<PAGE>
<PAGE>
As filed with the U.S. Securities and Exchange Commission
on April 9, 1997
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. 3 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 4 [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>
<PAGE>
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on April 30, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] 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, 1996 was filed on February 27, 1997.
<PAGE>
<PAGE>
WARBURG, PINCUS TRUST
FORM N-1A
CROSS REFERENCE SHEET
__________________________________
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<C> <S> <C>
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
10. Cover Page .................................. Cover Page
11. Table of Contents ........................... Contents
12. General Information and
History...................................... Management of the Trust
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<C> <S> <C>
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"
21. Underwriters ................................ Investment Policies--Portfolio
Transactions; See Prospectus--
"Management of the Portfolios"
22. Calculation of
Performance Data............................. Determination of Performance
</TABLE>
-4-
<PAGE>
<PAGE>
<TABLE>
<C> <S> <C>
23. Financial Statements .............................Report of Independent Accountants;
Financial Statements
</TABLE>
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.
-5-
<PAGE>
<PAGE>
PROSPECTUS
April 30, 1997
WARBURG PINCUS TRUST
INTERNATIONAL EQUITY PORTFOLIO
POST-VENTURE CAPITAL PORTFOLIO
SMALL COMPANY GROWTH 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.
[Logo]
<PAGE>
<PAGE>
Subject to Completion, dated April 9, 1997
PROSPECTUS April 30, 1997
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers four investment funds, three of which are offered pursuant
to this Prospectus (the "Portfolios"):
The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of non-U.S. issuers. International investment
entails special risk considerations, including currency fluctuations, lower
liquidity, economic instability, political uncertainty and differences in
accounting methods. See "Risk Factors and Special Considerations."
The 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.
The SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing in equity
securities of small-sized domestic companies.
Shares of a Portfolio are not available directly to individual investors but may
be offered only to certain (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"). The SEC
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolios. The Statement of Additional Information is also
available upon request and without charge by calling the Trust at (800)
369-2728. The Statement of Additional Information, as amended or supplemented
from time to time, bears the same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<PAGE>
<PAGE>
THE TRUST'S EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Post-Venture Small Company
Equity Portfolio Capital Portfolio Growth Portfolio
---------------- ----------------- ----------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)...... 0 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees............................ 0.96% 0.62% 0.90%
12b-1 Fees................................. 0 0 0
Other Expenses............................. 0.40% 0.78% 0.26%
--- --- ---
Total Portfolio Operating Expenses (after
fee waivers and expense
reimbursements).......................... 1.36%* 1.40%** 1.16%*
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5%
annual return
and (2) redemption at the end of each
time period:
1 year..................................... $ 14 $ 14 $ 12
3 years.................................... $ 43 $ 44 $ 37
5 years.................................... $ 74 N/A $ 64
10 years................................... $164 N/A $141
</TABLE>
- --------------------------------------------------------------------------------
* Management Fees, Other Expenses and Total Portfolio Operating Expenses for
the International Equity and Small Company Growth Portfolios are based on
actual expenses for the fiscal year ended December 31, 1996, net of any fee
waivers or expense reimbursements. Without such waivers or reimbursements,
Management Fees would have equalled 1.00% and .90%, Other Expenses would
have equalled .40% and .27% and Total Portfolio Operating Expenses would
have equalled 1.40% and 1.17% for the International Equity and Small Company
Growth Portfolios, respectively. The Portfolios' investment adviser and
co-administrator have undertaken to limit each Portfolio's Total Operating
Expenses to the limits shown in the table above through December 31, 1997.
** Absent the waiver of fees by the Post-Venture Capital Portfolio's investment
adviser and co-administrator, Management Fees for the Post-Venture Capital
Portfolio would equal 1.25%; Other Expenses would equal .82%; and Total
Portfolio Operating Expenses would equal 2.07%. Other Expenses for the
Post-Venture Capital Portfolio are based on annualized estimates of expenses
for the fiscal year ending December 31, 1997, net of any fee waivers or
expense reimbursements. The Post-Venture Capital Portfolio's investment
adviser and co-administrator have undertaken to limit the Post-Venture
Capital Portfolio's Total Portfolio Operating Expenses to the limits shown
in the table above through December 31, 1997.
---------------------------
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>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the fiscal periods ended December 31, 1996 and
December 31, 1995 has been derived from information audited by Coopers & Lybrand
L.L.P., independent accountants, whose report dated February 11, 1997 is
incorporated by reference in the Statement of Additional Information. Further
information about the performance of the Portfolios is contained in the Trust's
annual report, dated December 31, 1996, copies of which may be obtained without
charge by calling the Trust at (800) 369-2728.
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
For the Period
June 30, 1995
For the (Commencement of
Year Ended Operations) through
December 31, 1996 December 31, 1995
----------------- -------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period..... $ 10.65 $ 10.00
----- -----
Income from Investment
Operations:
Net Investment Income... .00 .03
Net Gain on Securities
and Foreign Currency
Related Items
(both realized and
unrealized)........... 1.06 .70
----- -----
Total from Investment
Operations............ 1.06 .73
----- -----
Less Distributions:
Dividends from Net
Investment Income..... (.06) (.01)
Distributions in Excess
of Net Investment
Income................ (.10) (.07)
Distributions from
Realized Gains........ (.06) .00
Distributions in Excess
of Realized Gains..... (.01) .00
----- -----
Total Distributions..... (.23) (.08)
----- -----
Net Asset Value, End of
Period.................. $ 11.48 $ 10.65
----- -----
----- -----
Total Return............. 9.98% 7.30%`D'
Ratios/Supplemental Data:
Net Assets, End of Period
(000s).................. $298,218 $64,537
Ratios to average daily
net assets:
Operating expenses...... 1.36% 1.44%*
Net investment income... .64% .48%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements .04% .77%*
Portfolio Turnover
Rate.................. 30.82% 8.31%`D'
Average Commission
Rate#................. $ .0232 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
<PAGE>
<PAGE>
POST-VENTURE CAPITAL PORTFOLIO
<TABLE>
<CAPTION>
For the Period
September 30, 1996
(Commencement of
Operations) through
December 31, 1996
-------------------
<S> <C>
Net Asset Value,
Beginning of Period................. $ 10.00
------
Income from Investment
Operations:
Net Investment Income............... .00
Net Loss on Securities
(both realized and
unrealized)....................... (.24)
------
Total from Investment
Operations........................ (.24)
------
Net Asset Value, End of
Period.............................. $ 9.76
------
------
Total Return......................... (2.40%)`D'
Ratios/Supplemental Data:
Net Assets, End of Period
(000s).............................. $12,400
Ratios to Average Daily
Net Assets:
Operating expenses.................. 1.40%*
Net investment income............... .80%*
Decrease reflected in
above operating
expense ratio due to
waivers/reimbursements............ 4.16%*
Portfolio Turnover
Rate................................ 6.80%`D'
Average Commission Rate
#................................... $ .0491
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-Annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
SMALL COMPANY GROWTH PORTFOLIO
<TABLE>
<CAPTION>
For the Period
June 30, 1995
For the (Commencement of
Year Ended Operations) through
December 31, 1996 December 31, 1995
----------------- -------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period..... $ 12.51 $ 10.00
----- -----
Income from Investment
Operations:
Net Investment Loss..... (.06) (.01)
Net Gain on Securities
(both realized and
unrealized)........... 1.80 2.52
----- -----
Total from Investment
Operations............ 1.74 2.51
----- -----
Net Asset Value, End of
Period.................. $ 14.25 $ 12.51
----- -----
----- -----
Total Return............. 13.91% 25.10%`D'
Ratios/Supplemental Data:
Net Assets, End of Period
(000s).................. $339,398 $97,445
Ratios to average daily
net assets:
Operating expenses...... 1.16% 1.25%*
Net investment loss..... (.66%) (.36%)*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements .01% .25%*
Portfolio Turnover
Rate.................... 101.50% 34.25%`D'
Average Commission
Rate#................... $ .0538 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
4
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
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.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to seek long-
term capital appreciation. The Portfolio is a diversified investment fund that
pursues its investment objective by investing primarily in a broadly diversified
portfolio of equity securities of companies, wherever organized, that in the
judgment of Warburg, Pincus Counsellors, Inc., the Portfolios' investment
adviser ("Warburg"), have their principal business activities and interests
outside of the United States. The Portfolio will ordinarily invest substantially
all of its assets -- but no less than 65% of its total assets -- in common
stocks, warrants and securities convertible into or exchangeable for common
stocks. Generally the Portfolio will hold no less than 65% of its total assets
in at least three countries other than the United States. The Portfolio intends
to be widely diversified across securities of many corporations located in a
number of foreign countries. Warburg anticipates, however, that the Portfolio
may from time to time invest a significant portion of its assets in a single
country such as Japan, which may involve special risks. See "Risk Factors and
Special Considerations -- Japanese Investments" below. In appropriate
circumstances, such as when a direct investment by the International Equity
Portfolio in the securities of a particular country cannot be made or when the
securities of an investment company are more liquid than the underlying
portfolio securities, the Portfolio may, consistent with the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"), invest in the
securities of closed-end investment companies that invest in foreign securities.
The Portfolio intends to invest principally in the securities of financially
strong companies with opportunities for growth within growing international
economies and markets through increased earning power and improved utilization
or recognition of assets. Investment may be made in equity securities of
companies of any size, whether traded on or off a national securities exchange.
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.
5
<PAGE>
<PAGE>
The investment objective of the Post-Venture Capital Portfolio is to seek
long-term growth of capital. The Portfolio is a diversified portfolio that
pursues an aggressive investment strategy. The Portfolio pursues its investment
objective by investing primarily in equity securities of companies considered by
Warburg to be in their post-venture capital stage of development. 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 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
6
<PAGE>
<PAGE>
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 exceed those of the Portfolio's other holdings and of more mature
companies generally.
Because Private Funds generally are investment companies for purposes of the
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 are provided on an infrequent basis, often depend on the
subjective valuations of the managers of the Private Funds and, in addition,
would not generally reflect positive or negative subsequent developments
affecting companies held by the Private Fund. See "Net Asset Value." Debt
securities held by a Private Fund will tend to be rated below investment grade
and may be rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D
by Standard & Poor's Ratings Services ("S&P"). Securities in these rating
categories are in payment default or have extremely poor prospects of attaining
any investment standing. For a discussion of the risks of investing in below
investment grade debt, see "Risk Factors and Special Considerations -- Lower
Rated Securities" below and "Investment Policies -- Below Investment Grade Debt
Securities" in the Statement of Additional Information. For a discussion of the
possible tax
7
<PAGE>
<PAGE>
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 Post-Venture Capital 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
net 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. 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 Post-Venture Capital 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").
SMALL COMPANY GROWTH PORTFOLIO
The Small Company Growth Portfolio's investment objective is to seek capital
growth. The Portfolio is a non-diversified investment fund that pursues its
investment objective by investing in a portfolio of equity securities of
small-sized domestic companies. The Portfolio ordinarily will invest at least
65% of its total assets in common stocks or warrants of small-sized companies
(i.e., companies having stock market capitalizations of between $25 million and
$1 billion at the time of purchase) that represent attractive opportunities for
capital growth. It is anticipated that the Portfolio will invest primarily in
companies whose securities are traded on domestic stock exchanges or in the
over-the-counter market. Small companies may still
8
<PAGE>
<PAGE>
be in the developmental stage, may be older companies that appear to be entering
a new stage of growth progress owing to factors such as management changes or
development of new technology, products or markets or may be companies providing
products or services with a high unit volume growth rate. The Portfolio's
investments will be made on the basis of their equity characteristics and
securities ratings generally will not be a factor in the selection process.
The Portfolio may also invest in securities of emerging growth companies,
which can be either small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time. Emerging
growth companies generally stand to benefit from new products or services,
technological developments or changes in management and other factors and
include smaller companies experiencing unusual developments affecting their
market value.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The International Equity Portfolio may invest up to 35%,
and each of the Post-Venture Capital and Small Company Growth Portfolios may
invest up to 20%, of its total assets in investment grade debt securities (other
than money market obligations) and preferred stocks that are not convertible
into common stock for the purpose of seeking capital appreciation. The interest
income to be derived may be considered as one factor in selecting debt
securities for investment by Warburg. Because the market value of debt
obligations can be expected to vary inversely to changes in prevailing interest
rates, investing in debt obligations may provide an opportunity for capital
appreciation when interest rates are expected to decline. The success of such a
strategy is dependent upon Warburg's ability to forecast accurately changes in
interest rates. The market value of debt obligations may also be expected to
vary depending upon, among other factors, the ability of the issuer to repay
principal and interest, any change in investment rating and general economic
conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's or S&P or, if unrated, is determined to be of
comparable quality by Warburg. 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 reduced. 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
9
<PAGE>
<PAGE>
repurchase agreements. When such a defensive posture is warranted, the
International Equity Portfolio may also invest temporarily without limit in
foreign investment grade debt obligations and in other securities of U.S.
companies.
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 enter into 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 in which 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
10
<PAGE>
<PAGE>
money market mutual funds that are unaffiliated with the Portfolio, Warburg or
the Portfolios' co-administrator, PFPC, Inc. ("PFPC"). 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 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. 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 securities.
WARRANTS. Each Portfolio may invest up to 10% of its total assets in
warrants. Warrants are securities that give the holder the right, but not the
obligation, to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period.
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 Portfolios' investments, see
"Portfolio Investments" beginning at page 9 and "Certain Investment Strategies"
beginning at page 15.
JAPANESE INVESTMENTS. The International Equity Portfolio may from time to
time have a large position in Japanese securities and, as a result, would be
subject to general economic and political conditions in Japan. Japan is largely
dependent upon foreign economies for raw materials. International trade is
important to Japan's economy, as exports provide the means to pay for many of
the raw materials it must import. Because of its large trade surpluses Japan
11
<PAGE>
<PAGE>
has entered a difficult phase in its relations with certain trading partners,
particularly with respect to the United States, with whom the trade imbalance is
the greatest.
The decline in the Japanese securities markets since 1989 has contributed to
a weakness in the Japanese economy, and the impact of a further decline cannot
be ascertained. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios in comparison with those in the United States.
Japan has a parliamentary form of government. Since mid-1993, there have been
several changes in leadership in Japan. What, if any, effect the current
political situation will have on prospective regulatory reforms on the economy
cannot be predicted. For additional information, see "Investment
Policies -- Japanese Investments" in the Statement of Additional Information.
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 than securities of larger, more
established companies or market averages in general. 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 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 either the
Post-Venture Capital Portfolio or the Small Company Growth 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.
12
<PAGE>
<PAGE>
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 "Securities Act"), but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A
Securities"). A Rule 144A Security will be considered illiquid and therefore
subject to 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
Portfolio in Rule 144A Securities. The Board may adopt guidelines and delegate
to Warburg the daily function of determining and monitoring the liquidity of
Rule 144A Securities, although the Board will retain ultimate responsibility for
any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities and, with
respect to the Post-Venture Capital Portfolio, 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. 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.
LOWER-RATED SECURITIES. Private Fund investments of the Post-Venture Capital
Portfolio may 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 Post-Venture Capital
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
13
<PAGE>
<PAGE>
certain securities may have an adverse impact on the Post-Venture Capital
Portfolio's ability to dispose of particular issues and may make it more
difficult for the Post-Venture Capital Portfolio to obtain accurate market
quotations for purposes of valuing the Post-Venture Capital Portfolio and
calculating its net asset value.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
NON-DIVERSIFIED STATUS. The Small Company Growth Portfolio is classified as
non-diversified under the 1940 Act, which means that the Portfolio is not
limited by the 1940 Act in the proportion of its assets that 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.
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 rates. However, it is
anticipated that no Portfolio's annual turnover rate should exceed 100%. High
portfolio turnover rates (100% or more) may result in dealer markups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See "Dividends, Distributions and Taxes -- Taxes" below and "Investment
Policies -- Portfolio Transactions" in the Statement of Additional Information.
14
<PAGE>
<PAGE>
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. Detailed
information concerning the Portfolios' strategies and their related risks is
contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The International Equity Portfolio will ordinarily hold
no less than 65% of its total assets in foreign securities, and each of the
Post-Venture Portfolio and the Small Company Growth Portfolio may invest up to
20% of its total assets in the securities of foreign issuers. There are certain
risks involved in investing in securities of companies and governments of
foreign nations which are in addition to the usual risks inherent in 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
15
<PAGE>
<PAGE>
than commissions on U.S. exchanges, higher valuation and communications costs
and the expense of maintaining securities with foreign custodians. Certain of
the above risks may be involved with American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs") and International Depositary Receipts
("IDRs"), instruments that evidence ownership in underlying securities issued by
a foreign corporation. ADRs, EDRs and IDRs may not necessarily be denominated in
the same currency as the securities whose ownership they represent. ADRs are
typically issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in Europe, and IDRs (sometimes
referred to as Global Depositary Receipts) are issued outside the United States,
each typically by non-U.S. banks and trust companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures, forward currency contracts and, in the case of
International Equity Portfolio, swaps. 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 Options and Stock Index Options. Each Portfolio may write put and
call options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as "premiums")
for granting the rights evidenced by the options. Each Portfolio may also
utilize up to 10% of its assets to purchase options on stocks and debt
securities that are traded on U.S. and foreign exchanges, as well as
over-the-counter ("OTC") options. The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option on a security has the right to purchase the
underlying security from the writer. In addition to purchasing and writing
options on securities, each Portfolio may also utilize up to 10% of its total
assets to purchase exchange-listed and OTC put and call options on stock
indexes, and may also write such options. A stock index measures the movement of
a certain group of stocks by assigning relative values to the common stocks
included in the index.
16
<PAGE>
<PAGE>
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.
Swaps. The International Equity Portfolio may enter into swaps relating to
indexes, currencies and equity interests of foreign issuers. A swap transaction
is an agreement between the Portfolio and a counterparty to act in accordance
17
<PAGE>
<PAGE>
with the terms of the swap contract. Index swaps involve the exchange by the
Portfolio with another party of the respective amounts payable with respect to a
notional principal amount related to one or more indexes. Currency swaps involve
the exchange of cash flows on a notional amount of two or more currencies based
on their relative future values. An equity swap is an agreement to exchange
streams of payments computed by reference to a notional amount based on the
performance of a basket of stocks or a single stock. The Portfolio may enter
into these transactions to preserve a return or spread on a particular
investment or portion of its assets, to protect against currency fluctuations,
as a duration management technique or to protect against any increase in the
price of securities the Portfolio anticipates purchasing at a later date. The
Portfolio may also use these transactions for speculative purposes, such as to
obtain the price performance of a security without actually purchasing the
security in circumstances where, for example, the subject security is illiquid,
or is unavailable for direct investment or available only on less attractive
terms. Swaps have risks associated with them including possible default by the
counterparty to the transaction, illiquidity and, where swaps are used as
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed.
The International Equity Portfolio will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the agreement, with the Portfolio receiving
or paying, as the case may be, only the net amount of the two payments. Swaps do
not involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net amount
of payments that the Portfolio is contractually obligated to make. If the
counterparty to a swap defaults, the Portfolio's risk of loss consists of the
net amount of payments that the Portfolio is contractually entitled to receive.
Where swaps are entered into for good faith hedging purposes, Warburg believes
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Portfolio's borrowing
restrictions. Where swaps are entered into for other than hedging purposes, the
Portfolio will segregate a net amount of cash or liquid securities having a
value equal to the accrued excess of its obligations over its entitlements with
respect to each swap on a daily basis.
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, currency exchange transactions, and, in the case of the International
Equity Portfolio, swaps 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
18
<PAGE>
<PAGE>
transactions will depend on Warburg's ability to predict correctly movements in
the hedge and the hedged position and the correlation between them, which could
prove to be inaccurate. Even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that a Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out a position without incurring
substantial losses, if at 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;
forward currency contracts; and, in the case of the International Equity
Portfolio, swaps. The use of these strategies may require that the Portfolio
maintain cash or liquid securities in a segregated account with its custodian or
a designated sub-custodian to the extent the Portfolio's obligations with
respect to these strategies are not otherwise "covered" through ownership of the
underlying security, financial instrument or currency or by other portfolio
positions or by other means consistent with applicable regulatory policies.
Segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. As a
result, there is a possibility that segregation of a large percentage of a
Portfolio's assets could impede portfolio management or the Portfolio's ability
to meet redemption requests or other current obligations.
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 (excluding short
sales "against the box") will not exceed 10% of the Portfolio's assets.
To deliver the securities to the buyer, the Post-Venture Capital Portfolio
must arrange through a broker to borrow the securities and, in so doing, the
Portfolio becomes obligated to replace the securities borrowed at their market
price at the time of replacement, whatever that price may be. The Portfolio will
make a profit or incur a loss as a result of a short sale depending on whether
the price of the securities decreases or increases between the date of the short
sale and the date on which the Portfolio purchases the security to replace the
borrowed securities that have been sold. The amount of any loss
19
<PAGE>
<PAGE>
would be increased (and any gain decreased) by any premium or interest the
Portfolio is required to pay in connection with a short sale.
The Post-Venture Capital Portfolio's obligation to replace the securities
borrowed in connection with a short sale will be secured by cash or liquid
securities deposited as collateral with the broker. In addition, the Portfolio
will place in a segregated account with its custodian or a qualified
subcustodian an amount of cash or liquid securities equal to the difference, if
any, between (i) the market value of the securities sold at the time they were
sold short and (ii) any cash or liquid securities deposited as collateral with
the broker in connection with the short sale (not including the proceeds of the
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 sold short and (b) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will not be less than the market value of the securities at the time they
were sold short.
Short Sales Against the Box. Each Portfolio may enter into a short sale of
securities such that when the short position is open a 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," may be entered into by a Portfolio to, for
example, lock in a sale price for a security the Portfolio does not wish to sell
immediately or to postpone a gain or loss for federal income tax purposes. A
Portfolio will deposit, in a segregated account with its custodian or a
qualified subcustodian, the securities sold short or convertible or exchangeable
preferred stocks or debt securities in connection with short sales against the
box. Not more than 10% of a Portfolio's net assets (taken at current value) may
be held as collateral for short sales against the box at any one time.
The extent to which a 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. Each Portfolio may borrow from banks for
20
<PAGE>
<PAGE>
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.
MANAGEMENT OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Trust employs Warburg as investment adviser to each
Portfolio and, with respect to the Post-Venture Capital Portfolio, Abbott as its
sub-investment adviser. Warburg, subject to the control of the 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 and
places orders to purchase or sell securities on behalf of the Portfolio and,
with respect to the Post-Venture Capital Portfolio, supervises the activities of
Abbott. Warburg also employs a support staff of management personnel to provide
services to the 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, the International Equity and the Small
Company Growth Portfolios pay Warburg a fee calculated at an annual rate of
1.00% and .90%, respectively, of the relevant Portfolio's average daily net
assets. For the services provided by Warburg, the Post-Venture Capital Portfolio
pays Warburg a fee calculated at an annual rate of 1.25% of the Fund's average
daily net assets out of which Warburg pays Abbott for sub-advisory services.
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 borne by a
Portfolio.
Warburg. Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of February 28,
1997, Warburg managed approximately $17.3 billion of assets, including
approximately $10.5 billion of investment company assets.
21
<PAGE>
<PAGE>
Incorporated in 1970, Warburg is a wholly owned subsidiary of Warburg, Pincus
Counsellors G.P. ("Warburg G.P."), a New York general partnership, which itself
is controlled by Warburg, Pincus & Co. ("WP&Co."), also a New York general
partnership. Lionel I. Pincus, the managing partner of WP&Co., may be deemed to
control both WP&Co. and 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 $3.5 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. Abbott's principal
business address is 50 Rowes Wharf, Suite 240, Boston, Massachusetts 02110-3328.
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 May 31, 1997 and is subject to
certain contingencies, will not involve any material change in the management,
ownership, personnel, operations or activities of 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.
International Equity Portfolio. The portfolio manager of the International
Equity Portfolio is Richard H. King, who has been the Portfolio's manager since
its inception. Mr. King, a senior managing director of Warburg, has been with
Warburg since 1989, before which time 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.
P. Nicholas Edwards, Harold W. Ehrlich, Nicholas P.W. Horsley and Vincent J.
McBride have been associate portfolio managers and research analysts of the
International Equity Portfolio since its inception. Mr. Edwards is a managing
director of Warburg and has been with Warburg since August 1995, before which
time he was a director at Jardine Fleming Investment Advisers, Tokyo. Mr.
Ehrlich is a managing director of Warburg and has been
22
<PAGE>
<PAGE>
with Warburg since February 1995, before which time he was a senior vice
president, portfolio manager and analyst at Templeton Investment Counsel Inc.
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. McBride is a senior vice
president of Warburg and 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.
Small Company Growth and Post-Venture Capital Portfolios. The co-portfolio
managers of the Post-Venture Capital and Small Company Growth Portfolios have
been Elizabeth B. Dater and Stephen J. Lurito since the Portfolios' inception.
Robert S. Janis and Christopher M. Nawn have been associate portfolio managers
and research analysts for the Post-Venture Capital Portfolio since its
inception.
Ms. Dater is a senior managing director of Warburg and has been a portfolio
manager of Warburg since 1978. Mr. Lurito is a managing director of Warburg and
has been with Warburg since 1987.
Mr. Janis is a senior vice president of Warburg and has been with Warburg
since October 1994, before which time he was a vice president and senior
research analyst at U.S. Trust Company of New York. Mr. Nawn is also a senior
vice president of Warburg and has been with Warburg since September 1994, before
which time he was a senior sector analyst and portfolio manager at the Dreyfus
Corporation.
Raymond L. Held and Gary H. Solomon, investment managers and general partners
of Abbott, manage the Post-Venture Capital Portfolio's investments in Private
Funds.
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 the
preparation of tax returns and monitoring and developing compliance procedures
for the Portfolios. As compensation, each Portfolio pays Counsellors Service a
fee calculated at an annual rate of .10% of the Portfolio's average daily net
assets.
The 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
23
<PAGE>
<PAGE>
Portfolio and assists in related aspects of the Portfolio's operations. As
compensation the International Equity Portfolio pays PFPC a fee calculated at an
annual rate of .12% of the Portfolio's first $250 million in average daily net
assets, .10% of the next $250 million in average daily net assets, .08% of the
next $250 million in average daily net assets, and .05% of average daily net
assets over $750 million. Each of the Post-Venture Capital and Small Company
Growth Portfolio pays PFPC a fee calculated at an annual rate of .10% of each
Portfolio's first $500 million in average daily net assets, .075% of the next $1
billion in average daily net assets, and .05% of average daily net assets over
$1.5 billion. PFPC has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ("PNC"), serves as custodian of
each Portfolio's U.S. assets. State Street Bank and Trust Company ("State
Street") serves as international custodian of the International Equity and Small
Company Growth Portfolios' non-U.S. assets. Fiduciary Trust Company
International ("Fiduciary") serves as custodian of the Post-Venture Capital
Portfolio's non-U.S. assets. PNC is a subsidiary of PNC Bank Corp. and its
principal business address is 1600 Market Street, Philadelphia, Pennsylvania
19103. State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110. 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.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ("Service Organizations") with whom it enters into agreements up to .25%
(the "Service Fee") of the annual average value of accounts maintained by such
Organizations with a Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of a
Portfolio, consisting of securities dealers who have sold Portfolio shares or
24
<PAGE>
<PAGE>
others, including banks and other financial institutions, under special
arrangements. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients' employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. Warburg or its affiliates may pay
for travel, meals and lodging in connection with these promotional activities.
In some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of 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.
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 a Portfolio during the morning of the next business day. These orders
are executed at the net asset value (described below under "Net Asset Value")
computed at the close of regular trading on the NYSE on the previous business
day in order to provide a match between the contract owners' orders to the
Participating Insurance Company and that Participating Insurance Company's
orders to 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
25
<PAGE>
<PAGE>
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 affect 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 or its agent 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 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
26
<PAGE>
<PAGE>
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.
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
Portfolios' short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
Special Tax Matters Relating to the International Equity Portfolio. Dividends
and interest received by the International Equity Portfolio may be subject to
withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Shareholders will bear the cost of foreign tax
withholding in the form of increased expenses to the Portfolio, but generally
will not be able to claim a foreign tax credit or deduction for foreign
taxes paid by the Portfolio by reason of the tax-deferred status of
Variable Contracts.
INTERNAL REVENUE SERVICE REQUIREMENTS. 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 (including securities traded
through the Nasdaq National Market System) or foreign securities exchange
27
<PAGE>
<PAGE>
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.
With respect to the Post-Venture Capital Portfolio, investments in Private
Funds will initially be valued at cost and, thereafter, will be valued in
accordance with periodic reports received by Abbott from the Private Funds
(generally quarterly). Because the issuers of securities held by Private Funds
are generally not subject to the reporting requirements of the federal
securities laws, interim changes in value of underlying holdings of Private
Funds will not generally be reflected in the Portfolio's net asset value.
However, Warburg will report to the Board information about certain holdings of
Private Funds that, in its judgment, could have a material impact on the
valuation of a Private Fund. The Board will take these reports into account in
valuing Private Funds.
Securities, options and futures contracts for which market quotations are not
readily available and other assets, including, with respect to the Post-Venture
Capital Portfolio, Private Funds, will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
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.
28
<PAGE>
<PAGE>
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 International Equity Portfolio, with the
Morgan Stanley Capital International Europe, Australasia and Far East ("EAFE")
Index, the Salomon Russell Global Equity Index, the FT-Actuaries World Indices
(jointly compiled by The Financial Times, Ltd., Goldman, Sachs & Co. and NatWest
Securities Ltd.) and the S&P 500 Index, in the case of the Post-Venture Capital
and Small Company Growth Portfolios, the Russell 2000 Small Stock Index and the
S&P 500 Index and, in the case of the Post-Venture Capital Portfolio only, with
the Venture Capital 100 Index, all of which are unmanaged indexes; or (iii)
other appropriate indexes of investment securities or with data developed by
Warburg derived from such indexes. The 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 Barron's,
Business Week, Financial Times, Forbes, Fortune, Inc., Institutional Investor,
Investor's Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine,
SmartMoney and The Wall Street Journal.
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
29
<PAGE>
<PAGE>
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, three 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% 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
30
<PAGE>
<PAGE>
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 all 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, as well as certain statistical
characteristics of a Portfolio, 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.
31
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust's Expenses.................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 5
Portfolio Investments................................................... 9
Risk Factors and Special Considerations................................. 11
Portfolio Transactions and Turnover Rate................................ 14
Certain Investment Strategies........................................... 15
Investment Guidelines................................................... 20
Management of the Portfolios............................................ 21
How to Purchase and Redeem Shares in the Portfolios..................... 25
Dividends, Distributions and Taxes...................................... 26
Net Asset Value......................................................... 27
Performance............................................................. 28
General Information..................................................... 30
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-1-0497
<PAGE>
<PAGE>
PROSPECTUS
April 30, 1997
WARBURG PINCUS TRUST
INTERNATIONAL EQUITY PORTFOLIO
SMALL COMPANY GROWTH 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.
[Logo]
<PAGE>
<PAGE>
Subject to Completion, dated April 9, 1997
PROSPECTUS April 30, 1997
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers four investment funds, two of which are offered pursuant
to this Prospectus (the "Portfolios"):
The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of non-U.S. issuers. International investment
entails special risk considerations, including currency fluctuations, lower
liquidity, economic instability, political uncertainty and differences in
accounting methods. See "Risk Factors and Special Considerations."
The SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing in equity
securities of small-sized domestic companies.
