than predicting
changes in the price of individual securities, and there can be no assurance
that the use of these strategies will be successful. Even a well-conceived
hedge may be unsuccessful to some degree because of unexpected market behavior
or trends. Losses incurred in hedging transactions and the costs of these
transactions will affect the Portfolio's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options
on Futures. As described in the Prospectus, each Portfolio will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Portfolio on 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 a Portfolio of
cash or liquid high-grade debt securities or other securities that are
acceptable as collateral to the appropriate regulatory authority.
For example, in the case of the Post-Venture Capital Portfolio, 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 a 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 Post-
Venture Capital Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Post-Venture Capital
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 a 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.
<PAGE>12
Additional Information on Investment Practices
Special Situation Companies. Each Portfolio may invest (with
respect to the Post-Venture Capital Portfolio, up to 10% of its assets,
directly or indirectly) in the securities of "special situation companies"
involved in an actual or prospective acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets; a tender or exchange offer; a breakup or workout
of a holding company; or litigation which, if resolved favorably, would
improve the value of the company's stock. If the actual or prospective
situation does not materialize as anticipated, the market price of the
securities of a "special situation company" may decline significantly. The
Portfolios believe, however, that if Warburg analyzes "special situation
companies" carefully and invests in the securities of these companies at the
appropriate time, the Portfolios may achieve growth of capital. There can be
no assurance, however, that a special situation that exists at the time a
Portfolio makes its investment will be consummated under the terms and within
the time period contemplated.
Foreign Investments. The Post-Venture Capital Portfolio may invest
up to 20% of its total assets in the securities of foreign issuers. 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 Emerging Markets Portfolio
will, and the Post-Venture Capital Portfolio (up to 20% of its total assets)
may, be investing in securities denominated in currencies other than the U.S.
dollar, and since a Portfolio may temporarily hold funds in bank deposits or
other money market investments denominated in foreign currencies, each
Portfolio'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 a Portfolio's assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed by a
Portfolio with respect to its foreign investments. The rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange markets. Changes in the exchange
rate may result over time from the interaction of many factors directly or
indirectly affecting economic and political conditions in the United States
and a particular foreign country, including economic and political
developments in other countries. Of particular importance are rates of
inflation, interest rate levels, the balance of payments and the extent of
government surpluses or deficits in the United States and the particular
foreign country, all of which are in turn sensitive to the monetary, fiscal
and trade policies pursued by the governments of the United States and foreign
countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as
<PAGE>13
intervention by a country's central bank or imposition of regulatory controls
or taxes, to affect the exchange rates of their currencies. A Portfolio may
use hedging techniques with the objective of protecting against loss through
the fluctuation of the 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 a
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or
government entity. Foreign companies are generally not subject to uniform
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies.
Political Instability. 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 and neighboring countries. For example, tensions in
Asia have increased following the announcement in March 1993 by The Democratic
People's Republic of Korea ("North Korea") of its intention to withdraw from
participation in the Nuclear Non-Proliferation Treaty and its refusal to allow
the International Atomic Energy Agency to conduct full inspections of its
nuclear facilities. Military action involving North Korea or the economic
deterioration of North Korea could adversely affect the entire region and the
performance of the Emerging Markets Portfolio.
Delays. Securities of some foreign companies are less liquid and
their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the
trade and settlement dates of securities purchased or sold. Due to the
increased exposure of a Portfolio to market and foreign exchange fluctuations
brought about by such delays, and due to the corresponding negative impact on
a Portfolio's liquidity, the Portfolios will avoid investing in countries
which are known to experience settlement delays which may expose the
Portfolios to unreasonable risk of loss.
Increased Expenses. The operating expenses of the Emerging Markets
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, 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,
<PAGE>14
rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments positions. A Portfolio may invest in securities of
foreign governments (or agencies or instrumentalities thereof), and many, if
not all, of the foregoing considerations apply to such investments as well.
Foreign Debt Securities. (Emerging Markets Portfolio) The returns
on foreign debt securities reflect interest rates and other market conditions
prevailing in those countries and the effect of gains and losses in the
denominated currencies against the U.S. dollar, which have had a substantial
impact on investment in foreign fixed income securities. The relative
performance of various countries' fixed income markets historically has
reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets
from time to time.
The foreign government securities in which the Emerging Markets
Portfolio may invest generally consist of obligations issued or backed by
national, state or provincial governments or similar political subdivisions or
central banks in foreign countries. Foreign government securities also
include debt obligations of supranational entities, which include
international organizations designated or backed by governmental entities to
promote economic reconstruction or development, international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt
securities of quasi-governmental agencies are issued by entities owned by
either a national, state or equivalent government or are obligations of a
political unit that is not backed by the national government's full faith and
credit and general taxing powers. An example of a multinational currency unit
is the European Currency Unit ("ECU"). An ECU represents specified amounts of
the currencies of certain member states of the European Economic Community.
The specific amounts of currencies comprising the ECU may be adjusted by the
Council of Ministers of the European Community to reflect changes in relative
values of the underlying currencies.
Brady Bonds. (Emerging Markets Portfolio) The Emerging Markets
Portfolio may invest in so-called "Brady Bonds," which have been issued by
Costa Rica, Mexico, Uruguay and Venezuela and which may be issued by other
Latin American countries. Brady Bonds are issued as part of a debt
restructuring in which the bonds are issued in exchange for cash and certain
of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the over-the-counter
("OTC") secondary market for debt of Latin American issuers.
<PAGE>15
U.S. Government Securities. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. government securities").
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
government securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. Each Portfolio may also invest in
instruments that are supported by the right of the issuer to borrow from the
U.S. Treasury and instruments that are supported by the credit of the
instrumentality. Because the U.S. government is not obligated by law to
provide support to an instrumentality it sponsors, a Portfolio will invest in
obligations issued by such an instrumentality only if Warburg determines that
the credit risk with respect to the instrumentality does not make its
securities unsuitable for investment by the Portfolio.
Securities of Other Investment Companies. Each Portfolio may invest
in securities of other investment companies, and with respect to the Post-
Venture Capital Portfolio, partnerships and other investment vehicles deemed
to be investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"), to the extent permitted under the 1940 Act.
Presently, under the 1940 Act, a Portfolio may hold securities of another
investment company in amounts which (i) do not exceed 3% of the total
outstanding voting stock of such company, (ii) do not exceed 5% of the value
of the Portfolio's total assets and (iii) when added to all other investment
company securities held by the Portfolio, do not exceed 10% of the value of
the Portfolio's total assets.
Lending of Portfolio Securities. A Portfolio may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
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. A Portfolio
will not lend portfolio securities to affiliates of Warburg unless it has
applied for and received specific authority to do so from the SEC. Loans of
portfolio securities will be collateralized by cash, letters of credit or U.S.
government securities, which are maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Any gain
or loss in the market price of the securities loaned that might occur during
the term of the loan would be for the account of the Portfolio involved. From
time to time, a Portfolio may return a part of the interest earned from the
investment of collateral received for securities loaned to the borrower and/or
a third party that is unaffiliated with the Portfolio and that is acting as a
"finder."
<PAGE>16
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 Portfolios,
income received could be used to pay a Portfolio's expenses and would increase
its total return. Each Portfolio will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Portfolio must receive
at least 100% cash collateral or equivalent securities of the type discussed
in the preceding paragraph from the borrower; (ii) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (iii) the Portfolio must be able to terminate the
loan at any time; (iv) the Portfolio must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities and any increase in market value; (v) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights
on the loaned securities may pass to the borrower, provided, however, that if
a material event adversely affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of the
other party including possible delays or restrictions upon the Portfolio's
ability to recover the loaned securities or dispose of the collateral for the
loan.
When-Issued Securities and Delayed-Delivery Transactions. Each
Portfolio may utilize up to 20% of its total assets to purchase securities on
a "when-issued" basis or purchase or sell securities for delayed delivery
(i.e., payment or delivery occur beyond the normal settlement date at a stated
price and yield). When-issued transactions normally settle within 30-45 days.
A Portfolio will enter into a when-issued transaction for the purpose of
acquiring portfolio securities and not for the purpose of leverage, but may
sell the securities before the settlement date if Warburg deems it
advantageous to do so. The payment obligation and the interest rate that will
be received on when-issued securities are fixed at the time the buyer enters
into the commitment. Due to fluctuations in the value of securities purchased
or sold on a when-issued or delayed-delivery basis, the yields obtained on
such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
When a Portfolio agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations or other securities that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian
will set aside portfolio securities to satisfy a purchase commitment, and in
such a case the Portfolio may be required subsequently to place additional
assets in the segregated account in order to ensure that the value of the
account remains equal to the amount of the Portfolio's commitment. It may be
expected that the Portfolio's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments
than when it sets aside cash. When the Portfolio engages in when-issued or
delayed-delivery transactions, it relies on the other party to
<PAGE>17
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 a Portfolio may be invested in the securities of foreign issuers in the
form of American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"),
are receipts issued in Europe typically by non-U.S. banks and trust companies
that evidence ownership of either foreign or domestic securities. Generally,
ADRs in registered form are designed for use in U.S. securities markets and
EDRs and CDRs in bearer form are designed for use in European securities
markets.
Warrants. Each Portfolio may invest up to 5% of net assets in
warrants (valued at the lower of cost or market) (other than warrants acquired
by the Portfolio as part of a unit or attached to securities at the time of
purchase). 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. A 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,
time deposits maturing in more than seven days, certain Rule 144A Securities
(as defined below) and, in the case of the Post-Venture Capital Portfolio,
Private Funds (as defined in the Prospectus). 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
<PAGE>18
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days.
A mutual fund might also have to register such restricted securities in order
to dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by
the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. Warburg anticipates that the market for certain restricted securities
such as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Portfolios' limits on the purchase of illiquid
securities unless the Board or its delegates determines that the 144A
securities are liquid. In reaching liquidity decisions, the Board and its
delegates 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).
Below Investment Grade Securities. The Portfolios may invest in
below investment grade convertible debt and preferred securities and it is not
required to dispose of securities downgraded below investment grade subsequent
to acquisition by the Portfolios. Although the Post-Venture Capital Portfolio
may invest only in investment grade non-convertible debt securities (as
described in the Prospectus), securities held by Private Funds (as described
in the Prospectus) may be rated below investment grade. While the market
values of medium- and lower-rated securities and unrated securities of
comparable quality tend to react less to fluctuations in interest rate levels
than do those of higher-rated securities, the market values of certain of
these securities also tend to be more sensitive to individual corporate
developments and changes in economic conditions than higher-quality
securities.
<PAGE>19
In addition, medium- and lower-rated securities and comparable unrated
securities generally present a higher degree of credit risk. Issuers of medium-
and lower-rated securities and unrated securities are often highly leveraged
and may not have more traditional methods of financing available to them so
that their ability to service their obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk
of loss due to default by such issuers is significantly greater because medium-
and lower-rated securities and unrated securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The market for medium- and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers
of such securities to repay principal and pay interest thereon.
Certain of these securities may be difficult to dispose of because
there may be a thin trading market. Because there is no establishing retail
secondary market for many of these securities, it is anticipated that these
securities could be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market for these securities does
exist, it generally is not as liquid as the secondary market for higher-rated
securities. The lack of a liquid secondary market, as well as adverse
publicity and investor perception with respect to these securities, may have
an adverse impact on market price and the ability to dispose of particular
issues when necessary to meet the liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
The lack of a liquid secondary market for certain securities also may make it
more difficult to obtain accurate market quotations for purposes of valuation
and calculation of net asset value.
The market value of securities in medium- and lower-rated categories
is more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the
Portfolio's net asset value. The Portfolio will rely on the judgment,
analysis and experience of Warburg in evaluating the creditworthiness of an
issuer. In this evaluation, Warburg will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the issuer's
management and regulatory matters. Normally, medium- and lower-rated and
comparable unrated securities are not intended for short-term investment.
Additional expenses may be incurred to the extent it is required to seek
recovery upon a default in the payment of principal or interest on its
portfolio holdings of such securities. Recent adverse publicity regarding
lower-rated securities may have depressed the prices for such securities to
some extent. Whether investor perceptions will continue to have a negative
effect on the price of such securities is uncertain.