Shares of a Portfolio are not available directly to individual investors but may
be offered only to certain (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"). The SEC
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolios. The Statement of Additional Information is available
to investors without charge by calling the Trust at (800) 369-2728. The
Statement of Additional Information, as amended or supplemented from time to
time, bears the same date as this Prospectus and is incorporated by reference in
its entirety into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<PAGE>
<PAGE>
THE TRUST'S EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Small Company
Equity Portfolio Growth 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............................................ 0.96% 0.90%
12b-1 Fees................................................. 0 0
Other Expenses*............................................ 0.40% 0.26%
--- -----
Total Portfolio Operating Expenses (after fee waivers and
expense reimbursements)*................................. 1.36% 1.16%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year..................................................... $14 $12
3 years.................................................... $43 $37
5 years.................................................... $74 $64
10 years................................................... $164 $141
</TABLE>
- --------------------------------------------------------------------------------
* Management Fees, Other Expenses and Total Portfolio Operating Expenses are
based on actual expenses for the fiscal year ended December 31, 1996, net of
any fee waivers or expense reimbursements. Without such waivers or
reimbursements, Management Fees would have equalled 1.00% and .90%, Other
Expenses would have equalled .40% and .27% and Total Portfolio Operating
Expenses would have equalled 1.40% and 1.17% for the International Equity and
Small Company Growth Portfolios, respectively. The investment adviser and
co-administrator have undertaken to limit Total Portfolio Operating Expenses
to the limits shown in the table above through December 31, 1997.
---------------------------
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>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the fiscal year ended December 31, 1996 and the
fiscal period ended December 31, 1995 has been derived from information audited
by Coopers & Lybrand L.L.P., independent accountants, whose report dated
February 11, 1997 is incorporated by reference in the Statement of Additional
Information. Further information about the performance of the Portfolios is
contained in the Trust's annual report, dated December 31, 1996, copies of which
may be obtained without charge by calling the Trust at (800) 369-2728.
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
For the Period
June 30, 1995
For the Commencement of
Year Ended Operations) through
December 31, 1996 December 31, 1995
----------------- -------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period..... $ 10.65 $ 10.00
----- -----
Income from Investment
Operations:
Net Investment Income... .00 .03
Net Gain on Securities
and Foreign Currency
Related Items
(both realized and
unrealized)........... 1.06 .70
----- -----
Total from Investment
Operations............ 1.06 .73
----- -----
Less Distributions:
Dividends from Net
Investment Income..... (.06) (.01)
Distributions in Excess
of Net Investment
Income................ (.10) (.07)
Distributions from
Realized Gains........ (.06) .00
Distributions in Excess
of Realized Gains..... (.01) .00
----- -----
Total Distributions..... (.23) (.08)
----- -----
Net Asset Value, End of
Period.................. $ 11.48 $ 10.65
----- -----
----- -----
Total Return............. 9.98% 7.30%`D'
Ratios/Supplemental Data:
Net Assets, End of Period
(000s).................. $298,218 $64,537
Ratios to average daily
net assets:
Operating expenses...... 1.36% 1.44%*
Net investment income... .64% .48%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements .04% .77%*
Portfolio Turnover
Rate.................. 30.82% 8.31%`D'
Average Commission
Rate#................. $ .0232 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
<PAGE>
<PAGE>
SMALL COMPANY GROWTH PORTFOLIO
<TABLE>
<CAPTION>
For the Period
June 30, 1995
For the (Commencement of
Year Ended Operations) through
December 31, 1996 December 31, 1995
----------------- -------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period..... $ 12.51 $ 10.00
----- -----
Income from Investment
Operations:
Net Investment Loss..... (.06) (.01)
Net Gain on Securities
(both realized and
unrealized)........... 1.80 2.52
----- -----
Total from Investment
Operations............ 1.74 2.51
----- -----
Net Asset Value, End of
Period.................. $ 14.25 $ 12.51
----- -----
----- -----
Total Return............. 13.91% 25.10%`D'
Ratios/Supplemental Data:
Net Assets, End of Period
(000s).................. $339,398 $97,445
Ratios to average daily
net assets:
Operating expenses...... 1.16% 1.25%*
Net investment loss..... (.66%) (.36%)*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements .01% .25%*
Portfolio Turnover
Rate................... 101.50% 34.25%`D'
Average Commission
Rate#................... $ .0538 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
4
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
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.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to seek long-
term capital appreciation. The Portfolio is a diversified investment fund that
pursues its investment objective by investing primarily in a broadly diversified
portfolio of equity securities of companies, wherever organized, that in the
judgment of Warburg, Pincus Counsellors, Inc., the Portfolios' investment
adviser ("Warburg"), have their principal business activities and interests
outside of the United States. The Portfolio will ordinarily invest substantially
all of its assets -- but no less than 65% of its total assets -- in common
stocks, warrants and securities convertible into or exchangeable for common
stocks. Generally the Portfolio will hold no less than 65% of its total assets
in at least three countries other than the United States. The Portfolio intends
to be widely diversified across securities of many corporations located in a
number of foreign countries. Warburg anticipates, however, that the Portfolio
may from time to time invest a significant portion of its assets in a single
country such as Japan, which may involve special risks. See "Risk Factors and
Special Considerations -- Japanese Investments" below. In appropriate
circumstances, such as when a direct investment by the International Equity
Portfolio in the securities of a particular country cannot be made or when the
securities of an investment company are more liquid than the underlying
portfolio securities, the Portfolio may, consistent with the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"), invest in the
securities of closed-end investment companies that invest in foreign securities.
The Portfolio intends to invest principally in the securities of
financially strong companies with opportunities for growth within growing
international economies and markets through increased earning power and improved
utilization or recognition of assets. Investment may be made in equity
securities of companies of any size, whether traded on or off a national
securities exchange.
SMALL COMPANY GROWTH PORTFOLIO
The Small Company Growth Portfolio's investment objective is to seek
capital growth. The Portfolio is a non-diversified investment fund that pursues
its investment objective by investing in a portfolio of equity securities of
small-sized domestic companies. The Portfolio ordinarily will invest at least
65% of its total assets in common stocks or warrants of small-sized companies
(i.e., companies having stock market capitalizations of
5
<PAGE>
<PAGE>
between $25 million and $1 billion at the time of purchase) that represent
attractive opportunities for capital growth. It is anticipated that the
Portfolio will invest primarily in companies whose securities are traded on
domestic stock exchanges or in the over-the-counter market. Small companies may
still be in the developmental stage, may be older companies that appear to be
entering a new stage of growth progress owing to factors such as management
changes or development of new technology, products or markets or may be
companies providing products or services with a high unit volume growth rate.
The Portfolio's investments will be made on the basis of their equity
characteristics and securities ratings generally will not be a factor in the
selection process.
The Portfolio may also invest in securities of emerging growth companies,
which can be either small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time. Emerging
growth companies generally stand to benefit from new products or services,
technological developments or changes in management and other factors and
include smaller companies experiencing unusual developments affecting their
market value.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The International Equity Portfolio and the Small Company
Growth Portfolio may invest up to 35% and 20%, respectively, of its total assets
in investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by Warburg.
Because the market value of debt obligations can be expected to vary inversely
to changes in prevailing interest rates, investing in debt obligations may
provide an opportunity for capital appreciation when interest rates are expected
to decline. The success of such a strategy is dependent upon Warburg's ability
to forecast accurately changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Services ("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 reduced. Neither event will require sale of such
6
<PAGE>
<PAGE>
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 International Equity Portfolio
may also invest temporarily without limit in foreign investment grade debt
obligations and in other securities of U.S. companies.
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, its 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 enter into 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 in which 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
7
<PAGE>
<PAGE>
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 or
the Portfolios' co-administrator, PFPC, Inc. ("PFPC"). 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 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. 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 securities.
WARRANTS. Each Portfolio may invest up to 10% of its total assets in
warrants. Warrants are securities that give the holder the right, but not the
obligation, to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period.
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.
8
<PAGE>
<PAGE>
JAPANESE INVESTMENTS. The International Equity Portfolio may from time to
time have a large position in Japanese securities and, as a result, would be
subject to general economic and political conditions in Japan. Japan is largely
dependent upon foreign economies for raw materials. International trade is
important to Japan's economy, as exports provide the means to pay for many of
the raw materials it must import. Because of its large trade surpluses Japan has
entered a difficult phase in its relations with certain trading partners,
particularly with respect to the United States, with whom the trade imbalance is
the greatest.
The decline in the Japanese securities markets since 1989 has contributed
to a weakness in the Japanese economy, and the impact of a further decline
cannot be ascertained. The common stocks of many Japanese companies continue to
trade at high price-earnings ratios in comparison with those in the United
States.
Japan has a parliamentary form of government. Since mid-1993, there have
been several changes in leadership in Japan. What, if any, effect the current
political situation will have on prospective regulatory reforms on the economy
cannot be predicted. For additional information, see "Investment
Policies -- Japanese Investments" in the Statement of Additional Information.
SMALL CAPITALIZATION AND EMERGING GROWTH 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 than securities of larger,
more established companies or the market averages in general. Because
small-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-sized companies
may have limited product lines, markets or financial resources and may lack
management depth. In addition, small-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-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 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 the Small Company
9
<PAGE>
<PAGE>
Growth 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 "Securities Act"), but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A
Securities"). A Rule 144A Security will be considered illiquid and therefore
subject to 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
Portfolio in Rule 144A Securities. The Board may adopt guidelines and delegate
to Warburg the daily function of determining and monitoring the liquidity of
Rule 144A Securities, although the Board will retain ultimate responsibility for
any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. The securities may be less liquid than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
the Portfolio. Further, companies whose securities are not publicly traded are
not subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. A Portfolio's
investment in illiquid securities is subject to the risk that should the
Portfolio desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Portfolio's net assets could be adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
10
<PAGE>
<PAGE>
NON-DIVERSIFIED STATUS. The Small Company Growth Portfolio is classified as
non-diversified under the 1940 Act, which means that the Portfolio is not
limited by the 1940 Act in the proportion of its assets that 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.
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.
High portfolio turnover rates (100% or more) may result in dealer markups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See "Dividends, Distributions and Taxes -- Taxes" 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. Detailed
information concerning the Portfolios' strategies and their related risks is
contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The International Equity Portfolio will ordinarily hold
no less than 65% of its total assets in foreign securities, and the Small
Company Growth Portfolio may invest up to 20% of its total assets in the
11
<PAGE>
<PAGE>
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. Certain of the above risks may be involved with American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and International
Depositary Receipts ("IDRs"), instruments that evidence ownership in underlying
securities issued by a foreign corporation. ADRs, EDRs and IDRs may not
necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe, and IDRs (sometimes referred to as Global Depositary Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures, forward currency contracts and, in the case of the
International Equity Portfolio, swaps. 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
12
<PAGE>
<PAGE>
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 Options and Stock Index Options. Each Portfolio may write put
and call options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as "premiums")
for granting the rights evidenced by the options. Each Portfolio may also
utilize up to 10% of its assets to purchase options on stocks and debt
securities that are traded on U.S. and foreign exchanges, as well as
over-the-counter ("OTC") options. The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option on a security has the right to purchase the
underlying security from the writer. In addition to purchasing and writing
options on securities, each Portfolio may also utilize up to 10% of its total
assets to purchase exchange-listed and OTC put and call options on stock
indexes, and may also write such options. A stock index measures the movement of
a certain group of stocks by assigning relative values to the common stocks
included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
Futures Contracts and 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.
13
<PAGE>
<PAGE>
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.
Swaps. The International Equity Portfolio may enter into swaps relating to
indexes, currencies and equity interests of foreign issuers. A swap transaction
is an agreement between the Portfolio and a counterparty to act in accordance
with the terms of the swap contract. Index swaps involve the exchange by the
Portfolio with another party of the respective amounts payable with respect to a
notional principal amount related to one or more indexes. Currency swaps involve
the exchange of cash flows on a notional amount of two or more currencies based
on their relative future values. An equity swap is an agreement to exchange
streams of payments computed by reference to a notional amount based on the
performance of a basket of stocks or a single stock. The Portfolio may enter
into these transactions to preserve a return or spread on a particular
investment or portion of its assets, to protect against currency fluctuations,
as a duration management technique or to protect against any increase in the
price of securities the Portfolio anticipates purchasing at a later date. The
Portfolio may also use these transactions for speculative purposes, such as to
obtain the price performance of a security without actually purchasing the
security in circumstances where, for example, the subject security is illiquid,
or is unavailable for direct investment or available only on less attractive
terms. Swaps have risks associated with them including possible default by the
counterparty to the transaction, illiquidity and, where swaps are used as
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed.
The International Equity Portfolio will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on the
14
<PAGE>
<PAGE>
payment date or dates specified in the agreement, with the Portfolio receiving
or paying, as the case may be, only the net amount of the two payments. Swaps do
not involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net amount
of payments that the Portfolio is contractually obligated to make. If the
counterparty to a swap defaults, the Portfolio's risk of loss consists of the
net amount of payments that the Portfolio is contractually entitled to receive.
Where swaps are entered into for good faith hedging purposes, Warburg believes
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Portfolio's borrowing
restrictions. Where swaps are entered into for other than hedging purposes, the
Portfolio will segregate a net amount of cash or liquid securities having a
value equal to the accrued excess of its obligations over its entitlements with
respect to each swap on a daily basis.
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; currency exchange transactions and, in the case of the International
Equity Portfolio, swaps for hedging purposes could limit any potential gain from
an increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. Each Portfolio will engage in hedging transactions only when deemed
advisable by Warburg, and successful use of hedging transactions will depend on
Warburg's ability to predict correctly movements in the hedge and the hedged
position and the correlation between them, which could prove to be inaccurate.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or trends.
Additional Considerations. To the extent that a Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out a position without incurring
substantial losses, if at 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;
forward currency contracts; and, in the case of the International Equity
Portfolio, swaps. The use of these strategies may require that the Portfolio
maintain cash or liquid securities in a segregated account with its custodian or
a designated sub-custodian to the extent the Portfolio's obligations with
respect to these strategies are not otherwise "covered" through ownership of
15
<PAGE>
<PAGE>
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 SALES AGAINST THE BOX. Each Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an equal
amount of the securities sold short or owns preferred 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," may be entered into by a Portfolio to, for
example, lock in a sale for a security the Portfolio does not wish to sell
immediately or to postpone a gain or loss for federal income tax purposes. A
Portfolio will deposit, in a segregated account with its custodian or a
qualified subcustodian, the securities sold short or convertible or exchangeable
preferred stocks or debt securities in connection with short sales against the
box. Not more than 10% of a Portfolio's net assets (taken at current value) may
be held as collateral for 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. 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
16
<PAGE>
<PAGE>
that cannot be changed without the approval of the majority of the Portfolio's
outstanding shares is contained in the Statement of Additional Information.
MANAGEMENT OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Trust employs Warburg as investment adviser to each
Portfolio. 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 and places
orders to purchase or sell securities on behalf of the Portfolio. Warburg also
employs a support staff of management personnel to provide services to the
Portfolios and furnishes each Portfolio with office space, furnishings and
equipment.
For the services provided by Warburg, the International Equity Portfolio
and the Small Company Growth Portfolio pay Warburg a fee calculated at an annual
rate of 1.00% and .90%, respectively, of the relevant Portfolio's average daily
net assets. 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
borne by a Portfolio.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of February 28,
1997, Warburg managed approximately $17.3 billion of assets, including
approximately $10.5 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, which itself is controlled by
Warburg, Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
PORTFOLIO MANAGERS
International Equity Portfolio. The portfolio manager of the International
Equity Portfolio is Richard H. King, who has been the portfolio manager since
its inception. Mr. King, a senior managing director of Warburg, has been with
Warburg since 1989, before which time 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.
P. Nicholas Edwards, Harold W. Ehrlich, Nicholas P.W. Horsley and Vincent
J. McBride have been associate portfolio managers and research analysts of the
International Equity Portfolio since its inception. Mr. Edwards is a managing
director of Warburg and has been with Warburg since August 1995, before which
time he was a director at Jardine Fleming Investment
17
<PAGE>
<PAGE>
Advisers, Tokyo. Mr. Ehrlich is a managing director 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. 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. McBride is a senior vice president of Warburg
and 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.
Small Company Growth Portfolio. The co-portfolio managers of the Small
Company Growth Portfolio are Elizabeth B. Dater and Stephen J. Lurito. Ms. Dater
is a senior managing director of Warburg and has been a portfolio manager of
Warburg since 1978. Mr. Lurito is a managing director of Warburg and has been
with Warburg since 1987.
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 the
preparation of tax returns and monitoring and developing compliance procedures
for the Portfolios. As compensation, each Portfolio pays Counsellors Service a
fee calculated at an annual rate of .10% of the Portfolio's average daily net
assets.
The 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 International Equity Portfolio pays PFPC a fee calculated at an annual rate
of .12% of the Portfolio's first $250 million in average daily net assets, .10%
of the next $250 million in average daily net assets, .08% of the next $250
million in average daily net assets, and .05% of average daily net assets over
$750 million, and the Small Company Growth Portfolio pays PFPC a fee calculated
at an annual rate of .10% of the first $500 million in average daily net assets,
.075% of the next $1 billion in average daily net assets, and .05% of average
daily net assets over $1.5 billion. PFPC has its principal offices at 400
Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ("PNC"), serves as custodian of
each Portfolio's U.S. assets. State Street Bank and Trust Company ("State
Street") serves as international custodian of each Portfolio's non-U.S.
18
<PAGE>
<PAGE>
assets. PNC is a subsidiary of PNC Bank Corp. and its principal business address
is 1600 Market Street, Philadelphia, Pennsylvania 19103. State Street's
principal business address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the 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.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ("Service Organizations") with whom it enters into agreements up to .25%
(the "Service Fee") of the annual average value of accounts maintained by such
Organizations with a Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for 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. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients' employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. Warburg or its affiliates may pay
for travel, meals and lodging in connection with these promotional activities.
In some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of 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.
19
<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 affect 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 Participat-
20
<PAGE>
<PAGE>
ing 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 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.
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
Portfolios' short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
Special Tax Matters Relating to the International Equity Portfolio.
Dividends and interest received by the International Equity Portfolio may be
subject to
21
<PAGE>
<PAGE>
withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Shareholders will bear the cost of foreign tax withholding
in the form of increased expenses to the Portfolio, but generally will not be
able to claim a foreign tax credit or deduction for foreign taxes paid by the
Portfolio by reason of the tax-deferred status of Variable Contracts.
INTERNAL REVENUE SERVICE REQUIREMENTS. 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 (including securities
traded through the Nasdaq National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued on the basis of the
closing value on the date on which the valuation is made. Options and futures
contracts will be valued similarly. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Securities, options and futures contracts for which market
quotations are not readily available and other assets will be valued at their
fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
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
22
<PAGE>
<PAGE>
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 International Equity Portfolio, with the
Morgan Stanley Capital International Europe, Australasia and Far East ("EAFE")
Index, the Salomon Russell Global Equity Index, the FT-Actuaries World Indices
(jointly compiled by The Financial Times, Ltd., Goldman, Sachs & Co. and NatWest
Securities Ltds.) and the S&P 500 Index and, in the case of the Small Company
Growth Portfolio, with the Russell 2000 Small Stock Index and the S&P 500 Index,
all of which are unmanaged indexes; or (iii) other appropriate indexes of
investment securities or with data developed by Warburg derived from such
indexes. A Portfolio or a Participating Insurance Company may also include
evaluations published by nationally recognized ranking services and by financial
23
<PAGE>
<PAGE>
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine, SmartMoney and
The Wall Street Journal.
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. 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%
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
24
<PAGE>
<PAGE>
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, as well as certain statistical
characteristics of a Portfolio, 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.
25
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust's Expenses.................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 5
Portfolio Investments................................................... 6
Risk Factors and Special Considerations................................. 8
Portfolio Transactions and Turnover Rate................................ 11
Certain Investment Strategies........................................... 11
Investment Guidelines................................................... 16
Management of the Portfolios............................................ 17
How to Purchase and Redeem Shares in the Portfolios..................... 20
Dividends, Distributions and Taxes...................................... 21
Net Asset Value......................................................... 22
Performance............................................................. 22
General Information..................................................... 24
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-1-0497
<PAGE>
<PAGE>
PROSPECTUS
April 30, 1997
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.
[Logo]
<PAGE>
<PAGE>
Subject to Completion, dated April 9, 1997
PROSPECTUS April 30, 1997
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers four investment funds, two of which are offered pursuant
to this Prospectus (the "Portfolios"):
The 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.
The 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"). The SEC
maintains a Web site (http://www.sec.gov.) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolios. The Statement of Additional Information is available
to investors without charge by calling the Trust at (800) 369-2728. The
Statement of Additional Information, as amended or supplemented from time to
time, bears the same date as this Prospectus and is incorporated by reference in
its entirety into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<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....................................... 0.45% 0.62%
12b-1 Fees............................................ 0 0
Other Expenses*....................................... 0.95% 0.78%
--- ---
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 waiver of fees by the Portfolios' investment adviser and
co-administrator, Management Fees for the Emerging Markets Portfolio and the
Post-Venture Capital Portfolio would each equal 1.25%; Other Expenses would
equal .95% and .82%, respectively; and Total Portfolio Operating Expenses
would equal 2.20% and 2.07%, respectively. Other Expenses for each Portfolio
are based on annualized estimates of expenses for the fiscal year ending
December 31, 1997, net of any fee waivers or expense reimbursements. The
investment adviser and co-administrator have undertaken to limit each
Portfolio's Total Portfolio Operating Expenses to the limits shown in the
table above through December 31, 1997.
---------------------------
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>
FINANCIAL HIGHLIGHTS`D'`D'
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the Post-Venture Capital Portfolio for the
fiscal period ended December 31, 1996 has been derived from information audited
by Coopers & Lybrand L.L.P., independent accountants, whose report dated
February 11, 1997 is incorporated by reference in the Statement of Additional
Information. Further information about the performance of the Post-Venture
Capital Portfolio is contained in the Trust's annual report, dated December 31,
1996, copies of which may be obtained without charge by calling the Trust at
(800) 369-2728.
POST-VENTURE CAPITAL PORTFOLIO
<TABLE>
<CAPTION>
For the Period
September 30, 1996
(Commencement of
Operations)
through
December 31, 1996
------------------
<S> <C>
Net Asset Value, Beginning of Period.................................... $ 10.00
------
Income from Investment Operations:
Net Investment Income................................................ .00
Net Loss on Securities (both realized and unrealized)................ (.24)
------
Total from Investment Operations................................. (.24)
------
Net Asset Value, End of Period.......................................... $ 9.76
------
------
Total Return............................................................ (2.40%)`D'
Ratios/Supplemental Data:
Net Assets, End of Period (000s)........................................ $ 12,400
Ratios to average daily net assets:
Operating expenses................................................... 1.40%*
Net investment income................................................ .80%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements............................................. 4.16%
Portfolio Turnover Rate................................................. 6.80%`D'
Average Commission Rate#................................................ $ .0491
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there
was a commission charged.
`D'`D' No financial highlights have been presented with respect to the Emerging
Markets Portfolio, which had not commenced operations as of December 31,
1996. The unaudited statement of assets and liabilities of the Emerging
Markets Portfolio as of April 1, 1997 appears in the Statement of
Additional Information.
3
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
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 investment objective of the Emerging Markets Portfolio is to seek
long-term growth of capital. The 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 and the Emerging Markets in which
the Portfolio invests will vary from time to time. 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 Portfolios' 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
4
<PAGE>
<PAGE>
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,
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.
5
<PAGE>
<PAGE>
The investment objective of the Post-Venture Capital Portfolio is to seek
long-term growth of capital. The Portfolio is a diversified portfolio that
pursues an aggressive investment strategy. The Portfolio pursues its investment
objective by investing primarily in equity securities of companies considered by
Warburg to be in their post-venture capital stage of development. 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 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
6
<PAGE>
<PAGE>
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 exceed those of the Portfolio's other holdings and of more mature
companies generally.
Because Private Funds generally are investment companies for purposes of the
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 are provided on an infrequent basis, often depend on the
subjective valuations of the managers of the Private Funds and, in addition,
would not generally reflect positive or negative subsequent developments
affecting companies held by the Private Fund. See "Net Asset Value." Debt
securities held by a Private Fund will tend to be rated below investment grade
and may be rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D
by Standard & Poor's Ratings Services ("S&P"). Securities in these rating
categories are in payment default or have extremely poor prospects of attaining
any investment standing. For a discussion of the risks of investing in below
investment grade debt, see "Risk Factors and Special Considerations -- Lower
Rated Securities" below and "Investment Policies -- Below Investment Grade Debt
Securities" in the Statement of Additional Information. For a discussion of the
possible tax
7
<PAGE>
<PAGE>
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 net 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. 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 SECURITIES. 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
8
<PAGE>
<PAGE>
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 reduced. 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
9
<PAGE>
<PAGE>
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 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, its 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.
10
<PAGE>
<PAGE>
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 in which 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 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
11
<PAGE>
<PAGE>
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. 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.
WARRANTS. Each Portfolio may invest up to 10% of its total assets in
warrants. Warrants are securities that give the holder the right, but not the
obligation, to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period.
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 8 and "Certain Investment Strategies"
beginning at page 15.
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 than securities of larger, more
established companies or market averages in general. 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
12
<PAGE>
<PAGE>
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 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 "Securities Act"), but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities 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.
13
<PAGE>
<PAGE>
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.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
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, 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
14
<PAGE>
<PAGE>
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 markups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See "Dividends, Distributions and Taxes -- Taxes" 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
15
<PAGE>
<PAGE>
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 the Portfolios' 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 of non-U.S. issuers in
emerging markets, and the Post-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. Certain of the above
risks may be involved with American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and International Depositary Receipts ("IDRs"),
instruments that evidence ownership in underlying securities issued by a foreign
corporation. ADRs, EDRs and IDRs may not necessarily be denominated in the same
currency as the securities whose ownership they represent. ADRs are typically
issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in
16
<PAGE>
<PAGE>
Europe, and IDRs (sometimes referred to as Global Depositary Receipts) are
issued outside the United States, each typically by non-U.S. banks and trust
companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures, forward currency contracts and, in the case of the
Emerging Markets Portfolio, swaps. 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 Options 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 on a security 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
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
17
<PAGE>
<PAGE>
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.
Swaps. The Emerging Markets Portfolio may enter into swaps relating to
indexes, currencies and equity interests of foreign issuers. A swap transaction
is an agreement between the Portfolio and a counterparty to act in accordance
with the terms of the swap contract. Index swaps involve the exchange by the
Portfolio with another party of the respective amounts payable with respect to a
notional principal amount related to one or more indexes. Currency swaps involve
the exchange of cash flows on a notional amount of two or more currencies based
on their relative future values. An equity swap is an agreement to exchange
streams of payments computed by reference to a notional amount based on the
performance of a basket of stocks or a single
18
<PAGE>
<PAGE>
stock. The Portfolio may enter into these transactions to preserve a return or
spread on a particular investment or portion of its assets, to protect against
currency fluctuations, as a duration management technique or to protect against
any increase in the price of securities the Portfolio anticipates purchasing at
a later date. The Portfolio may also use these transactions for speculative
purposes, such as to obtain the price performance of a security without actually
purchasing the security in circumstances where, for example, the subject
security is illiquid, or is unavailable for direct investment or available only
on less attractive terms. Swaps have risks associated with them including
possible default by the counterparty to the transaction, illiquidity and, where
swaps are used as hedges, the risk that the use of a swap could result in losses
greater than if the swap had not been employed.
The Emerging Markets Portfolio will usually enter into swaps on a net basis,
i.e., the two payment streams are netted out in a cash settlement on the payment
date or dates specified in the agreement, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Swaps do
not involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net amount
of payments that the Portfolio is contractually obligated to make. If the
counterparty to a swap defaults, the Portfolio's risk of loss consists of the
net amount of payments that the Portfolio is contractually entitled to receive.
Where swaps are entered into for good faith hedging purposes, Warburg believes
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Portfolio's borrowing
restrictions. Where swaps are entered into for other than hedging purposes, the
Portfolio will segregate an amount of cash or liquid securities having a value
equal to the accrued excess of its obligations over its entitlements with
respect to each swap on a daily basis.
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, currency exchange transactions and, in the case of the Emerging
Markets Portfolio, swaps for hedging purposes could limit any potential gain
from an increase in value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. Each Portfolio will engage in hedging transactions only when deemed
advisable by Warburg, and successful use of hedging transactions will depend on
Warburg's ability to predict correctly movements in the hedge and the hedged
position and the correlation between them, which could prove to be inaccurate.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or trends.
19
<PAGE>
<PAGE>
Additional Considerations. To the extent that a Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out a position without incurring
substantial losses, if at 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;
forward currency contracts; and, in the case of the Emerging Markets Portfolio,
swaps. The use of these strategies may require that the Portfolio maintain cash
or liquid securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Portfolio's obligations with respect to these
strategies are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency or by other portfolio positions or by
other means consistent with applicable regulatory policies. Segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. As a result, there is a
possibility that segregation of a large percentage of a Portfolio's assets could
impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
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 (excluding short
sales "against the box") will not exceed 10% of the Portfolio's assets.
To deliver the securities to the buyer, the Post-Venture Capital Portfolio
must arrange through a broker to borrow the securities and, in so doing, the
Portfolio becomes obligated to replace the securities borrowed at their market
price at the time of replacement, whatever that price may be. The Portfolio will
make a profit or incur a loss as a result of a short sale depending on whether
the price of the securities decreases or increases between the date of the short
sale and the date on which the Portfolio purchases the security to replace the
borrowed securities that have been sold. The amount of any loss would be
increased (and any gain decreased) by any premium or interest the Portfolio is
required to pay in connection with a short sale.
The Post-Venture Capital Portfolio's obligation to replace the securities
borrowed in connection with a short sale will be secured by cash or liquid
securities deposited as collateral with the broker. In addition, the Portfolio
20
<PAGE>
<PAGE>
will place in a segregated account with its custodian or a qualified
subcustodian an amount of cash or liquid securities equal to the difference, if
any, between (i) the market value of the securities sold at the time they were
sold short and (ii) any cash or liquid securities deposited as collateral with
the broker in connection with the short sale (not including the proceeds of the
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 sold short and (b) the amount deposited in the account plus
the amount deposited with the broker (not including the proceeds from the short
sale) will not be less than the market value of the securities at the time they
were sold short.
Short Sales Against the Box. Each Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an equal
amount of the securities sold short or owns preferred 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," may be entered into by a Portfolio to, for
example, lock in a sale price for a security the Portfolio does not wish to sell
immediately or to postpone a gain or loss for federal income tax purposes. 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. 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. 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%
21
<PAGE>
<PAGE>
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.
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, out of which Warburg pays Abbott for sub-advisory services. 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 borne by a Portfolio.
Warburg. Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of February 28,
1997, Warburg managed approximately $17.3 billion of assets, including
approximately $10.5 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, which itself is controlled by
Warburg, Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
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.
22
<PAGE>
<PAGE>
Abbott. Abbott, which was founded in 1986, is an independent specialized
investment firm with assets under management of approximately $3.5 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. Abbott's principal
business address is 50 Rowes Wharf, Suite 240, Boston, Massachusetts 02110-3328.
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 May 31, 1997 and is subject to
certain contingencies, will not involve any material change in the management,
ownership, personnel, operations or activities of 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
Emerging Markets Portfolio. 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 Warburg, has been with Warburg since
1989, before which time 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. 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 managing director 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 senior
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.
Post-Venture Capital Portfolio. The co-portfolio managers of the Post-Venture
Capital Portfolio have been Elizabeth B. Dater and Stephen J. Lurito since its
23
<PAGE>
<PAGE>
inception. Robert S. Janis and Christopher M. Nawn, have been associate
portfolio managers and research analysts for the Post-Venture Capital Portfolio
since its inception.
Ms. Dater is a senior managing director of Warburg and has been a portfolio
manager of Warburg since 1978. Mr. Lurito is a managing director of Warburg and
has been with Warburg since 1987.
Mr. Janis is a senior vice president of Warburg and has been with Warburg
since October 1994, before which time he was a vice president and senior
research analyst at U.S. Trust Company of New York. Mr. Nawn is also a senior
vice president of Warburg and has been with Warburg since September 1994, before
which time he was a senior sector analyst and portfolio manager at the Dreyfus
Corporation.
Raymond L. Held and Gary H. Solomon, investment managers and general partners
of Abbott, manage the Post-Venture Capital Portfolio's investments in Private
Funds.
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 the
preparation of tax returns and monitoring and developing compliance procedures
for the Portfolios. As compensation, each Portfolio pays Counsellors Service a
fee calculated at an annual rate of .10% of the Portfolio's average daily net
assets.
The 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 first $500 million in average daily net assets, .075%
of the next $1 billion in average daily net assets, and .05% of average daily
net assets over $1.5 billion. PFPC has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809.
CUSTODIANS. State Street Bank and Trust Company ("State Street") serves as
custodian of the Emerging Markets Portfolio's assets. PNC Bank, National
24
<PAGE>
<PAGE>
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 1600 Market
Street, Philadelphia, Pennsylvania 19103. 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.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ("Service Organizations") with whom it enters into agreements up to .25%
(the "Service Fee") of the annual average value of accounts maintained by such
Organizations with a Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for 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. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients' employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. Warburg or its affiliates may pay
for travel, meals and lodging in connection with these promotional activities.
In some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of 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
25
<PAGE>
<PAGE>
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.
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 affect 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.
26
<PAGE>
<PAGE>
REDEMPTIONS. Shares of a Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company or
Plan or its agent 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
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.
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
27
<PAGE>
<PAGE>
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
Portfolios' 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 (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued on the basis of the closing
value on the date on which the valuation is made. Options and futures contracts
will be valued similarly. Debt obligations that mature in 60 days or less from
the valuation date are valued on the basis of amortized cost, unless the Board
determines that using this valuation method would not reflect the investments'
value. Investments in Private Funds initially will be valued at cost and,
thereafter, will be valued in accordance with periodic reports received by
Abbott from the Private Funds (generally quarterly). Because the issuers of
securities held by Private Funds are generally not subject to the reporting
requirements of the federal securities laws, interim changes in value of
underlying holdings of Private Funds will not generally be reflected in the
Post-Venture Capital Portfolio's net asset value. However, Warburg will report
to the Board of Trustees information about certain holdings of Private Funds
that, in its judgment, could have a material impact on the valuation of a
Private Fund. The Board of Trustees will take these reports into account in
valuing Private Funds. Securities, options and futures contracts for which
market quotations are not readily available and other assets, including Private
Funds, will be valued at their fair value as
28
<PAGE>
<PAGE>
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
29
<PAGE>
<PAGE>
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 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 Barron's,
Business Week, Financial Times, Forbes, Fortune, Inc., Institutional Investor,
Investor's Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine,
SmartMoney and The Wall Street Journal.
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.
30
<PAGE>
<PAGE>
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% 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
31
<PAGE>
<PAGE>
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, as well as certain statistical
characteristics of a Portfolio, 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.
32
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust's Expenses.................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 4
Portfolio Investments................................................... 8
Risk Factors and Special Considerations................................. 12
Portfolio Transactions and Turnover Rate................................ 15
Certain Investment Strategies........................................... 15
Investment Guidelines................................................... 21
Management of the Portfolios............................................ 22
How to Purchase and Redeem Shares in the Portfolios..................... 26
Dividends, Distributions and Taxes...................................... 27
Net Asset Value......................................................... 28
Performance............................................................. 29
General Information..................................................... 31
</TABLE>
[LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-1-0497
<PAGE>
<PAGE>
PROSPECTUS
April 30, 1997
WARBURG PINCUS TRUST
INTERNATIONAL EQUITY PORTFOLIO
Warburg Pincus Trust shares are not available directly to
individual investors but may be offered only through certain
insurance products and pension and retirement plans.
[Logo]
<PAGE>
<PAGE>
Subject to Completion, dated April 9, 1997
PROSPECTUS April 30, 1997
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers four investment funds, one of which, the International
Equity Portfolio (the "Portfolio"), is offered pursuant to this Prospectus.
The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of non-U.S. issuers. International investment
entails special risk considerations, including currency fluctuations, lower
liquidity, economic instability, political uncertainty and differences in
accounting methods. See "Risk Factors and Special Considerations."
Shares of the Portfolio are not available directly to individual investors but
may be offered only to certain (i) life insurance companies ("Participating
Insurance Companies") for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance contracts (together, "Variable Contracts") and (ii) tax-qualified
pension and retirement plans ("Plans"), including participant-directed Plans
which elect to make the Portfolio an investment option for Plan participants.
The Portfolio may not be available in every state due to various insurance
regulations.
This Prospectus briefly sets forth certain information about the Portfolio that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. This Prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product that accompanies this Prospectus or with the Plan documents or
other informational materials supplied by Plan sponsors. Additional information
about the Portfolio, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission (the "SEC"). The SEC
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolio. The Statement of Additional Information is available to
investors without charge by calling the Trust at (800) 369-2728. The Statement
of Additional Information, as amended or supplemented from time to time, bears
the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES OMMISSION 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.
- --------------------------------------------------------------------------------
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.
<PAGE>
<PAGE>
THE TRUST'S EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).............................................................. 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees....................................................... 0.96%
12b-1 Fees............................................................ 0
Other Expenses*....................................................... 0.40
---
Total Portfolio Operating Expenses (after fee waivers and expense
reimbursements)*.................................................... 1.36%
---
---
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year................................................................ $ 14
3 years............................................................... $ 43
5 years............................................................... $ 74
10 years.............................................................. $164
</TABLE>
- --------------------------------------------------------------------------------
* Management Fees, Other Expenses and Total Portfolio Operating Expenses are
based on actual expenses for the fiscal year ended December 31, 1996, net of
any fee waivers or expense reimbursements. Without such waivers or
reimbursements, Management Fees would have equalled 1.00%, Other Expenses
would have equalled .40% and Total Portfolio Operating Expenses would have
equalled 1.40%. The investment adviser and co-administrator have undertaken
to reduce or otherwise limit the Portfolio's Total Operating Expenses to the
limits shown in the table above through December 31, 1997.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of the Portfolio. THE TABLE DOES NOT
REFLECT ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE
VARIABLE CONTRACTS OR PLANS; SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE
PROSPECTUS OF THE SPONSORING PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT OR
IN THE PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIALS SUPPLIED BY PLAN
SPONSORS. The Example should not be considered a representation of past or
future expenses; actual Portfolio expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Portfolio's
actual performance will vary and may result in a return greater or less than 5%.
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the fiscal year ended December 31, 1996 and the
fiscal period ended December 31, 1995 has been derived from information audited
by Coopers & Lybrand L.L.P., independent accountants, whose report dated
February 11, 1997 is incorporated by reference in the Statement of Additional
Information. Further information about the performance of the Portfolio is
contained in the Trust's annual report, dated December 31, 1996, copies of which
may be obtained without charge by calling the Trust at (800) 369-2728.
<TABLE>
<CAPTION>
For the Period
June 30, 1995
For the (Commencement of
Year Ended Operations) through
December 31, 1996 December 31, 1995
----------------- -------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period..... $ 10.65 $ 10.00
----- -----
Income from Investment
Operations:
Net Investment Income... .00 .03
Net Gain on Securities
and Foreign Currency
Related Items
(both realized and
unrealized)........... 1.06 .70
----- -----
Total from Investment
Operations............ 1.06 .73
----- -----
Less Distributions:
Dividends from Net
Investment Income..... (.06) (.01)
Distributions in Excess
of Net Investment
Income................ (.10) (.07)
Distributions from
Realized Gains........ (.06) .00
Distributions in Excess
of Realized Gains..... (.01) .00
----- -----
Total Distributions..... (.23) (.08)
----- -----
Net Asset Value, End of
Period.................. $ 11.48 $ 10.65
----- -----
----- -----
Total Return............. 9.98% 7.30%`D'
Ratios/Supplemental Data:
Net Assets, End of Period
(000s).................. $298,218 $64,537
Ratios to average daily
net assets:
Operating expenses...... 1.36% 1.44%*
Net investment income... .64% .48%*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements. .04% .77%*
Portfolio Turnover
Rate.................. 30.82% 8.31%`D'
Average Commission
Rate#................. $ .0232 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
<PAGE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The International Equity Portfolio's investment objective is to seek long-
term capital appreciation.
The Portfolio's objective is a fundamental policy and may not be amended
without first obtaining the approval of a majority of the outstanding shares of
the Portfolio. Any investment involves risk and, therefore, there can be no
assurance that the Portfolio will achieve its investment objective. See
"Portfolio Investments" and "Certain Investment Strategies" for descriptions of
certain types of investments the Portfolio may make.
The Portfolio is a diversified investment fund that pursues its investment
objective by investing primarily in a broadly diversified portfolio of equity
securities of companies, wherever organized, that in the judgment of Warburg,
Pincus Counsellors, Inc., the Portfolio's investment adviser ("Warburg"), have
their principal business activities and interests outside of the United States.
The Portfolio will ordinarily invest substantially all of its assets -- but no
less than 65% of its total assets -- in common stocks, warrants and securities
convertible into or exchangeable for common stocks. Generally the Portfolio will
hold no less than 65% of its total assets in at least three countries other than
the United States. The Portfolio intends to be widely diversified across
securities of many corporations located in a number of foreign countries.
Warburg anticipates, however, that the Portfolio may from time to time invest a
significant portion of its assets in a single country such as Japan, which may
involve special risks. See "Risk Factors and Special Considerations -- Japanese
Investments" below. In appropriate circumstances, such as when a direct
investment by the Portfolio in the securities of a particular country cannot be
made or when the securities of an investment company are more liquid than the
underlying portfolio securities, the Portfolio may, consistent with the
provisions of the Investment Company Act of 1940, as amended (the "1940 Act"),
invest in the securities of closed-end investment companies that invest in
foreign securities.
The Portfolio intends to invest principally in the securities of financially
strong companies with opportunities for growth within growing international
economies and markets through increased earning power and improved utilization
or recognition of assets. Investment may be made in equity securities of
companies of any size, whether traded on or off a national securities exchange.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The Portfolio may invest up to 35% of its total assets in
investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by Warburg.
Because the market value of debt obligations can be expected to vary inversely
to changes in prevailing interest rates, investing in debt obligations may
provide an opportunity for capital appreciation when
4
<PAGE>
<PAGE>
interest rates are expected to decline. The success of such a strategy is
dependent upon Warburg's ability to forecast accurately changes in interest
rates. The market value of debt obligations may also be expected to vary
depending upon, among other factors, the ability of the issuer to repay
principal and interest, any change in investment rating and general economic
conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Services ("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 the Portfolio, an issue of securities may cease to be rated or
its rating may be reduced. Neither event will require sale of such securities,
although Warburg will consider such events in its determination of whether the
Portfolio should continue to hold the securities.
When Warburg believes that a defensive posture is warranted, the Portfolio
may invest temporarily without limit in U.S. and foreign investment grade debt
obligations, other securities of U.S. companies and in domestic and foreign
money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Portfolio is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations and, for temporary
defensive purposes, may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Portfolio may enter into repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Portfolio would acquire any underlying security for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the
5
<PAGE>
<PAGE>
Portfolio's holding period. This arrangement results in a fixed rate of return
that is not subject to market fluctuations during the Portfolio's holding
period. The value of the underlying securities will at all times be at least
equal to the total amount of the purchase obligation, including interest. The
Portfolio bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations or becomes bankrupt and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Portfolio seeks to assert this
right. Warburg, acting under the supervision of the Trust's Board of Trustees
(the "Board"), monitors the creditworthiness of those bank and non-bank dealers
with which the Portfolio enters into repurchase agreements to evaluate this
risk. A repurchase agreement is considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Portfolio and appropriate considering the factors of return and
liquidity, the Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio, Warburg or
the Portfolio's co-administrator, PFPC, Inc. ("PFPC"). As a shareholder in any
mutual fund, the Portfolio will bear its ratable share of the mutual fund's
expenses, including management fees, and will remain subject to payment of the
Portfolio's 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 the Portfolio may invest include: direct obligations of the
U.S. Treasury, obligations issued by U.S. government agencies and
instrumentalities, including instruments that are supported by the full faith
and credit of the United States, instruments that are supported by the right of
the issuer to borrow from the U.S. Treasury and instruments that are supported
by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolio may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by the Portfolio,
convertible securities may cease to be rated or a rating may be reduced. 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
securities.
6
<PAGE>
<PAGE>
WARRANTS. The Portfolio may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Portfolio's investments, see
"Portfolio Investments" beginning at page 4 and "Certain Investment Strategies"
beginning at page 9.
JAPANESE INVESTMENTS. The Portfolio may from time to time have a large
position in Japanese securities and, as a result, would be subject to general
economic and political conditions in Japan. Japan is largely dependent upon
foreign economies for raw materials. International trade is important to Japan's
economy, as exports provide the means to pay for many of the raw materials it
must import. Because of its large trade surpluses Japan has entered a difficult
phase in its relations with certain trading partners, particularly with respect
to the United States, with whom the trade imbalance is the greatest.
The decline in the Japanese securities markets since 1989 has contributed to
a weakness in the Japanese economy, and the impact of a further decline cannot
be ascertained. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios in comparison with those in the United States.
Japan has a parliamentary form of government. Since mid-1993, there have been
several changes in leadership in Japan. What, if any, effect the current
political situation will have on prospective regulatory reforms on the economy
cannot be predicted. For additional information, see "Investment
Policies -- Japanese Investments" in the Statement of Additional Information.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Portfolio may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "Securities Act"), but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A
Securities"). A Rule 144A Security will be considered illiquid and therefore
subject to the Portfolio's limitation on the purchase of illiquid securities,
unless the Board determines on an ongoing basis that an adequate trading market
exists for the security. In addition to an adequate trading market, the Board
will also consider factors such as trading activity, availability of reliable
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers become uninterested for a time in purchasing Rule
144A Securities. The Board will carefully monitor any investments by the
Portfolio
7
<PAGE>
<PAGE>
in Rule 144A Securities. The Board may adopt guidelines and delegate to Warburg
the daily function of determining and monitoring the liquidity of Rule 144A
Securities, although the Board will retain ultimate responsibility for any
determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
The securities may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolio. Further, companies whose securities are not publicly traded are not
subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. The Portfolio's
investment in illiquid securities is subject to the risk that should the
Portfolio desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Portfolio's net assets could be adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
The Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Portfolio. The Portfolio
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with their investment objectives and policies. High
portfolio turnover rates (100% or more) may result in dealer markups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See "Dividends, Distributions and Taxes -- Taxes" below and "Investment
Policies -- Portfolio Transactions" in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the
Portfolio are placed by Warburg with broker-dealers that it selects, including
Counsellors Securities Inc., the Portfolio's distributor ("Counsellors
Securities"). The Portfolio may utilize Counsellors Securities in connection
with a purchase or sale of securities when Warburg believes that the charge
8
<PAGE>
<PAGE>
for the transaction does not exceed usual and customary levels and when doing so
is consistent with guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no intention of doing so during the coming year, the
Portfolio is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed-delivery, (ii) lending portfolio securities and (iii)
entering into reverse repurchase agreements and dollar rolls. Detailed
information concerning the Portfolio's strategies and their related risks is
contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The Portfolio will ordinarily hold no less than 65% of
its total assets in foreign securities. There are certain risks involved in
investing in securities of companies and governments of foreign nations which
are in addition to the usual risks inherent in U.S. investments. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, future adverse political and economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions, reduced availability of public information
concerning issuers, the lack of uniform accounting, auditing and financial
reporting standards and other regulatory practices and requirements that are
often generally less rigorous than those applied in the United States. Moreover,
securities of many foreign companies may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. In addition, with respect to certain
foreign countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Portfolio, including the withholding of dividends. Foreign
securities may be subject to foreign government taxes that would reduce the net
yield on such securities. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Investment in foreign
securities will also result in higher operating expenses due to the cost of
converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians. Certain of the above risks may
be involved with American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") and International Depositary Receipts ("IDRs"), instruments
that evidence ownership in underlying securities issued by a foreign
corporation. ADRs, EDRs and IDRs may not necessarily be denominated in the same
currency as the securities whose ownership they represent. ADRs are typically
issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental
9
<PAGE>
<PAGE>
Depositary Receipts) are issued in Europe, and IDRs (sometimes referred to as
Global Depositary Receipts) are issued outside the United States, each typically
by non-U.S. banks and trust companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the Portfolio
may, but is not required to, engage in a number of strategies involving options,
futures, forward currency contracts and swaps. These strategies, commonly
referred to as "derivatives," may be used (i) for the purpose of hedging against
a decline in value of the Portfolio's current or anticipated portfolio holdings,
(ii) as a substitute for purchasing or selling portfolio securities or (iii) to
seek to generate income to offset expenses or increase return. TRANSACTIONS THAT
ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO
INCREASE THE PORTFOLIO'S INVESTMENT RISK. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Portfolio's net asset value and performance. Therefore, an investment in the
Portfolio may involve a greater risk than an investment in other mutual funds
that do not utilize these strategies. The Portfolio's use of these strategies
may be limited by position and exercise limits established by securities and
commodities exchanges and the National Association of Securities Dealers, Inc.
and by the Internal Revenue Code of 1986, as amended (the "Code").
Securities Options and Stock Index Options. The Portfolio may write put and
call options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as "premiums")
for granting the rights evidenced by the options. The Portfolio may also utilize
up to 10% of its assets to purchase options on stocks and debt securities that
are traded on U.S. and foreign exchanges, as well as over-the-counter ("OTC")
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option on a security has the right to purchase the underlying security from the
writer. In addition to purchasing and writing options on securities, the
Portfolio may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
10
<PAGE>
<PAGE>
Futures Contracts and Commodity Options. The Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although the Portfolio is limited
in the amount of assets that may be invested in futures transactions, there is
no overall limit on the percentage of the Portfolio's assets that may be at risk
with respect to futures activities.
Currency Exchange Transactions. The Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Swaps. The Portfolio may enter into swaps relating to indexes, currencies and
equity interests of foreign issuers. A swap transaction is an agreement between
the Portfolio and a counterparty to act in accordance with the terms of the swap
contract. Index swaps involve the exchange by the Portfolio with another party
of the respective amounts payable with respect to a notional principal amount
related to one or more indexes. Currency swaps involve the exchange of cash
flows on a notional amount of two or more currencies based on their relative
future values. An equity swap is an agreement to exchange streams of payments
computed by reference to a notional amount based on the performance of a basket
of stocks or a single stock. The Portfolio may enter into these transactions to
preserve a return or spread on a particular investment or portion of its assets,
to protect against currency fluctuations, as a duration management technique or
to protect against any increase in the
11
<PAGE>
<PAGE>
price of securities the Portfolio anticipates purchasing at a later date. The
Portfolio may also use these transactions for speculative purposes, such as to
obtain the price performance of a security without actually purchasing the
security in circumstances where, for example, the subject security is illiquid,
or is unavailable for direct investment or available only on less attractive
terms. Swaps have risks associated with them including possible default by the
counterparty to the transaction, illiquidity and, where swaps are used as
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed.
The Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. Swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to swaps is limited to the net amount of payments that
the Portfolio is contractually obligated to make. If the counterparty to a swap
defaults, the Portfolio's risk of loss consists of the net amount of payments
that the Portfolio is contractually entitled to receive. Where swaps are entered
into for good faith hedging purposes, Warburg believes such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to a Portfolio's borrowing restrictions. Where swaps are
entered into for other than hedging purposes, the Portfolio will segregate a net
amount of cash or liquid securities having a value equal to the accrued excess
of its obligations over its entitlements with respect to each swap on a daily
basis.
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, currency exchange transactions and swaps for hedging purposes
could limit any potential gain from an increase in value of the position hedged.
In addition, the movement in the portfolio position hedged may not be of the
same magnitude as movement in the hedge. The Portfolio will engage in hedging
transactions only when deemed advisable by Warburg, and successful use of
hedging transactions will depend on Warburg's ability to predict correctly
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out a position without incurring
12
<PAGE>
<PAGE>
substantial losses, if at all. The Portfolio is also subject to the risk of a
default by a counterparty to an off-exchange transaction.
Asset Coverage. The Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities and indexes; currency, interest
rate and stock index futures contracts and options on these futures contracts;
forward currency contracts; and swaps. The use of these strategies may require
that the Portfolio maintain cash or liquid securities in a segregated account
with its custodian or a designated sub-custodian to the extent the Portfolio's
obligations with respect to these strategies are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency or by
other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
SHORT SALES AGAINST THE BOX. The 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," may be entered into by the Portfolio to,
for example, lock in a sale for a security the Portfolio does not wish to sell
immediately or to postpone a gain or loss for federal income tax purposes. 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. 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
- --------------------------------------------------------------------------------
The Portfolio may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ("illiquid securities"), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. The Portfolio may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption
13
<PAGE>
<PAGE>
requests, provided that reverse repurchase agreements and any other borrowing by
the Portfolio may not exceed 30% of its total assets, and may pledge its assets
to the extent necessary to secure permitted borrowings. Whenever borrowings
(including reverse repurchase agreements) exceed 5% of the value of the
Portfolio's total assets, the Portfolio will not make any investments (including
roll-overs). Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the Board, subject to the limitations contained in the 1940
Act. A complete list of investment restrictions that the Portfolio has adopted
identifying additional restrictions that cannot be changed without the approval
of the majority of the Portfolio's outstanding shares is contained in the
Statement of Additional Information.
MANAGEMENT OF THE PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Trust employs Warburg as investment adviser to the
Portfolio. Warburg, subject to the control of the Trust's officers and the
Board, manages the investment and reinvestment of the assets of the Portfolio in
accordance with the Portfolio's investment objective and stated investment
policies. Warburg makes investment decisions for the Portfolio and places orders
to purchase or sell securities on behalf of the Portfolio. Warburg also employs
a support staff of management personnel to provide services to the Portfolio and
furnishes the Portfolio with office space, furnishings and equipment.
For the services provided by Warburg, the Portfolio pays Warburg a fee
calculated at an annual rate of 1.00% of the Portfolio's average daily net
assets. 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
borne by the Portfolio.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of February 28,
1997, Warburg managed approximately $17.3 billion of assets, including
approximately $10.5 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, which itself is controlled by
Warburg, Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
PORTFOLIO MANAGERS. The portfolio manager of the Portfolio is Richard H.
King, who has been the portfolio manager since its inception. Mr. King, a senior
managing director of Warburg, has been with Warburg since 1989, before which
time he was chief investment officer and a director at Fiduciary
14
<PAGE>
<PAGE>
Trust Company International S.A. in London, with responsibility for all
international equity management and investment strategy.
P. Nicholas Edwards, Harold W. Ehrlich, Nicholas P.W. Horsley and Vincent J.
McBride have been associate portfolio managers and research analysts of the
Portfolio since its inception. Mr. Edwards is a managing director of Warburg and
has been with Warburg since August 1995, before which time he was a director at
Jardine Fleming Investment Advisers, Tokyo. Mr. Ehrlich is a managing director
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. 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. McBride is a
senior vice president of Warburg and 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.
CO-ADMINISTRATORS. The Portfolio employs Counsellors Funds Service, Inc., a
wholly owned subsidiary of Warburg ("Counsellors Service"), as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Portfolio, including responding to shareholder inquiries
and providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Portfolio and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Portfolio.
As compensation, the Portfolio pays Counsellors Service a fee calculated at an
annual rate of .10% of the Portfolio's average daily net assets.
The Trust employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the
Portfolio's net asset value, provides all accounting services for the Portfolio
and assists in related aspects of the Portfolio's operations. As compensation
the 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.
PFPC has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware
19809.
CUSTODIANS. PNC Bank, National Association ("PNC"), serves as custodian of
the Portfolio's U.S. assets. State Street Bank and Trust Company ("State
Street") serves as international custodian of the Portfolio's non-U.S. assets.
PNC is a subsidiary of PNC Bank Corp. and its principal business address is
15
<PAGE>
<PAGE>
1600 Market Street, Philadelphia, Pennsylvania 19103. State Street's principal
business address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Portfolio. It has delegated
to Boston Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as
distributor of the shares of the Portfolio. Counsellors Securities is a wholly
owned subsidiary of Warburg and is located at 466 Lexington Avenue, New York,
New York 10017-3147.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ("Services Organizations") with whom it enters into agreements up to .25%
(the "Service Fee") of the annual average value of accounts maintained by such
Organizations with a Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of the
Portfolio, consisting of securities dealers who have sold Portfolio shares or
others, including banks and other financial institutions, under special
arrangements. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients' employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. Warburg or its affiliates may pay
for travel, meals and lodging in connection with these promotional activities.
In some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of significant amounts of the Portfolio's shares.
TRUSTEES AND OFFICERS. The officers of the Trust manage the Portfolio's day-
to-day operations and are directly responsible to the Board. The Board sets
broad policies for the Portfolio and chooses the Trust's officers. A list of the
Trustees and officers and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES IN THE PORTFOLIO
- --------------------------------------------------------------------------------
Individual investors may not purchase or redeem shares of the Portfolio
directly; shares may be purchased or redeemed only through Variable Contracts
offered by
16
<PAGE>
<PAGE>
separate accounts of Participating Insurance Companies or through Plans,
including participant-directed Plans which elect to make the Portfolio an
investment option for Plan participants. Please refer to the prospectus of the
sponsoring Participating Insurance Company separate account or to the Plan
documents or other informational materials supplied by Plan sponsors for
instructions on purchasing or selling a Variable Contract and on how to select
the Portfolio as an investment option for a Variable Contract or Plan.
PURCHASES. All investments in the Portfolio are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by the Portfolio. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of the Portfolio on
any day that the Portfolio calculates its net asset value (a "business day").
That night, all orders received by the Participating Insurance Company prior to
the close of regular trading on the New York Stock Exchange Inc. (the "NYSE")
(currently 4:00 p.m., Eastern time) on that business day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of the Portfolio during the morning of the next business day. These
orders are executed at the net asset value (described below under "Net Asset
Value") computed at the close of regular trading on the NYSE on the previous
business day in order to provide a match between the contract owners' orders to
the Participating Insurance Company and that Participating Insurance Company's
orders to the Portfolio.
Plan participants may invest in shares of the Portfolio through their Plan by
directing the Plan trustee to purchase shares for their account. Participants
should contact their Plan sponsor for information concerning the appropriate
procedure for investing in the Portfolio.
The Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Warburg's opinion, they are of a size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely affect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing Variable
Contract owners and Plan participants would be permitted to continue to
authorize investment in the Portfolio and to reinvest any dividends or capital
gains distributions.
REDEMPTIONS. Shares of the Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company or
Plan prior to the close of regular trading on the NYSE on any business day and
transmitted to the Trust or its specified agent during the morning of the next
business day will be processed at the net asset value computed at the close of
regular trading on the NYSE on the previous business day. Redemption proceeds
will normally be wired to the Participating Insurance Company or Plan the
business day following receipt of the redemption order, but in no event later
than seven days after receipt of such order.
17
<PAGE>
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Portfolio's portfolio securities for the applicable period less
applicable expenses. The Portfolio declares dividends from its net investment
income annually. Net investment income earned on weekends and when the NYSE is
not open will be computed as of the next business day. Distributions of net
realized long-term and short-term capital gains are declared annually and, as a
general rule, will be distributed or paid after the end of the fiscal year in
which they are earned. Dividends and distributions will automatically be
reinvested in additional shares of the Portfolio at net asset value unless, in
the case of a Variable Contract, a Participating Insurance Company elects to
have dividends or distributions paid in cash.
TAXES. For a discussion of the tax status of a Variable Contract or Plan,
refer to the sponsoring Participating Insurance Company separate account
prospectus or Plan documents or other informational materials supplied by Plan
sponsors.
The Portfolio intends to qualify each year as a "regulated investment
company" within the meaning of the Code. The Portfolio intends to distribute all
of its net income and capital gains to its shareholders (the Variable Contracts
and Plans).
Because shares of the Portfolio may be purchased only through Variable
Contracts and Plans, it is anticipated that any income dividends or capital gain
distributions from the Portfolio are taxable, if at all, to the Participating
Insurance Companies and Plans and will be exempt from current taxation of the
Variable Contract owner or Plan participant if left to accumulate within the
Variable Contract or Plan. Generally, withdrawals from Variable Contracts or
Plans may be subject to ordinary income tax and, if made before age 59 1/2, a
10% penalty tax.
Certain provisions of the Code may require that a gain recognized by the
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. The
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.
Dividends and interest received by the Portfolio may be subject to
withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Shareholders will bear the cost of foreign tax withholding
in the form of increased expenses to the Portfolio, but generally will not be
able to claim a foreign tax credit or deduction for foreign taxes
18
<PAGE>
<PAGE>
paid by the Portfolio by reason of the tax-deferred status of Variable
Contracts.
INTERNAL REVENUE SERVICE REQUIREMENTS. The Portfolio intends to comply with
the diversification requirements currently imposed by the Internal Revenue
Service on separate accounts of insurance companies as a condition of
maintaining the tax-deferred status of Variable Contracts. See the Statement of
Additional Information for more specific information.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to be closed on
New Year's Day, Washington's Birthday, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of the holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of the Portfolio
generally changes every day.
The net asset value per share of the Portfolio is computed by dividing the
value of the Portfolio's net assets by the total number of its shares
outstanding.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued on the basis of the closing
value on the date on which the valuation is made. Options and futures contracts
will be valued similarly. Debt obligations that mature in 60 days or less from
the valuation date are valued on the basis of amortized cost, unless the Board
determines that using this valuation method would not reflect the investments'
value. Securities, options and futures contracts for which market quotations are
not readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, the Portfolio may advertise its average annual total
return over various periods of time. These total return figures show the average
percentage change in value of an investment in the Portfolio from the beginning
of the measuring period to the end of the measuring period. The figures reflect
changes in the price of the Portfolio's shares assuming that any income
dividends and/or capital gain distributions made by the Portfolio during the
period were reinvested in shares of the Portfolio. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Portfolio's operations or on a
year-by-year, quarterly or current year-to-date basis).
Total returns quoted for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable
19
<PAGE>
<PAGE>
to any particular Variable Contract or Plan. Accordingly, the prospectus of the
sponsoring Participating Insurance Company separate account or Plan documents or
other informational materials supplied by Plan sponsors should be carefully
reviewed for information on relevant charges and expenses. Excluding these
charges and expenses from quotations of the Portfolio's performance has the
effect of increasing the performance quoted, and the effect of these charges
should be considered when comparing the Portfolio's performance to that of other
mutual funds.
When considering average annual total return figures for periods longer than
one year, it is important to note that the annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that such return may not be representative of the
Portfolio's return over a longer market cycle. The Portfolio may also advertise
its aggregate total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the specific
period (again reflecting changes in share prices and assuming reinvestment of
dividends and distributions). Aggregate and average total returns may be shown
by means of schedules, charts or graphs and may indicate various components of
total return (i.e., change in value of initial investment, income dividends and
capital gain distributions).
Investors should note that return figures are based on historical earnings
and are not intended to indicate future performance. The Statement of Additional
Information describes the method used to determine the total return. Current
total return figures may be obtained by calling (800) 369-2728.
In reports or other communications to investors or in advertising material,
the Portfolio or a Participating Insurance Company or Plan sponsor may describe
general economic and market conditions affecting the Portfolio. Performance may
be compared with (i) that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar investment services that
monitor the performance of mutual funds or as set forth in the publications
listed below; (ii) the Morgan Stanley Capital International Europe, Australasia
and Far East ("EAFE") Index, the Salomon Russell Global Equity Index, the
FT-Actuaries World Indices (jointly compiled by The Financial Times, Ltd.,
Goldman, Sachs & Co. and NatWest Securities Ltds.) and the S&P 500 Index, all of
which are unmanaged indexes; or (iii) other appropriate indexes of investment
securities or with data developed by Warburg derived from such indexes. The
Portfolio or a Participating Insurance Company may also include evaluations
published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine, SmartMoney and
The Wall Street Journal.