Borrowing. Each Portfolio may borrow up to 30% of its total assets
for temporary or emergency purposes, including to meet portfolio redemption
requests so as to permit the orderly disposition of portfolio securities or to
facilitate settlement transactions on
<PAGE>20
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. Each Portfolio expects
that some of its borrowings may be made on a secured basis. In such
situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable
subcustodian, which may include the lender.
Investment Policies of the Emerging Markets Portfolio Only
Loan Participations and Assignments. The Emerging Markets Portfolio
may invest in fixed and floating rate loans ("Loans") arranged through private
negotiations between a foreign government (a "Borrower") and one or more
financial institutions ("Lenders"). The majority of the Emerging Markets
Portfolio's investments in Loans are expected to be in the form of
participations in Loans ("Participations") and assignments of portions of
Loans from third parties ("Assignments"). Participations typically will
result in the Portfolio having a contractual relationship only with the
Lender, not with the Borrower. The Portfolio will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the Lender of
the payments from the Borrower. In connection with purchasing Participations,
the Emerging Markets Portfolio generally will have no right to enforce
compliance by the Borrower with the terms of the loan agreement relating to
the Loan, nor any rights of set-off against the Borrower, and the Portfolio
may not directly benefit from any collateral supporting the Loan in which it
has purchased the Participation. As a result, the Portfolio will assume the
credit risk of both the Borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Portfolio may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the
Borrower. The Emerging Markets Portfolio will acquire Participations only if
the Lender interpositioned between the Portfolio and the Borrower is
determined by Warburg to be creditworthy.
When the Portfolio purchases Assignments from Lenders, the Portfolio
will acquire direct rights against the Borrower on the Loan. However, since
Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations
acquired by the Portfolio as the purchaser of an Assignment may differ from,
and be more limited than, those held by the assigning Lender.
There are risks involved in investing in Participations and
Assignments. The Portfolio may have difficulty disposing of them because
there is no liquid market for such securities. The lack of a liquid secondary
market will have an adverse impact on the value of such securities and on the
Portfolio's ability to dispose of particular Participations or Assignments
when necessary to meet the Portfolio's liquidity needs or in response to a
specific economic event, such as a deterioration in the creditworthiness of
the Borrower. The lack of a liquid market for Participations and Assignments
also may make it more
<PAGE>21
difficult for the Portfolio to assign a value to these securities for purposes
of valuing the Portfolio's portfolio and calculating its net asset value.
Mortgage-Backed Securities. The Emerging Markets Portfolio may
invest in mortgage-backed securities, such as those issued by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or
certain foreign issuers. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property. The mortgages backing these securities include,
among other mortgage instruments, conventional 30-year fixed-rate mortgages,
15-year fixed rate mortgages, graduated payment mortgages and adjustable rate
mortgages. The government or the issuing agency typically guarantees the
payment of interest and principal of these securities. However, the
guarantees do not extend to the securities' yield or value, which are likely
to vary inversely with fluctuations in interest rates, nor do the guarantees
extend to the yield or value of the Portfolio's shares. These securities
generally are "pass-through" instruments, through which the holders receive a
share of all interest and principal payments from the mortgages underlying the
securities, net of certain fees.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and
the associated average life assumption. The average life of pass-through
pools varies with the maturities of the underlying mortgage loans. A pool's
term may be shortened by unscheduled or early payments of principal on the
underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual
pools vary widely, it is not possible to predict accurately the average life
of a particular pool. For pools of fixed-rate 30-year mortgages, a common
industry practice in the U.S. has been to assume that prepayments will result
in a 12-year average life. At present, pools, particularly those with loans
with other maturities or different characteristics, are priced on an
assumption of average life determined for each pool. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening
the actual average life of a pool of mortgage-related securities. Conversely,
in periods of rising rates the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the pool. However, these effects may
not be present, or may differ in degree, if the mortgage loans in the pools
have adjustable interest rates or other special payment terms, such as a
prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than
the original investment, thus affecting the Portfolio's yield.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA,
and due to any yield retained by the issuer. Actual
<PAGE>22
yield to the holder may vary from the coupon rate, even if adjustable, if the
mortgage-backed securities are purchased or traded in the secondary market at
a premium or discount. In addition, there is normally some delay between the
time the issuer receives mortgage payments from the servicer and the time the
issuer makes the payments on the mortgage-backed securities, and this delay
reduces the effective yield to the holder of such securities.
Asset-Backed Securities. The Emerging Markets Portfolio may invest
in asset-backed securities, which represent participations in, or are secured
by and payable from, assets such as motor vehicle installment sales,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements. Such
assets are securitized through the use of trusts and special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution
unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not presented
by other securities in which the Portfolio may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables
may not have a proper security interest in the underlying automobiles.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Credit card receivables are generally unsecured, and the debtors are entitled
to the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Because asset-backed
securities are relatively new, the market experience in these securities is
limited, and the market's ability to sustain liquidity through all phases of
the market cycle has not been tested.
Zero Coupon Securities. The Emerging Markets Portfolio may invest
in "zero coupon" U.S. Treasury, foreign government and U.S. and foreign
corporate convertible and nonconvertible debt securities, which are bills,
notes and bonds that have been stripped of their unmatured interest coupons
and custodial receipts or certificates of participation representing interests
in such stripped debt obligations and coupons. A zero coupon security pays no
interest to its holder prior to maturity. Accordingly, such securities
usually trade at a deep discount from their face or par value and will be
subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities that make
current distributions of interest. The Portfolio anticipates that it will not
normally hold zero coupon securities to maturity. Federal tax law requires
that a holder of a zero coupon security accrue a portion of the discount at
which the security was purchased as
<PAGE>23
income each year, even though the holder receives no interest payment on the
security during the year. Such accrued discount will be includible in
determining the amount of dividends the Portfolio must pay each year and, in
order to generate cash necessary to pay such dividends, the Portfolio may
liquidate portfolio securities at a time when it would not otherwise have done
so.
Stand-By Commitments. The Emerging Markets Portfolio may acquire
"stand-by commitments" with respect to securities held in its portfolio.
Under a stand-by commitment, a dealer agrees to purchase at the Portfolio's
option specified securities at a specified price. The Portfolio's right to
exercise stand-by commitments is unconditional and unqualified. Stand-by
commitments acquired by the Portfolio may also be referred to as "put"
options. A stand-by commitment is not transferable by the Portfolio, although
the Portfolio can sell the underlying securities to a third party at any time.
The principal risk of stand-by commitments is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. The Portfolio intends to enter into stand-by commitments only with
brokers, dealers and banks that, in the opinion of Warburg, present minimal
credit risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, Warburg will periodically review relevant financial information
concerning the issuer's assets, liabilities and contingent claims. The
Portfolio will acquire stand-by commitments only in order to facilitate
portfolio liquidity and does not intend to exercise its rights under stand-by
commitments for trading purposes.
The amount payable to the Portfolio upon its exercise of a stand-by
commitment is normally (i) the Portfolio's acquisition cost of the securities
(excluding any accrued interest which the Portfolio paid on their
acquisition), less any amortized market premium or plus any amortized market
or original issue discount during the period the Portfolio owned the
securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period.
The Portfolio expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Portfolio may pay for a stand-by
commitment either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the commitment (thus reducing the
yield to maturity otherwise available for the same securities). The total
amount paid in either manner for outstanding stand-by commitments held in the
Portfolio's portfolio will not exceed 1/2 of 1% of the value of the
Portfolio's total assets calculated immediately after each stand-by commitment
is acquired.
The Portfolio would acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a stand-by commitment
would not affect the valuation or assumed maturity of the underlying
securities. Stand-by commitments acquired by the Portfolio would be valued at
zero in determining net asset value. Where the Portfolio paid any
consideration directly or
<PAGE>24
indirectly for a stand-by commitment, its cost would be reflected as
unrealized depreciation for the period during which the commitment was held by
the Portfolio. Stand-by commitments would not affect the average weighted
maturity of the Portfolio's portfolio. The Portfolio currently anticipates
that it will not invest more than 5% of its net assets in stand-by
commitments.
Non-Diversified Status. The Emerging Markets Portfolio is
classified as non-diversified within the meaning of the 1940 Act, which means
that it is not limited by such Act in the proportion of its assets that it may
invest in securities of a single issuer. The Portfolio's investments will be
limited, however, in order to qualify as a "regulated investment company" for
purposes of the Code. See "Additional Information Concerning Taxes." To
qualify, the Portfolio will comply with certain requirements, including
limiting its investments so that at the close of each quarter of the taxable
year (i) not more than 25% of the market value of its total assets will be
invested in the securities of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer and the
Portfolio will not own more than 10% of the outstanding voting securities of a
single issuer.
Investment Policies of the Post-Venture Capital Portfolio Only
Private Funds. Although investments in Private Funds offer the
opportunity for significant capital gains, these investments involve a high
degree of business and financial risk that can result in substantial losses in
the portion of the Post-Venture Capital Portfolio's portfolio invested in
these investments. Among these are the risks associated with investment in
companies in an early stage of development or with little or no operating
history, companies operating at a loss or with substantial variation in
operation results from period to period, companies with the need for
substantial additional capital to support expansion or to maintain a
competitive position, or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources or more extensive development, manufacturing,
distribution or other attributes, over which the Portfolio will have no
control.
Interests in the Private Funds in which the Post-Venture Capital
Portfolio may invest will be subject to substantial restrictions on transfer
and, in some instances, may be non-transferable for a period of years.
Private Funds may participate in only a limited number of investments and, as
a consequence, the return of a particular Private Fund may be substantially
adversely affected by the unfavorable performance of even a single investment.
Certain of the Private Funds in which the Portfolio may invest may pay their
investment managers a fee based on the performance of the Private Fund, which
may create an incentive for the manager to make investments that are riskier
or more speculative than would be the case if the manager was paid a fixed
fee. Private Funds are not registered under the 1940 Act and, consequently,
are not subject to the restrictions on affiliated transactions and other
protections applicable to regulated investment companies. The valuation of
companies held by Private Funds, the securities of which are generally
unlisted and illiquid, may be very
<PAGE>25
difficult and will often depend on the subjective valuation of the managers of
the Private Funds, which may prove to be inaccurate. Inaccurate valuations of
a Private Fund's portfolio holdings may affect the Fund's net asset value
calculations. Private Funds in which the Portfolio invests will not borrow to
increase the amount of assets available for investment or otherwise engage in
leverage.
Securities of Small Companies. The Post-Venture Capital Portfolio's
investments involve considerations that are not applicable to investing in
securities of established, larger-capitalization issuers, including reduced
and less reliable information about issuers and markets, less stringent
accounting standards, illiquidity of securities and markets, higher brokerage
commissions and fees and greater market risk in general. In addition,
securities of smaller companies may involve greater risks since these
securities may have limited marketability and, thus, may be more volatile.
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 a 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.
A 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. For the Post-Venture Capital Portfolio only, purchase the
securities of any issuer, if as a result more than 5% of the value of the
Portfolio's total assets would be invested in the securities of such issuer,
except that this 5% limitation does not apply to U.S.
<PAGE>26
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. For the Emerging Markets Portfolio only, 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.
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 and enter into stand-by commitments.
10. Issue any senior security except as permitted in the
Portfolio's 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 in connection with the purchase of securities
on a forward commitment or delayed-delivery basis and collateral and initial
or variation margin arrangements with respect to currency transactions,
options, futures contracts, and options on futures contracts.
<PAGE>27
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 Portfolios are
sold. These may be more restrictive than the limitations set forth above.
Should a Portfolio determine that any such commitment is no longer in the best
interest of the Portfolio and its shareholders, the Portfolio will revoke the
commitment by terminating the sale of Portfolio shares in the state involved.
In addition, the relevant state may change or eliminate its policy regarding
such investment limitations. If a percentage restriction (other than the
percentage limitation set forth in No. 1 above) is adhered to at the time of
an investment, a later increase or decrease in the percentage of assets
resulting from a change in the values of portfolio securities or in the amount
of the Portfolio's assets will not constitute a violation of such restriction.
Portfolio Valuation
The Prospectus discusses the time at which the net asset value of
each Portfolio is determined for purposes of sales and redemptions. The
following is a description of the procedures used by each Portfolio in valuing
its assets.
Securities 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
<PAGE>28
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.