In reports or other communications to investors or in advertising, the
Portfolio or a Participating Insurance Company or Plan sponsor may also
20
<PAGE>
<PAGE>
describe the general biography or work experience of the portfolio managers of
the Portfolio and may include quotations attributable to the portfolio managers
describing approaches taken in managing the Portfolio's investments, research
methodology underlying stock selection or the Portfolio's investment objective.
In addition, the Portfolio and its portfolio managers may render periodic
updates of Portfolio activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Portfolio may also discuss the continuum of risk
and return relating to different investments and the potential impact of foreign
securities on a portfolio otherwise composed of domestic securities.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various periods of time. In addition, the Portfolio or a Participating
Insurance Company or Plan sponsor may from time to time compare the Portfolio's
expense ratio to that of investment companies with similar objectives and
policies, based on data generated by Lipper Analytical Services, Inc. or similar
investment services that monitor mutual funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
TRUST ORGANIZATION. The Trust was organized on March 15, 1995 under the laws
of The Commonwealth of Massachusetts as a "Massachusetts business trust." The
Trust's Declaration of Trust authorizes the Board to issue an unlimited number
of full and fractional shares of beneficial interest, $.001 par value per share.
Shares of four series have been authorized, one of which constitutes the
interests in the Portfolio. The Board may classify or reclassify any of its
shares into one or more additional series without shareholder approval.
VOTING RIGHTS. When matters are submitted for shareholder vote, shareholders
of the Portfolio will have one vote for each full share held and fractional
votes for fractional shares held. Generally, shares of the Trust will vote by
individual portfolio on all matters except where otherwise required by law.
There will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the members
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Under current law, a Participating Insurance
Company is required to request voting instructions from Variable Contract owners
and must vote all Trust shares held in the separate account in proportion to the
voting instructions received. Plans may or may not pass through voting rights to
Plan participants, depending on the terms of the Plan's governing documents. For
a more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company
21
<PAGE>
<PAGE>
separate account prospectus or the Plan documents or other informational
materials supplied by Plan sponsors.
CONFLICTS OF INTEREST. The Portfolio offers its shares to (i) Variable
Contracts offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with each other and (ii) Plans including
Participant-directed Plans which elect to make the Portfolio an investment
option for Plan participants. Due to differences of tax treatment and other
considerations, the interests of various Variable Contract owners and Plan
participants participating in the Portfolio may conflict. The Board will monitor
the Portfolio for any material conflicts that may arise and will determine what
action, if any, should be taken. If a conflict occurs, the Board may require one
or more Participating Insurance Company separate accounts and/or Plans to
withdraw its investments in the Portfolio. As a result, the Portfolio may be
forced to sell securities at disadvantageous prices and orderly portfolio
management could be disrupted. In addition, the Board may refuse to sell shares
of the Portfolio to any Variable Contract or Plan or may suspend or terminate
the offering of shares of the Portfolio if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolio.
SHAREHOLDER COMMUNICATIONS. Participating Insurance Companies and Plan
trustees will receive semiannual and audited annual reports, each of which
includes a list of the investment securities held by the Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by the Portfolio, as well as certain statistical
characteristics of the Portfolio, may be obtained by calling the Trust at (800)
369-2728.
---------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE PORTFOLIO'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIO, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
SHARES OF THE PORTFOLIO IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
22
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust's Expenses.................................................... 2
Financial Highlights.................................................... 3
Investment Objective and Policies....................................... 4
Portfolio Investments................................................... 4
Risk Factors and Special Considerations................................. 7
Portfolio Transactions and Turnover Rate................................ 8
Certain Investment Strategies........................................... 9
Investment Guidelines................................................... 13
Management of the Portfolio............................................. 14
How to Purchase and Redeem Shares in the Portfolio...................... 16
Dividends, Distributions and Taxes...................................... 18
Net Asset Value......................................................... 19
Performance............................................................. 19
General Information..................................................... 21
</TABLE>
- --------------------------------------------------------------------------------
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-1-0497
<PAGE>
<PAGE>
PROSPECTUS
April 30, 1997
WARBURG PINCUS TRUST
EMERGING MARKETS 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.
[Logo]
<PAGE>
<PAGE>
Subject to Completion dated April 9, 1997
PROSPECTUS April 30, 1997
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers four investment funds, one of which is offered pursuant to
this Prospectus (the "Portfolios"):
The 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.
Shares of the Portfolio are not available directly to individual investors but
may be offered only to certain (i) life insurance companies ("Participating
Insurance Companies") for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance contracts (together, "Variable Contracts") and (ii) tax-qualified
pension and retirement plans ("Plans"), including participant-directed Plans
which elect to make the Portfolio an investment option for Plan participants.
The Portfolio may not be available in every state due to various insurance
regulations.
This Prospectus briefly sets forth certain information about the Portfolio that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. This Prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product that accompanies this Prospectus or with the Plan documents or
other informational materials supplied by Plan sponsors. Additional information
about the Portfolio, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission (the "SEC"). The SEC
maintains a Web site (http://www.sec.gov.) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolio. The Statement of Additional Information is available to
investors without charge by calling the Trust at (800) 369-2728. The Statement
of Additional Information, as amended or supplemented from time to time, bears
the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<PAGE>
<PAGE>
THE TRUST'S EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Emerging Markets
Portfolio
----------------
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................ 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees..................................................... 0.45%
12b-1 Fees.......................................................... 0
Other Expenses*..................................................... 0.95%
---
Total Portfolio Operating Expenses (after fee waivers and expense
reimbursements)*.................................................. 1.40%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year.............................................................. $ 14
3 years............................................................. $ 44
</TABLE>
- --------------------------------------------------------------------------------
* Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, Management Fees for the Portfolio would equal 1.25%; Other
Expenses would equal .95%; and Total Portfolio Operating Expenses would equal
2.20%. Other Expenses for the Portfolio are based on annualized estimates of
expenses for the fiscal year ending December 31, 1997, net of any fee waivers
or expense reimbursements. The investment adviser and co-administrator have
undertaken to limit the Portfolio's Total Portfolio Operating Expenses to the
limits shown in the table above through December 31, 1997.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of the Portfolio. THE TABLE DOES NOT
REFLECT ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE
VARIABLE CONTRACTS OR PLANS; SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE
PROSPECTUS OF THE SPONSORING PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT OR
IN THE PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIALS SUPPLIED BY PLAN
SPONSORS. The Example should not be considered a representation of past or
future expenses; actual Portfolio expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Portfolio's
actual performance will vary and may result in a return greater or less than 5%.
2
<PAGE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Emerging Markets Portfolio is to seek
long-term growth of capital. The Portfolio's objective is a fundamental policy
and may not be amended without first obtaining the approval of a majority of the
outstanding shares of the Portfolio. Any investment involves risk and,
therefore, there can be no assurance that the Portfolio will achieve its
investment objective. See "Portfolio Investments" and "Certain Investment
Strategies" for descriptions of certain types of investments the Portfolios may
make.
The 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 and the Emerging Markets in which
the Portfolio invests will vary from time to time. 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
3
<PAGE>
<PAGE>
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,
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.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The 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
4
<PAGE>
<PAGE>
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 Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Services ("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 the Portfolio, an issue of securities may cease to be rated or
its rating may be reduced. 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, the 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 Portfolio may also invest
temporarily without limit in other securities of U.S. companies.
Emerging Markets Portfolio. The 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 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
Portfolio having a contractual relationship only with the lender, in the case of
5
<PAGE>
<PAGE>
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 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. The Portfolio is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations and, for temporary
defensive purposes, may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, its 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.
6
<PAGE>
<PAGE>
Repurchase Agreements. The Portfolio 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,
the Portfolio would acquire any underlying security for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Portfolio's holding period. The value of the
underlying securities will at all times be at least equal to the total amount of
the purchase obligation, including interest. The Portfolio bears a risk of loss
in the event that the other party to a repurchase agreement defaults on its
obligations or becomes bankrupt and the Portfolio is delayed or prevented from
exercising its right to dispose of the collateral securities, including the risk
of a possible decline in the value of the underlying securities during the
period in which the Portfolio seeks to assert this right. Warburg, acting under
the supervision of the Trust's Board of Trustees (the "Board"), monitors the
creditworthiness of those bank and non-bank dealers with which the Portfolio
enters into repurchase agreements to evaluate this risk. A repurchase agreement
is considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Portfolio and appropriate considering the factors of return and
liquidity, the Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio, Warburg, the
Portfolios' co-administrator, PFPC Inc. ("PFPC"). As a shareholder in any mutual
fund, the Portfolio will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to payment of the Portfolio's
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 the Portfolio may invest include: direct obligations of the
U.S. Treasury, obligations issued by U.S. government agencies and
instrumentalities, including instruments that are supported by the full faith
and credit of the United States, instruments that are supported by the right of
the issuer to borrow from the U.S. Treasury and instruments that are supported
by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolio may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying
7
<PAGE>
<PAGE>
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 the
Portfolio, convertible securities may cease to be rated or a rating may be
reduced. 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.
WARRANTS. The Portfolio may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Portfolio's investments, see
"Portfolio Investments" beginning at page 4 and "Certain Investment Strategies"
beginning at page 11.
EMERGING MARKETS. The 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 than securities of larger, more
established companies or market averages in general. 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-
8
<PAGE>
<PAGE>
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 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 the 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 Portfolio may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "Securities Act"), but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A
Securities"). An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Portfolio's limitation on the purchase of illiquid
securities, unless the Board determines on an ongoing basis that an adequate
trading market exists for the security. In addition to an adequate trading
market, the Board will also consider factors such as trading activity,
availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Portfolio to
the extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board will carefully monitor any
investments by the Portfolio in Rule 144A Securities. The Board may adopt
guidelines and delegate to Warburg the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although the Board will retain
ultimate responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
The securities may be less liquid than publicly traded securities and the
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
9
<PAGE>
<PAGE>
these sales could be less than those originally paid by the Portfolio. Further,
companies whose securities are not publicly traded are not subject to the
disclosure and other investor protection requirements that would be applicable
if their securities were publicly traded. The Portfolio's investment in illiquid
securities is subject to the risk that should the Portfolio desire to sell any
of these securities when a ready buyer is not available at a price that is
deemed to be representative of their value, the value of the Portfolio's net
assets could be adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
NON-DIVERSIFIED STATUS. The 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 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, are outweighed by large uncertainties or
major risk exposures to adverse conditions and (ii) are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. The market values of
certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than 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
10
<PAGE>
<PAGE>
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
- --------------------------------------------------------------------------------
The Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Portfolio. The Portfolio
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with their investment objectives and policies. It is not
possible to predict the Portfolio's turnover rate. However, it is anticipated
that the Portfolio's annual turnover rate should not exceed 100%. High portfolio
turnover rates (100% or more) may result in dealer markups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See "Dividends,
Distributions and Taxes -- Taxes" below and "Investment Policies -- Portfolio
Transactions" in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the
Portfolio are placed by Warburg with broker-dealers that it selects, including
Counsellors Securities Inc., the Portfolios' distributor ("Counsellors
Securities"). The Portfolio may utilize Counsellors Securities in connection
with a purchase or sale of securities when Warburg believes that the charge for
the transaction does not exceed usual and customary levels and when doing so is
consistent with guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no intention of doing so during the coming year, the
Portfolio is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed-delivery, (ii) lending portfolio securities and (iii)
entering into reverse repurchase agreements and dollar rolls. The Portfolio may
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 the Portfolio's strategies
11
<PAGE>
<PAGE>
and their related risks is contained below and in the Statement of Additional
Information.
FOREIGN SECURITIES. The Portfolio will ordinarily hold no less than 65% of
its total assets in foreign securities of non-U.S. issuers in emerging markets.
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 Portfolio, including the withholding
of dividends. Foreign securities may be subject to foreign government taxes that
would reduce the net yield on such securities. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Investment in foreign securities will also result in higher operating expenses
due to the cost of converting foreign currency into U.S. dollars, the payment of
fixed brokerage commissions on foreign exchanges, which generally are higher
than commissions on U.S. exchanges, higher valuation and communications costs
and the expense of maintaining securities with foreign custodians. The risks
associated with investing in securities of non-U.S. issuers are generally
heightened for investments in securities of issuers in emerging markets. Certain
of the above risks may be involved with American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs") and International Depositary Receipts
("IDRs"), instruments that evidence ownership in underlying securities issued by
a foreign corporation. ADRs, EDRs and IDRs may not necessarily be denominated in
the same currency as the securities whose ownership they represent. ADRs are
typically issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in Europe, and IDRs (sometimes
referred to as Global Depositary Receipts) are issued outside the United States,
each typically by non-U.S. banks and trust companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the Portfolio
may, but is not required to, engage in a number of strategies
12
<PAGE>
<PAGE>
involving options, futures, forward currency contracts and swaps. These
strategies, commonly referred to as "derivatives," may be used (i) for the
purpose of hedging against a decline in value of the Portfolio's current or
anticipated portfolio holdings, (ii) as a substitute for purchasing or selling
portfolio securities or (iii) to seek to generate income to offset expenses or
increase return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE
CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE THE PORTFOLIO'S INVESTMENT
RISK. Transaction costs and any premiums associated with these strategies, and
any losses incurred, will affect the Portfolio's net asset value and
performance. Therefore, an investment in the Portfolio may involve a greater
risk than an investment in other mutual funds that do not utilize these
strategies. The Portfolio's use of these strategies may be limited by position
and exercise limits established by securities and commodities exchanges and the
National Association of Securities Dealers, Inc. and by the Code.
Securities Options and Stock Index Options. The Portfolio may utilize up to
10% of its assets to purchase options on stocks and debt securities that are
traded on U.S. and foreign exchanges, as well as over-the-counter ("OTC")
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option on a security has the right to purchase the underlying security from the
writer. In addition to purchasing and writing options on securities, the
Portfolio may also utilize up to 15% 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 the
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
Futures Contracts and Commodity Options. The Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An
13
<PAGE>
<PAGE>
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although the Portfolio is limited
in the amount of assets that may be invested in futures transactions, there is
no overall limit on the percentage of the Portfolio's assets that may be at risk
with respect to futures activities.
Currency Exchange Transactions. The Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Swaps. The Portfolio may enter into swaps relating to indexes, currencies and
equity interests of foreign issuers. A swap transaction is an agreement between
the Portfolio and a counterparty to act in accordance with the terms of the swap
contract. Index swaps involve the exchange by the Portfolio with another party
of the respective amounts payable with respect to a notional principal amount
related to one or more indexes. Currency swaps involve the exchange of cash
flows on a notional amount of two or more currencies based on their relative
future values. An equity swap is an agreement to exchange streams of payments
computed by reference to a notional amount based on the performance of a basket
of stocks or a single stock. The Portfolio may enter into these transactions to
preserve a return or spread on a particular investment or portion of its assets,
to protect against currency fluctuations, as a duration management technique or
to protect against any increase in the price of securities the Portfolio
anticipates purchasing at a later date. The Portfolio may also use these
transactions for speculative purposes, such as to obtain the price performance
of a security without actually purchasing the security in circumstances where,
for example, the subject security is illiquid, or is unavailable for direct
investment or available only on less attractive terms. Swaps have risks
associated with them including possible default by the counterparty to the
transaction, illiquidity and, where swaps are used as
14
<PAGE>
<PAGE>
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed.
The Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the agreement, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. Swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to swaps is limited to the net amount of payments that
the Portfolio is contractually obligated to make. If the counterparty to a swap
defaults, the Portfolio's risk of loss consists of the net amount of payments
that the Portfolio is contractually entitled to receive. Where swaps are entered
into for good faith hedging purposes, Warburg believes such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to a Portfolio's borrowing restrictions. Where swaps are
entered into for other than hedging purposes, the Portfolio will segregate an
amount of cash or liquid securities having a value equal to the accrued excess
of its obligations over its entitlements with respect to each swap on a daily
basis.
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, currency exchange transactions and swaps for hedging purposes could
limit any potential gain from an increase in value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. The Portfolio will engage in hedging
transactions only when deemed advisable by Warburg, and successful use of
hedging transactions will depend on Warburg's ability to predict correctly
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out a position without incurring
substantial losses, if at all. The Portfolio is also subject to the risk of a
default by a counterparty to an off-exchange transaction.
Asset Coverage. The Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities indexes; currency, interest rate
and stock index futures contracts and options on these futures contracts;
forward currency contracts; and swaps. The use of these strategies may
15
<PAGE>
<PAGE>
require that the Portfolio maintain cash or liquid securities in a segregated
account with its custodian or a designated sub-custodian to the extent the
Portfolio's obligations with respect to these strategies are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency or by other portfolio positions or by other means consistent with
applicable regulatory policies. Segregated assets cannot be sold or transferred
unless equivalent assets are substituted in their place or it is no longer
necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of a Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
SHORT SALES AGAINST THE BOX. The 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," may be entered into by the Portfolio to,
for example, lock in a sale price for a security the Portfolio does not wish to
sell immediately or to postpone a gain or loss for federal income tax purposes.
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. 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
- --------------------------------------------------------------------------------
The Portfolio may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ("illiquid securities"), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. The Portfolio may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Portfolio may
not exceed 30% of its total assets, and may pledge its assets to the extent
necessary to secure permitted borrowings. Whenever borrowings (including reverse
repurchase agreements) exceed 5% of the value of the Portfolio's total assets,
the Portfolio will not make any investments (including roll-overs). Except for
the limitations on borrowing,
16
<PAGE>
<PAGE>
the investment guidelines set forth in this paragraph may be changed at any time
without shareholder consent by vote of the Board, subject to the limitations
contained in the 1940 Act. A complete list of investment restrictions that the
Portfolio has adopted identifying additional restrictions that cannot be changed
without the approval of the majority of the Portfolio's outstanding shares is
contained in the Statement of Additional Information.
MANAGEMENT OF THE PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Trust employs Warburg as investment adviser to the
Portfolio. Warburg, subject to the control of the Trust's officers and the
Board, manages the investment and reinvestment of the assets of the Portfolio in
accordance with the Portfolio's investment objective and stated investment
policies. Warburg makes investment decisions for the Portfolio, places orders to
purchase or sell securities on behalf of the Portfolio. Warburg also employs a
support staff of management personnel to provide services to the Portfolio and
furnishes the Portfolio with office space, furnishings and equipment.
For the services provided by Warburg, the Portfolio pays Warburg a fee
calculated at an annual rate of 1.25% of the Portfolio's average daily net
assets. 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
borne by the Portfolio.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of February 28,
1997, Warburg managed approximately $17.3 billion of assets, including
approximately $10.5 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, which itself is controlled by
Warburg, Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
PORTFOLIO MANAGERS. Richard H. King and Nicholas P.W. Horsley are
co-portfolio managers of the Portfolio, and Harold W. Ehrlich and Vincent J.
McBride are associate portfolio managers and research analysts.
Mr. King, a senior managing director of Warburg, has been with Warburg since
1989, before which time 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. 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.
17
<PAGE>
<PAGE>
Mr. Ehrlich is a managing director 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 senior
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.
CO-ADMINISTRATORS. The Portfolio employs Counsellors Funds Service, Inc., a
wholly owned subsidiary of Warburg ("Counsellors Service"), as a
co-administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Portfolio, including responding to shareholder inquiries
and providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Portfolio and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Portfolio.
As compensation, the Portfolio pays Counsellors Service a fee calculated at an
annual rate of .10% of the Portfolio's average daily net assets.
The Trust employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the
Portfolio's net asset value, provides all accounting services for the Portfolio
and assists in related aspects of the Portfolio's operations. As compensation
the 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. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809.
CUSTODIAN. State Street Bank and Trust Company ("State Street") serves as
custodian of the Portfolio's assets. State Street's principal business address
is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the 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.
18
<PAGE>
<PAGE>
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ("Service Organizations") with whom it enters into agreements up to .25%
(the "Service Fee") of the annual average value of accounts maintained by such
Organizations with the Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of the
Portfolio, consisting of securities dealers who have sold Portfolio shares or
others, including banks and other financial institutions, under special
arrangements. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients' employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. Warburg or its affiliates may pay
for travel, meals and lodging in connection with these promotional activities.
In some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of significant amounts of the Portfolio's shares.
TRUSTEES AND OFFICERS. The officers of the Trust manage the Portfolio's
day-to-day operations and are directly responsible to the Board. The Board sets
broad policies for the Portfolio and chooses the Trust's officers. A list of the
Trustees and officers and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES IN THE PORTFOLIO
- --------------------------------------------------------------------------------
Individual investors may not purchase or redeem shares of the Portfolio
directly; shares may be purchased or redeemed only through Variable Contracts
offered by separate accounts of Participating Insurance Companies or through
Plans, including participant-directed Plans which elect to make the Portfolio an
investment option for Plan participants. Please refer to the prospectus of the
sponsoring Participating Insurance Company separate account or to the Plan
documents or other informational materials supplied by Plan sponsors for
instructions on purchasing or selling a Variable Contract and on how to select a
Portfolio as an investment option for a Variable Contract or Plan.
PURCHASES. All investments in the Portfolio are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by the Portfolio. Each Participating Insurance Company receives
19
<PAGE>
<PAGE>
orders from its contract owners to purchase or redeem shares of the Portfolio on
any day that the Portfolio calculates its net asset value (a "business day").
That night, all orders received by the Participating Insurance Company prior to
the close of regular trading on the New York Stock Exchange Inc. (the "NYSE")
(currently 4:00 p.m., Eastern time) on that business day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of the Portfolio during the morning of the next business day. These
orders are executed at the net asset value (described below under "Net Asset
Value") computed at the close of regular trading on the NYSE on the previous
business day in order to provide a match between the contract owners' orders to
the Participating Insurance Company and that Participating Insurance Company's
orders to the Portfolio.
Plan participants may invest in shares of the Portfolio through their Plan by
directing the Plan trustee to purchase shares for their account. Participants
should contact their Plan sponsor for information concerning the appropriate
procedure for investing in the Portfolio.
The Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Warburg's opinion, they are of a size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely affect 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 the Portfolio and to reinvest any dividends or capital
gains distributions.
REDEMPTIONS. Shares of the Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company or
Plan or its agent prior to the close of regular trading on the NYSE on any
business day and transmitted to the Trust or its specified agent during the
morning of the next business day will be processed at the net asset value
computed at the close of regular trading on the NYSE on the previous business
day. Redemption proceeds will normally be wired to the Participating Insurance
Company or Plan the business day following receipt of the redemption order, but
in no event later than seven days after receipt of such order.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Portfolio's portfolio securities for the applicable period less
applicable expenses. The Portfolio declares dividends from its net investment
income annually. Net investment income earned on weekends and when the NYSE is
not open will be computed as of the next business day. Distributions of net
realized long-term and short-term capital gains are
20
<PAGE>
<PAGE>
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 Portfolio at net
asset value unless, in the case of a Variable Contract, a Participating
Insurance Company elects to have dividends or distributions paid in cash.
TAXES. For a discussion of the tax status of a Variable Contract or Plan,
refer to the sponsoring Participating Insurance Company separate account
prospectus or Plan documents or other informational materials supplied by Plan
sponsors.
The Portfolio intends to qualify each year as a "regulated investment
company" within the meaning of the Code. The Portfolio intends to distribute all
of its net income and capital gains to its shareholders (the Variable Contracts
and Plans).
Because shares of the Portfolio may be purchased only through Variable
Contracts and Plans, it is anticipated that any income dividends or capital gain
distributions from the Portfolio are taxable, if at all, to the Participating
Insurance Companies and Plans and will be exempt from current taxation of the
Variable Contract owner or Plan participant if left to accumulate within the
Variable Contract or Plan. Generally, withdrawals from Variable Contracts or
Plans may be subject to ordinary income tax and, if made before age 59 1/2, a
10% penalty tax.
Certain provisions of the Code may require that a gain recognized by the
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. The
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. The Portfolio intends to comply with
the diversification requirements currently imposed by the Internal Revenue
Service on separate accounts of insurance companies as a condition of
maintaining the tax-deferred status of Variable Contracts. See the Statement of
Additional Information for more specific information.
21
<PAGE>
<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to be closed on
New Year's Day, Washington's Birthday, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of the holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of the Portfolio
generally changes every day.
The net asset value per share of the Portfolio is computed by dividing the
value of the Portfolio's net assets by the total number of its shares
outstanding.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued on the basis of the closing
value on the date on which the valuation is made. Options and futures contracts
will be valued similarly. Debt obligations that mature in 60 days or less from
the valuation date are valued on the basis of amortized cost, unless the Board
determines that using this valuation method would not reflect the investments'
value. Securities, options and futures contracts for which market quotations are
not readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, the Portfolio may advertise its average annual total
return over various periods of time. These total return figures show the average
percentage change in value of an investment in the Portfolio from the beginning
of the measuring period to the end of the measuring period. The figures reflect
changes in the price of the Portfolio's shares assuming that any income
dividends and/or capital gain distributions made by the Portfolio during the
period were reinvested in shares of the Portfolio. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Portfolio's operations or on a
year-by-year, quarterly or current year-to-date basis).
Total returns quoted for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan. Accordingly, the prospectus of the
sponsoring Participating Insurance Company separate account or Plan documents or
other informational materials supplied by Plan sponsors should be carefully
reviewed for information on relevant charges and expenses. Excluding these
charges and expenses from quotations of the Portfolio's performance has the
effect of increasing the performance quoted,
22
<PAGE>
<PAGE>
and the effect of these charges should be considered when comparing the
Portfolio's performance to that of other mutual funds.
When considering average annual total return figures for periods longer than
one year, it is important to note that the annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that such return may not be representative of the
Portfolio's return over a longer market cycle. The Portfolio may also advertise
its aggregate total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the specific
period (again reflecting changes in share prices and assuming reinvestment of
dividends and distributions). Aggregate and average total returns may be shown
by means of schedules, charts or graphs and may indicate various components of
total return (i.e., change in value of initial investment, income dividends and
capital gain distributions).
Investors should note that return figures are based on historical earnings
and are not intended to indicate future performance. The Statement of Additional
Information describes the method used to determine the total return. Current
total return figures may be obtained by calling (800) 369-2728.
In reports or other communications to investors or in advertising material,
the Portfolio or a Participating Insurance Company or Plan sponsor may describe
general economic and market conditions affecting the Portfolio. Performance may
be compared with (i) that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar investment services that
monitor the performance of mutual funds or as set forth in the publications
listed below; (ii) the IFC Emerging Market Free Index, the IFC Investible Index
and the Morgan Stanley Capital International Emerging Markets 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 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 Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine, SmartMoney and
The Wall Street Journal.
In reports or other communications to investors or in advertising, the
Portfolio or a Participating Insurance Company or Plan sponsor may also describe
the general biography or work experience of the portfolio managers of the
Portfolio and may include quotations attributable to the portfolio managers
describing approaches taken in managing the Portfolio's investments, research
methodology underlying stock selection or the Portfolio's investment objective.
In addition, the Portfolio and its portfolio managers may render periodic
updates of Portfolio activity, which may include a discussion of significant
portfolio holdings and analysis of holdings
23
<PAGE>
<PAGE>
by industry, country, credit quality and other characteristics. The Portfolio
may also discuss the continuum of risk and return relating to different
investments and the potential impact of foreign securities on a portfolio
otherwise composed of domestic securities. Morningstar, Inc. rates funds in
broad categories based on risk/reward analyses over various periods of time. In
addition, the Portfolio or a Participating Insurance Company or Plan sponsor may
from time to time compare the Portfolio's expense ratio to that of investment
companies with similar objectives and policies, based on data generated by
Lipper Analytical Services, Inc. or similar investment services that monitor
mutual funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
TRUST ORGANIZATION. The Trust was organized on March 15, 1995 under the laws
of The Commonwealth of Massachusetts as a "Massachusetts business trust." The
Trust's Declaration of Trust authorizes the Board to issue an unlimited number
of full and fractional shares of beneficial interest, $.001 par value per share.
Shares of four series have been authorized, one of which constitutes the
interests in the Portfolio. The Board may classify or reclassify any of its
shares into one or more additional series without shareholder approval.
VOTING RIGHTS. When matters are submitted for shareholder vote, shareholders
of the Portfolio will have one vote for each full share held and fractional
votes for fractional shares held. Generally, shares of the Trust will vote by
individual Portfolio on all matters except where otherwise required by law.
There will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the members
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Under current law, a Participating Insurance
Company is required to request voting instructions from Variable Contract owners
and must vote all Trust shares held in the separate account in proportion to the
voting instructions received. Plans may or may not pass through voting rights to
Plan participants, depending on the terms of the Plan's governing documents. For
a more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company separate account prospectus or the Plan
documents or other informational materials supplied by Plan sponsors.
CONFLICTS OF INTEREST. The Portfolio offers its shares to (i) Variable
Contracts offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with each other and (ii) Plans including
Participant-directed Plans which elect to make the Portfolio an investment
option for Plan participants. Due to differences of tax treatment and other
24
<PAGE>
<PAGE>
considerations, the interests of various Variable Contract owners and Plan
participants participating in the Portfolio may conflict. The Board will monitor
the Portfolio for any material conflicts that may arise and will determine what
action, if any, should be taken. If a conflict occurs, the Board may require one
or more Participating Insurance Company separate accounts and/or Plans to
withdraw its investments in the Portfolio. As a result, the Portfolio may be
forced to sell securities at disadvantageous prices and orderly portfolio
management could be disrupted. In addition, the Board may refuse to sell shares
of the Portfolio to any Variable Contract or Plan or may suspend or terminate
the offering of shares of the Portfolio if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolio.
SHAREHOLDER COMMUNICATIONS. Participating Insurance Companies and Plan
trustees will receive semiannual and audited annual reports, each of which
includes a list of the investment securities held by the Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by the Portfolio, as well as certain statistical
characteristics of the Portfolio, may be obtained by calling the Trust at (800)
369-2728.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE PORTFOLIO'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIO, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
SHARES OF THE PORTFOLIO IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
25
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust's Expenses.................................................... 2
Investment Objective and Policies....................................... 3
Portfolio Investments................................................... 4
Risk Factors and Special Considerations................................. 8
Portfolio Transactions and Turnover Rate................................ 11
Certain Investment Strategies........................................... 11
Investment Guidelines................................................... 16
Management of the Portfolio............................................. 17
How to Purchase and Redeem Shares in the Portfolio...................... 19
Dividends, Distributions and Taxes...................................... 20
Net Asset Value......................................................... 22
Performance............................................................. 22
General Information..................................................... 24
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-1-0497
<PAGE>
<PAGE>
PROSPECTUS
April 30, 1997
WARBURG PINCUS TRUST
SMALL COMPANY GROWTH 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.
[Logo]
<PAGE>
<PAGE>
Subject to Completion, dated April 9, 1997
PROSPECTUS April 30, 1997
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers four investment funds, one of which, the Small Company
Growth Portfolio (the "Portfolio"), is offered pursuant to this Prospectus.
The SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing in equity
securities of small-sized domestic companies.
Shares of the Portfolio are not available directly to individual investors but
may be offered only to certain life insurance companies ("Participating
Insurance Companies") for allocation to certain (i) of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance contracts (together, "Variable Contracts") and (ii) tax qualified
pension and retirement plans ("Plans"), including participant-directed Plans
which elect to make the Portfolio an investment option for Plan participants.
The Portfolio may not be available in every state due to various insurance
regulations.
This Prospectus briefly sets forth certain information about the Portfolio that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. This Prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product that accompanies this Prospectus or with the Plan documents or
other informational materials supplied by Plan sponsors. Additional information
about the Portfolio, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission (the "SEC"). The SEC
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolio. The Statement of Additional Information is available to
investors without charge by calling the Trust at (800) 369-2728. The Statement
of Additional Information, as amended or supplemented from time to time, bears
the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<PAGE>
<PAGE>
THE TRUST'S EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................... 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees............................................................ 0.90%
12b-1 Fees................................................................. 0
Other Expenses............................................................. 0.26%
----
Total Portfolio Operating Expenses (after fee waivers and expense
reimbursements)`D'....................................................... 1.16%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
1 year..................................................................... $ 12
3 years.................................................................... $ 37
5 years.................................................................... $ 64
10 years................................................................... $141
</TABLE>
- --------------------------------------------------------------------------------
`D' Management Fees, Other Expenses and Total Portfolio Operating Expenses are
based on actual expenses for the fiscal year ended December 31, 1996, net
of any fee waivers or expense reimbursements. Without such waivers or
reimbursements, Management Fees would have equalled .90%, Other Expenses
would have equalled .27% and Total Portfolio Operating Expenses would have
equalled 1.17%. The investment adviser and co-administrator have undertaken
to reduce or otherwise limit the Portfolio's Total Operating Expenses to
the limits shown in the table above through December 31, 1997.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of the Portfolio. THE TABLE DOES NOT
REFLECT ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE
VARIABLE CONTRACTS OR PLANS; SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE
PROSPECTUS OF THE SPONSORING PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT OR
IN THE PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIALS SUPPLIED BY PLAN
SPONSORS. The Example should not be considered a representation of past or
future expenses; actual Portfolio expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Portfolio's
actual performance will vary and may result in a return greater or less than 5%.
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the fiscal year ended December 31, 1996 and the
fiscal period ended December 31, 1995 has been derived from information audited
by Coopers & Lybrand L.L.P., independent accountants, whose report dated
February 11, 1997 is incorporated by reference in the Statement of Additional
Information. Further information about the performance of the Portfolio is
contained in the Trust's annual report, dated December 31, 1996, copies of which
may be obtained without charge by calling the Trust at (800) 369-2728.
<TABLE>
<CAPTION>
For the Period
June 30, 1995
For the (Commencement of
Year Ended Operations) through
December 31, 1996 December 31, 1995
----------------- -------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period..... $ 12.51 $ 10.00
----- -----
Income from Investment
Operations:
Net Investment Loss..... (.06) (.01)
Net Gain on Securities
(both realized and
unrealized)........... 1.80 2.52
----- -----
Total from Investment
Operations............ 1.74 2.51
----- -----
Net Asset Value, End of
Period.................. $ 14.25 $ 12.51
----- -----
----- -----
Total Return............. 13.91% 25.10%`D'
Ratios/Supplemental Data:
Net Assets, End of Period
(000s).................. $339,398 $97,445
Ratios to average daily
net assets:
Operating expenses...... 1.16% 1.25%*
Net investment loss..... (.66%) (.36%)*
Decrease reflected in
above operating
expense ratios due to
waivers/reimbursements. .01% .25%*
Portfolio Turnover
Rate.................... 101.50% 34.25%`D'
Average Commission
Rate#................... $ .0538 --
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
<PAGE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Small Company Growth Portfolio's investment objective is to seek capital
growth.
The Portfolio's objective is a fundamental policy and may not be amended
without first obtaining the approval of a majority of the outstanding shares of
the Portfolio. Any investment involves risk and, therefore, there can be no
assurance that the Portfolio will achieve its investment objective. See
"Portfolio Investments" and "Certain Investment Strategies" for descriptions of
certain types of investments the Portfolio may make.
The Portfolio is a non-diversified investment fund that pursues its
investment objective by investing in a portfolio of equity securities of small-
sized domestic companies. The Portfolio ordinarily will invest at least 65% of
its total assets in common stocks or warrants of small-sized companies (i.e.,
companies having stock market capitalizations of between $25 million and $1
billion at the time of purchase) that represent attractive opportunities for
capital growth. It is anticipated that the Portfolio will invest primarily in
companies whose securities are traded on domestic stock exchanges or in the
over-the-counter market. Small companies may still be in the developmental
stage, may be older companies that appear to be entering a new stage of growth
progress owing to factors such as management changes or development of new
technology, products or markets or may be companies providing products or
services with a high unit volume growth rate. The Portfolio's investments will
be made on the basis of their equity characteristics and securities ratings
generally will not be a factor in the selection process.
The Portfolio may also invest in securities of emerging growth companies,
which can be either small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time. Emerging
growth companies generally stand to benefit from new products or services,
technological developments or changes in management and other factors and
include smaller companies experiencing unusual developments affecting their
market value.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The Portfolio may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by Warburg,
Pincus Counsellors, Inc., the Trust's investment adviser ("Warburg"). Because
the market value of debt obligations can be expected to vary inversely to
changes in prevailing interest rates, investing in debt obligations may provide
an opportunity for capital appreciation when interest rates are expected to
decline. The success of such a strategy is dependent upon Warburg's ability to
forecast accurately changes in interest
4
<PAGE>
<PAGE>
rates. The market value of debt obligations may also be expected to vary
depending upon, among other factors, the ability of the issuer to repay
principal and interest, any change in investment rating and general economic
conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Services ("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 the Portfolio, an issue of securities may cease to be rated or
its rating may be reduced. 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, the Portfolio
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Portfolio is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term, (five years
or less remaining to maturity) money market obligations and, for temporary
defensive purposes, may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Repurchase Agreements. The Portfolio may enter into repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Portfolio would acquire any underlying security for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Portfolio's holding
5
<PAGE>
<PAGE>
period. The value of the underlying securities will at all times be at least
equal to the total amount of the purchase obligation, including interest. The
Portfolio bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations or becomes bankrupt and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Portfolio seeks to assert this
right. Warburg, acting under the supervision of the Trust's Board of Trustees
(the "Board"), monitors the creditworthiness of those bank and non-bank dealers
with which the Portfolio enters into repurchase agreements to evaluate this
risk. A repurchase agreement is considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Portfolio and appropriate considering the factors of return and
liquidity, the Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio, Warburg or
the Portfolio's co-administrator, PFPC Inc. ("PFPC"). As a shareholder in any
mutual fund, the Portfolio will bear its ratable share of the mutual fund's
expenses, including management fees, and will remain subject to payment of the
Portfolio's administration fees and other expenses with respect to assets so
invested.
U.S. GOVERNMENT SECURITIES. The obligations issued or guaranteed by the U.S.
government in which the Portfolio may invest include: direct obligations of the
U.S. Treasury, obligations issued by U.S. government agencies and
instrumentalities, including instruments that are supported by the full faith
and credit of the United States, instruments that are supported by the right of
the issuer to borrow from the U.S. Treasury and instruments that are supported
by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolio may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. Subsequent to purchase by the Portfolio,
convertible securities may cease to be rated or a rating may be reduced. 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
securities.
WARRANTS. The Portfolio may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or
6
<PAGE>
<PAGE>
a related company, at a fixed price either on a date certain or during a set
period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Portfolio's investments, see
"Portfolio Investments" beginning at page 4 and "Certain Investment Strategies"
beginning at page 9.
SMALL CAPITALIZATION AND EMERGING GROWTH 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 than securities of larger,
more established companies or the market averages in general. Because
small-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-sized companies
may have limited product lines, markets or financial resources and may lack
management depth. In addition, small-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-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 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 the 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 Portfolio may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "Securities Act"), but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A
Securities"). A Rule 144A Security will be considered illiquid and therefore
subject to the Portfolio's limitation on the purchase of illiquid securities,
unless the 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
7
<PAGE>
<PAGE>
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers become uninterested for a time in purchasing Rule
144A Securities. The Board will carefully monitor any investments by the
Portfolio in Rule 144A Securities. The Board may adopt guidelines and delegate
to Warburg the daily function of determining and monitoring the liquidity of
Rule 144A Securities, although the Board will retain ultimate responsibility for
any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
The securities may be less liquid than publicly traded securities and the
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. The Portfolio's investment in illiquid securities is
subject to the risk that should the Portfolio desire to sell any of these
securities when a ready buyer is not available at a price that is deemed to be
representative of their value, the value of the Portfolio's net assets could be
adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
NON-DIVERSIFIED STATUS. The 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
8
<PAGE>
<PAGE>
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
The Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Portfolio. The Portfolio
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. High portfolio
turnover rates (100% or more) may result in dealer markups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See "Dividends,
Distributions and Taxes -- Taxes" below and "Investment Policies -- Portfolio
Transactions" in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the
Portfolio are placed by Warburg with broker-dealers that it selects, including
Counsellors Securities Inc., the Portfolio's distributor ("Counsellors
Securities"). The Portfolio may utilize Counsellors Securities in connection
with a purchase or sale of securities when Warburg believes that the charge for
the transaction does not exceed usual and customary levels and when doing so is
consistent with guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no intention of doing so during the coming year, the
Portfolio is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed-delivery, (ii) lending portfolio securities and (iii)
entering into reverse repurchase agreements and dollar rolls. Detailed
information concerning the Portfolio's strategies and their related risks is
contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The 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
9
<PAGE>
<PAGE>
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. Certain of the above risks may
be involved with American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") and International Depositary Receipts ("IDRs"), instruments
that evidence ownership in underlying securities issued by a foreign
corporation. ADRs, EDRs and IDRs may not necessarily be denominated in the same
currency as the securities whose ownership they represent. ADRs are typically
issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in Europe, and IDRs (sometimes
referred to as Global Depositary Receipts) are issued outside the United States,
each typically by non-U.S. banks and trust companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the Portfolio
may, but is not required to, engage in a number of strategies involving options,
futures and forward currency contracts. These strategies, commonly referred to
as "derivatives," may be used (i) for the purpose of hedging against a decline
in value of the Portfolio's current or anticipated portfolio holdings, (ii) as a
substitute for purchasing or selling portfolio securities or (iii) to seek to
generate income to offset expenses or increase return. TRANSACTIONS THAT ARE NOT
CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE
THE PORTFOLIO'S INVESTMENT RISK. Transaction costs and any premiums associated
with these strategies, and any losses incurred, will affect the Portfolio's net
asset value and performance. Therefore, an investment in the Portfolio may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Portfolio's use of these strategies may be limited
by position and exercise limits established by securities and commodities
exchanges and the National Association of Securities Dealers, Inc. and by the
Code.
Securities Options and Stock Index Options. The Portfolio may write put and
call options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as "premiums")
for granting the rights evidenced by the options. The Portfolio may also utilize
up to 10% of its assets to purchase options on stocks and debt securities that
10
<PAGE>
<PAGE>
are traded on U.S. and foreign exchanges, as well as over-the-counter ("OTC")
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option on a security has the right to purchase the underlying security from the
writer. In addition to purchasing and writing options on securities, the
Portfolio may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
Futures Contracts and Commodity Options. The Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although the Portfolio is limited
in the amount of assets that may be invested in futures transactions, there is
no overall limit on the percentage of the Portfolio's assets that may be at risk
with respect to futures activities.
Currency Exchange Transactions. The Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
11
<PAGE>
<PAGE>
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. A hedge is designed to offset a loss on a portfolio
position with a gain in the hedge position; at the same time, however, a
properly correlated hedge will result in a gain in the portfolio position being
offset by a loss in the hedge position. As a result, the use of options, futures
contracts and currency exchange transactions for hedging purposes could limit
any potential gain from an increase in value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. The Portfolio will engage in hedging
transactions only when deemed advisable by Warburg, and successful use of
hedging transactions will depend on Warburg's ability to predict correctly
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out a position without incurring
substantial losses, if at all. The Portfolio is also subject to the risk of a
default by a counterparty to an off-exchange transaction.
Asset Coverage. The Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities and; indexes currency, interest
rate and stock index futures contracts and options on these futures contracts;
and forward currency contracts. The use of these strategies may require that the
Portfolio maintain cash or liquid securities in a segregated account with its
custodian or a designated sub-custodian to the extent the Portfolio's
obligations with respect to these strategies are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency or by
other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
SHORT SALES AGAINST THE BOX. The Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an
12
<PAGE>
<PAGE>
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," may be entered into by the
Portfolio to, for example, lock in a sale for a security the Portfolio does not
wish to sell immediately or to postpone a gain or loss for federal income tax
purposes. 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. 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
- --------------------------------------------------------------------------------
The Portfolio may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ("illiquid securities"), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. The Portfolio may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Portfolio may
not exceed 30% of its total assets, and may pledge assets to the extent
necessary to secure permitted borrowings. Whenever borrowings (including reverse
repurchase agreements) exceed 5% of the value of the Portfolio's total assets,
the Portfolio will not make any investments (including roll-overs). Except for
the limitations on borrowing, the investment guidelines set forth in this
paragraph may be changed at any time without shareholder consent by vote of the
Board, subject to the limitations contained in the 1940 Act. A complete list of
investment restrictions that the Portfolio has adopted identifying additional
restrictions that cannot be changed without the approval of the majority of the
Portfolio's outstanding shares is contained in the Statement of Additional
Information.
MANAGEMENT OF THE PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. The Trust employs Warburg as its investment adviser.
Warburg, subject to the control of the Trust's officers and the Board, manages
the investment and reinvestment of the assets of the Portfolio in accordance
with the Portfolio's investment objective and stated investment policies.
Warburg makes investment decisions for the Portfolio and places orders to
purchase or sell securities on behalf of the Portfolio. Warburg also employs a
13
<PAGE>
<PAGE>
support staff of management personnel to provide services to the Portfolio and
furnishes the Portfolio with office space, furnishings and equipment.
For the services provided by Warburg, the Portfolio pays Warburg a fee
calculated at an annual rate of .90% of the Portfolio's average daily net
assets. 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
borne by the Portfolio.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of February 28,
1997, Warburg managed approximately $17.3 billion of assets, including
approximately $10.5 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, which itself is controlled by
Warburg, Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
PORTFOLIO MANAGERS. The co-portfolio managers of the Portfolio have been
Elizabeth B. Dater and Stephen J. Lurito since its inception. Ms. Dater is a
senior managing director of Warburg and has been a portfolio manager of Warburg
since 1978. Mr. Lurito is a managing director of Warburg and has been with
Warburg since 1987.
CO-ADMINISTRATORS. The Portfolio employs Counsellors Funds Service, Inc., a
wholly owned subsidiary of Warburg ("Counsellors Service"), as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Portfolio, including responding to shareholder inquiries
and providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Portfolio and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in the preparation of tax
returns and monitoring and developing compliance procedures for the Portfolio.
As compensation, the Portfolio pays Counsellors Service a fee calculated at an
annual rate of .10% of the Portfolio's average daily net assets.
The Trust employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the
Portfolio's net asset value, provides all accounting services for the Portfolio
and assists in related aspects of the Portfolio's operations. As compensation
the Portfolio pays PFPC a fee calculated at an annual rate of .10% of the first
$500 million in average daily net assets, .075% of the next $1 billion in
14
<PAGE>
<PAGE>
average daily net assets, and .05% of average daily net assets over $1.5
billion. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809.
CUSTODIANS. PNC Bank, National Association ("PNC"), serves as custodian of
the Portfolio's U.S. assets. State Street Bank and Trust Company ("State
Street") serves as international custodian of the Portfolio's non-U.S. assets.
Like PFPC, PNC is a subsidiary of PNC Bank Corp. and its principal business
address is 1600 Market Street, Philadelphia, Pennsylvania 19103. State Street's
principal business address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Portfolio. It has delegated
to Boston Financial Data Services, Inc., a 50% owned subsidiary ("BFDS"),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as
distributor of the shares of the Portfolio. Counsellors Securities is a wholly
owned subsidiary of Warburg and is located at 466 Lexington Avenue, New York,
New York 10017-3147.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ("Service Organizations") with whom it enters into agreements up to .25%
(the "Service Fee") of the annual average value of accounts maintained by such
Organizations with a Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of the
Portfolio, consisting of securities dealers who have sold Portfolio shares or
others, including banks and other financial institutions, under special
arrangements. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients' employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. Warburg or its affiliates may pay
for travel, meals and lodging in connection with these promotional activities.
In some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of significant amounts of the Portfolio's shares.
15
<PAGE>
<PAGE>
TRUSTEES AND OFFICERS. The officers of the Trust manage the Portfolio's day-
to-day operations and are directly responsible to the Board. The Board sets
broad policies for the Portfolio and chooses the Trust's officers. A list of the
Trustees and officers and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES IN THE PORTFOLIO
- --------------------------------------------------------------------------------
Individual investors may not purchase or redeem shares of the Portfolio
directly; shares may be purchased or redeemed only through Variable Contracts
offered by separate accounts of Participating Insurance Companies or through
Plans, including participant-directed Plans which elect to make the Portfolio an
investment option for Plan participants. Please refer to the prospectus of the
sponsoring Participating Insurance Company separate account or to the Plan
documents or other informational materials supplied by Plan sponsors for
instructions on purchasing or selling a Variable Contract and on how to select
the Portfolio as an investment option for a Variable Contract or Plan.
PURCHASES. All investments in the Portfolio are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by the Portfolio. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of the Portfolio on
any day that the Portfolio calculates its net asset value (a "business day").
That night, all orders received by the Participating Insurance Company prior to
the close of regular trading on the New York Stock Exchange Inc. (the "NYSE")
(currently 4:00 p.m., Eastern time) on that business day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of the Portfolio during the morning of the next business day. These
orders are executed at the net asset value (described below under "Net Asset
Value") computed at the close of regular trading on the NYSE on the previous
business day in order to provide a match between the contract owners' orders to
the Participating Insurance Company and that Participating Insurance Company's
orders to the Portfolio.
Plan participants may invest in shares of the Portfolio through their Plan by
directing the Plan trustee to purchase shares for their account. Participants
should contact their Plan sponsor for information concerning the appropriate
procedure for investing in the Portfolio.
The Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Warburg's opinion, they are of a size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely affect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing Variable
Contract owners and Plan participants would be permitted to continue to
authorize investment in the Portfolio and to reinvest any dividends or capital
gains distributions.
16
<PAGE>
<PAGE>
REDEMPTIONS. Shares of the Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company or
Plan prior to the close of regular trading on the NYSE on any business day and
transmitted to the Trust or its specified agent during the morning of the next
business day will be processed at the net asset value computed at the close of
regular trading on the NYSE on the previous business day. Redemption proceeds
will normally be wired to the Participating Insurance Company or Plan the
business day following receipt of the redemption order, but in no event later
than seven days after receipt of such order.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Portfolio's portfolio securities for the applicable period less
applicable expenses. The Portfolio declares dividends from its net investment
income and net realized short-term and long-term capital gains annually. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Dividends and distributions will
automatically be reinvested in additional shares of the Portfolio at net asset
value unless, in the case of a Variable Contract, a Participating Insurance
Company elects to have dividends or distributions paid in cash.
TAXES. For a discussion of the tax status of a Variable Contract or Plan,
refer to the sponsoring Participating Insurance Company separate account
prospectus or Plan documents or other informational materials supplied by Plan
sponsors.
The Portfolio intends to qualify each year as a "regulated investment
company" within the meaning of the Code. The Portfolio intends to distribute all
of its net income and capital gains to its shareholders (the Variable Contracts
and Plans).
Because shares of the Portfolio may be purchased only through Variable
Contracts and Plans, it is anticipated that any income dividends or capital gain
distributions from the Portfolio are taxable, if at all, to the Participating
Insurance Companies and Plans and will be exempt from current taxation of the
Variable Contract owner or Plan participant if left to accumulate within the
Variable Contract or Plan. Generally, withdrawals from Variable Contracts or
Plans may be subject to ordinary income tax and, if made before age 59 1/2, a
10% penalty tax.
Certain provisions of the Code may require that a gain recognized by the
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. The
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"
17
<PAGE>
<PAGE>
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. The Portfolio intends to comply with
the diversification requirements currently imposed by the Internal Revenue
Service on separate accounts of insurance companies as a condition of
maintaining the tax-deferred status of Variable Contracts. See the Statement of
Additional Information for more specific information.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to be closed on
New Year's Day, Washington's Birthday, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of the holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of the Portfolio
generally changes every day.
The net asset value per share of the Portfolio is computed by dividing the
value of the Portfolio's net assets by the total number of its shares
outstanding.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued on the basis of the closing
value on the date on which the valuation is made. Options and futures contracts
will be valued similarly. Debt obligations that mature in 60 days or less from
the valuation date are valued on the basis of amortized cost, unless the Board
determines that using this valuation method would not reflect the investments'
value. Securities, options and futures contracts for which market quotations are
not readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, the Portfolio may advertise its average annual total
return over various periods of time. These total return figures show the average
percentage change in value of an investment in the Portfolio from the beginning
of the measuring period to the end of the measuring period. The figures reflect
changes in the price of the Portfolio's shares assuming that any income
dividends and/or capital gain distributions made by the Portfolio during the
period were reinvested in shares of the Portfolio. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Portfolio's operations or on a
year-by-year, quarterly or current year-to-date basis).
18
<PAGE>
<PAGE>
Total returns quoted for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan. Accordingly, the prospectus of the
sponsoring Participating Insurance Company separate account or Plan documents or
other informational materials supplied by Plan sponsors should be carefully
reviewed for information on relevant charges and expenses. Excluding these
charges and expenses from quotations of the Portfolio's performance has the
effect of increasing the performance quoted, and the effect of these charges
should be considered when comparing the Portfolio's performance to that of other
mutual funds.
When considering average annual total return figures for periods longer than
one year, it is important to note that the annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that such return may not be representative of the
Portfolio's return over a longer market cycle. The Portfolio may also advertise
its aggregate total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the specific
period (again reflecting changes in share prices and assuming reinvestment of
dividends and distributions). Aggregate and average total returns may be shown
by means of schedules, charts or graphs and may indicate various components of
total return (i.e., change in value of initial investment, income dividends and
capital gain distributions).
Investors should note that return figures are based on historical earnings
and are not intended to indicate future performance. The Statement of Additional
Information describes the method used to determine the total return. Current
total return figures may be obtained by calling (800) 369-2728.
In reports or other communications to investors or in advertising material,
the Portfolio or a Participating Insurance Company or Plan sponsor may describe
general economic and market conditions affecting the Portfolio. Performance may
be compared with (i) that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar investment services that
monitor the performance of mutual funds or as set forth in the publications
listed below; (ii) with the Russell 2000 Small Stock Index and the S&P 500
Index, which are unmanaged indexes; or (iii) other appropriate indexes of
investment securities or with data developed by Warburg derived from such
indexes. The Portfolio or a Participating Insurance Company may also include
evaluations published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine, SmartMoney and
The Wall Street Journal.
In reports or other communications to investors or in advertising, the
Portfolio or a Participating Insurance Company or Plan sponsor may also describe
the general biography or work experience of the portfolio managers
19
<PAGE>
<PAGE>
of the Portfolio and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Portfolio's investments,
research methodology underlying stock selection or the Portfolio's investment
objective. In addition, the Portfolio and its portfolio managers may render
periodic updates of Portfolio activity, which may include a discussion of
significant portfolio holdings and analysis of holdings by industry, country,
credit quality and other characteristics. The Portfolio may also discuss the
continuum of risk and return relating to different investments and the potential
impact of foreign securities on a portfolio otherwise composed of domestic
securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various periods of time. In addition, the Portfolio or
a Participating Insurance Company or Plan sponsor may from time to time compare
the Portfolio's expense ratio to that of investment companies with similar
objectives and policies, based on data generated by Lipper Analytical Services,
Inc. or similar investment services that monitor mutual funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
TRUST ORGANIZATION. The Trust was organized on March 15, 1995 under the laws
of The Commonwealth of Massachusetts as a "Massachusetts business trust." The
Trust's Declaration of Trust authorizes the Board to issue an unlimited number
of full and fractional shares of beneficial interest, $.001 par value per share.
Shares of four series have been authorized, one of which constitutes the
interests in the Portfolio. The Board may classify or reclassify any of its
shares into one or more additional series without shareholder approval.
VOTING RIGHTS. When matters are submitted for shareholder vote, shareholders
of the Portfolio will have one vote for each full share held and fractional
votes for fractional shares held. Generally, shares of the Trust will vote by
individual portfolio on all matters except where otherwise required by law.
There will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the members
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Under current law, a Participating Insurance
Company is required to request voting instructions from Variable Contract owners
and must vote all Trust shares held in the separate account in proportion to the
voting instructions received. Plans may or may not pass through voting rights to
Plan participants, depending on the terms of the Plan's governing documents. For
a more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company separate account prospectus or the Plan
documents or other informational materials supplied by Plan sponsors.
20
<PAGE>
<PAGE>
CONFLICTS OF INTEREST. The Portfolio offers its shares to (i) Variable
Contracts offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with each other and (ii) Plans, including
Participant directed Plans which elect to make the Portfolio an investment
option for Plan participants. Due to differences of tax treatment and other
considerations, the interests of various Variable Contract owners and Plan
participants participating in the Portfolio may conflict. The Board will monitor
the Portfolio for any material conflicts that may arise and will determine what
action, if any, should be taken. If a conflict occurs, the Board may require one
or more Participating Insurance Company separate accounts and/or Plans to
withdraw its investments in the Portfolio. As a result, the Portfolio may be
forced to sell securities at disadvantageous prices and orderly portfolio
management could be disrupted. In addition, the Board may refuse to sell shares
of the Portfolio to any Variable Contract or Plan or may suspend or terminate
the offering of shares of the Portfolio if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolio.
SHAREHOLDER COMMUNICATIONS. Participating Insurance Companies and Plan
trustees will receive semiannual and audited annual reports, each of which
includes a list of the investment securities held by the Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by the Portfolio, as well as certain statistical
characteristics of the Portfolio, may be obtained by calling the Trust at (800)
369-2728.
---------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE PORTFOLIO'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIO, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
SHARES OF THE PORTFOLIO IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
21
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust's Expenses.................................................... 2
Financial Highlights.................................................... 3
Investment Objective and Policies....................................... 4
Portfolio Investments................................................... 4
Risk Factors and Special Considerations................................. 7
Portfolio Transactions and Turnover Rate................................ 9
Certain Investment Strategies........................................... 9
Investment Guidelines................................................... 13
Management of the Portfolio............................................. 13
How to Purchase and Redeem Shares in the Portfolio...................... 16
Dividends, Distributions and Taxes...................................... 17
Net Asset Value......................................................... 18
Performance............................................................. 18
General Information..................................................... 20
</TABLE>
- --------------------------------------------------------------------------------
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-1-0497
<PAGE>
<PAGE>
PROSPECTUS
April 30, 1997
WARBURG PINCUS TRUST
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.
[Logo]
<PAGE>
<PAGE>
Subject to Completion, dated April 9, 1997
PROSPECTUS April 30, 1997
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers four investment funds, one of which, the Post-Venture
Capital Portfolio, is offered pursuant to this Prospectus (the "Portfolio"):
The 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 the Portfolio are not available directly to individual investors but
may be offered only to certain (i) life insurance companies ("Participating
Insurance Companies") for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance contracts (together, "Variable Contracts") and (ii) tax-qualified
pension and retirement plans ("Plans"), including participant-directed Plans
which elect to make the Portfolio an investment option for Plan participants.
The Portfolio may not be available in every state due to various insurance
regulations.
This Prospectus briefly sets forth certain information about the Portfolio that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. This Prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product that accompanies this Prospectus or with the Plan documents or
other informational materials supplied by Plan sponsors. Additional information
about the Portfolio, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission (the "SEC"). The SEC
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolio. The Statement of Additional Information is available to
investors without charge by calling the Trust at (800) 369-2728. The Statement
of Additional Information, as amended or supplemented from time to time, bears
the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
<PAGE>
<PAGE>
THE TRUST'S EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Post-Venture
Capital Portfolio
-----------------
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................. 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees...................................................... 0.62%
12b-1 Fees........................................................... 0
Other Expenses*...................................................... 0.78%
---
Total Portfolio Operating Expenses (after fee waivers and expense
reimbursements)*................................................... 1.40%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:
1 year............................................................... $ 14
3 years.............................................................. $ 44
</TABLE>
- --------------------------------------------------------------------------------
* Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, Management Fees for the Portfolio would equal 1.25%; Other
Expenses would equal .82%; and Total Portfolio Operating Expenses would equal
2.07%. Other Expenses for the Portfolio are based on annualized estimates of
expenses for the fiscal year ending December 31, 1997, net of any fee waivers
or expense reimbursements. The investment adviser and co-administrator have
undertaken to limit the Portfolio's Total Portfolio Operating Expenses to the
limits shown in the table above through December 31, 1997.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of the Portfolio. THE TABLE DOES NOT
REFLECT ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE
VARIABLE CONTRACTS OR PLANS; SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE
PROSPECTUS OF THE SPONSORING PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT OR
IN THE PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIALS SUPPLIED BY PLAN
SPONSORS. The Example should not be considered a representation of past or
future expenses; actual Portfolio expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Portfolio's
actual performance will vary and may result in a return greater or less than 5%.
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information for the fiscal period ended December 31, 1996 has
been derived from information audited by Coopers & Lybrand L.L.P., independent
accountants, whose report dated February 11, 1997 is incorporated by reference
in the Statement of Additional Information. Further information about the
performance of the Post-Venture Capital Portfolio is contained in the Trust's
annual report, dated December 31, 1996, copies of which may be obtained without
charge by calling the Trust at (800) 369-2728.
POST-VENTURE CAPITAL PORTFOLIO
<TABLE>
<CAPTION>
For the Period
September 30, 1996
(Commencement of
Operations)
through
December 31, 1996
------------------
<S> <C>
Net Asset Value, Beginning of Period.................................... $ 10.00
------
Income from Investment Operations:
Net Investment Income.................................................. .00
Net Loss on Securities (both realized and unrealized).................. (.24)
------
Total from Investment Operations....................................... (.24)
------
Net Asset Value, End of Period.......................................... $ 9.76
------
------
Total Return............................................................ (2.40%)`D'
Ratios/Supplemental Data:
Net Assets, End of Period (000s)........................................ $ 12,400
Ratios to average daily net assets:
Operating expenses..................................................... 1.40%*
Net investment income.................................................. .80%*
Decrease reflected in above operating expense ratio due to
waivers/reimbursements............................................... 4.16%
Portfolio Turnover Rate................................................. 6.80%`D'
Average Commission Rate#................................................ $ .0491
</TABLE>
- --------------------------------------------------------------------------------
`D' Non-annualized
* Annualized
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
3
<PAGE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
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 investment objective of the Post-Venture Capital Portfolio is to seek
long-term growth of capital. The Portfolio's objective is a fundamental policy
and may not be amended without first obtaining the approval of a majority of the
outstanding shares of the Portfolio. Any investment involves risk and,
therefore, there can be no assurance that the Portfolio will achieve its
investment objective. See "Portfolio Investments" and "Certain Investment
Strategies" for descriptions of certain types of investments the Portfolio may
make.
The Portfolio is a diversified portfolio that pursues an aggressive
investment strategy. The Portfolio pursues its investment objective by investing
primarily in equity securities of companies considered by Warburg, Pincus
Counsellors, Inc., the Portfolio's investment adviser ("Warburg"), to be in
their post-venture capital stage of development. 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 impact of such sales in selecting post-venture capital
investments. Venture capitalists may be individuals or funds organized by
venture capitalists which are typically
4
<PAGE>
<PAGE>
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 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
exceed those of the Portfolio's other holdings and of more mature companies
generally.