Private Funds are initially valued at cost (i.e., the actual dollar
amount invested). Thereafter, Private Funds are valued at the prices set
forth in periodic reports received by Abbott Capital Management, L.P., the
Post-Venture Capital Portfolio's sub-investment adviser ("Abbott"), from the
Private Funds. These reports are generally made quarterly. Neither Abbott
nor the Portfolio will monitor interim changes in the value of portfolio
holdings of the Private Funds. As a result, these changes will not be taken
into account by the Portfolio in calculating its net asset 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 NYSE will not be reflected in the Portfolios'
calculation of net asset value, in which case an adjustment may be made by the
Board or its delegates. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
prevailing rate as quoted by a Pricing Service. If such quotations are not
available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.
<PAGE>29
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying each Portfolio's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio
securities are usually principal transactions without brokerage commissions
effected directly with the issuer or with an underwriter acting as principal.
Private Funds may be purchased directly from the issuer or may involve a
broker or placement agent. Other purchases and sales may be effected on a
securities exchange or over-the-counter, depending on where it appears that
the best price or execution will be obtained. The purchase price paid by a
Portfolio to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. On most foreign exchanges,
commissions are generally fixed. Purchases of Private Funds through a broker
or placement agent will also involve a commission or other fee. 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.
Except for Private Funds managed by Abbott, Warburg will select
specific portfolio investments and effect transactions for each Portfolio and
in doing so seeks to obtain the overall best execution of portfolio
transactions. In evaluating prices and executions, Warburg will consider the
factors it deems relevant, which may include the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of a broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. Warburg may, in
its discretion, effect transactions in portfolio securities with dealers who
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to a Portfolio and/or other
accounts over which Warburg exercises investment discretion. Warburg may
place portfolio transactions with a broker or dealer with whom it has
negotiated a commission that is in excess of the commission another broker or
dealer would have charged for effecting the transaction if Warburg determines
in good faith that such amount of commission was reasonable in relation to the
value of such brokerage and research services provided by such broker or
dealer viewed in terms of either that particular transaction or of the overall
responsibilities of Warburg. Research and other services received may be
useful to Warburg in serving both the Portfolios and its other clients and,
conversely, research or other services obtained by the placement of business
of other clients may be useful to Warburg in carrying out its obligations to
the Portfolios. Research may
<PAGE>30
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. 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.
Investment decisions for each Portfolio concerning specific
portfolio securities are made independently from those for other clients
advised by Warburg or, in the case of the Post-Venture Capital Portfolio,
Abbott. Such other investment clients may invest in the same securities as a
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which Warburg or Abbott, as the case may be, believes to be equitable
to each client, including the Portfolios. In some instances, this investment
procedure may adversely affect the price paid or received by a Portfolio or
the size of the position obtained or sold for a Portfolio. To the extent
permitted by law, securities to be sold or purchased for a Portfolio may be
aggregated with those to be sold or purchased for such other investment
clients in order to obtain best execution.
Any portfolio transaction for a 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.
Transactions for the Portfolios may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Portfolios 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
<PAGE>31
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions
and the purchase and sale of underlying securities upon exercise of options.
Each Portfolio may participate, if and when practicable, in bidding
for the purchase of securities for the Portfolio's portfolio directly from an
issuer in order to take advantage of the lower purchase price available to
members of such a group. A Portfolio will engage in this practice, however,
only when Warburg, in its sole discretion, believes such practice to be
otherwise in the Portfolio's interest.
Portfolio Turnover
The Portfolios do not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when a
Portfolio deems it desirable to sell or purchase securities. A Portfolio's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.
Certain practices that may be employed by a Portfolio could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. The Portfolios' investment in special
situation companies could result in high portfolio turnover. To the extent
that its portfolio is traded for the short-term, the Portfolio will be engaged
essentially in trading activities based on short-term considerations affecting
the value of an issuer's stock instead of long-term investments based on
fundamental valuation of securities. Because of this policy, portfolio
securities may be sold without regard to the length of time for which they
have been held. Consequently, the annual portfolio turnover rate of the
Portfolios may be higher than mutual funds having a similar objective that do
not invest in special situation companies.
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.
<PAGE>32
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 (69) . . . . . . 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; President of The
Grand Street Settlement; Trustee of Blythedale
Childrens Hospital and Barnard College and
Treasurer of the Foundation for Child
Development; Officer of other investment
companies advised by Warburg.
Thomas A. Melfe (64) . . . . . 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.
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.
* Indicates a Trustee who is an "interested person" of the Trust as
defined in the 1940 Act.
<PAGE>33
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 (39) . . . 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.
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
<PAGE>34
other investment companies advised by Warburg.
Howard Conroy (42) . . . . . . Vice President, Treasurer and Chief
466 Lexington Avenue Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992; Associated
with Martin Geller, C.P.A. from 1990-1992;
Vice President, Finance with Gabelli/Rosenthal
& Partners, L.P. until 1990; Vice President,
Treasurer and Chief Accounting Officer of
other investment companies advised by Warburg.
Janna Manes (28) . . . . . . . Assistant Secretary
466 Lexington Avenue Associated with EMW since 1996; Associated
New York, New York 10017-3147 with the law firm of Willkie Farr & Gallagher
from 1993-1996; Assistant Secretary of other
investment companies advised by Warburg.
No employee of Warburg or PFPC Inc., the 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.
<PAGE>35
Trustees' Compensation
(estimated for the fiscal year ended December 31, 1996)+
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Trust Managed by Warburg*
---------------- ----------------- ------------------------
<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>
__________________________
+ Estimates of future payments to be made pursuant to existing
arrangements.
* Each Trustee also serves as a Director or Trustee of 19 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 March 29, 1996, no Trustees or officers of the Trust owned any of the
outstanding shares of the Portfolios.
Portfolio Managers
Emerging Markets Portfolio. Mr. Richard H. King, co-portfolio
manager of the Emerging Markets Portfolio, earned a B.A. degree from Durham
University in England. Mr. King is also portfolio manager of Warburg Pincus
International Equity Fund, the International Equity Portfolio of Warburg
Pincus Institutional Fund, Inc. and the International Equity Portfolio of the
Trust and a co-portfolio manager of Warburg Pincus Emerging Markets Fund and
Warburg Pincus Japan OTC Fund. From 1968 to 1982, he worked at W.I. Carr Sons
& Company (Overseas), a leading international brokerage firm. He resided in
the Far East as an investment analyst from 1970 to 1977, became director, and
later relocated to the U.S. where he became founder and president of W.I. Carr
(America), based in New York. From 1982 to 1984 Mr. King was a director in
charge of the Far East
<PAGE>36
equity investments at N.M. Rothschild International Asset Management, a London
merchant bank. In 1984 Mr. King became chief investment officer and director
for all international investment strategy with Fiduciary Trust Company
International S.A., in London. He managed an EAFE mutual fund (FTIT) 1985-
1986 which grew from $3 million to over $100 million during this two-year
period.
Mr. Nicholas P.W. Horsley, co-portfolio manager of the Emerging
Markets Portfolio and associate portfolio manager and research analyst of the
International Equity Portfolio of the Trust, 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. Harold W. Ehrlich, associate portfolio manager and research
analyst of the Emerging Markets Portfolio and the International Equity
Portfolio of the Trust, 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 Emerging Markets Portfolio and the International Equity
Portfolio of the Trust, 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.
Post-Venture Capital Portfolio. Ms. Elizabeth B. Dater, co-
portfolio manager of the Post-Venture Capital Portfolio is also co-portfolio
manager of Warburg Pincus Post-Venture Capital Fund, Warburg Pincus Emerging
Growth Fund and the Small Company Growth Portfolio of the Trust. Ms. Dater is
the former director of research for Warburg's
<PAGE>37
investment management activities. Prior to joining Warburg in 1978, she was a
vice president of Research at Fiduciary Trust Company of New York and an
institutional sales assistant at Lehman Brothers. Ms. Dater has been a
regular panelist on Maryland Public Television's "Wall Street Week" since
1976. Ms. Dater earned a B.A. degree from Boston University in Massachusetts.
Mr. Stephen J. Lurito, co-portfolio manager of the Post-Venture
Capital Portfolio is also co-portfolio manager of Warburg Pincus Post-Venture
Capital Fund, Warburg Pincus Emerging Growth Fund and the Small Company Growth
Portfolio of the Trust. Mr. Lurito, also the research coordinator and a
portfolio manager for micro-cap equity and post-venture products, has been
with Warburg since 1987. Prior to that he was a research analyst at Sanford
C. Bernstein & Company, Inc. Mr. Lurito earned a B.A. degree from the
University of Virginia and a M.B.A. from the University of Pennsylvania.
Robert S. Janis and Christopher M. Nawn are associate portfolio
managers and research analysts for the Post-Venture Capital Portfolio. Mr.
Janis has been with Warburg since October 1994, before which time he was a
vice president and senior research analyst at U.S. Trust Company of New York.
Mr. Nawn has been with Warburg since September 1994, before which time he was
a senior sector analyst and portfolio manager at the Dreyfus Corporation.
Raymond L. Held and Gary H. Solomon, investment managers and general
partners of Abbott, manage the Post-Venture Capital Portfolio's investments in
Private Funds. Abbott also acts as sub-investment adviser for the Warburg
Pincus Post-Venture Capital Fund.
Investment Adviser, Sub-Investment Adviser and Co-Administrators
Warburg serves as investment adviser to each Portfolio, Abbott
serves as sub-investment adviser to the Post-Venture Capital 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 "Sub-
Advisory Agreement," 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, Abbott under the Sub-Advisory Agreement, Counsellors Service under
the Counsellors Service Co-Administration Agreements and PFPC under the PFPC
Co-Administration Agreements are described in the Prospectus.
<PAGE>38
Custodian and Transfer Agent
State Street Bank and Trust Company ("State Street") serves as
custodian of the Emerging Markets Portfolio's U.S. and foreign assets. PNC
Bank, National Association ("PNC") serves as custodian of the Post-Venture
Capital Portfolio's U.S. assets and Fiduciary Trust Company International
("Fiduciary") serves as custodian of the Portfolio's non-U.S. assets, pursuant
to separate custodian agreements (the "Custodian Agreements"). Under the
Custodian Agreements, State Street, PNC and Fiduciary each (i) maintains a
separate account or accounts in the name of the relevant Portfolio, (ii) holds
and transfers portfolio securities on account of the relevant Portfolio,
(iii) makes receipts and disbursements of money on behalf of the relevant
Portfolio, (iv) collects and receives all income and other payments and
distributions on account of the relevant 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 and
Fiduciary are authorized to select one or more foreign banking institutions
and foreign securities depositaries as sub-custodian on behalf of the Emerging
Markets Portfolio and the Post-Venture Capital Portfolio, respectively; 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. The principal
business address of State Street is 225 Franklin Street, Boston, Massachusetts
02110. 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 Fiduciary is Two World
Trade Center, New York, New York 10048.
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
each 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
(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."
<PAGE>39
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of a 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 a 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 relevant 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 a Portfolio, upon liquidation, will participate
ratably in the Portfolio's net assets. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of 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 Portfolios 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 a Portfolio an investment option for Plan
participants. The offering price of each Portfolio's shares is equal to its
per share net asset value. Additional information on how to purchase and
redeem a Portfolio's shares and how such shares are priced is included in the
Prospectus under "Net Asset Value."
Under the 1940 Act, a Portfolio may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which
the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair
valuation of portfolio securities is not reasonably practicable, or for such
other periods as the SEC may permit. (A Portfolio may also suspend or
postpone the recordation of an exchange of its shares upon the occurrence of
any of the foregoing conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, a Portfolio may make
payment wholly or partly in securities or other investment instruments which
may not constitute
<PAGE>40
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 will 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 a Portfolio.
Each Portfolio intends to qualify as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a regulated
investment company, a Portfolio will pay no federal income taxes on its
taxable net investment income (that is, taxable income other than net realized
capital gains) and its net realized capital gains that are distributed to
shareholders. To qualify under Subchapter M, a Portfolio must, among other
things: (i) distribute to its shareholders at least 90% of its taxable net
investment income (for this purpose consisting of taxable net investment
income and net realized short-term capital gains); (ii) derive at least 90% of
its gross income from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of securities, or other
income (including, but not limited to, gains from options, futures, and
forward contracts) derived with respect to its business of investing in
securities; (iii) derive less than 30% of its annual gross income from the
sale or other disposition of securities, options, futures or forward contracts
held for less than three months; and (iv) diversify its holdings so that, at
the end of each fiscal quarter of the Portfolio (a) at least 50% of the market
value of the Portfolio's assets is represented by cash, U.S. government
securities and other securities, with those other securities limited, with
respect to any one issuer, to an amount no greater in value than 5% of the
Portfolio's total assets and to not more than 10% of the outstanding voting
securities of the issuer, and (b) not more than 25% of the market value of the
Portfolio's assets is invested in the securities of any one issuer (other than
U.S. government securities or securities of other regulated investment
companies) or of two or more issuers that the Portfolio controls and that are
determined to be in the same or similar trades or businesses or related trades
or businesses. In meeting these requirements, a Portfolio may be restricted
in the selling of securities held by the Portfolio for less than three months
and in the utilization of certain of the investment techniques described above
and in the Trust's Prospectus. As a regulated investment company, a Portfolio
will be subject to a 4% non-deductible excise tax measured with respect to
certain undistributed amounts of ordinary income and capital gain required to
be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing
<PAGE>41
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 December 31 during such year,
together with any undistributed, untaxed amounts of ordinary income and
capital gains from the previous calendar year. The Portfolios expect to pay
the dividends and make the distributions necessary to avoid the application of
this excise tax.
In addition, each 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, each 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 Portfolios will be able to operate as currently
described, or that the Trust will not have to change the investment goal or
investment policies of a Portfolio. While a 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 a 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.
A Portfolio's transactions, if any, in foreign currencies, forward
contracts, options and futures contracts (including options and forward
contracts on foreign currencies) will be subject to special provisions of the
Code that, among other things, may affect the character of gains and losses
recognized by the Portfolio (i.e., may affect whether gains or losses are
ordinary or capital), accelerate recognition of income to the Portfolio, defer
Portfolio losses and cause the Portfolio to be subject to hyperinflationary
currency rules. These rules could therefore affect the character, amount and
timing of distributions to shareholders. These provisions also (i) will
require a Portfolio to mark-to-market certain types of its positions (i.e.,
treat them as if they were closed out) and (ii) may cause the Portfolio to
recognize income without receiving cash with which to pay dividends or make
<PAGE>42
distributions in amounts necessary to satisfy the distribution requirements
for avoiding income and excise taxes. Each Portfolio will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment so
that (a) neither the Portfolio nor its shareholders will be treated as
receiving a materially greater amount of capital gains or distributions than
actually realized or received, (b) the Portfolio will be able to use
substantially all of its losses for the fiscal years in which the losses
actually occur and (c) the Portfolio will continue to qualify as a regulated
investment company.
As described in the Prospectus, because shares of a 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 a Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the
income may have to be distributed 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 dis-
tributions or gains on the disposition of shares in a PFIC.
A Portfolio may be eligible to elect to include in its gross income
its share of earnings of a PFIC on a current basis. Generally, the election
would eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Portfolio compared to a fund that
did not make the election. In addition, information required to make such an
election may not be available to the Portfolio.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice
indicating that final regulations will provide that regulated investment
companies may elect the mark-to-market election for tax years ending after
March 31, 1992 and before April 1, 1993. Whether and to what extent the
notice will apply to taxable years of a Portfolio is unclear. If the
Portfolio is not able to make the foregoing election, it may be able to avoid
the interest charge (but not the ordinary income treatment) on disposition of
the stock by electing, under proposed regulations, each year to mark-to-market
the stock (that is, treat it as if it were sold for fair market value).
<PAGE>43
Such an 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, a Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. Total
return is calculated by finding the average annual compounded rates of return
for the one-, five-, and ten- (or such shorter period as the Portfolio has
been offered) year periods that would equate the initial amount invested to
the ending redeemable value according to the following formula: P (1 + T)
[*GRAPHIC OMITTED-SEE FOOTNOTE BELOW] = ERV. For purposes of this formula,
"P" is a hypothetical investment of $1,000; "T" is average annual total
return; "n" is number of years; and "ERV" is the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the one-, five- or
ten-year periods (or fractional portion thereof). Total return or "T" is
computed by finding the average annual change in the value of an initial
$1,000 investment over the period and assumes that all dividends and
distributions are reinvested during the period.
A Portfolio may advertise, from time to time, comparisons of its
performance with that of one or more other mutual funds with similar
investment objectives. A Portfolio may advertise average annual
calendar-year-to-date and calendar quarter returns, which are calculated
according to the formula set forth in the preceding paragraph, except that the
relevant measuring period would be the number of months that have elapsed in
the current calendar year or most recent three months, as the case may be.
Investors should note that this performance may not be representative of the
Portfolio's total return in longer market cycles.
A Portfolio's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and operating expenses
allocable to it. As described above, total return 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, a 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 Portfolios include the effect of
deducting each 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 Emerging Markets 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 thus believes
that, by spreading risk throughout many diverse markets outside the United
States, the Portfolio will reduce its
- ------------------------
* The expression (1 + T) is being raised to the nth power.
<PAGE>44
exposure to country-specific economic problems. Warburg also believes that a
diversified portfolio of international equity securities, when combined with a
similarly diversified portfolio of domestic equity securities, tends to have a
lower volatility than a portfolio composed entirely of domestic securities.
Furthermore, international equities have been shown to reduce volatility in
single asset portfolios regardless of whether the investments are in all
domestic equities or all domestic fixed-income instruments, and research has
indicated that volatility can be significantly decreased when international
equities are added. Advertising or supplemental sales literature relating to
the Portfolio may describe the percentage decline from all-time high levels
for certain foreign stock markets.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. with principal offices at 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as independent accountants
for the Trust.
Willkie Farr & Gallagher serves as counsel for the Trust as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENTS
The Portfolios have not yet commenced operations. The Portfolios'
initial Statements of Assets and Liabilities (Unaudited) as of April 17, 1996
follow the Appendix to this Statement of Additional Information.
<PAGE>A-1
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Group
("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics of issuers rated Prime-1 but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although 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.
<PAGE>A-2
To provide more detailed indications of credit quality, the ratings from
"AA" to "BBB" may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
Additionally, the rating CI is reserved for income bonds on which no
interest is being paid. Such debt is rated between debt rated C and debt
rated D.
To provide more detailed indications of credit quality, the ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
<PAGE>A-3
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". The modifier 1 indicates that the bond being
rated ranks in the higher
<PAGE>A-4
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
Caa - Bonds that are rated Caa are of poor standing. These issues may be
in default or present elements of danger may exist with respect to principal
or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
WARBURG PINCUS TRUST
STATEMENT OF ASSETS AND LIABILITIES
as of April 17, 1996
Emerging
Markets
Portfolio
Assets: ---------
Cash 0
Deferred Organizational Costs 0
Total Assets 0
Liabilities: 0
Net Assets 0
Net Asset Value, Redemption and Offering:
Price Per Share (1 billion
shares classified for the
Emerging Markets Portfolio -
$.001 par value) applicable to 1
share outstanding. $10.00
=====
0108237.2
<PAGE>
WARBURG PINCUS TRUST
STATEMENT OF ASSETS AND LIABILITIES
as of April 17, 1996
Post-
Venture
Capital
Portfolio
Assets: ---------
Cash 0
Deferred Organizational Costs 0
Total Assets 0
Liabilities: 0
Net Assets 0
Net Asset Value, Redemption and Offering:
Price Per Share (1 billion
shares classified for the
Post-Venture Capital Portfolio -
$.001 par value) applicable to 1
share outstanding. $10.00
=====
0108237.2
<PAGE>C-1
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements -- International Equity Portfolio and
Small Company Growth Portfolio
(1) Financial Statements included in Part A:
(a) Financial Highlights
(2) Audited Financial Statements included in Part B:
(a) Management's Discussion of Fund Performance
(b) Statement of Net Assets
(c) Statement of Assets and Liabilities
(d) Statement of Operations
(e) Statement of Changes in Net Assets
(f) Financial Highlights
(g) Notes to Financial Statements
(h) Report of Independent Accountants
(3) Unaudited Financial Statements included in
Part B -- Post-Venture Capital Portfolio
(a) Statement of Assets and Liabilities as of April 17,
1996
(4) Unaudited Financial Statements included in
Part B -- Emerging Markets Portfolio
(a) Statement of Assets and Liabilities as of
April 17, 1996
(b) Exhibits:
<PAGE>C-2
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Declaration of Trust(1)
1(b) Amendment to Declaration of Trust(2)
1(c) Designation of Series relating to addition of Post-Venture
Capital and Emerging Markets Portfolios
2 By-Laws(1)
3 Not applicable
4 Form of Share Certificate(2)
5(a) Forms of Investment Advisory Agreements between Registrant
and Warburg, Pincus Counsellors pertaining to the
International Equity Portfolio and Small Company Growth
Portfolio(2)
5(b) Forms of Investment Advisory Agreements between Registrant
and Warburg, Pincus Counsellors pertaining to the Post-
Venture Capital Portfolio and the Emerging Markets
Portfolio
5(c) Form of Sub-Investment Advisory Agreement between
Registrant and Abbott Capital Management, L.P. pertaining
to the Post-Venture Capital Portfolio
6 Form of Distribution Agreement(2)
7 Not applicable
8(a) Form of Custodian Agreement with PNC Bank, National
Association (2)
8(b) Form of Custodian Agreement with State Street Bank and
Trust Company (2)
- ---------------------------
(1) Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on March 17, 1995 (the "Registration Statement").
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed on June 14, 1995.
<PAGE>C-3
8(c) Form of Custodian Agreement with Fiduciary Trust Company
International pertaining to the Post-Venture Capital
Portfolio (3)
9(a) Form of Transfer Agency Agreement(2)
9(b) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc.(2)
9(c) Form of Co-Administration Agreement with PFPC Inc.(2)
9(d) Form of Letter Agreement between Registrant and PFPC Inc.
pertaining to inclusion of the Post-Venture Capital
Portfolio and the Emerging Markets Portfolio under the
existing Co-Administration Agreement
9(e) Form of Participation Agreement(2)
10 Consent of Willkie Farr & Gallagher, counsel to Registrant
and Opinion of Willkie Farr & Gallagher, counsel to
Registrant, pertaining to the Post-Venture Capital
Portfolio and the Emerging Markets Portfolio
11 Consent of Coopers & Lybrand L.L.P., Independent
Accountants
12 Not applicable
13(a) Purchase Agreement pertaining to the International Equity
Portfolio and Small Company Growth Portfolio(2)
13(b) Form of Purchase Agreement pertaining to the Post-Venture
Capital Portfolio and Emerging Markets Portfolio
14 Retirement Plans (4)
- ------------------------------
(3) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in Post-
Effective Amendment No. 10 to the Registration Statement on Form N-1A of
Warburg, Pincus International Equity Fund, Inc., filed on September 25,
1995 (Securities Act File No. 33-27031).
(4) Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed on March 4, 1996.
<PAGE>C-4
15 Not applicable
16 Schedule for Computation of Total Return Performance
Quotations relating to the International Equity Portfolio
and the Small Company Growth Portfolio (4)
17(a) Financial Data Schedule relating to International Equity
Portfolio
17(b) Financial Data Schedule relating to Small Company Growth
Portfolio
Item 25. Persons Controlled by or Under Common Control
with Registrant
Not applicable
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of March 29, 1996
-------------- ------------------------
International Equity Portfolio- 11
shares of common stock
par value $.001 per share
Small Company Growth Portfolio- 11
shares of common stock
par value $.001 per share
Emerging Markets Portfolio- 0
shares of common stock
par value $.001 per share
Post-Venture Capital Portfolio- 0
shares of common stock
par value $.001 per share
Item 27. Indemnification
Registrant, officers and directors or trustees of Warburg, Pincus
Counsellors, Inc., Registrant's investment adviser ("Warburg"), of Counsellors
Securities, Inc., Registrant's distributor ("Counsellors Securities"), and of
Registrant are covered by insurance policies indemnifying them for liability
incurred in connection with the operation of
<PAGE>C-5
Registrant. Discussion of this coverage is incorporated by reference to
Item 27 of Part C of the Registration Statement.
Item 28. Business and Other Connections of Investment
Adviser
Warburg, a wholly owned subsidiary of Warburg, Pincus Counsellors
G.P., acts as investment adviser to Registrant. Warburg renders investment
advice to a wide variety of individual and institutional clients. The list
required by this Item 28 of officers and directors of Warburg, together with
information as to their other business, profession, vocation or employment of
a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Warburg (SEC File No. 801-07321).