Because Private Funds generally are investment companies for purposes of the
Investment Company Act of 1940, as amended (the "1940 Act"), the Portfolio's
ability to invest in them will be limited. In addition, Portfolio 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
5
<PAGE>
<PAGE>
value. These reports, which are provided on an infrequent basis, often depend on
the subjective valuations of the managers of the Private Funds and, in addition,
would not generally reflect positive or negative subsequent developments
affecting companies held by the Private Fund. See "Net Asset Value." Debt
securities held by a Private Fund will tend to be rated below investment grade
and may be rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D
by Standard & Poor's Ratings Services ("S&P"). Securities in these rating
categories are in payment default or have extremely poor prospects of attaining
any investment standing. For a discussion of the risks of investing in below
investment grade debt, see "Risk Factors and Special Considerations -- Lower
Rated Securities" below and "Investment Policies -- Below Investment Grade Debt
Securities" in the Statement of Additional Information. For a discussion of the
possible tax consequences of investing in foreign Private Funds, see "Additional
Information Concerning Taxes -- Investment in Passive Foreign Investment
Companies" in the Statement of Additional Information.
The Portfolio may also hold non-publicly traded equity securities of
companies in the venture and post-venture stages of development, such as those
of closely-held companies or private placements of public companies. The portion
of the Portfolio's assets invested in these non-publicly traded securities will
vary over time depending on investment opportunities and other factors. The
Portfolio's illiquid assets, including interests in Private Funds and other
illiquid non-publicly traded securities, may not exceed 15% of net assets.
OTHER STRATEGIES. The Portfolio may invest up to 35% of its assets in
exchange-traded and over-the-counter securities that do not meet the definition
of post-venture capital companies without regard to market capitalization. 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
6
<PAGE>
<PAGE>
enhance return, including engaging in short selling (see "Certain Investment
Strategies").
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The 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 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 the Portfolio, an issue of securities may cease to be rated or
its rating may be reduced. 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, the Portfolio
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
MONEY MARKET OBLIGATIONS. The Portfolio is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations and, for temporary
defensive purposes, may invest in these securities without limit. These
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments or, if unrated, deemed by Warburg to be high
quality investments; commercial paper rated no lower than A-2 by S&P or Prime-2
by Moody's or the equivalent from another major rating service or, if unrated,
of an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
7
<PAGE>
<PAGE>
Repurchase Agreements. The Portfolio 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,
the Portfolio would acquire any underlying security for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Portfolio's holding period. The value of the
underlying securities will at all times be at least equal to the total amount of
the purchase obligation, including interest. The Portfolio bears a risk of loss
in the event that the other party to a repurchase agreement defaults on its
obligations or becomes bankrupt and the Portfolio is delayed or prevented from
exercising its right to dispose of the collateral securities, including the risk
of a possible decline in the value of the underlying securities during the
period in which the Portfolio seeks to assert this right. Warburg, acting under
the supervision of the Trust's Board of Trustees (the "Board"), monitors the
creditworthiness of those bank and non-bank dealers with which the Portfolio
enters into repurchase agreements to evaluate this risk. A repurchase agreement
is considered to be a loan under the 1940 Act.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Portfolio and appropriate considering the factors of return and
liquidity, the Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio, Warburg, the
Portfolio's co-administrator, PFPC Inc. ("PFPC") or Abbott. As a shareholder in
any mutual fund, the Portfolio will bear its ratable share of the mutual fund's
expenses, including management fees, and will remain subject to payment of the
Portfolio's 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 the Portfolio may invest include: direct obligations of the
U.S. Treasury, obligations issued by U.S. government agencies and
instrumentalities, including instruments that are supported by the full faith
and credit of the United States, instruments that are supported by the right of
the issuer to borrow from the U.S. Treasury and instruments that are supported
by the credit of the instrumentality.
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolio may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the
8
<PAGE>
<PAGE>
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
the 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.
WARRANTS. The Portfolio may invest up to 10% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Portfolio's investments, see
"Portfolio Investments" beginning at page 7 and "Certain Investment Strategies"
beginning at page 12.
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 than securities of larger, more
established companies or market averages in general. 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 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
9
<PAGE>
<PAGE>
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 the 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 Portfolio may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "Securities Act"), but that can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act ("Rule 144A
Securities"). An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Portfolio's limitation on the purchase of illiquid
securities, unless the Board determines on an ongoing basis that an adequate
trading market exists for the security. In addition to an adequate trading
market, the Board will also consider factors such as trading activity,
availability of reliable price information and other relevant information in
determining whether a Rule 144A Security is liquid. This investment practice
could have the effect of increasing the level of illiquidity in the Portfolio to
the extent that qualified institutional buyers become uninterested for a time in
purchasing Rule 144A Securities. The Board will carefully monitor any
investments by the Portfolio in Rule 144A Securities. The Board may adopt
guidelines and delegate to Warburg the daily function of determining and
monitoring the liquidity of Rule 144A Securities, although the Board will retain
ultimate responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities 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 the 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. The Portfolio's
investment in illiquid securities is subject to the risk that should the
Portfolio desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Portfolio's net assets could be adversely affected.
LOWER-RATED SECURITIES. Private Fund investments of the Portfolio may 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
10
<PAGE>
<PAGE>
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.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
The Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Portfolio. The Portfolio
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with their investment objectives and policies. It is not
possible to predict the Portfolio's turnover rate. However, it is anticipated
that the Portfolio's annual turnover rate should not exceed 100%. High portfolio
turnover rates (100% or more) may result in dealer markups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See "Dividends,
Distributions and Taxes -- Taxes" below and "Investment Policies -- Portfolio
Transactions" in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the
Portfolio are placed by Warburg with broker-dealers that it selects, including
Counsellors Securities Inc., the Portfolio's distributor ("Counsellors
Securities"). The Portfolio may utilize Counsellors Securities in connection
with a purchase or sale of securities when Warburg believes that the charge for
the transaction does not exceed usual and customary levels and when doing so is
consistent with guidelines adopted by the Board.
11
<PAGE>
<PAGE>
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no intention of doing so during the coming year, the
Portfolio is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed-delivery, (ii) lending portfolio securities and (iii)
entering into reverse repurchase agreements and dollar rolls. Detailed
information concerning the Portfolio's strategies and their related risks is
contained below and in the Statement of Additional Information.
FOREIGN SECURITIES. The 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 Portfolio,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians. Certain of the above risks may be involved with American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and International
Depositary Receipts ("IDRs"), instruments that evidence ownership in underlying
securities issued by a foreign corporation. ADRs, EDRs and IDRs may not
necessarily be denominated in the same currency as the securities whose
ownership they represent. ADRs are typically issued by a U.S. bank or trust
company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe, and IDRs (sometimes referred to
12
<PAGE>
<PAGE>
as Global Depositary Receipts) are issued outside the United States, each
typically by non-U.S. banks and trust companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the Portfolio
may, but is not required to, engage in a number of strategies involving options,
futures and forward currency contracts. These strategies, commonly referred to
as "derivatives," may be used (i) for the purpose of hedging against a decline
in value of the Portfolio's current or anticipated portfolio holdings, (ii) as a
substitute for purchasing or selling portfolio securities or (iii) to seek to
generate income to offset expenses or increase return. TRANSACTIONS THAT ARE NOT
CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE
THE PORTFOLIO'S INVESTMENT RISK. Transaction costs and any premiums associated
with these strategies, and any losses incurred, will affect the Portfolio's net
asset value and performance. Therefore, an investment in the Portfolio may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Portfolio's use of these strategies may be limited
by position and exercise limits established by securities and commodities
exchanges and the National Association of Securities Dealers, Inc. and by the
Internal Revenue Code of 1986, as amended (the ("Code").
Securities Options and Stock Index Options. The Portfolio may write put and
call options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as "premiums")
for granting the rights evidenced by the options. The Portfolio may utilize up
to 10% of its assets to purchase options on stocks and debt securities that are
traded on U.S. and foreign exchanges, as well as over-the-counter ("OTC")
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option on a security has the right to purchase the underlying security from the
writer. In addition to purchasing and writing options on securities, the
Portfolio may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
13
<PAGE>
<PAGE>
Futures Contracts and Commodity Options. The Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although the Portfolio is limited
in the amount of assets that may be invested in futures transactions, there is
no overall limit on the percentage of the Portfolio's assets that may be at risk
with respect to futures activities.
Currency Exchange Transactions. The Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. A hedge is designed to offset a loss on the portfolio
position with a gain in the hedge position; at the same time, however, a
properly correlated hedge will result in a gain in the portfolio position being
offset by a loss in the hedge position. As a result, the use of options, futures
contracts and currency exchange transactions for hedging purposes could limit
any potential gain from an increase in value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. The Portfolio will engage in hedging
transactions only when deemed advisable by Warburg, and successful use of
hedging transactions will depend on Warburg's ability to predict correctly
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-
14
<PAGE>
<PAGE>
conceived hedge may be unsuccessful to some degree because of unexpected market
behavior or trends.
Additional Considerations. To the extent that the Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out a position without incurring
substantial losses, if at all. The Portfolio is also subject to the risk of a
default by a counterparty to an off-exchange transaction.
Asset Coverage. The Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities and indexes; currency, interest
rate and stock index futures contracts and options on these futures contracts;
and forward currency contracts. The use of these strategies may require that the
Portfolio maintain cash or liquid securities in a segregated account with its
custodian or a designated sub-custodian to the extent the Portfolio's
obligations with respect to these strategies are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency or by
other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
SHORT SELLING. The 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 (excluding short sales "against the box") will not
exceed 10% of the Portfolio's assets.
To deliver the securities to the buyer, the Portfolio must arrange through a
broker to borrow the securities and, in so doing, the Portfolio becomes
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Portfolio will make a profit or
incur a loss as a result of a short sale depending on whether the price of the
securities decreases or increases between the date of the short sale and the
date on which the Portfolio purchases the security to replace the borrowed
securities that have been sold. The amount of any loss would be increased (and
any gain decreased) by any premium or interest the Portfolio is required to pay
in connection with a short sale.
15
<PAGE>
<PAGE>
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by cash or liquid securities deposited as
collateral with the broker. In addition, the Portfolio will place in a
segregated account with its custodian or a qualified subcustodian an amount of
cash or liquid securities equal to the difference, if any, between (i) the
market value of the securities sold at the time they were sold short and (ii)
any cash or liquid securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the 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 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 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," may be entered into by the Portfolio to,
for example, lock in a sale for a security the Portfolio does not wish to sell
immediately or to postpone a gain or loss for federal income tax purposes. 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. 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
- --------------------------------------------------------------------------------
The Portfolio may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ("illiquid securities"), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. The Portfolio may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Portfolio may
not exceed 30% of its total assets, and may
16
<PAGE>
<PAGE>
pledge its assets to the extent necessary to secure permitted borrowings.
Whenever borrowings (including reverse repurchase agreements) exceed 5% of the
value of the Portfolio's total assets, the Portfolio will not make any
investments (including roll-overs). Except for the limitations on borrowing, the
investment guidelines set forth in this paragraph may be changed at any time
without shareholder consent by vote of the Board, subject to the limitations
contained in the 1940 Act. A complete list of investment restrictions that the
Portfolio has adopted identifying additional restrictions that cannot be changed
without the approval of the majority of the Portfolio's outstanding shares is
contained in the Statement of Additional Information.
MANAGEMENT OF THE PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ADVISERS. The Trust employs Warburg as investment adviser to the
Portfolio and 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 the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies. Warburg makes investment
decisions for the Portfolio, places orders to purchase or sell securities on
behalf of the Portfolio and supervises the activities of Abbott. Warburg also
employs a support staff of management personnel to provide services to the
Portfolio and furnishes the Portfolio with office space, furnishings and
equipment. Abbott, in accordance with the investment objective and policies of
the 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, the Portfolio pays Warburg a fee
calculated at an annual rate of 1.25% of the Portfolio's average daily net
assets, out of which Warburg pays Abbott for sub-advisory services. 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 borne by the Portfolio.
Warburg. Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of February 28,
1997, Warburg managed approximately $17.3 billion of assets, including
approximately $10.5 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, which itself is controlled by
Warburg, Pincus & Co. ("WP&Co."), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
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.
17
<PAGE>
<PAGE>
Abbott. Abbott, which was founded in 1986, is an independent specialized
investment firm with assets under management of approximately $3.5 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. Abbott's principal
business address is 50 Rowes Wharf, Suite 240, Boston, Massachusetts 02110-3328.
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 May 31, 1997 and is subject to
certain contingencies, will not involve any material change in the management,
ownership, personnel, operations or activities of 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. The co-portfolio managers of the Portfolio have been
Elizabeth B. Dater and Stephen J. Lurito since its inception. Robert S. Janis
and Christopher M. Nawn have been associate portfolio managers and research
analysts for the Portfolio since its inception.
Ms. Dater is a senior managing director of Warburg and has been a portfolio
manager of Warburg since 1978. Mr. Lurito is a managing director of Warburg and
has been with Warburg since 1987.
Mr. Janis is a senior vice president of Warburg and has been with Warburg
since October 1994, before which time he was a vice president and senior
research analyst at U.S. Trust Company of New York. Mr. Nawn is also a senior
vice president of Warburg and has been with Warburg since September 1994, before
which time he was a senior sector analyst and portfolio manager at the Dreyfus
Corporation.
Raymond L. Held and Gary H. Solomon, investment managers and general partners
of Abbott, manage the Portfolio's investments in Private Funds.
CO-ADMINISTRATORS. The Portfolio employs Counsellors Funds Service, Inc., a
wholly owned subsidiary of Warburg ("Counsellors Service"), as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Portfolio, including responding to shareholder inquiries
and providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain
18
<PAGE>
<PAGE>
executive and administrative services, acting as liaison between the Portfolio
and its various service providers, furnishing corporate secretarial services,
which include preparing materials for meetings of the Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and monitoring and developing compliance procedures
for the Portfolio. As compensation, the Portfolio pays Counsellors Service a fee
calculated at an annual rate of .10% of the Portfolio's average daily net
assets.
The Trust employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the
Portfolio's net asset value, provides all accounting services for the Portfolio
and assists in related aspects of the Portfolio's operations. As compensation
the Portfolio pays PFPC a fee calculated at an annual rate of .10% of the first
$500 million in average daily net assets, .075% of the next $1 billion in
average daily net assets, and .05% of average daily net assets over $1.5
billion. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809.
CUSTODIANS. PNC Bank, National Association ("PNC"), serves as custodian of
the Portfolio's U.S. assets and Fiduciary Trust Company International
("Fiduciary") serves as custodian of the Portfolio's non-U.S. assets. Like PFPC,
PNC is a subsidiary of PNC Bank Corp. and its principal business address is 1600
Market Street, Philadelphia, Pennsylvania 19103. Fiduciary's principal business
address is Two World Trade Center, New York, New York 10048.
TRANSFER AGENT. State Street Bank and Trust Company ("State Street") serves
as shareholder servicing agent, transfer agent and dividend disbursing agent for
the Portfolio. It has delegated to Boston Financial Data Services, Inc., a 50%
owned subsidiary ("BFDS"), responsibility for most shareholder servicing
functions. State Street's principal business address is 225 Franklin Street,
Boston, Massachusetts 02110. BFDS's principal business address is 2 Heritage
Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as
distributor of the shares of the Portfolio. Counsellors Securities is a wholly
owned subsidiary of Warburg and is located at 466 Lexington Avenue, New York,
New York 10017-3147.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ("Service Organizations") with whom it enters into agreements up to .25%
(the "Service Fee") of the annual average value of accounts maintained by such
Organizations with a Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations
19
<PAGE>
<PAGE>
processing requirements of the relationship and the standardized fee schedule of
the Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of the
Portfolio, consisting of securities dealers who have sold Portfolio shares or
others, including banks and other financial institutions, under special
arrangements. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients' employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. Warburg or its affiliates may pay
for travel, meals and lodging in connection with these promotional activities.
In some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of significant amounts of the Portfolio's shares.
TRUSTEES AND OFFICERS. The officers of the Trust manage the Portfolio's day-
to-day operations and are directly responsible to the Board. The Board sets
broad policies for the Portfolio and chooses the Trust's officers. A list of the
Trustees and officers and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES IN THE PORTFOLIO
- --------------------------------------------------------------------------------
Individual investors may not purchase or redeem shares of the Portfolio
directly; shares may be purchased or redeemed only through Variable Contracts
offered by separate accounts of Participating Insurance Companies or through
Plans, including participant-directed Plans which elect to make the Portfolio an
investment option for Plan participants. Please refer to the prospectus of the
sponsoring Participating Insurance Company separate account or to the Plan
documents or other informational materials supplied by Plan sponsors for
instructions on purchasing or selling a Variable Contract and on how to select
the Portfolio as an investment option for a Variable Contract or Plan.
PURCHASES. All investments in the Portfolio are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by the Portfolio. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of the Portfolio on
any day that the Portfolio calculates its net asset value (a "business day").
That night, all orders received by the Participating Insurance Company prior to
the close of regular trading on the New York Stock Exchange Inc. (the "NYSE")
(currently 4:00 p.m., Eastern time) on that business day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of the Portfolio during the morning of the next business day. These
orders are executed at the net asset value (described below under "Net Asset
Value") computed at the close of regular trading on
20
<PAGE>
<PAGE>
the NYSE on the previous business day in order to provide a match between the
contract owners' orders to the Participating Insurance Company and that
Participating Insurance Company's orders to the Portfolio.
Plan participants may invest in shares of the Portfolio through their Plan by
directing the Plan trustee to purchase shares for their account. Participants
should contact their Plan sponsor for information concerning the appropriate
procedure for investing in the Portfolio.
The Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Warburg's opinion, they are of a size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely affect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing Variable
Contract owners and Plan participants would be permitted to continue to
authorize investment in the Portfolio and to reinvest any dividends or capital
gains distributions.
REDEMPTIONS. Shares of the Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company or
Plan or its agent prior to the close of regular trading on the NYSE on any
business day and transmitted to the Trust or its specified agent during the
morning of the next business day will be processed at the net asset value
computed at the close of regular trading on the NYSE on the previous business
day. Redemption proceeds will normally be wired to the Participating Insurance
Company or Plan the business day following receipt of the redemption order, but
in no event later than seven days after receipt of such order.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Portfolio's portfolio securities for the applicable period less
applicable expenses. The Portfolio declares dividends from its net investment
income annually. Net investment income earned on weekends and when the NYSE is
not open will be computed as of the next business day. Distributions of net
realized long-term and short-term capital gains are declared annually and, as a
general rule, will be distributed or paid after the end of the fiscal year in
which they are earned. Dividends and distributions will automatically be
reinvested in additional shares of the Portfolio at net asset value unless, in
the case of a Variable Contract, a Participating Insurance Company elects to
have dividends or distributions paid in cash.
TAXES. For a discussion of the tax status of a Variable Contract or Plan,
refer to the sponsoring Participating Insurance Company separate account
prospectus or Plan documents or other informational materials supplied by Plan
sponsors.
21
<PAGE>
<PAGE>
The Portfolio intends to qualify each year as a "regulated investment
company" within the meaning of the Code. The Portfolio intends to distribute all
of its net income and capital gains to its shareholders (the Variable Contracts
and Plans).
Because shares of the Portfolio may be purchased only through Variable
Contracts and Plans, it is anticipated that any income dividends or capital gain
distributions from the Portfolio are taxable, if at all, to the Participating
Insurance Companies and Plans and will be exempt from current taxation of the
Variable Contract owner or Plan participant if left to accumulate within the
Variable Contract or Plan. Generally, withdrawals from Variable Contracts or
Plans may be subject to ordinary income tax and, if made before age 59 1/2, a
10% penalty tax.
Certain provisions of the Code may require that a gain recognized by the
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. The
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. The Portfolio intends to comply with
the diversification requirements currently imposed by the Internal Revenue
Service on separate accounts of insurance companies as a condition of
maintaining the tax-deferred status of Variable Contracts. See the Statement of
Additional Information for more specific information.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to be closed on
New Year's Day, Washington's Birthday, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of the holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of the Portfolio
generally changes every day.
The net asset value per share of the Portfolio is computed by dividing the
value of the Portfolio's net assets by the total number of its shares
outstanding.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued on the basis of the closing
value on the date on which the valuation is made. Options and futures contracts
will be valued similarly. Debt obligations that mature in 60
22
<PAGE>
<PAGE>
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 periodic reports received by
Abbott from the Private Funds (generally quarterly). Because the issuers of
securities held by Private Funds are generally not subject to the reporting
requirements of the federal securities laws, interim changes in value of
underlying holdings of Private Funds will not generally be reflected in the
Portfolio's net asset value. However, Warburg will report to the Board of
Trustees information about certain holdings of Private Funds that, in its
judgment, could have a material impact on the valuation of a Private Fund. The
Board of Trustees will take these reports into account in valuing Private Funds.
Securities, options and futures contracts for which market quotations are not
readily available and other assets, including Private Funds, will be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, the Portfolio may advertise its average annual total
return over various periods of time. These total return figures show the average
percentage change in value of an investment in the Portfolio from the beginning
of the measuring period to the end of the measuring period. The figures reflect
changes in the price of the Portfolio's shares assuming that any income
dividends and/or capital gain distributions made by the Portfolio during the
period were reinvested in shares of the Portfolio. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Portfolio's operations or on a
year-by-year, quarterly or current year-to-date basis).
Total returns quoted for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan. Accordingly, the prospectus of the
sponsoring Participating Insurance Company separate account or Plan documents or
other informational materials supplied by Plan sponsors should be carefully
reviewed for information on relevant charges and expenses. Excluding these
charges and expenses from quotations of the Portfolio's performance has the
effect of increasing the performance quoted, and the effect of these charges
should be considered when comparing the Portfolio's performance to that of other
mutual funds.
When considering average annual total return figures for periods longer than
one year, it is important to note that the annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that such return may not be
23
<PAGE>
<PAGE>
representative of the Portfolio's return over a longer market cycle. The
Portfolio may also advertise its aggregate total return figures for various
periods, representing the cumulative change in value of an investment in the
Portfolio for the specific period (again reflecting changes in share prices and
assuming reinvestment of dividends and distributions). Aggregate and average
total returns may be shown by means of schedules, charts or graphs and may
indicate various components of total return (i.e., change in value of initial
investment, income dividends and capital gain distributions).
Investors should note that return figures are based on historical earnings
and are not intended to indicate future performance. The Statement of Additional
Information describes the method used to determine the total return. Current
total return figures may be obtained by calling (800) 369-2728.
In reports or other communications to investors or in advertising material,
the Portfolio or a Participating Insurance Company or Plan sponsor may describe
general economic and market conditions affecting the Portfolio. Performance may
be compared with (i) that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar investment services that
monitor the performance of mutual funds or as set forth in the publications
listed below; (ii) the 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 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. The Portfolio or
a Participating Insurance Company may also include evaluations published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Barron's, Business Week, Financial Times, Forbes,
Fortune, Inc., Institutional Investor, Investor's Business Daily, Money,
Morningstar, Inc., Mutual Fund Magazine, SmartMoney and The Wall Street Journal.
In reports or other communications to investors or in advertising, the
Portfolio or a Participating Insurance Company or Plan sponsor may also describe
the general biography or work experience of the portfolio managers of the
Portfolio and may include quotations attributable to the portfolio managers
describing approaches taken in managing the Portfolio's investments, research
methodology underlying stock selection or the Portfolio's investment objective.
In addition, the Portfolio and its portfolio managers may render periodic
updates of Portfolio activity, which may include a discussion of significant
portfolio holdings and analysis of holdings by industry, country, credit quality
and other characteristics. The Portfolio may discuss characteristics of venture
capital financed companies and the benefits expected to be achieved from
investing in these companies. The Portfolio may also discuss the continuum of
risk and return relating to different investments and the potential impact of
foreign securities on a
24
<PAGE>
<PAGE>
portfolio otherwise composed of domestic securities. Morningstar, Inc. rates
funds in broad categories based on risk/reward analyses over various periods of
time. In addition, the Portfolio or a Participating Insurance Company or Plan
sponsor may from time to time compare the Portfolio's expense ratio to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
TRUST ORGANIZATION. The Trust was organized on March 15, 1995 under the laws
of The Commonwealth of Massachusetts as a "Massachusetts business trust." The
Trust's Declaration of Trust authorizes the Board to issue an unlimited number
of full and fractional shares of beneficial interest, $.001 par value per share.
Shares of four series have been authorized, one of which constitutes the
interests in the Portfolio. The Board may classify or reclassify any of its
shares into one or more additional series without shareholder approval.
VOTING RIGHTS. When matters are submitted for shareholder vote, shareholders
of the Portfolio will have one vote for each full share held and fractional
votes for fractional shares held. Generally, shares of the Trust will vote by
individual Portfolio on all matters except where otherwise required by law.
There will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the members
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Under current law, a Participating Insurance
Company is required to request voting instructions from Variable Contract owners
and must vote all Trust shares held in the separate account in proportion to the
voting instructions received. Plans may or may not pass through voting rights to
Plan participants, depending on the terms of the Plan's governing documents. For
a more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company separate account prospectus or the Plan
documents or other informational materials supplied by Plan sponsors.
CONFLICTS OF INTEREST. The Portfolio offers its shares to (i) Variable
Contracts offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with each other and (ii) Plans including
Participant-directed Plans which elect to make the Portfolio an investment
option for Plan participants. Due to differences of tax treatment and other
considerations, the interests of various Variable Contract owners and Plan
participants participating in the Portfolio may conflict. The Board will monitor
the Portfolio for any material conflicts that may arise and will
25
<PAGE>
<PAGE>
determine what action, if any, should be taken. If a conflict occurs, the Board
may require one or more Participating Insurance Company separate accounts and/or
Plans to withdraw its investments in the Portfolio. As a result, the Portfolio
may be forced to sell securities at disadvantageous prices and orderly portfolio
management could be disrupted. In addition, the Board may refuse to sell shares
of the Portfolio to any Variable Contract or Plan or may suspend or terminate
the offering of shares of the Portfolio if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolio.
SHAREHOLDER COMMUNICATIONS. Participating Insurance Companies and Plan
trustees will receive semiannual and audited annual reports, each of which
includes a list of the investment securities held by the Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by the Portfolios, as well as certain statistical
characteristics of the Portfolio, may be obtained by calling the Trust at (800)
369-2728.
---------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE PORTFOLIO'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIO, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
SHARES OF THE PORTFOLIO IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
26
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust's Expenses.................................................... 2
Financial Highlights.................................................... 3
Investment Objective and Policies....................................... 4
Portfolio Investments................................................... 7
Risk Factors and Special Considerations................................. 9
Portfolio Transactions and Turnover Rate................................ 11
Certain Investment Strategies........................................... 12
Investment Guidelines................................................... 16
Management of the Portfolio............................................. 17
How to Purchase and Redeem Shares in the Portfolio...................... 20
Dividends, Distributions and Taxes...................................... 21
Net Asset Value......................................................... 22
Performance............................................................. 23
General Information..................................................... 25
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-1-0497
<PAGE>
<PAGE>
Subject to Completion, Dated April 9, 1997
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1997
--------------------
WARBURG PINCUS TRUST
INTERNATIONAL EQUITY PORTFOLIO
EMERGING MARKETS PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
POST-VENTURE CAPITAL PORTFOLIO
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 369-2728
--------------------
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives ........................................................ 2
Investment Policies........................................................... 2
Management Of The Trust.......................................................36
Additional Purchase And Redemption Information................................44
Additional Information Concerning Taxes.......................................44
Determination Of Performance..................................................47
Independent Accountants And Counsel...........................................49
Miscellaneous.................................................................50
Financial Statements..........................................................50
Appendix -- Description of Ratings............................................A-1
Statement of Assets and Liabilities ..........................................F-1
</TABLE>
Warburg Pincus Trust ("Trust") currently offers four managed
investment funds, the International Equity Portfolio, the Emerging Markets
Portfolio, the Small Company Growth Portfolio and the Post-Venture Capital
Portfolio (together the "Portfolios" and each a "Portfolio"). This Statement of
Additional Information is meant to be read in conjunction with the Prospectus of
the relevant Portfolio, dated April 30, 1997, 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 Prospectuses
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.
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.
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES
The investment objective of the International Equity Portfolio is
long-term capital appreciation. The investment objective of the Small Company
Growth Portfolio is capital growth. The investment objective of each of the
Emerging Markets Portfolio and the Post-Venture Capital 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. Each Portfolio, other than the Emerging
Markets 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").
Each Portfolio that may write options realizes fees (referred to
as "premiums") for granting the rights evidenced by the options it has written.
A put option embodies the right of its purchaser to compel the writer of the
option to purchase from the option holder an underlying security at a specified
price for a specified time period or at a specified time. In contrast, a call
option embodies the right of its purchaser to compel the writer of the option to
sell to the option holder an underlying security at a specified price for a
specified time period or at a specified time.
The principal reason for writing covered options on a security is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, a Portfolio
as the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Portfolio as a put or call writer retains the risk of a decline in the price
of the underlying security. The size of the premiums that the Portfolio may
receive may be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-writing
activities.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
In the case of options written by a Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stock with respect to which
the Portfolio has written options may exceed the time within which
2
<PAGE>
<PAGE>
the Portfolio must make delivery in accordance with an exercise notice. In these
instances, the Portfolio may purchase or temporarily borrow the underlying
securities for purposes of physical delivery. By so doing, the Portfolio will
not bear any market risk, since the Portfolio will have the absolute right to
receive from the issuer of the underlying security an equal number of shares to
replace the borrowed securities, but the Portfolio may incur additional
transaction costs or interest expenses in connection with any such purchase or
borrowing.
Additional risks exist with respect to certain of the securities
for which the Portfolios may write covered call options. For example, if a
Portfolio writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, the Portfolio will compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of mortgage-backed securities.
Options written by a Portfolio will normally have expiration
dates between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolios, other than the Emerging
Markets 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, a Portfolio will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the securities exchange
on which the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Portfolio prior
to the exercise of options that it has purchased or, if permissible, 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 OTC market. When the Portfolio has purchased an
option and engages in a closing sale transaction, whether the Portfolio realizes
a profit or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium the Portfolio initially paid
for the original option plus the related transaction costs. Similarly, in cases
where the Portfolio has written an option, it will realize a profit if the cost
of the closing purchase transaction is less than the premium received upon
writing the
3
<PAGE>
<PAGE>
original option and will incur a loss if the cost of the closing purchase
transaction exceeds the premium received upon writing the original option. The
Portfolio may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security with respect to which it has written an option
from being called or put or, in the case of a call option, to unfreeze an
underlying security (thereby permitting its sale or the writing of a new option
on the security prior to the outstanding option's expiration). The obligation of
the Portfolio under an option it has written would be terminated by a closing
purchase transaction, but the Portfolio would not be deemed to own an option as
a result of the transaction. So long as the obligation of the Portfolio as the
writer of an option continues, the Portfolio may be assigned an exercise notice
by the broker-dealer through which the option was sold, requiring the Portfolio
to deliver the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Portfolio effects a closing
purchase transaction. The Portfolio can no longer effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice.
There is no assurance that sufficient trading interest will exist
to create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, a Portfolio's
ability to terminate options positions established in the OTC market may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in OTC transactions would fail to meet their
obligations to the Portfolio. The Portfolio, however, intends to purchase OTC
options only from dealers whose debt securities, as determined by Warburg, are
considered to be investment grade. If, as a covered call option writer, the
Portfolio is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. In either case,
the Portfolio would continue to be at market risk on the security and could face
higher transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that the
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 exchange-listed
and OTC put and call options on stock indexes. A stock index measures the
movement of a certain
4
<PAGE>
<PAGE>
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 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.
5
<PAGE>
<PAGE>
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.
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 liquid securities
acceptable to the broker 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.
6
<PAGE>
<PAGE>
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 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
7
<PAGE>
<PAGE>
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
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
8
<PAGE>
<PAGE>
call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange
rates. The benefit to the Portfolio derived from purchases of currency options,
like the benefit derived from other types of options, will be reduced by
premiums and other transaction costs. Because transactions in currency exchange
are generally conducted on a principal basis, no fees or commissions are
generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although currency
hedges limit the risk of loss due to a decline in the value of a hedged
currency, at the same time, they also limit any potential gain that might result
should the value of the currency increase. If a devaluation is generally
anticipated, the Portfolio may not be able to contract to sell a currency at a
price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of the Portfolio's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Portfolio's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the
Portfolio against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, each Portfolio may enter into
these transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by the
Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether a Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Portfolio's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, the
Portfolio's hedge positions may 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
9
<PAGE>
<PAGE>
offsetting transactions which would distort the normal relationship between the
stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by Warburg still may not result in a successful hedging
transaction.
A Portfolio will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Portfolio of hedging
transactions will be subject to Warburg's ability to predict trends in currency,
interest rate or securities markets, as the case may be, and to correctly
predict movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect the
Portfolio's performance.
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. As described in the Prospectus, each Portfolio will comply
with guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Portfolios on currencies and securities indexes and, in the case of the
International Equity Portfolio, the Small Company Growth Portfolio or the
Post-Venture Capital Portfolio, on securities; and currency, interest rate and
index futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Portfolio of cash or
liquid securities or other securities that are acceptable as collateral to the
appropriate regulatory authority.
For example, a call option written by a 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
a Portfolio may require the Portfolio to segregate assets (as described above)
equal to the exercise price. The Portfolio could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by the Portfolio. If 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.
10
<PAGE>
<PAGE>
Additional Information on Investment Practices
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below, which
are not typically associated with investing in U.S. issuers. See "Japanese
Investments" for a discussion of factors relating to Japanese investments
specifically.
Foreign Currency Exchange. Since the International Equity and
Emerging Markets Portfolios will, and the Post-Venture Capital and Small Company
Growth Portfolios (each 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 intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. See "Japanese
Investments--Economic Background--Currency Fluctuation" below. 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
11
<PAGE>
<PAGE>
or other assets of the Portfolio, political or social instability, or domestic
developments which could affect U.S. investments in those countries.
Delays. Securities of some foreign companies are less liquid and
their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. Due to the increased
exposure of a Portfolio to market and foreign exchange fluctuations brought
about by such delays, and due to the corresponding negative impact on a
Portfolio's liquidity, the Portfolios will avoid investing in countries which
are known to experience settlement delays which may expose the Portfolios to
unreasonable risk of loss.
Increased Expenses. The operating expenses of the International
Equity Portfolio and 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, 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. 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 a 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
12
<PAGE>
<PAGE>
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. (International Equity and Emerging Markets
Portfolios) 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.
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, Federal Maritime Administration,
Tennessee Valley Authority, District of Columbia Armory Board and Student Loan
Marketing Association. Each Portfolio may also invest in instruments that are
supported by the right of the issuer to borrow from the U.S. Treasury and
instruments that are supported by the credit of the instrumentality. Because the
U.S. government is not obligated by law to provide support to an instrumentality
it sponsors, a Portfolio will invest in obligations issued by such an
instrumentality only if Warburg determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Portfolio.
Securities of Other Investment Companies. Each Portfolio may
invest in securities of other investment companies to the extent permitted under
the Investment Company Act of 1940, as amended (the "1940 Act"). Presently,
under the 1940 Act, a Portfolio may hold securities of another investment
company in amounts which (i) do not exceed 3% of the total outstanding voting
stock of such company, (ii) do not exceed 5% of the value of the Portfolio's
total assets and (iii) when added to all other investment company 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
13
<PAGE>
<PAGE>
securities will be collateralized by cash, letters of credit or U.S. government
securities, which are maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio involved. From time to time,
a Portfolio may return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Portfolio and that is acting as a "finder."
By lending its securities, the Portfolio can increase its income
by continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. 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 or liquid
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
14
<PAGE>
<PAGE>
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Portfolio engages in when-issued or delayed-delivery transactions, it relies
on the other party to consummate the trade. Failure of the seller to do so may
result in the Portfolio's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
Depositary Receipts. The assets of a Portfolio may be invested in
the securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). 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, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are receipts issued outside the United States.
EDRs, CDRs, IDRs and GDRs are typically issued 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 (CDRs) and IDRs (GDRs) in bearer form are designed for use in
European securities markets and non-U.S. securities markets, respectively.
Short Sales "Against the Box." In a short sale, a Portfolio sells
a borrowed security and has a corresponding obligation to the lender to return
the identical security. The seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. A Portfolio may engage in a short sale if at the time of the short sale
the Portfolio owns or has the right to obtain without additional cost an equal
amount of the security being sold short. This investment technique is known as a
short sale "against the box." If the Portfolio engages in a short sale, the
collateral for the short position will be maintained by the Portfolio's
custodian or qualified sub-custodian.
The Portfolios do not intend to engage in short sales against the
box for investment purposes. A Portfolio may, however, make a short sale as a
hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when a Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for U.S. federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in the Portfolio's
long position should be offset by a gain in the short position and, conversely,
any gain in the long position should be reduced by a loss in the short position.
The extent to which such gains or losses are reduced will depend upon the amount
of the security sold short relative to the amount the Portfolio owns. There will
be certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
Warrants. Each Portfolio may invest up to 10% of net assets in
warrants to purchase equity securities consisting of common and preferred stock.
The equity security underlying a warrant is authorized at the time the warrant
is issued or is issued together with the warrant.
15
<PAGE>
<PAGE>
Investing in warrants can provide a greater potential for profit
or loss than an equivalent investment in the underlying security, and, thus, can
be a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
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, with respect to the Post-Venture Capital Portfolio, Private
Funds (as defined in the Prospectuses relating to the Post-Venture Capital
Portfolio). 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. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days without borrowing. 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.
16
<PAGE>
<PAGE>
Warburg will monitor the liquidity of restricted securities in a
Portfolio under the supervision of the Board. In reaching liquidity decisions,
Warburg may consider, inter alia, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Borrowing. Each Portfolio may borrow up to 30% of its total
assets for temporary or emergency purposes, including to meet portfolio
redemption requests so as to permit the orderly disposition of portfolio
securities or to facilitate settlement transactions on portfolio securities.
Investments (including roll-overs) will not be made when borrowings exceed 5% of
the Portfolio's net assets. Although the principal of such borrowings will be
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.
Japanese Investments (International Equity Portfolio). From time
to time depending on current market conditions, the International Equity
Portfolio may invest a significant portion of its assets in Japanese securities.
The Portfolio will therefore be subject to general economic and political
conditions in Japan. In addition to the considerations discussed above, these
include future political and economic developments, the possible imposition of,
or changes in, exchange controls or other Japanese governmental laws or
restrictions applicable to such investments, diplomatic developments, political
or social unrest and natural disasters.
THE INFORMATION SET FORTH IN THIS SECTION HAS BEEN EXTRACTED FROM
VARIOUS GOVERNMENTAL PUBLICATIONS AND OTHER SOURCES. THE TRUST MAKES NO
REPRESENTATION AS TO THE ACCURACY OF THE INFORMATION, NOR HAS THE TRUST
ATTEMPTED TO VERIFY IT. FURTHERMORE, NO REPRESENTATION IS MADE THAT ANY
CORRELATION EXISTS BETWEEN JAPAN OR ITS ECONOMY IN GENERAL AND THE PERFORMANCE
OF THE INTERNATIONAL EQUITY PORTFOLIO.
Domestic Politics. Japan has a parliamentary form of government.
The legislative power is vested in the Japanese Diet, which consists of a House
of Representatives and a House of Councillors. Members of the House of
Representatives are elected for terms of four years unless the House of
Representatives is dissolved prior to the expiration of their full elected
terms. Members of the House of Councillors are elected for terms of six years
with one-half of the membership being elected every three years. Various
political parties are represented in the Diet, including the conservative
Liberal Democratic Party ("LDP"), which until August 1993, had been in power
nationally since its formation in 1955. The LDP ceased to have a majority of the
House of Representatives in June 1993, when certain members of the House of
Representatives left the LDP and formed two new political parties. After an
election for the House of Representatives was held on July 18, 1993 and the LDP
failed to secure a majority, seven parties formed a coalition to control the
House of Representatives and chose Morihiro Hosokawa, the Representative of the
Japan New Party, to head their coalition. In April 1994, amid accusations of
financial improprieties, Prime Minister Hosokawa announced
17
<PAGE>
<PAGE>
that he would resign. Tsutomu Hata succeeded Mr. Hosokawa as prime minister and
formed a new cabinet as a minority coalition government. In June 1994, Mr. Hata
yielded to political pressure from opposition parties and resigned. He was
succeeded by Social Democratic Party leader Tomiichi Murayama, Japan's first
Socialist prime minister since 1948, who was chosen by a new and unstable
alliance between left-wing and conservative parties, including the LDP. On
September 18, 1994, 187 opposition politicians founded a new party, the Reform
Party, led by Ichiro Ozawa, to oppose the government of Prime Minister Murayama
in the next elections. Political realignment has continued in 1995, as the
Social Democrats incurred significant losses in the July elections. In August
1995, the LDP elected Ryutaro Hashimoto, the minister for international trade
and industry, as its new leader, and in January 1996, he became prime minister.
Mr. Hashimoto dissolved the Diet, and called a general election in October 1996,
in which the LDP failed to secure a majority. The LDP formed a new coalition
with the Social Democratic Party, but it will need to attract members from the
main opposition party to attain a working majority. The recently formed
Democratic Party, which calls for serious public sector reforms, is likely to
have a strong influence on the future course of political party developments.
This continuing political instability may hamper Japan's ability to establish
and maintain effective economic and fiscal policies, and recent and future
political developments may lead to changes in policy that might adversely affect
the Funds' investments.
Economic Background. Over the past 30 years Japan has experienced
significant economic development. During the era of high economic growth in the
1960's and early 1970's the expansion was based on the development of heavy
industries such as steel and shipbuilding. In the 1970's Japan moved into
assembly industries which employ high levels of technology and consume
relatively low quantities of resources, and since then has become a major
producer of electrical and electronic products and automobiles. Moreover, since
the mid-1980's, Japan has become a major creditor nation. With the exception of
the periods associated with the oil crises of the 1970's, Japan has generally
experienced very low levels of inflation.
The financial sector has experienced serious difficulties
continuing through the end of 1996. Extricating financial institutions from bad
loans could impede the pace of any recovery. There can be no assurance that any
recovery will continue and will not, in fact, be reversed.
Japan is largely dependent upon foreign economies for raw
materials. For instance, almost all of its oil is imported, the majority from
the Middle East. Oil prices therefore have a major impact on the domestic
economy, as is evidenced by the current account deficits triggered by the two
oil crises of the 1970's. Oil prices have declined mainly due to a worldwide
easing of demand for crude oil. The stabilized price of oil contributed to
Japan's sizable current account surplus and stability of wholesale and consumer
prices. However, the recent increase in oil prices has put pressure on both the
trade balance and prices.
International trade is important to Japan's economy, as exports
provide the means to pay for many of the raw materials it must import. Japan's
trade surplus has increased dramatically in recent years, exceeding $100 billion
per year since 1991 and reaching a record high of $145 billion in 1994. Because
of the concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and
18
<PAGE>
<PAGE>
the large trade surpluses resulting therefrom, Japan has entered a difficult
phase in its relations with its trading partners, particularly with respect to
the United States, with whom the trade imbalance is the greatest. In 1995,
however, the trade surplus decreased due to a drop in exports. The reduced
exports are due primarily to the strength of the yen and the impact of
threatened U.S. sanctions. In 1996, the overall trade surplus declined by 32%
from the previous year, although the monthly pace of decline slowed in late
1996. The declining trade surplus has been accompanied by changes in the
composition of trade and trade partners. The proportion of finished products has
increased, while that of raw materials has decreased, and trade with other Asian
countries rose to comprise 44% and 37% of Japan's exports and imports,
respectively. The U.S. still constitutes Japan's largest trading partner,
accounting for 27% of Japan's exports and 23% of its imports. The trade
imbalance with the U.S. has caused friction in the past, and could adversely
affect Japan and the performance of the International Equity Portfolio.
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years
shown.
CURRENT ACCOUNT
<TABLE>
<CAPTION>
Trade
----------------------------------------------------------------
Percentage Percentage
Change from Change from Trade Current
Year Exports Preceding Year Imports Preceding Year Balance Services Transfers Balance
- ---- ------- -------------- ------- -------------- ------- -------- --------- -------
(U.S. dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) 92,827 (4,932) (2,050) 85,845
1987 224,605 9.2 128,219 13.7 96,386 (5,702) (3,669) 87,015
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 63,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (3,949) (6,117) 131,448
1994 384,176 9.4 238,232 13.6 145,944 (9,296) (7,508) 129,140
1995 429,482 11.8 297,795 25.0 131,689 (13,154) (7,737) 110,798
1996 435,715 1.5 344,563 15.7 91,152 (67,760) (9,755) 71,806
</TABLE>
Source:Bank of Japan
19
<PAGE>
<PAGE>
Economic Trends. The following table sets forth Japan's gross
domestic product for the years shown.
GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>
1996* 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ----
(yen in billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumption Expenditures
Private .....................'Y'298,786 'Y'289,045 'Y'277,676.8 'Y'270,919.4 'Y'264,824.1 'Y'255,084.2 'Y'243,628.1 'Y'228,483.2
Government .................. 49,106 46,824 46,108.0 44,666.4 43,257.9 41,232.0 38,806.6 36,274.8
Capital Formation
(incl. inventories)
Private ..................... N/A 70,758 93,111.4 99,180.1 108,727.6 116,638.1 110,871.9 100,130.8
Government .................. N/A 41,461 42,227.3 40,295.8 35,110.1 30,062.3 28,182.6 25,724.5
Exports of Goods and Services 48,773 45,408 44,449.2 44,243.8 47,409.4 46,809.7 45,919.9 42,351.8
Imports of Goods and Services 46,127 38,227 34,424.0 33,333.1 36,183.8 38,529.3 42,871.8 36,768.1
GDP (Expenditures) ........... 499,667 480,693 469,148.7 465,972.4 463,145.3 451,296.9 24,537.2 396,197.0
Change in GDP from
Preceding Year
Nominal terms ............... 3.9% 0.3% 0.7% 0.6% 2.6% 6.3% 7.2% 6.7%
Real Terms .................. N/A 0.9% 0.5% -0.2% 1.1% 4.3% 4.8% 4.7%
</TABLE>
Source: Economic Planning Agency, Japan
------------------
* Average of the first, second and third quarters of 1996.
The following tables set forth certain economic indicators in
Japan for the years shown.
UNEMPLOYMENT
<TABLE>
<CAPTION>
Labor Productivity
Year Number Unemployed Percent Unemployed Index (Manufacturing)
---- ----------------- ------------------ ---------------------
(in millions) (Base Year: 1990)
<S> <C> <C> <C>
1985 1.56 2.6 75.6
1986 1.67 2.8 77.0
1987 1.73 2.8 81.4
1988 1.55 2.5 90.8
1989 1.42 2.3 96.2
1990 1.34 2.1 100.0
1991 1.36 2.1 102.5
1992 1.42 2.2 97.0
1993 1.66 2.5 95.4
1994 1.92 2.9 98.3
1995 2.10 3.2 103.0
1996 2.25 3.4 107.4*
</TABLE>
Source: Japan Productivity Center; Bureau of Statistics Management and
Coordination Agency
- ------------------
* Average of the first, second and third quarters of 1996.
20
<PAGE>
<PAGE>
WHOLESALE PRICE INDEX
<TABLE>
<CAPTION>
(Base Year: 1990)
All Change from
Year Commodities Preceding Year
---- ----------- --------------
<S> <C> <C>
1985 110.4 (1.1)%
1986 100.3 (9.1)
1987 96.5 (3.8)
1988 95.6 (0.9)
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 (2.1)
1995 92.2 (0.9)
1996 92.8 0.7
</TABLE>
Source: Bank of Japan
CONSUMER PRICE INDEX
<TABLE>
<CAPTION>
Change from
Year General Preceding Year
---- ------- --------------
(Base Year: 1990)
<S> <C> <C>
1985 93.5 2.0%
1986 94.1 0.6
1987 94.2 0.1
1988 94.9 0.7
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
(Base Year: 1995)
1992 98.2 1.8
1993 99.4 1.2
1994 100.1 0.7
1995 100.0 (0.1)
1996 100.1 0.1
</TABLE>
Source: Bureau of Statistics Management and Coordination Agency
Currency Fluctuation. The International Equity Portfolio's
investments in Japanese securities will be denominated in yen and most income
received by the Portfolio from such investments will be in yen. However, the
Portfolio's net asset value will be reported, and distributions will be made, in
U.S. dollars. Therefore, a decline in the value of the yen relative to the U.S.
dollar could have an adverse effect on the value of the Portfolio's Japanese
investments. The following table presents the average exchange rates of Japanese
yen for U.S. dollars for the years shown:
21
<PAGE>
<PAGE>
CURRENCY EXCHANGE RATES
<TABLE>
<CAPTION>
Year Yen Per U.S. Dollar
---- -------------------
<S> <C>
1985 'Y'238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.62
1993 111.18
1994 102.22
1995 94.07
1996 108.78
</TABLE>
Source: Nikkei (Calendar Year, Closing Average, Inter-Bank Rates in Tokyo, Spot)
On March 31, 1997, the rate of exchange was 'Y'123.79 Japanese
yen per U.S. dollar.
Geological Factors. The islands of Japan lie in the western
Pacific Ocean, off the eastern coast of the continent of Asia. Japan has in the
past experienced earthquakes and tidal waves of varying degrees of severity. The
risks of such phenomena, and the damage resulting therefrom, continue to exist.
On January 17, 1995, the Great Hanshin Earthquake killed over 5,000 people and
severely damaged the port of Kobe, Japan's largest container port. The
government has announced a $5.9 billion plan to repair the port and estimates
damage to the region at approximately $120 billion. However, the long-term
economic effects of the earthquake on the Japanese economy as a whole, and on
the Funds' investments, cannot be predicted.
Securities Markets. There are eight stock exchanges in Japan. Of
these, the Tokyo Stock Exchange is by far the largest, followed by the Osaka
Stock Exchange and the Nagoya Stock Exchange. These exchanges divide the market
for domestic stocks into two sections, with newly listed companies and smaller
companies assigned to the Second Section and larger companies assigned to the
First Section.
As of the end of 1996, there were 1,293 domestic companies listed
on the Tokyo Stock Exchange, first section, and 473 listed on the second
section.
The following table sets forth the trading volume and value of
Japanese stocks on each of the eight Japanese stock exchanges for the years
shown.
22
<PAGE>
<PAGE>
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>
All Exchanges Tokyo Osaka Nagoya
-------------------- -------------------- ----------------- ------------------
Year Volume Value Volume Value Volume Value Volume Value
- ------------ -------- ---------- -------- ---------- ------ --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989 256,296 'Y'386,395 222,599 'Y'332,617 25,096 'Y'41,679 7,263 'Y'10,395
1990 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993 101,172 106,123 86,935 86,889 10,440 14,635 2,780 3,459
1994 105,936 114,622 84,514 87,356 14,904 19,349 4,720 5,780
1995 120,149 115,840 92,034 83,564 21,094 24,719 5,060 5,462
1996 126,496 136,170 100,170 101,893 20,783 27,280 4,104 5,391
</TABLE>
<TABLE>
<CAPTION>
Kyoto Hiroshima Fukuoka Niigata Sapporo
--------------- --------------- -------------- -------------- ---------------
Volume Value Volume Value Volume Value Volume Value Volume Value
------- ------ ------- ------ ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 331 'Y'443 190 'Y'235 268 'Y'330 398 'Y'475 151 'Y'221
1990 416 770 169 261 203 405 245 334 195 286
1991 220 300 125 149 122 174 181 208 113 123
1992 225 322 110 136 139 129 163 178 149 129
1993 223 340 185 178 229 225 207 226 174 170
1994 447 562 256 312 578 669 250 299 267 296
1995 641 873 286 306 404 396 295 212 336 308
1996 358 600 257 250 300 297 231 196 290 263
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
The following table sets forth the stock trading value of
Japanese stocks on the Tokyo Stock Exchange for the years shown.
TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
<TABLE>
<CAPTION>
Turnover
Year Total Daily Average High Low Ratio
---- ----- ------------- ---- --- --------
(yen in millions)
<S> <C> <C> <C> <C> <C>
1985 'Y' 78,711,048 'Y' 276,179 'Y' 727,316 'Y'110,512 44.7%
1986 159,836,218 572,890 1,682,060 115,244 67.2
1987 250,736,971 915,098 2,382,114 221,230 80.6
1988 285,521,260 1,045,865 2,768,810 192,704 70.2
1989 332,616,597 1,335,810 2,796,946 392,347 61.1
1990 186,666,820 758,808 1,464,920 218,205 37.7
1991 110,897,491 450,803 1,531,064 151,565 29.3
1992 60,110,391 243,362 686,737 97,616 18.0
1993 86,889,072 353,208 1,422,760 61,747 28.3
1994 87,355,567 353,666 1,114,216 123,904 25.6
1995 83,563,906 335,598 1,337,999 81,884 23.1
1996 101,892,634 412,521 1,362,586 154,643 28.9
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
23
<PAGE>
<PAGE>
Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a
composite index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. TOPIX reflects the change in the aggregate market value of the
common stocks as compared to the aggregate market value of those stocks as of
the close on January 4, 1968.
The following table sets forth the high, low and year-end
TOPIX for the years shown.
TOPIX (TOKYO STOCK PRICE INDEX)
(Jan. 4, 1968=100)
Year Year-end High Low
---- ----------- ------- --------
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
1995 1,577.70 1,585.87 1,193.16
1996 1,470.94 1,551.76 1,448.45
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
As this index reflects, share prices of companies traded on
Japanese stock exchanges reached historical peaks (which were later referred to
as the "bubble") in 1989 and 1990. Afterwards stock prices decreased
significantly, reaching their lowest levels in the second half of 1992. There
can be no assurance that additional market corrections will not occur.
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 Prospectuses), securities held by Private Funds (as described
in the Prospectuses relating to the Post-Venture Capital Portfolio) 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. 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.
24
<PAGE>
<PAGE>
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.
Securities of Small Companies (Small Company Growth and
Post-Venture Capital Portfolios). The Small Company Growth and 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.
Special Situation Companies (Emerging Markets, Small Company
Growth and Post-Venture Capital Portfolios). The Emerging Markets, Small Company
Growth and Post-Venture Capital Portfolios' 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.
25
<PAGE>
<PAGE>
Each Portfolio may invest in the securities of "special situation
companies" involved in an actual or prospective acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets; a tender or exchange offer; a breakup or workout of
a holding company; or litigation which, if resolved favorably, would improve the
value of the company's stock. If the actual or prospective situation does not
materialize as anticipated, the market price of the securities of a "special
situation company" may decline significantly. The Portfolio believes, however,
that if Warburg analyzes "special situation companies" carefully and invests in
the securities of these companies at the appropriate time, the Portfolio may
achieve capital growth. There can be no assurance, however, that a special
situation that exists at the time the Portfolio makes its investment will be
consummated under the terms and within the time period contemplated.
Non-Diversified Status (Emerging Markets and Small Company Growth
Portfolios). The Emerging Markets and Small Company Growth Portfolios are
classified as non-diversified within the meaning of the 1940 Act, which means
that each Portfolio is not limited by such Act in the proportion of its assets
that it may invest in securities of a single issuer. The Portfolios' 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 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.
26
<PAGE>
<PAGE>
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 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
27
<PAGE>
<PAGE>
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 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
28
<PAGE>
<PAGE>
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 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 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
29
<PAGE>
<PAGE>
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.
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 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.
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 15 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
30
<PAGE>
<PAGE>
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 International Equity and Post-Venture Capital
Portfolios only, purchase the securities of any issuer, if as a result more than
5% of the value of the Portfolio's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
government securities and except that up to 25% of the value of the Portfolio's
total assets may be invested without regard to this 5% limitation.
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 International Equity, Emerging Markets and Small
Company Growth Portfolios 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, with respect to the Emerging Markets Portfolio,
enter into stand-by commitments.
31
<PAGE>
<PAGE>
10.Issue any senior security except as permitted in these
investment limitations.
11.Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
12.Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the writing of covered put
and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
13.Invest more than 15% of the Portfolio's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
14.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 10% of the value of the Portfolio's net assets.
15.Make additional investments (including roll-overs) if the
Portfolio's borrowings exceed 5% of its net assets.
General. If a percentage limitation (other than the percentage
limitation set forth in investment restriction 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 OTC market will be valued at the most recent
sale as of the time the valuation is made or, in the absence of sales, at the
mean between the bid and asked quotations. If there are no such quotations, the
value of the securities will be taken to be the highest bid quotation on the
exchange or market. Options or futures contracts will be valued similarly. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium,
32
<PAGE>
<PAGE>
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 (Post-Venture Capital Portfolio). 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 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 New York Stock Exchange ("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 the majority of the
Portfolios' securities. 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.
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
33
<PAGE>
<PAGE>
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 involve a commission or other fee. There is generally no stated commission
in the case of securities traded in domestic or foreign OTC markets, but the
price of securities traded in OTC 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 the Post-Venture Capital Portfolio's investments in
Private Funds, which will be 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 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.
34
<PAGE>
<PAGE>
The following table details amounts paid by each Portfolio in
commissions to broker-dealers for execution of portfolio transactions during the
indicated fiscal year ended December 31.
<TABLE>
<CAPTION>
Portfolio Year Commissions
- --------- ---- ------------
<S> <C> <C>
International Equity Portfolio 1995 $ 224,678
1996 $ 1,056,276
Small Company Growth Portfolio 1995 $ 94,028
1996 $ 386,387
Post-Venture Capital Portfolio 1995 ---
1996 $ 5,237
</TABLE>
The Emerging Markets Portfolio had not yet commenced operations
at December 31, 1996, and therefore, no brokerage commissions were paid by this
Portfolio.
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, in
the case of the Post-Venture Capital Portfolio, Abbott, believes to be equitable
to each client, including the Portfolios. In some instances, this investment
procedure may adversely affect the price paid or received by a Portfolio or the
size of the position obtained or sold for a Portfolio. To the extent permitted
by law, Warburg may aggregate the securities to be sold or purchased for a
Portfolio with those to be sold or purchased for such other investment clients
in order to obtain best execution.
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. No portfolio transactions have been executed through Counsellors Securities
since the commencement of each Portfolio's operations. 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
traded on a net
35
<PAGE>
<PAGE>
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 Emerging Markets, Small
Company Growth or Post-Venture Capital 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 Emerging
Markets, Small Company Growth and Post-Venture Capital Portfolios may be higher
than mutual funds having similar objectives 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.
<TABLE>
<S> <C>
Richard N. Cooper (62)........................Trustee
Harvard University Professor at Harvard University;
1737 Cambridge Street National Intelligence Counsel from
Cambridge, Massachusetts 02138 June 1995 until January 1997; Director or Trustee of
Circuit City Stores, Inc. (Retail electronics
and appliances) and Phoenix Home Life Mutual
Insurance Company.
</TABLE>
36
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Donald J. Donahue (72)........................Trustee
27 Signal Road Chairman of Magma Copper Company from
Stamford, Connecticut 06902 December 1987 until December 1995; Chairman and Director of NAC
Holdings from September 1990-June 1993;
Director of Chase Brass Industries, Inc. since December
1994; Director of Pioneer Companies, Inc. (chlor-alkali
chemicals) and predecessor companies since 1990 and Vice
Chairman since December 1995.
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* (66)...........................Chairman of the Board and Trustee
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970; Chairman of the
Board and officer of other
investment companies advised by
Warburg.
Thomas A. Melfe (65)..........................Trustee
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton & Irvine; Chairman
of the Board, Municipal Fund for
New York Investors, Inc.
Arnold M. Reichman* (48).....................Trustee and President
466 Lexington Avenue Managing Director and Assistant
New York, New York 10017-3147 Secretary of Warburg; Associated
with Warburg since 1984; Senior
Vice President, Secretary and
Chief Operating Officer of
Counsellors Securities; Trustee
and officer of other investment
companies advised by Warburg.
Alexander B. Trowbridge (67)..................Trustee
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990-January 1994; President of the
National Association of Manufacturers from
1980-1990; Director or Trustee of New England
Mutual Life Insurance Co., ICOS Corporation
</TABLE>
- ---------------------------
* Indicates a Trustee who is an "interested person" of the Trust as defined in
the 1940 Act.
37
<PAGE>
<PAGE>
<TABLE>
<S> <C>
(biopharmaceuticals), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), Harris Corp. (electronics and
communications equipment), The Gillette Co.
(personal care products) and Sun Company Inc.
(petroleum refining and marketing).
Eugene L. Podsiadlo (40)......................Senior Vice President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1991; Vice
President of Citibank, N.A. from
1987-1991; Senior Vice President
of Counsellors Securities and
officer of other investment
companies advised by Warburg.
Stephen Distler (43)..........................Vice President
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of Warburg; Associated
with Warburg since 1984;
Treasurer of Counsellors
Securities; Vice President of
other investment companies
advised by Warburg.
Eugene P. Grace (45)..........................Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April 1994; life
insurance agent, New York Life
Insurance Company from 1993-1994;
General Counsel and Secretary,
Home Unity Savings Bank from
1991-1992; Vice President, Chief
Compliance Officer and Assistant
Secretary of Counsellors
Securities; Vice President and
Secretary of other investment
companies advised by Warburg.
Howard Conroy (43)............................Vice President and Chief Financial
466 Lexington Avenue Officer
New York, New York 10017-3147 Associated with Warburg 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 Financial Officer of other
investment companies advised by Warburg.
Daniel S. Madden, CPA (31)....................Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial Management, Inc.
from September 1994 to
</TABLE>
38
<PAGE>
<PAGE>
<TABLE>
<S> <C>
October 1996; Associated with BEA
Associates from April 1993 to
September 1994; Associated with
Ernst & Young LLP from 1990 to
1993. Treasurer and Chief
Accounting Officer of other
investment companies advised by
Warburg.
Janna Manes (29) .............................Assistant Secretary
466 Lexington Avenue Associated with Warburg since 1996;
New York, New York 10017-3147 Associated with the law firm of Willkie Farr & Gallagher
from 1993-1996; Assistant Secretary of other
investment companies advised by Warburg.
</TABLE>
No employee of Warburg or PFPC Inc., the Trust's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Trust
for acting as an officer or Trustee of the Trust. Each Trustee who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and $250 for each meeting of the
Board attended by him for his services as Trustee, and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
<TABLE>
<CAPTION>
Trustees' Compensation
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Trust Managed by Warburg'D'*
- ----------------------------------- ------------------ -------------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $44,500
Donald J. Donahue $1,500 $44,500
Jack W. Fritz $1,500 $44,500
Thomas A. Melfe $1,500 $44,500
Alexander B. Trowbridge $1,500 $44,500
- --------------------------
</TABLE>
'D' Amounts shown are estimates of future payments to be made in the fiscal
year ending December 31, 1997 pursuant to existing arrangements.
* Each Trustee also serves as a Director or Trustee of 23 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 April 1, 1997, no Trustees or officers of the Trust owned any of
the outstanding shares of the Portfolios.
39
<PAGE>
<PAGE>
Portfolio Managers
International Equity and Emerging Markets Portfolios. Mr. Richard
H. King, portfolio manager of the International Equity Portfolio and
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 and the International Equity Portfolio and the
Managed EAFE'r' Countries Portfolio of Warburg Pincus Institutional Fund, Inc.
and a co-portfolio manager of Warburg Pincus Emerging Markets Fund, Warburg
Pincus Japan OTC Fund and the Emerging Markets Portfolio of Warburg Pincus
Institutional Fund, Inc. From 1968 to 1982, he worked at W.I. Carr Sons &
Company (Overseas), a leading international brokerage firm. He resided in the
Far East as an investment analyst from 1970 to 1977, became director, and later
relocated to the U.S. where he became founder and president of W.I. Carr
(America), based in New York. From 1982 to 1984 Mr. King was a director in
charge of the Far East equity investments at N.M. Rothschild International Asset
Management, a London merchant bank. In 1984 Mr. King became chief investment
officer and director for all international investment strategy with Fiduciary
Trust Company International S.A., in London. He managed an EAFE mutual fund
(FTIT) from 1985 to 1986 which grew from $3 million to over $100 million during
this two-year period.