Abbott Capital Management, L.P. ("Abbott") acts as sub-investment
adviser for the Registrant's Post-Venture Capital Portfolio. Abbott renders
investment advice and provides full-service private equity programs to
clients. The list required by this Item 28 of officers and partners of
Abbott, together with information as to their other business, profession,
vocation, or employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by Abbott
(SEC File No. 801-27914).
Item 29. Principal Underwriter
(a) Counsellors Securities acts as distributor for Registrant, as
well as for The RBB Fund, Inc.; Warburg Pincus Capital Appreciation Fund;
Warburg Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund; Warburg
Pincus Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus
Global Fixed Income Fund; Warburg Pincus Institutional Fund, Inc.; Warburg
Pincus Intermediate Maturity Government Fund; Warburg Pincus International
Equity Fund; Warburg Pincus Japan Growth Fund; Warburg Pincus Japan OTC Fund;
Warburg Pincus New York Intermediate Municipal Fund; Warburg Pincus New York
Tax Exempt Fund; Warburg Pincus Post-Venture Capital Fund; and Warburg Pincus
Small Company Value Fund.
(b) For information relating to each director and officer of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654)
filed by Counsellors Securities under the Securities Exchange Act of 1934.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Trust
335 Madison Avenue
New York, New York 10017
(Trust's Declaration of Trust, by-laws and minute books)
<PAGE>C-6
(2) Counsellors Funds Service, Inc.
335 Madison Avenue
New York, New York 10017
(records relating to its functions as co-administrator)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(4) Counsellors Securities Inc.
335 Madison Avenue
New York, New York 10017
(records relating to its functions as distributor)
(5) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
(6) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent and
custodian)
(7) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as
custodian)
(8) Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048
(records relating to its functions as custodian)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
trustee or trustees of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection
<PAGE>C-7
with the meeting, to comply with the provisions of Section 16(c) of the 1940
Act relating to communications with the shareholders of certain common law
trusts.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
(c) Registrant hereby undertakes to file a post-effective
amendment, with financial statements of the Emerging Markets
Portfolio and the Post-Venture Capital Portfolio which need not
be certified, within four to six months from the effective date
of Registrant's Registration Statement under the Act.
<PAGE>C-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York and the State of New York, on the 16th day of April, 1996.
WARBURG, PINCUS TRUST
By:/s/Arnold M. Reichman
Arnold M. Reichman
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/John L. Furth Chairman of the April 16, 1996
John L. Furth Board of Trustees
/s/Arnold M. Reichman President and April 16, 1996
Arnold M. Reichman Trustee
/s/Stephen Distler Vice President and April 16, 1996
Stephen Distler Chief Financial
Officer
/s/Howard Conroy Vice President, April 16, 1996
Howard Conroy Treasurer and Chief
Accounting Officer
/s/Richard N. Cooper Trustee April 16, 1996
Richard N. Cooper
/s/Donald J. Donahue Trustee April 16, 1996
Donald J. Donahue
/s/Jack W. Fritz Trustee April 16, 1996
Jack W. Fritz
/s/Thomas A. Melfe Trustee April 16, 1996
Thomas A. Melfe
/s/Alexander B. Trowbridge Trustee April 16, 1996
Alexander B. Trowbridge
<PAGE>C-9
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(c) Designation of Series relating to addition of Post-Venture
Capital and Emerging Markets Portfolios
5(b) Forms of Investment Advisory Agreements between Registrant
and Warburg, Pincus Counsellors pertaining to the Post-
Venture Capital Portfolio and the Emerging Markets Portfolio
5(c) Form of Sub-Investment Advisory Agreement between Registrant
and Abbott Capital Management, L.P. pertaining to the Post-
Venture Capital Portfolio
9(d) Form of Letter Agreement between Registrant and PFPC Inc.
pertaining to inclusion of the Post-Venture Capital
Portfolio and the Emerging Markets Portfolio under the
existing Co-Administration Agreement
10 Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Registrant
11 Consent of Coopers & Lybrand L.L.P., Independent Accountants
13(b) Form of Purchase Agreement pertaining to the Post-Venture
Capital Portfolio and Emerging Markets Portfolio
17(a) Financial Data Schedule relating to International Equity
Portfolio
17(b) Financial Data Schedule relating to Small Company Growth
Portfolio
<PAGE>
WARBURG, PINCUS TRUST
Certificate of Establishment and
Designation of the Emerging Markets
and Post-Venture Capital Portfolios
The undersigned, being the Assistant Secretary of Warburg, Pincus
Trust, a Massachusetts trust with transferable shares (the "Fund"), being
hereunto authorized by vote of a Majority of the Trustees of the Fund acting
pursuant to Section 6.1(b) and Section 9.3 of the Agreement and Declaration of
Trust of the Fund dated March 15, 1995, as now in effect (the "Declaration"),
does hereby establish and designate the following Portfolios (in addition to the
Portfolios now existing) into which the assets of the Fund shall be divided:
Emerging Markets Portfolio and
Post-Venture Capital Portfolio
(collectively, the "Additional Portfolios", and each singly, an "Additional
Portfolio"), having relative rights and preferences as follows:
1. The beneficial interest in each Additional Portfolio shall be
represented by a separate series (each, an "Additional Series") of shares of
beneficial interest, par value one mil ($.001) per share ("Shares"), each of
which Series shall bear the name of the Additional Portfolio to which it relates
and shall represent the beneficial interest only in such Additional Portfolio.
An unlimited number of Shares of each Additional Series may be issued.
2. Each Additional Portfolio shall be authorized to invest in cash,
securities, instruments and other property as from time to time described in the
Fund's then currently effective registration statement under the Securities Act
of 1933, as amended.
3. The Shares of Additional Portfolios, and the Series thereof, shall
have the additional relative rights and preferences, shall be subject to the
liabilities, shall have the other characteristics, and shall be subject to the
powers of the Trustees, all as set forth in paragraphs (a) through (l) of
Section 6.2 of the Declaration. Without limitation of the foregoing sentence,
each Share of each Additional Series shall be redeemable, shall be entitled to
one vote, or a ratable fraction of one vote in respect of a fractional share, as
to matters on which Shares of such Series shall be entitled to vote, and shall
represent a share of the beneficial interest in the assets of the
<PAGE>2
Portfolio to which that Additional Series relates, all as provided in
the Declaration of Trust.
4. This Certificate may be executed in several counterparts,
each of which shall be an original and all of which shall constitute one
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand as of the day and
year set forth opposite my signature below.
Dated: April 16, 1996 /s/ Janna Manes
Name: Janna Manes
Title: Assistant Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK )
)
COUNTY OF NEW YORK ) ss. _______________________, 1996
Then personally appeared the above named ________________ and
acknowledged the foregoing instrument to be his/her free act and deed.
Before me,
---------------------------
Notary Public
My Commission Expires:_____
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
__________________, 1996
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg Pincus Trust (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, is an open-end, management
investment company that currently offers four portfolios, one of which is the
Emerging Markets Portfolio (the "Portfolio"). The Trust on behalf of the
Portfolio herewith confirms its agreement with Warburg, Pincus Counsellors, Inc.
(the "Adviser") as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Portfolio by
investing and reinvesting in investments of the kind and in accordance with the
limitations specified in its Declaration of Trust, as may be amended from time
to time, and in its Prospectus and Statement of Additional Information relating
to the Portfolio as from time to time in effect, and in such manner and to such
extent as may from time to time be approved by the Board of Trustees of the
Trust. Copies of the Trust's Prospectus and Statement of Additional Information
relating to the Portfolio and Declaration of Trust, as each may be amended from
time to time, have been or will be submitted to the Adviser. The Trust desires
to employ and hereby appoints the Adviser to act as investment adviser to the
Portfolio. The Adviser accepts the appointment and agrees to furnish the
services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of
Trustees of the Trust, the Adviser will (a) act in strict conformity with the
Trust's Declaration of Trust, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Portfolio in accordance with the Portfolio's investment objective
and policies as stated in the Trust's Prospectus and Statement of Additional
Information relating to the Portfolio as from time to time in effect, (c) make
investment decisions for the Portfolio, (d) place purchase and sale orders for
securities on behalf of the Portfolio and (e) calculate and monitor the
Portfolio's asset diversification each calendar quarter so that on the last day
of each calendar quarter the Portfolio will be in compliance with
diversification requirements of Section 817(h) of the Internal
<PAGE>2
Revenue Code of 1986, as the same may be amended from time to time, and
regulations thereunder. In providing those services, the Adviser will provide
investment research and supervision of the Portfolio's investments and conduct a
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Portfolio's assets. In addition, the Adviser will furnish
the Trust with whatever statistical information the Trust may reasonably request
with respect to the securities that the Portfolio may hold or contemplate
purchasing.
3. Brokerage
In executing transactions for the Portfolio and selecting
brokers or dealers, the Adviser will use its best efforts to seek the best
overall terms available. In assessing the best overall terms available for any
portfolio transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of any commission for the specific transaction
and for transactions executed through the broker or dealer in the aggregate. In
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as the same may from time to time be
amended) provided to the Portfolio and/or other accounts over which the Adviser
or an affiliate exercises investment discretion.
4. Information Provided to the Trust
The Adviser will keep the Trust informed of developments
materially affecting the Portfolio, and will, on its own initiative, furnish the
Trust from time to time with whatever information the Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Portfolio in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport to
protect the Adviser against any liability to the Trust or the Portfolio or to
shareholders of the Trust or the Portfolio to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement.
<PAGE>3
6. Limitation of Liability
The Trust and the Adviser agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Portfolio, as provided in the Declaration of Trust. The
execution and delivery of this Agreement have been authorized by the Trustees of
the Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Portfolio as provided in the Declaration of Trust. No series of
the Trust, including the Portfolio, will be liable for any claims against any
other series.
7. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Portfolio will pay the Adviser an annual fee calculated at an
annual rate of 1.25% of the Portfolio's average daily net assets. The fee for
the period from the date the Trust's initial registration statement relating to
the Portfolio is declared effective by the Securities and Exchange Commission to
the end of the year during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period bears
to the full yearly period. Upon any termination of this Agreement before the end
of a year, the fee for such part of that year shall be prorated according to the
proportion that such period bears to the full yearly period and shall be payable
upon the date of termination of this Agreement. For the purpose of determining
fees payable to the Adviser, the value of the Portfolio's net assets shall be
computed at the times and in the manner specified in the Trust's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
8. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Portfolio will bear its
proportionate share of certain other expenses to be incurred in its operation,
including: investment advisory and administration fees; taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Trust who are
not officers, directors, or employees of the Adviser or any of its affiliates;
fees of any pricing service employed to value shares of the Portfolio;
Securities and Exchange Commission fees and state Blue Sky qualification fees;
charges of custodians and transfer and dividend disbursing agents; the
Portfolio's proportionate share of insurance premiums; outside auditing and
legal expenses; costs of maintenance of the Portfolio's
<PAGE>14
existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing
and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the shareholders of the Portfolio and
of the officers or Board of Trustees of the Trust; and any extraordinary
expenses.
The Portfolio will be responsible for nonrecurring
expenses which may arise, including costs of litigation to which the Portfolio
is a party and of indemnifying officers and Trustees of the Trust with
respect to such litigation and other expenses as determined by the Trustees.
9. Services to Other Companies or Accounts
The Trust understands that the Adviser now acts, will continue
to act and may act in the future as investment adviser to fiduciary and other
managed accounts and to one or more other investment companies or series of
investment companies, and the Trust has no objection to the Adviser so acting,
provided that whenever the Portfolio and one or more other accounts or
investment companies or portfolios advised by the Adviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed to be equitable to each entity. The Trust
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Portfolio. In addition, the Trust understands
that the persons employed by the Adviser to assist in the performance of the
Adviser's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right of the
Adviser or any affiliate of the Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
10. Term of Agreement
This Agreement shall continue until April 17, 1997 and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (a) the Board of
Trustees of the Trust or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Portfolio's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Board of Trustees of the
Trust or by vote of holders of a majority of the Portfolio's shares, or upon 90
days' written notice, by the Adviser. This
<PAGE>
Agreement will also terminate automatically in the event of its assignment (as
defined in said Act).
11. Representation by the Trust
The Trust represents that a copy of its Declaration of Trust,
dated March 15, 1995, together with all amendments thereto, is on file in the
office of the Secretary of State of The Commonwealth of Massachusetts.
12. Miscellaneous
The Trust recognizes that directors, officers and employees of
the Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Trust agrees that, at the Adviser's request, the Trust's
license to use the words "Warburg, Pincus" will terminate and that the Trust
will take all necessary action to change the name of the Trust and the Portfolio
to names not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG PINCUS TRUST
By:
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:
Name:
Title:
<PAGE>
INVESTMENT ADVISORY AGREEMENT
_____________________ , 1996
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg Pincus Trust (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, is an open-end, management
investment company that currently offers four portfolios, one of which is the
Post-Venture Capital Portfolio (the "Portfolio"). The Trust on behalf of the
Portfolio herewith confirms its agreement with Warburg, Pincus Counsellors, Inc.
(the "Adviser") as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Portfolio by
investing and reinvesting in investments of the kind and in accordance with the
limitations specified in its Declaration of Trust, as may be amended from time
to time, and in its Prospectus and Statement of Additional Information relating
to the Portfolio as from time to time in effect, and in such manner and to such
extent as may from time to time be approved by the Board of Trustees of the
Trust. Copies of the Trust's Prospectus and Statement of Additional Information
relating to the Portfolio and Declaration of Trust, as each may be amended from
time to time, have been or will be submitted to the Adviser. The Trust desires
to employ and hereby appoints the Adviser to act as investment adviser to the
Portfolio. The Adviser accepts the appointment and agrees to furnish the
services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of
Trustees of the Trust, the Adviser will (a) act in strict conformity with the
Trust's Declaration of Trust, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Portfolio in accordance with the Portfolio's investment objective
and policies as stated in the Trust's Prospectus and Statement of Additional
Information relating to the Portfolio as from time to time in effect, (c) make
investment decisions for the Portfolio (other than investments in Private Funds,
as defined in the Trust's Prospectus relating to the Portfolio), (d) place
purchase and sale orders for securities (other than Private Funds) on behalf of
the Portfolio and (e) calculate and monitor the Portfolio's asset
diversification each calendar quarter so that
<PAGE>
on the last day of each calendar quarter the Portfolio will be in compliance
with diversification requirements of Section 817(h) of the Internal Revenue Code
of 1986, as the same may be amended from time to time, and regulations
thereunder. The Adviser will also supervise, monitor and evaluate the services
provided by the Portfolio's sub-investment adviser (the "Sub-Adviser") under the
sub-investment advisory agreement between the Trust on behalf of the Portfolio,
the Adviser and the Sub-Adviser (the "Sub-Advisory Agreement"). In providing
those services, the Adviser will provide investment research and supervision of
the Portfolio's investments and conduct a continual program of investment,
evaluation and, if appropriate, sale and reinvestment of the Portfolio's assets
(other than investment in Private Funds). In addition, the Adviser will furnish
the Trust with whatever statistical information the Trust may reasonably request
with respect to the securities (other than Private Funds) that the Portfolio may
hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Portfolio and selecting
brokers or dealers, the Adviser will use its best efforts to seek the best
overall terms available. In assessing the best overall terms available for any
portfolio transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of any commission for the specific transaction
and for transactions executed through the broker or dealer in the aggregate. In
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as the same may from time to time be
amended) provided to the Portfolio and/or other accounts over which the Adviser
or an affiliate exercises investment discretion.
4. Information Provided to the Trust
The Adviser will keep the Trust informed of developments
materially affecting the Portfolio, and will, on its own initiative, furnish the
Trust from time to time with whatever information the Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Portfolio in connection with the matters to which this Agreement
<PAGE>
relates, provided that nothing herein shall be deemed to protect or purport to
protect the Adviser against any liability to the Trust or the Portfolio or to
shareholders of the Trust or the Portfolio to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement.
6. Limitation of Liability
The Trust and the Adviser agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Portfolio, as provided in the Declaration of Trust. The
execution and delivery of this Agreement have been authorized by the Trustees of
the Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Portfolio as provided in the Declaration of Trust. No series of
the Trust, including the Portfolio, will be liable for any claims against any
other series.
7. Compensation
(a) In consideration of the services rendered pursuant to
this Agreement, the Portfolio will pay the Adviser an annual fee calculated at
an annual rate of 1.25% of the Portfolio's average daily net assets. The fee for
the period from the date the Trust's initial registration statement relating to
the Portfolio is declared effective by the Securities and Exchange Commission to
the end of the year during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period bears
to the full yearly period. Upon any termination of this Agreement before the end
of a year, the fee for such part of that year shall be prorated according to the
proportion that such period bears to the full yearly period and shall be payable
upon the date of termination of this Agreement. For the purpose of determining
fees payable to the Adviser, the value of the Portfolio's net assets shall be
computed at the times and in the manner specified in the Trust's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
(b) The Adviser shall pay to the Sub-Adviser the fees payable
under the Sub-Advisory Agreement. In the event that the Sub-Advisory Agreement
is terminated and if the Trust's Board of Trustees determines to maintain the
Portfolio's policy of investing in Private Funds, the Adviser shall be
responsible for furnishing to the Trust the services required to be performed by
<PAGE>
the Sub-Adviser under the Investment Advisory Agreement or arranging for a
successor sub-investment adviser with respect to such investments on terms and
conditions acceptable to the Trust and subject to the requirements of the
Investment Company Act of 1940, as amended.
8. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Portfolio will bear its
proportionate share of certain other expenses to be incurred in its operation,
including: investment advisory and administration fees; taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Trust who are
not officers, directors, or employees of the Adviser, the Sub-Adviser or any of
their affiliates; fees of any pricing service employed to value shares of the
Portfolio; Securities and Exchange Commission fees and state Blue Sky
qualification fees; charges of custodians and transfer and dividend disbursing
agents; the Portfolio's proportionate share of insurance premiums; outside
auditing and legal expenses; costs of maintenance of the Portfolio's existence;
costs attributable to investor services, including, without limitation,
telephone and personnel expenses; costs of preparing and printing prospectuses
and statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings of the shareholders of the Portfolio and of the officers or Board of
Trustees of the Trust; and any extraordinary expenses.
The Portfolio will be responsible for nonrecurring expenses
which may arise, including costs of litigation to which the Portfolio is a party
and of indemnifying officers and Trustees of the Trust with respect to such
litigation and other expenses as determined by the Trustees.
9. Services to Other Companies or Accounts
The Trust understands that the Adviser now acts, will continue
to act and may act in the future as investment adviser to fiduciary and other
managed accounts and to one or more other investment companies or series of
investment companies, and the Trust has no objection to the Adviser so acting,
provided that whenever the Portfolio and one or more other accounts or
investment companies or portfolios advised by the Adviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed to be equitable to each entity. The Trust
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Portfolio. In addition, the Trust understands
that the persons employed by the Adviser to assist in the performance of the
Adviser's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the
<PAGE>
right of the Adviser or any affiliate of the Adviser to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
10. Term of Agreement
This Agreement shall continue until April 17, 1997 and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (a) the Board of
Trustees of the Trust or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Portfolio's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Board of Trustees of the
Trust or by vote of holders of a majority of the Portfolio's shares, or upon 90
days' written notice, by the Adviser. This Agreement will also terminate
automatically in the event of its assignment (as defined in said Act).
11. Representation by the Trust
The Trust represents that a copy of its Declaration of Trust,
dated March 15, 1995, together with all amendments thereto, is on file in the
office of the Secretary of State of The Commonwealth of Massachusetts.
12. Miscellaneous
The Trust recognizes that directors, officers and employees of
the Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Trust agrees that, at the Adviser's request, the Trust's
license to use the words "Warburg, Pincus" will terminate and that the Trust
will take all necessary action to change the name of the Trust and the Portfolio
to names not including the words "Warburg, Pincus."
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG PINCUS TRUST
By:
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:
Name:
Title:
<PAGE>1
SUB-INVESTMENT ADVISORY AGREEMENT
________ __, 1996
Abbott Capital Management, L.L.C.
50 Rowes Wharf
Boston, MA 02110
Dear Sirs:
Warburg Pincus Trust, a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), an open-end, management investment company (the "Trust"), on behalf of
the Post-Venture Capital Portfolio (the "Portfolio"), and Warburg, Pincus
Counsellors, Inc., as investment adviser to the Portfolio ("Warburg"), herewith
confirms their agreement with Abbott Capital Management, L.L.C.
(the "Sub-Adviser") as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Portfolio by
investing and reinvesting in securities of the kind and in accordance with the
limitations specified in the Trust's Declaration of Trust, as may be amended
from time to time (the "Declaration of Trust"), and in the Prospectuses and
Statement of Additional Information, relating to the Portfolio as from time to
time in effect (the "Prospectus" and "SAI," respectively), and in such manner
and to such extent as may from time to time be approved by the Board of Trustees
of the Trust. Copies of the Prospectus, SAI and Declaration of Trust have been
or will be submitted to the Sub-Adviser. The Trust agrees to provide the
Sub-Advisor copies of all amendments to the Prospectus and SAI on an on-going
basis. The Trust employs Warburg as its investment adviser to the Portfolio.
Warburg desires to employ and hereby appoints the Sub-Adviser to act as its
sub-investment adviser upon the terms set forth in this Agreement. The
Sub-Adviser accepts the appointment and agrees to furnish the services set forth
below for the compensation provided for herein.
2. Services as Sub-Investment Adviser
(a) Subject to the supervision and direction of Warburg, the
Sub-Adviser will provide investment advisory assistance and portfolio management
advice to the Portfolio in accordance with (a) the Declaration of Trust, (b) the
1940 Act and the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and all applicable Rules and Regulations of the Securities and Exchange
Commission (the "SEC") and all other applicable laws and regulations and (c) the
Portfolio's investment objective and policies as stated in the Prospectus and
<PAGE>2
SAI and investment parameters provided by Warburg from time to
time. In connection therewith, the Sub-Adviser will:
(i) determine whether to purchase, retain or sell
interests in United States or foreign private investment vehicles that
themselves invest in debt and equity securities of companies in the
venture capital and post-venture capital stages of development or
companies engaged in special situations or changes in corporate
control, including buyouts ("Investments"). The Sub-Adviser is hereby
authorized to execute, or place orders for the execution of, all
Investments on behalf of the Portfolio;
(ii) assist the custodian and accounting agent for
the Portfolio in determining or confirming, consistent with the
procedures and policies stated in the Prospectus and SAI, the value of
any Investments for which the custodian and accounting agent seek
assistance from or identify for review by the Sub-Adviser;
(iii) monitor the execution of orders for the
purchase or sale of Investments and the settlement and clearance of
those orders;
(iv) exercise voting rights in respect of
Investments; and
(v) provide reports to the Trust's Board of Trustees
for consideration at quarterly meetings of the Board on the Investments
and furnish Warburg and the Trust's Board of Trustees with such
periodic and special reports as the Trust or Warburg may reasonably
request.
(b) In connection with the performance of the services of the
Sub-Adviser provided for herein, the Sub-Adviser may contract at its own expense
with third parties for the acquisition of research, clerical services and other
administrative services that would not require such parties to be required to
register as an investment adviser under the Advisers Act; provided that the
Sub-Adviser shall remain liable for the performance of its duties hereunder.
3. Execution of Transactions
(a) The Sub-Adviser will not effect orders for the purchase or
sale of securities on behalf of the Portfolio through brokers or dealers as
agents.
(b) It is understood that the services of the Sub-Adviser are
not exclusive, and nothing in this Agreement shall prevent the Sub-Adviser from
providing similar services to other investment companies or from engaging in
other activities, provided that those activities do not adversely affect the
<PAGE>3
ability of the Sub-Adviser to perform its services under this Agreement. The
Trust and Warburg further understand and acknowledge that the persons employed
by the Sub-Adviser to assist in the performance of its duties under this
Agreement will not devote their full time to that service. Nothing contained
in this Agreement will be deemed to limit or restrict the right of the
Sub-Adviser or any affiliate of the Sub-Adviser to engage in and devote time
and attention to other businesses or to render services of whatever kind or
nature, provided that doing so does not adversely affect the ability of the
Sub-Adviser to perform its services under this Agreement.
(c) On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Portfolio as well as of
other investment advisory clients of the Sub-Adviser, the Sub-Adviser may, to
the extent permitted by applicable laws and regulations, but shall not be
obligated to, aggregate the securities to be so sold or purchased with those of
its other clients. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in a manner that is fair and equitable, in the judgment of the
Sub-Adviser, in the exercise of its fiduciary obligations to the Portfolio and
to such other clients. The Sub-Adviser shall provide to Warburg and the
Portfolio all information reasonably requested by Warburg and the Portfolio
relating to the decisions made by the Sub-Adviser regarding allocation of
securities purchased or sold, as well as the expenses incurred in a transaction,
among the Portfolio and the Sub-Adviser's other investment advisory clients.
(d) In connection with the purchase and sale of securities for
the Portfolio, the Sub-Adviser will provide such information as may be
reasonably necessary to enable the custodian and co-administrators to perform
their administrative and recordkeeping responsibilities with respect to the
Portfolio.
4. Disclosure Regarding the Sub-Adviser
(a) The Sub-Adviser has reviewed the disclosure about the
Sub-Adviser contained in the Trust's registration statement and represents and
warrants that, with respect to such disclosure about the Sub-Adviser or
information related, directly or indirectly, to the Sub-Adviser, such
registration statement contains, as of the date hereof, no untrue statement of
any material fact and does not omit any statement of a material fact which is
required to be stated therein or necessary to make the statements contained
therein not misleading.
(b) The Sub-Adviser agrees to notify Warburg and the Trust
promptly of any (i) statement about the Sub-Adviser contained in the Trust's
registration statement that becomes untrue in any material respect or (ii)
omission of a material fact about the Sub-Adviser in the Trust's registration
statement which is required to be stated therein or necessary to make the
<PAGE>4
statements contained therein not misleading or (iii) any reorganization or
change in the Sub-Adviser, including any change in its ownership or key
employees.
(c) Prior to the Trust or Warburg or any affiliated person (as
defined in the 1940 Act, an "Affiliate") of either using or distributing sales
literature or other promotional material referring to the Sub-Adviser, the
Sub-Adviser shall have the right to approve the general advertising or
promotional plan pursuant to which such literature or material is being utilized
or distributed; provided that the Sub-Adviser shall be deemed to have approved
such advertising or plan if it has not objected to its use within ten (10)
business days after such material has been sent to it. The Trust or Warburg will
use all reasonable efforts to ensure that all advertising, sales and promotional
material used or distributed by or on behalf of the Trust or Warburg that refers
to the Sub-Adviser will comply with the requirements of the Advisers Act, the
1940 Act and the rules and regulations promulgated thereunder.
(d) The Sub-Adviser has supplied Warburg and the Trust copies
of its Form ADV with all exhibits and attachments thereto and will hereinafter
supply Warburg, promptly upon preparation thereof, copies of all amendments or
restatements of such document.
5. Certain Representations and
Warranties of the Sub-Adviser
(a) The Sub-Adviser represents and warrants that it is a duly
registered investment adviser under the Advisers Act, a duly registered
investment adviser in any and all states of the United States in which the
Sub-Adviser is required to be so registered and has obtained all necessary
licenses and approvals in order to perform the services provided in this
Agreement. The Sub-Adviser covenants to maintain all necessary registrations,
licenses and approvals in effect during the term of this Agreement.
(b) The Sub-Adviser represents that it has read and
understands the Prospectus and SAI and warrants that in investing the
Portfolio's assets it will use all reasonable efforts to adhere to the
Portfolio's investment objectives, policies and restrictions contained therein.
6. Compliance
(a) The Sub-Adviser agrees that it shall promptly notify
Warburg and the Trust (i) in the event that the SEC or any other regulatory
authority has censured its activities, functions or operations; suspended or
revoked its registration as an investment adviser; or has commenced proceedings
or an investigation that may result in any of these actions, (ii) in
<PAGE>5
the event that there is a change in the Sub-Adviser, financial or otherwise,
that adversely affects its ability to perform services under this Agreement or
(iii) upon having a reasonable basis for believing that, as a result of the
Sub-Adviser's investing the Portfolio's assets, the Portfolio's investment
portfolio has ceased to adhere to the Portfolio's investment objectives,
policies and restrictions as stated in the Prospectus or SAI or is otherwise
in violation of applicable law.
(b) Warburg agrees that it shall promptly notify the
Sub-Adviser in the event that the SEC has censured Warburg or the Trust; placed
limitations upon any of their activities, functions or operations; suspended or
revoked Warburg's registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions.
(c) The Trust and Warburg shall be given access to the records
of the Sub-Adviser at reasonable times solely for the purpose of monitoring
compliance with the terms of this Agreement and the rules and regulations
applicable to the Sub-Adviser relating to its providing investment advisory
services to the Portfolio, including without limitation records relating to
trading by employees of the Sub-Adviser for their own accounts and on behalf of
other clients. The Sub-Adviser agrees to cooperate with the Portfolio and
Warburg and their representatives in connection with any such monitoring
efforts.
7. Books and Records
(a) In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Sub-Adviser hereby agrees that all records which it maintains
for the Portfolio are the property of the Trust and further agrees to surrender
promptly to either Warburg or the Trust any of such records upon the request of
either of them. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act and to preserve the records required
by Rule 204-2 under the Advisers Act for the period specified therein.
(b) The Sub-Adviser hereby agrees to furnish to regulatory
authorities having the requisite authority any information or reports in
connection with services that the Sub-Adviser renders pursuant to this Agreement
which may be requested in order to ascertain whether the operations of the Trust
and the Portfolio are being conducted in a manner consistent with applicable
laws and regulations.
<PAGE>6
8. Provision of Information;
Proprietary and Confidential Information
(a) Warburg agrees that it will furnish to the Sub-Adviser
information related to or concerning the Portfolio that the Sub-Adviser may
reasonably request.
(b) The Sub-Adviser agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Portfolio, Warburg and prior,
present or potential shareholders and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder except after prior notification to and approval in writing of the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where the Sub-Adviser may be exposed to civil or criminal contempt proceedings
for failure to comply or when requested to divulge such information by duly
constituted authorities.
(c) The Sub-Adviser represents and warrants that neither it
nor any affiliate will use the name of the Trust, the Portfolio, Warburg or any
of their affiliates in any prospectus, sales literature or other material in any
manner without the prior written approval of the Trust or Warburg, as
applicable.
9. Standard of Care
The Sub-Adviser shall exercise its best judgment in rendering
the services described herein. The Sub-Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Trust, the
Portfolio or Warburg in connection with the matters to which this Agreement
relates, except that the Sub-Adviser shall be liable for a loss resulting from a
breach of fiduciary duty by the Sub-Adviser with respect to the receipt of
compensation for services; provided that nothing herein shall be deemed to
protect or purport to protect the Sub-Adviser against any liability to the
Trust, the Portfolio, or Warburg or to shareholders of the Trust or the
Portfolio to which the Sub-Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Adviser's reckless disregard
of its obligations and duties under this Agreement. The Trust and Warburg
understand and agree that the Sub-Adviser may rely upon information furnished to
it reasonably believed by the Sub-Adviser to be accurate and reliable and,
except as herein provided, the Sub-Adviser shall not be accountable for loss
suffered by the Trust or the Portfolio by reason of such reliance of the
Sub-Adviser.
10. Indemnification
(a) The Sub-Adviser agrees to indemnify and hold harmless
the Trust, the Portfolio, Warburg, any affiliate
<PAGE>7
thereof, and each person, if any, who, within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "1933 Act"), controls ("controlling
person") any or all of the Trust, the Portfolio and Warburg (all of such
persons being referred to as "Portfolio Indemnified Persons") against any and
all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which any Portfolio Indemnified Person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, the Internal Revenue Code
or under any other statute, at common law or otherwise, arising out of the
Sub-Adviser's responsibilities as Sub-Adviser to the Portfolio which (i) may
be based upon any misfeasance, malfeasance or nonfeasance by the Sub-Adviser,
or any of its employees or representatives, or any affiliate of or any person
acting on behalf of the Sub-Adviser, (ii) may be based upon a failure to
comply with paragraph 5(b) of this Agreement, or (iii) may be based upon any
untrue statement or alleged untrue statement of a material fact about the
Sub-Adviser contained in the registration statement covering the shares of the
Portfolio, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact about the Sub-Adviser known or which
should have been known to the Sub-Adviser and was required to be stated
therein or necessary to make the statements therein not misleading, if such a
statement or omission was made in reliance upon information furnished to
Warburg, the Trust, the Portfolio or any affiliate thereof by the Sub-Adviser
or any affiliate of the Sub-Adviser; provided that in no case shall the
indemnity in favor of any Indemnified Person be deemed to protect such persons
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement.
(b) The Trust agrees to indemnify and hold harmless the
Sub-Adviser, any of its affiliates, and each controlling person, if any, of the
Sub-Adviser (all of such persons being referred to as "Sub-Adviser Indemnified
Persons") against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which any Sub-Adviser Indemnified Person
may become subject under the 1933 Act, the 1940 Act, the Advisers Act, the
Internal Revenue Code or under any other statute, at common law or otherwise,
which (i) may be based upon any misfeasance, malfeasance or nonfeasance by the
Trust, the Portfolio or Warburg, or any of their respective employees or
representatives, or any affiliate of or any person acting on behalf of the
Trust, the Portfolio or Warburg, (ii) may be based upon a failure by the Trust,
the Portfolio or Warburg to comply with this Agreement, or (iii) may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement covering the shares of the Portfolio, or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact known or which should have been known to the Trust
and was
<PAGE>8
required to be stated therein or necessary to make the statements therein not
misleading, unless such a statement or omission was made in reliance upon
information furnished to Warburg, the Trust, the Portfolio or any affiliate
thereof by the Sub-Adviser or any affiliate of the Sub-Adviser; provided that
in no case shall the indemnity in favor of any Sub-Adviser Indemnified Person
be deemed to protect such persons against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
(c) A party (the "Indemnifying Person") shall not be liable
under paragraphs 10(a) or 10(b) herein with respect to any claim made against
any Portfolio Indemnified Person or Sub-Adviser Indemnified Person, as
applicable (a Portfolio Indemnified Person and a Sub-Adviser Indemnified Person
may be referred to in this paragraph 10(c) as an "Indemnified Person"), unless
such Indemnified Person shall have notified the Indemnifying Person in writing
within a reasonable time after the summons, notice or other first legal process
or notice giving information of the nature of the claim shall have been served
upon such Indemnified Person (or after such Indemnified Person shall have
received notice of such service on any designated agent), but failure to notify
the Indemnifying Person of any such claim shall not relieve the Indemnifying
Person from any liability which it may have to any Indemnified Person against
whom such action is brought otherwise than on account of this paragraph 10. In
case any such action is brought against any Indemnified Person, the Indemnifying
Person will be entitled to participate, at its own expense, in the defense
thereof or, after notice to the Indemnified Person, to assume the defense
thereof, with counsel satisfactory to the Indemnified Person. If the
Indemnifying Person assumes the defense of any such action and the selection of
counsel by the Indemnifying Person to represent the Indemnifying Person and the
Indemnified Person would result in a conflict of interests and therefore would
not, in the reasonable judgment of the Indemnified Person, adequately represent
the interests of the Indemnified Person, the Indemnifying Person will, at its
own expense, assume the defense with counsel to the Indemnifying Person and,
also at its own expense, with separate counsel to the Indemnified Person which
counsel shall be satisfactory to the Indemnifying Person and to the Indemnified
Person. The Indemnified Person shall bear the fees and expenses of any
additional counsel retained by it, and the Indemnifying Person shall not be
liable to the Indemnified Person under this Agreement for any legal or other
expenses subsequently incurred by the Indemnified Person independently in
connection with the defense thereof other than reasonable costs of
investigation. The Indemnifying Person shall not have the right to compromise on
or settle the litigation without the prior written consent of the Indemnified
Person if such compromise or
<PAGE>9
settlement results, or may result, in a finding of wrongdoing on the part of
the Indemnified Person.
11. Compensation
In consideration of the services rendered pursuant to this
Agreement, Warburg will pay the Sub-Adviser a quarterly fee calculated at an
annual rate of .55% of the net asset value of the Investments as of the last day
of each calendar quarter. The fee for the period from the date of this Agreement
to the end of the quarter during which this Agreement commenced shall be
prorated according to the proportion that such period bears to the full
quarterly period. Such fee shall be paid by Warburg to the Sub-Adviser within
ten (10) business days after the last day of each quarter or, upon termination
of this Agreement before the end of a quarter, within ten (10) business days
after the effective date of such termination. Upon any termination of this
Agreement before the end of a quarter, the fee for such part of that quarter
shall be prorated according to the proportion that such period bears to the full
quarterly period. For the purpose of determining fees payable to the
Sub-Adviser, the value of the Investments shall be computed in the manner
specified in the Prospectus or SAI. The Sub-Adviser shall have no right to
obtain compensation directly from the Trust or the Portfolio for services
provided hereunder and agrees to look solely to Warburg for payment of fees due.
12. Expenses
(a) The Sub-Adviser will bear all expenses in connection with
the performance of its services under this Agreement, which shall not include
the Portfolio's expenses listed in paragraph 12(b).
(b) The Portfolio will bear certain other expenses to be
incurred in its operation, including: investment advisory and administration
fees; taxes, interest, brokerage fees and commissions, if any; fees of Trustees
of the Trust who are not officers, directors, or employees of the Trust, Warburg
or the Sub-Adviser or affiliates of any of them; fees of any pricing service
employed to value shares of the Portfolio; SEC fees, state Blue Sky
qualification fees and any foreign qualification fees; charges of custodians and
transfer and dividend disbursing agents; the Portfolio's proportionate share of
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Portfolio's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Portfolio and of the officers or
Board of Trustees of the Trust; and any extraordinary expenses.
<PAGE>10
13. Term of Agreement
This Agreement shall commence on the date first written above
and shall continue until April 17, 1997, and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by (a) the Board of Trustees of the
Trust or (b) a vote of a "majority" (as defined in the 1940 Act) of the
Portfolio's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board of Trustees who are not
"interested persons" (as defined the 1940 Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, (i) by Warburg on 60
(sixty) days' written notice to the Portfolio and the Sub-Adviser, (ii) by the
Board of Trustees of the Trust or by vote of holders of a majority of the
Portfolio's shares on 60 (sixty) days' written notice to Warburg and the
Sub-Adviser, or (iii) by the Sub-Adviser upon 60 (sixty) days' written notice to
the Trust and Warburg. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act) by any party hereto. In the
event of termination of this Agreement for any reason, all records relating to
the Portfolio kept by the Sub-Adviser shall promptly be returned to Warburg or
the Trust, free from any claim or retention of rights in such records by the
Sub-Adviser. In the event this Agreement is terminated or is not approved in the
foregoing manner, the provisions contained in paragraph numbers 4(c), 7, 8, 9
and 10 shall remain in effect.
14. Amendments
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (a) the holders of a majority of the
outstanding voting securities of the Portfolio and (b) the Board of Trustees of
the Trust, including a majority of Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust or of either party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
15. Notices
All communications hereunder shall be given (a) if to the
Sub-Adviser, to Abbott Capital Management, L.L.C., 1330 Avenue of the
Americas, Suite 2800, New York, New York 10019 (Attention: Raymond L. Held),
telephone: (212) 757-2700, telecopy: (212) 757-0835, (b) if to Warburg, to
Warburg, Pincus Counsellors, Inc., 466 Lexington Avenue, New York, New York
10017-3147 (Attention: Eugene P. Grace), telephone: (212) 878-
<PAGE>11
0600, telecopy: (212) 878-9351, and (c) if to the Portfolio, to Warburg Pincus
Trust, c/o Warburg Pincus Funds, 466 Lexington Avenue, New York, New York
10017-3147, telephone: (212) 878-0600, telecopy: (212) 878-9351 (Attention:
President).
16. Choice of Law
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York in the United States,
including choice of law principles; provided that nothing herein shall be
construed in a manner inconsistent with the 1940 Act, the Advisers Act or any
applicable rules, regulations or orders of the SEC.
17. Miscellaneous
(a) The captions of this Agreement are included for
convenience only and in no way define or limit any of the provisions herein or
otherwise affect their construction or effect.
(b) If any provision of this Agreement shall be held or made
invalid by a court decision, by statute or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
(c) Nothing herein shall be construed to make the
Sub-Adviser an agent of Warburg, the Trust or the Portfolio.
(d) This Agreement may be executed in counterparts,
with the same effect as if the signatures were upon the same instrument.
<PAGE>12
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS COUNSELLORS, INC.
By: _________________________________
WARBURG PINCUS TRUST
By: _________________________________
President
Accepted:
ABBOTT CAPITAL MANAGEMENT, L.L.C.
By: _______________________________
Title:
<PAGE>
________ __, 1996
Warburg Pincus Trust
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to PFPC Inc. ("PFPC") under the terms of a
Co-Administration Agreement dated June 20, 1995 between you (the "Trust"), and
PFPC. Pursuant to Paragraph 11 of that Agreement, and in consideration of the
services to be provided to you, on behalf of the Emerging Markets Portfolio and
the Post-Capital Venture Portfolio (the "Portfolios" and each a "Portfolio"),
you will pay PFPC an annual co-administration fee, to be calculated daily and
paid monthly. You will also reimburse PFPC for its out-of-pocket expenses
incurred on behalf of the Portfolios, including, but not limited to: postage and
handling, telephone, telex, Federal Express and outside pricing service charges.
The annual administration and accounting fee with respect to
the Emerging Markets shall be .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, with a minimum annual fee of
$42,000.
The annual administration and accounting fee with respect to
the Post-Capital Venture Portfolio shall be .10% of the Portfolios' average
daily net assets, with a minimum annual fee of $75,000.
In each month each Portfolio shall pay to PFPC the greater of
the asset based fee as calculated above or the minimum fee. The fee for the
period from the day of the year this agreement is entered into until the end of
that year shall be pro-rated according to the proportion which such period bears
to the full annual period.
<PAGE>2
If the foregoing accurately sets forth our agreement, and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
PFPC INC.
By:
Name:
Title:
Accepted: WARBURG PINCUS TRUST
By:
Name:
Title:
<PAGE>
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
April 18, 1996
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Trust (the "Trust"), a business
trust organized under the laws of The Commonwealth of Massachusetts, in
connection with the Trust's establishment of two new series, the Emerging
Markets Portfolio and the Post-Venture Capital Portfolio (the "Portfolios").
We have examined copies of the Trust's Declaration of Trust, as amended (the
"Declaration"), the Trust's By-Laws, the Trust's Registration Statement, as
amended, on Form N-1A, Securities Act File No. 33-58125 and Investment Company
Act File No. 811-07261 (the "Registration Statement"), and all resolutions
adopted by the Trust's Board of Trustees at the Portfolios' organizational
meeting held on April 16, 1996. We have also examined such other records,
documents, papers, statutes and authorities as we have deemed necessary to form
a basis for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Trust and
others.
Based upon the foregoing, we are of the opinion that the shares of beneficial
interest of each Portfolio, par value $.001 per share (collectively, the
"Shares") when duly sold, issued and paid for in accordance with the terms of
the Declaration, the Trust's By-Laws and the Registration Statement, will be
validly issued and will be fully paid and non-assessable shares of beneficial
interest of the Trust, except that, as set forth in the Registration Statement,
shareholders of the Trust may under certain
<PAGE>
Warburg, Pincus Trust
April 18, 1996
Page 2
circumstances be held personally liable for its obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the statement of additional
information included as part of the Registration Statement and to the filing of
this opinion as an exhibit to any application made by or on behalf of the Trust
or any distributor or dealer in connection with the registration or
qualification of the Trust or the Shares under the securities laws of any state
or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent in this Post-Effective Amendment No. 2 under the Securities Act
of 1933, as amended, to this Registration Statement on Form N-1A (File No.
33-58125) of the Warburg, Pincus Trust to the reference to our Firm under the
heading "Independent Accountants and Counsel" in the Statement of Additional
Information.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 18, 1996
<PAGE>
PURCHASE AGREEMENT
Warburg Pincus Trust (the "Trust"), a business trust organized
under the laws of the Commonwealth of Massachusetts, with respect to the
Emerging Markets Portfolio and the Post-Venture Capital Portfolio (the
"Portfolios"), and Warburg, Pincus Counsellors, Inc. ("Counsellors") hereby
agree as follows:
1. The Trust offers Counsellors and Counsellors hereby
purchases one share of beneficial interest of each of the Portfolios, having a
par value $.001 per share, at a price of $10.00 per Share (each an "Initial
Share"). Counsellors hereby acknowledges receipt of certificates representing
each Initial Share, and the Trust hereby acknowledges receipt from Counsellors
of $20.00 in full payment for the Initial Shares.
2. Counsellors represents and warrants to the Trust that the
Initial Shares are being acquired for investment purposes and not for the
purpose of distribution.
3. Counsellors agrees that if any holder of the Initial Shares
redeems any Initial Share in a Portfolio before five years after the date upon
which the Portfolio commences its investment activities, the redemption proceeds
will be reduced by the amount of unamortized organizational expenses, in the
same proportion as the number of Initial Shares being redeemed bears to the
number of Initial Shares outstanding at the time of redemption. The parties
hereby acknowledge that any shares acquired by Counsellors other than the
Initial Shares have not been acquired to fulfill the requirements of Section 14
of the Investment Company Act of 1940, as amended, and, if redeemed, their
redemption proceeds will not be subject to reduction based on the unamortized
organizational expenses of the Portfolios.
4. The Trust and Counsellors agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Trust, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust as provided in the Declaration of Trust. No series of the
Trust, including each of the Portfolios, will be liable for any claims against
any other series.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1996.
WARBURG PINCUS TRUST
By:
Name:
Title:
ATTEST:
- -------------------------
WARBURG, PINCUS COUNSELLORS, INC.
By:
Name:
Title:
ATTEST:
- ----------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000941568
<NAME> WARBURG PINCUS TRUST
<SERIES>
<NUMBER> 01
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 62285033
<INVESTMENTS-AT-VALUE> 63404997
<RECEIVABLES> 4377154
<ASSETS-OTHER> 55816
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67837967
<PAYABLE-FOR-SECURITIES> 3092677
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 208422
<TOTAL-LIABILITIES> 3301099
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63414539
<SHARES-COMMON-STOCK> 6058621
<SHARES-COMMON-PRIOR> 5000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 327277
<ACCUMULATED-NET-GAINS> 113613
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1335993
<NET-ASSETS> 64536868
<DIVIDEND-INCOME> 146993
<INTEREST-INCOME> 84104
<OTHER-INCOME> 0
<EXPENSES-NET> 172988
<NET-INVESTMENT-INCOME> 58109
<REALIZED-GAINS-CURRENT> 113613
<APPREC-INCREASE-CURRENT> 1335993
<NET-CHANGE-FROM-OPS> 1507715
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 385386
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63501464
<NUMBER-OF-SHARES-REDEEMED> 522311
<SHARES-REINVESTED> 385386
<NET-CHANGE-IN-ASSETS> 64486868
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 120130
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 265832
<AVERAGE-NET-ASSETS> 23830246
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .70
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.65
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000941568
<NAME> WARBURG PINCUS TRUST
<SERIES>
<NUMBER> 02
<NAME> SMALL COMPANY GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 84857582
<INVESTMENTS-AT-VALUE> 96740600
<RECEIVABLES> 1643694
<ASSETS-OTHER> 56023
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 98440317
<PAYABLE-FOR-SECURITIES> 821045
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 174358
<TOTAL-LIABILITIES> 995403
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86440013
<SHARES-COMMON-STOCK> 7791765
<SHARES-COMMON-PRIOR> 5000
<ACCUMULATED-NII-CURRENT> (86882)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (791236)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11883018
<NET-ASSETS> 97444913
<DIVIDEND-INCOME> 56873
<INTEREST-INCOME> 159881
<OTHER-INCOME> 0
<EXPENSES-NET> 303636
<NET-INVESTMENT-INCOME> (86882)
<REALIZED-GAINS-CURRENT> (791236)
<APPREC-INCREASE-CURRENT> 11883018
<NET-CHANGE-FROM-OPS> 11004900
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 101359554
<NUMBER-OF-SHARES-REDEEMED> 14969540
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 97394914
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 218618
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 365038
<AVERAGE-NET-ASSETS> 48185641
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 2.52
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.51
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