Mr. P. Nicholas Edwards, associate portfolio manager and
research analyst of the International Equity Portfolio, is also portfolio
manager of Warburg Pincus Japan Growth Fund and a co-portfolio manager and
research analyst of Warburg Pincus International Equity Fund and an associate
portfolio manager and research analyst of the International Equity Portfolio and
Managed EAFE'r' Countries Portfolio of Warburg Pincus Institutional Fund, Inc.
Prior to joining Warburg in August 1995, Mr. Edwards was a director at Jardine
Fleming Investment Advisers, Tokyo. He was a vice president of Robert Fleming
Inc. in New York City from 1988 to 1991. Mr. Edwards earned M.A. degrees from
Oxford University and Hiroshima University in Japan.
Mr. Harold W. Ehrlich, associate portfolio manager and research
analyst of the International Equity and Emerging Markets Portfolios, 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, the Managed EAFE'r' Countries Portfolio and the Emerging
Markets Portfolio of Warburg Pincus Institutional Fund, Inc. and the Emerging
Markets Portfolio of the Trust. Prior to joining Warburg in February 1995, 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. Nicholas P.W. Horsley, co-portfolio manager of the Emerging
Markets Portfolio and associate portfolio manager and research analyst of the
International Equity Portfolio, is also a co-portfolio manager of Warburg Pincus
Emerging Markets Fund, Warburg Pincus Japan OTC Fund and the Emerging Markets
Portfolio of Warburg Pincus Institutional Fund, Inc. and an associate portfolio
manager and research analyst of Warburg Pincus International Equity Fund and the
International Equity and Managed EAFE'r' Countries Portfolios of Warburg Pincus
Institutional Fund, Inc. From 1981 to 1984 Mr. Horsley was a
40
<PAGE>
<PAGE>
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. Vincent J. McBride, associate portfolio manager and research
analyst of the International Equity and Emerging Markets Portfolios, 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, the Managed EAFE'r' Countries Portfolio and the Emerging
Markets 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.
Small Company Growth and Post-Venture Capital Portfolios. Ms.
Elizabeth B. Dater, co-portfolio manager of the Small Company Growth Portfolio
is also co-portfolio manager of Warburg Pincus Emerging Growth Fund, Warburg
Pincus Post-Venture Capital Fund and the Post-Venture Capital Portfolio of the
Trust. She is the former director of research for Warburg's investment
management activities. Prior to joining Warburg in 1978, she was a vice
president of Research at Fiduciary Trust Company of New York and an
institutional sales assistant at Lehman Brothers. Ms. Dater has been a regular
panelist on Maryland Public Television's "Wall Street Week" since 1976. Ms.
Dater earned a B.A. degree from Boston University in Massachusetts.
Mr. Stephen J. Lurito, co-portfolio manager of the Small
Company Growth Portfolio, is also co-portfolio manager of Warburg, Pincus
Emerging Growth Fund, Warburg Pincus Post-Venture Capital Fund and the
Post-Venture Capital Portfolio of 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 Wharton School, 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 and Mr. Nawn are also associate portfolio managers and research
analysts for Warburg Pincus Post-Venture Capital Fund and Warburg Pincus Global
Post-Venture Capital Fund. 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
Warburg Pincus Post-Venture Capital Fund and Warburg Pincus Global Post-Venture
Capital Fund.
41
<PAGE>
<PAGE>
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Portfolios, Abbott
serves as sub-investment adviser to the Post-Venture Capital Portfolio, and
Counsellors Funds Service, Inc. ("Counsellors Service") and PFPC serve as
co-administrators to the Trust pursuant to separate written agreements (the
"Advisory Agreements," the "Counsellors Service Co-Administration Agreements"
and the "PFPC Co-Administration Agreements," respectively). The services
provided by, and the fees payable by the Trust to, Warburg under the Advisory
Agreements, Counsellors Service under the Counsellors Service Co-Administration
Agreements and PFPC under the PFPC Co-Administration Agreements are described in
the Prospectus.
Advisory Fees earned by Warburg
(portions of fees waived, if any, are noted in
parentheses next to the amount earned)*
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended
December 31, 1995 December 31, 1996
----------------- -----------------
<S> <C> <C> <C> <C>
International Equity Portfolio $120,130 ($47,206) $2,217,681 ($79,157)
Small Company Growth Portfolio $218,618 ($47,601) $2,100,487 ($10,689)
Post-Venture Capital Portfolio** -- -- $ 6,696 ($6,696)
</TABLE>
- ------------------
* During the fiscal year ended December 31, 1995, Warburg also reimbursed
expenses of $39,973 and $8,512 to International Equity Portfolio and the
Small Company Growth Portfolio, respectively. During the fiscal period
ended December 31, 1996, Warburg also reimbursed expenses of $15,007 to the
Post-Venture Capital Portfolio.
** From its investment advisory fee, Warburg pays Abbott a sub-investment
advisory fee for its services to the Post-Venture Capital Portfolio. No
compensation is paid by the Post-Venture Capital Portfolio to Abbott for
its sub-investment advisory services.
Co-Administration Fees earned by PFPC
(portions of fees waived, if any, are
noted in parentheses next to the amount earned)
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended
December 31, 1995 December 31, 1996
----------------- -----------------
<S> <C> <C> <C> <C>
International Equity Portfolio $14,416 ($5,665) $263,565 ($2,836)
Small Company Growth Portfolio $24,291 ($5,289) $233,388 ($1,188)
Post-Venture Capital Portfolio -- -- $536 ($536)
<CAPTION>
Co-Administration Fees earned by Counsellors Service
Fiscal year ended Fiscal year ended
December 31, 1995 December 31, 1996
----------------- -----------------
International Equity Portfolio $12,013 $221,792
Small Company Growth Portfolio $24,291 $233,388
Post-Venture Capital Portfolio -- $536
</TABLE>
42
<PAGE>
<PAGE>
The Emerging Markets Portfolio had not yet commenced operations
as of December 31, 1996 and, consequently, paid no advisory fees or
co-administration fees with respect to the periods shown above.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC") serves as custodian of the
U.S. assets of the International Equity, Small Company Growth and Post-Venture
Capital Portfolios. State Street Bank and Trust Company ("State Street") serves
as custodian of the U.S. assets of the Emerging Markets Portfolio and the
non-U.S. assets of the International Equity, Emerging Markets and Small Company
Growth Portfolios. Fiduciary Trust Company International ("Fiduciary") serves as
custodian of the Post-Venture Capital Portfolio's non-U.S. assets. Each
custodian serves pursuant to separate custodian agreements (the "Custodian
Agreements"). Under the Custodian Agreements, PNC, State Street and Fiduciary
each (i) maintains a separate account or accounts in the name of each Portfolio,
(ii) holds and transfers portfolio securities on account of each Portfolio,
(iii) makes receipts and disbursements of money on behalf of each Portfolio,
(iv) collects and receives all income and other payments and distributions on
account of each Portfolio's portfolio securities 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 relevant Portfolio. PNC is an indirect, wholly
owned subsidiary of PNC Bank Corp., and its principal business address is 1600
Market Street, Philadelphia, Pennsylvania 19103. The principal business address
of State Street is 225 Franklin Street, Boston, Massachusetts 02110. 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."
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
43
<PAGE>
<PAGE>
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 but 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 securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. The Trust intends to comply with Rule 18f-1 promulgated
under the 1940 Act with respect to redemptions in kind.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Trust and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult the sponsoring Participating
Insurance Company separate account prospectus or the Plan
44
<PAGE>
<PAGE>
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 the sum of 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) plus at least 90% of its net
tax-exempt interest income; (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 foreign currencies, or other
income (including, but not limited to, gains from options, futures, and forward
contracts) derived with respect to its business of investing in such securities
or currencies; (iii) derive less than 30% of its annual gross income from the
sale or other disposition of securities, options, futures, forward contracts or
certain other assets 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.
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 agency or 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
45
<PAGE>
<PAGE>
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, futures
contracts and forward contracts on foreign currencies) will be subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses recognized by the Portfolio (i.e., may affect
whether gains or losses are ordinary or capital), accelerate recognition of
income to the Portfolio, defer Portfolio losses and cause the Portfolio to be
subject to hyperinflationary currency rules. These rules could therefore affect
the character, amount and timing of distributions to shareholders. These
provisions also (i) will require a Portfolio to mark-to-market certain types of
its positions (i.e., treat them as if they were closed out) and (ii) may cause
the Portfolio to recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. Each Portfolio will monitor
its transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment so
that (a) neither the Portfolio nor its shareholders will be treated as receiving
a materially greater amount of capital gains or distributions than actually
realized or received, (b) the Portfolio will be able to use substantially all of
its losses for the fiscal years in which the losses actually occur and (c) the
Portfolio will continue to qualify as a regulated investment company.
Investments by the Emerging Markets Portfolio in zero coupon
securities may create special tax consequences. Zero coupon securities do not
make interest payments, although a portion of the difference between a zero
coupon security's face value and its purchase price is imputed as income to the
Portfolio each year even though the Portfolio receives no cash distribution
until maturity. Under the U.S. federal tax laws, the Portfolio will not be
subject to tax on this income if it pays dividends to its shareholders
substantially equal to all the income received from, or imputed with respect to,
its investments during the year, including its zero coupon securities. These
dividends ordinarily will constitute taxable income to the shareholders of the
Portfolio.
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,
46
<PAGE>
<PAGE>
the Variable Contracts and Plans. In addition, gain on the disposition of shares
in a PFIC generally is treated as ordinary income even though the shares are
capital assets in the hands of the Portfolio. Certain interest charges may be
imposed on the Portfolio with respect to any taxes arising from excess
distributions or gains on the disposition of shares in a PFIC.
A Portfolio may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Portfolio compared to a
fund that did not make the election. In addition, information required to make
such an election may not be available to the Portfolio.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice indicating
that final regulations will provide that regulated investment companies may
elect the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of a Portfolio is unclear. If the Portfolio is not able to make
the foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if it were sold for fair market value). Such an election could result in
acceleration of income to the Portfolio.
DETERMINATION OF PERFORMANCE
From time to time, a Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. The
aggregate total return for the fiscal periods ended December 31, 1996, were as
follows (performance figures calculated without the waiver of fees by a
Portfolio's service provider(s), if any, are noted in parentheses):
<TABLE>
<CAPTION>
One-Year Since Inception (Date)
-------- ------------------------
<S> <C> <C> <C> <C>
International Equity Portfolio 9.98% (9.95%) 18.01% (17.77%)
(6/30/95)
Small Company Growth Portfolio 13.91% (13.91%) 42.50% (42.40%)
(6/30/95)
Post-Venture Capital Portfolio --- -2.40%* (-2.60%*)
(9/30/96)
</TABLE>
- ---------------------
* Non-annualized.
The Emerging Markets Portfolio had not yet commenced operations
at December 31, 1996, and accordingly, no performance information is available
for this Portfolio.
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
47
<PAGE>
<PAGE>
according to the following formula: P (1 + T)'pp'n = ERV. For purposes of this
formula, "P" is a hypothetical investment of $1,000; "T" is average annual total
return; "n" is number of years; and "ERV" is the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the one-, five- or ten-year
periods (or fractional portion thereof). Total return or "T" is computed by
finding the average annual change in the value of an initial $1,000 investment
over the period and assumes that all dividends and distributions are reinvested
during the period.
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."
Warburg believes that a diversified portfolio of international
equity securities, when combined with a similarly diversified portfolio of
domestic equity securities, tends to have a lower volatility than a portfolio
composed entirely of domestic securities. Furthermore, international equities
have been shown to reduce volatility in single asset portfolios regardless of
whether the investments are in all domestic equities or all domestic
fixed-income instruments, and research has indicated that volatility can be
significantly decreased when international equities are added. Advertising or
supplemental sales literature relating to the International Equity Portfolio may
describe the percentage decline from all-time high levels for certain foreign
stock markets. It may also describe how the Portfolio differs from the EAFE
Index in composition.
To illustrate this point, the performance of international equity
securities, as measured by the Morgan Stanley Capital International (EAFE)
Europe, Australasia and Far East Index (the "EAFE Index"), has equaled or
exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S & P 500 Index") in 14 of the last 25
years. The following table compares annual total returns of the EAFE Index and
the S & P 500 Index for the calendar years shown.
48
<PAGE>
<PAGE>
EAFE INDEX VS. S&P 500 INDEX
1972-1996
ANNUAL TOTAL RETURN'D'
<TABLE>
<CAPTION>
YEAR EAFE INDEX S&P 500 INDEX
---- ---------- -------------
<S> <C> <C>
1972* 33.28 15.63
1973* -16.82 -17.37
1974* -25.60 -29.72
1975 31.21 31.55
1976 -.36 19.15
1977* 14.61 -11.50
1978* 28.91 1.06
1979 1.82 12.31
1980 19.01 25.77
1981* -4.85 -9.73
1982 -4.63 14.76
1983* 20.91 17.27
1984* 5.02 1.40
1985* 52.97 26.33
1986* 66.80 14.62
1987* 23.18 2.03
1988* 26.66 12.40
1989 9.22 27.25
1990 -24.71 -6.56
1991 10.19 26.31
1992 -13.89 4.46
1993* 30.49 7.06
1994* 6.24 -1.54
1995 9.42 20.26
1996 4.40 34.11
</TABLE>
- -----------------
'D' Without reinvestment of dividends.
* The MS-EAFE Index has outperformed the S&P 500 Index 14 out of the last
25 years.
Source: Morgan Stanley Capital International; Bloomberg Financial Markets
The quoted performance information shown above is not intended to
indicate the future performance of the International Equity Portfolio.
Advertising or supplemental sales literature relating to the Portfolio may
describe the percentage decline from all-time high levels for certain foreign
stock markets. It may also describe how the Portfolio differs from the EAFE
Index in composition.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Trust. The financial statements for the
Portfolios that are incorporated by reference in this Statement of Additional
Information have been audited by Coopers &
49
<PAGE>
<PAGE>
Lybrand, and have been included herein in reliance upon the report of such firm
of independent accountants given upon their authority as experts in accounting
and auditing.
Willkie Farr & Gallagher serves as counsel for the Trust as well
as counsel to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of March 31, 1997, the name, address and percentage ownership
of each person that owned of record 5% or more of a Portfolio's outstanding
shares were as follows. Nationwide Life Insurance Company ("Nationwide"), on
behalf of its separate account Nationwide Variable Account II, c/o IPO Portfolio
Accounting, P.O. Box 182029, Columbus, OH 43218-2029 -- 87.54% (International
Equity Portfolio), 69.35% (Small Company Growth Portfolio) and 73.37%
(Post-Venture Capital Portfolio). Nationwide is not the beneficial owner of
these shares. Equitable Life Insurance Company of Iowa ("Equitable"), on behalf
of its Separate Account A, 604 Locust Street, Des Moines, IA 50309-3705 -- 8.27%
(International Equity Portfolio). Equitable is not the beneficial owner of these
shares. IDS Life Insurance Company ("IDS"), IDS Tower 10 T11/1646, Minneapolis,
MN 55440 -- 25.67% (Small Company Growth Portfolio). IDS is not the
beneficial owner of these shares. Pruco Life Flexible Preminum ("Pruco")
on behalf of its Variable Annuity Account, 1111 Durham Avenue, South Plainfield,
NJ 07080-2305 -- 20.52% (Post-Venture Capital Portfolio). Pruco is not the
beneficial owner of these shares.
FINANCIAL STATEMENTS
The Trust's audited financial report dated December 31, 1996,
which either accompanies this Statement of Additional Information or has
previously been provided to the investor to whom this Statement of Additional
Information is being sent, is incorporated herein by reference with respect to
all information regarding the International Equity, Small Company Growth and
Post-Venture Capital Portfolios included therein. The Trust will furnish without
charge a copy of its annual report upon request by calling the Trust at (800)
369-2728.
The unaudited statement of assets and liabilities for the
Emerging Markets Portfolio dated as of April 1, 1997 accompanies this Statement
of Additional Information.
50
<PAGE>
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings Group
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Although they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher-rated
categories.
To provide more detailed indications of credit quality, the ratings from
"AA" to "BBB" may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
A-1
<PAGE>
<PAGE>
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
A-2
<PAGE>
<PAGE>
WARBURG PINCUS TRUST
STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 1, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Emerging
Markets
Portfolio
----------
<S> <C>
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
======
</TABLE>
F-1
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements--International Equity Portfolio, Small Company
Growth Portfolio and Post-Venture Capital Portfolio
(1) Financial Statements included in Part A:
(a)Financial Highlights
(2) Audited Financial Statements incorporated by reference 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--Emerging
Markets Portfolio
(a) Statement of Assets and Liabilities
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<C> <S>
1(a) Declaration of Trust(2)
1(b) Amendment to Declaration of Trust(3)
1(c) Designation of Series relating to addition
of Post-Venture Capital and Emerging
Markets Portfolios(1)
</TABLE>
- --------
(1) Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, filed with the Securities and Exchange
Commission on April 18, 1996.
(2) Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on March 17, 1995.
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on June 14, 1995.
C-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<C> <S>
2 By-Laws(2)
3 Not applicable
4 Form of Share Certificate(3)
5(a) Forms of Investment Advisory Agreements between
Registrant and Warburg, Pincus Counsellors
pertaining to the International Equity Portfolio and
Small Company Growth Portfolio(3)
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(1)
5(c) Forms of Sub-Investment Advisory Agreements between
Registrant and Abbott Capital Management, L.P. and
Abbott Capital Management, L.L.C. pertaining to the
Post-Venture Capital Portfolio
6 Form of Distribution Agreement(3)
7 Not applicable
8(a) Form of Custodian Agreement with PNC Bank, National
Association(3)
8(b) Form of Custodian Agreement with State Street Bank
and Trust Company(3)
8(c) Form of Custodian Agreement with Fiduciary Trust
Company International pertaining to the Post-Venture
Capital Portfolio(4)
9(a) Form of Transfer Agency Agreement(3)
9(b) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc.(3)
</TABLE>
- --------
(4) 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).
C-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<C> <S>
9(c) Form of Co-Administration Agreement with PFPC
Inc.(3)
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(1)
9(e) Form of Participation Agreement(3)
10 Consent of Willkie Farr & Gallagher, counsel to
Registrant
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(3)
13(b) Form of Purchase Agreement pertaining to the
Post-Venture Capital Portfolio and Emerging Markets
Portfolio(1)
14 Retirement Plans(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 and
the Post-Venture Capital Portfolio
17(a) Financial Data Schedules relating to the
International Equity Portfolio, the Small Company
Growth Portfolio and the Post-Venture Capital
Portfolio
</TABLE>
Item 25. Persons Controlled by or Under Common Control
with Registrant
Not applicable
- --------
(5) Incorporated by reference to Post-Effective Amendment No 1. to
Registrant's Registration Statement on Form N-1A, filed on March 4, 1996.
C-3
<PAGE>
<PAGE>
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of March 31, 1997
-------------- --------------------
<S> <C>
International Equity Portfolio- 10
shares of beneficial interest
par value $.001 per share
Small Company Growth Portfolio- 12
shares of beneficial interest
par value $.001 per share
Emerging Markets Portfolio- 0
shares of beneficial interest
par value $.001 per share
Post-Venture Capital Portfolio- 11
shares of beneficial interest
par value $.001 per share
</TABLE>
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 Registrant. Discussion of this
coverage is incorporated by reference to Item 27 of Part C of the Trust's
Registration Statement filed on March 17, 1995 (Securities Act File No.
33-58125).
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,
C-4
<PAGE>
<PAGE>
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) Counsellor Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for the
RBB Fund, Inc., Warburg Pincus Balanced Fund; 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
Global Post-Venture Capital Fund; Warburg Pincus Growth & Income Fund,
Inc.; Warburg Pincus Health Sciences Fund, Inc.; 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; Warburg, Pincus Small Company Growth Fund;
Warburg Pincus Small Company Value Fund; Warburg Pincus Strategic Value
Fund; Warburg Pincus Tax Free Fund; and Warburg Pincus Trust II.
(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)
(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)
C-5
<PAGE>
<PAGE>
(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
1600 Market Street
Philadelphia, Pennsylvania 19103
(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)
(9) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent
and dividend disbursing agent)
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 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-6
<PAGE>
<PAGE>
(c) Registrant hereby undertakes to file a post-effective
amendment with financial statements of the Emerging Markets Portfolio,
which need not be certified, within four to six months from the date
that Portfolio commences operations.
C-7
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
on New York and the State of New York, on the 9th day of April, 1997.
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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/John L. Furth Chairman of the April 9, 1997
__________________________________ Board of Trustees
John L. Furth
/s/Arnold M. Reichman President and April 9, 1997
__________________________________ Trustee
Arnold M. Reichman
/s/Howard Conroy Vice President, April 9, 1997
__________________________________ and Chief
Howard Conroy Financial Officer
/s/Daniel S. Madden Treasurer and Chief April 9, 1997
__________________________________ Accounting Officer
Daniel S. Madden
/s/Richard N. Cooper Trustee April 9, 1997
__________________________________
Richard N. Cooper
/s/Donald J. Donahue Trustee April 9, 1997
__________________________________
Donald J. Donahue
/s/Jack W. Fritz Trustee April 9, 1997
__________________________________
Jack W. Fritz
/s/Thomas A. Melfe Trustee April 9, 1997
__________________________________
Thomas A. Melfe
</TABLE>
C-8
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/Alexander B. Trowbridge Trustee April 9, 1997
__________________________________
Alexander B. Trowbridge
</TABLE>
C-9
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<C> <S>
5(c) Forms of Sub-Advisory Agreements between Registrant and
Abbott Capital Management, L.P. and Abbott Capital
Management L.L.C. pertaining to Post-Venture Capital
Portfolio
10 Consent of Willkie Farr & Gallagher, counsel to the
Registrant
11 Consent of Coopers & Lybrand L.L.P., Independent
Accountants
16 Schedule of Computation of Total Return Performance
Quotations relating to International Equity Portfolio,
Small Company Growth Portfolio and Post-Venture Capital
Portfolio
17 Financial Data Schedules relating to International Equity
Portfolio, Small Company Growth Portfolio and Post-Venture
Capital Portfolio
</TABLE>
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as ............................. 'D'
The registered trademark symbol shall be expressed as................ 'r'
Characters normally expressed as superscript shall be preceded by.... 'pp'
The Japanese Yen sign shall be expressed as.......................... 'Y'
<PAGE>
<PAGE>
SUB-INVESTMENT ADVISORY AGREEMENT
________ __, 1997
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>
<PAGE>
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
ability of the Sub-Adviser to perform its services under this
-2-
<PAGE>
<PAGE>
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
statements contained therein not misleading or (iii) any
-3-
<PAGE>
<PAGE>
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 the event that
there is a change in the Sub-Adviser, financial or otherwise, that adversely
affects its ability to perform services
-4-
<PAGE>
<PAGE>
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.
-5-
<PAGE>
<PAGE>
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
-6-
<PAGE>
<PAGE>
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 of 1986, as
amended (the "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 Portfolio 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 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 required to be stated
therein or
-7-
<PAGE>
<PAGE>
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 settlement results, or may result, in a finding of wrongdoing on
the part of the Indemnified Person.
-8-
<PAGE>
<PAGE>
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 1.00% 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.
-9-
<PAGE>
<PAGE>
13. Term of Agreement
This Agreement shall commence on the date first written above and
shall continue until April 17, 1998, 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 in 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) 878-0600, telecopy: (212)
878-9351, and (c) if to the Portfolio, to Warburg Pincus Trust,
-10-
<PAGE>
<PAGE>
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.
-11-
<PAGE>
<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 COUNSELLORS, INC.
By: ________________________________
WARBURG PINCUS TRUST
By: ________________________________
President
Accepted:
ABBOTT CAPITAL MANAGEMENT, L.L.C.
By: _______________________________
Title:
-12-
<PAGE>
<PAGE>
SUB-INVESTMENT ADVISORY AGREEMENT
________ __, 1997
Abbott Capital Management, L.P.
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.P. (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>
<PAGE>
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
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
-2-
<PAGE>
<PAGE>
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
statements contained therein not misleading or (iii) any
-3-
<PAGE>
<PAGE>
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 the event that
there is a change in the Sub-Adviser, financial or otherwise, that adversely
affects its ability to perform services
-4-
<PAGE>
<PAGE>
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.
-5-
<PAGE>
<PAGE>
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
-6-
<PAGE>
<PAGE>
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 of 1986, as
amended (the "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 Portfolio 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 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 required to be stated
therein or
-7-
<PAGE>
<PAGE>
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 settlement results, or may result, in a finding of wrongdoing on
the part of the Indemnified Person.
-8-
<PAGE>
<PAGE>
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 1.00% 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.
-9-
<PAGE>
<PAGE>
13. Term of Agreement
This Agreement shall commence on the date first written above and
shall continue until April 17, 1998, 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 in 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.P., 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) 878-0600, telecopy: (212)
878-9351, and (c) if to the Portfolio, to
-10-
<PAGE>
<PAGE>
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.
-11-
<PAGE>
<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 COUNSELLORS, INC.
By: ________________________________
WARBURG PINCUS TRUST
By: ________________________________
President
Accepted:
ABBOTT CAPITAL MANAGEMENT, L.P.
By: _______________________________
Title:
-12-
<PAGE>
<PAGE>
CONSENT OF COUNSEL
Warburg, Pincus Trust
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 3 (the "Amendment") to the
Registration Statement on Form N-1A (Securities Act File No. 33-58125,
Investment Company Act File No. 811-07261) of Warburg, Pincus Trust (the
"Trust") under the caption "Independent Accountants and Counsel" and to the
Trust's filing a copy of this Consent as an exhibit to the Amendment.
/s/ Willkie Farr & Gallagher
------------------------------
Willkie Farr & Gallagher
April 8, 1997
New York, New York
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 3 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (File No. 33-58125) of our report dated February 11, 1997 on our audit of
the financial statements and financial highlights of Warburg, Pincus Trust. We
also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectus and under the heading "Independent Accountants and
Counsel" in the Statement of Additional Information.
Coopers & Lybrand L.L.P.
- ---------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 8, 1997
<PAGE>
<PAGE>
WARBURG PINCUS TRUST
Schedule 16 Calculations
INTERNATIONAL EQUITY PORTFOLIO
For the One Year Ended December 31, 1996
RETURN WITH WAIVERS:
((10,998-10,000)/10,000) = 9.98%
RETURN WITHOUT WAIVERS:
((10,995-10,000)/10,000) = 9.95%
Inception Thru December 31, 1996
AGGREGATE RETURN WITH WAIVERS:
((11,801-10,000)/10,000) = 18.01%
AGGREGATE RETURN WITHOUT WAIVERS:
((11,777-10,000)/10,000) = 17.77%
ANNUALIZED RETURN WITH WAIVERS:
((11,801/10,000)'pp'1/1.50959 -1) = 11.59%
ANNUALIZED RETURN WITHOUT WAIVERS:
((11,777/10,000)'pp'1/1.50959 -1) = 11.44%
<PAGE>
<PAGE>
WARBURG PINCUS TRUST
Schedule 16 Calculations
SMALL COMPANY GROWTH PORTFOLIO
For the One Year Ended December 31, 1996
RETURN WITH WAIVERS:
((11,391-10,000)/10,000) = 13.91%
RETURN WITHOUT WAIVERS:
((11,391-10,000)/10,000) = 13.91%
Inception Thru December 31, 1996
AGGREGATE RETURN WITH WAIVERS:
((14,250-10,000)/10,000) = 42.50%
AGGREGATE RETURN WITHOUT WAIVERS:
((14,240-10,000)/10,000) = 42.40%
ANNUALIZED RETURN WITH WAIVERS:
((14,250/10,000)'pp'1/1.50959 -1) = 26.44%
ANNUALIZED RETURN WITHOUT WAIVERS:
((14,240/10,000)'pp'1/1.50959 -1) = 26.38%
<PAGE>
<PAGE>
WARBURG PINCUS TRUST
Schedule 16 Calculations
POST-VENTURE CAPITAL PORTFOLIO
Inception Thru December 31, 1996
AGGREGATE RETURN WITH WAIVERS:
((9,760-10,000)/10,000) = -2.40%
AGGREGATE RETURN WITHOUT WAIVERS:
((9,740-10,000)/10,000) = -2.60%
<PAGE>
<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-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 284871661
<INVESTMENTS-AT-VALUE> 295908379
<RECEIVABLES> 3459924
<ASSETS-OTHER> 45964
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 299414267
<PAYABLE-FOR-SECURITIES> 121892
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1074092
<TOTAL-LIABILITIES> 1195984
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 287955780
<SHARES-COMMON-STOCK> 25979565
<SHARES-COMMON-PRIOR> 6058621
<ACCUMULATED-NII-CURRENT> (1376373)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (383375)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12022251
<NET-ASSETS> 298218283
<DIVIDEND-INCOME> 3858045
<INTEREST-INCOME> 574501
<OTHER-INCOME> 0
<EXPENSES-NET> 3022826
<NET-INVESTMENT-INCOME> 1409720
<REALIZED-GAINS-CURRENT> 3012694
<APPREC-INCREASE-CURRENT> 10686258
<NET-CHANGE-FROM-OPS> 15108672
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4130629
<DISTRIBUTIONS-OF-GAINS> 1837869
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 333352387
<NUMBER-OF-SHARES-REDEEMED> 114779643
<SHARES-REINVESTED> 5968497
<NET-CHANGE-IN-ASSETS> 233681415
<ACCUMULATED-NII-PRIOR> (147376)
<ACCUMULATED-GAINS-PRIOR> (66288)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2217681
<INTEREST-EXPENSE> 8404
<GROSS-EXPENSE> 3104819
<AVERAGE-NET-ASSETS> 300211319
<PER-SHARE-NAV-BEGIN> 10.65
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> .16
<PER-SHARE-DISTRIBUTIONS> .07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.48
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<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-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 287565813
<INVESTMENTS-AT-VALUE> 333760916
<RECEIVABLES> 5967442
<ASSETS-OTHER> 44980
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 339773338
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 375781
<TOTAL-LIABILITIES> 375781
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 311812865
<SHARES-COMMON-STOCK> 23821983
<SHARES-COMMON-PRIOR> 7791765
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18610411)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 46195103
<NET-ASSETS> 339397557
<DIVIDEND-INCOME> 245724
<INTEREST-INCOME> 921752
<OTHER-INCOME> 0
<EXPENSES-NET> 2714403
<NET-INVESTMENT-INCOME> (1546927)
<REALIZED-GAINS-CURRENT> (17819175)
<APPREC-INCREASE-CURRENT> 34312085
<NET-CHANGE-FROM-OPS> 14945983
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 434899200
<NUMBER-OF-SHARES-REDEEMED> 207892540
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 241952643
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (791236)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2100487
<INTEREST-EXPENSE> 4415
<GROSS-EXPENSE> 2726280
<AVERAGE-NET-ASSETS> 233387480
<PER-SHARE-NAV-BEGIN> 12.51
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> 1.80
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.25
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000941568
<NAME> WARBURG PINCUS TRUST
<SERIES>
<NUMBER> 03
<NAME> POST-VENTURE CAPITAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 13049933
<INVESTMENTS-AT-VALUE> 13227625
<RECEIVABLES> 25320
<ASSETS-OTHER> 44177
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13297122
<PAYABLE-FOR-SECURITIES> 848281
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49309
<TOTAL-LIABILITIES> 897590
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12264779
<SHARES-COMMON-STOCK> 1270771
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4291
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (48100)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 178562
<NET-ASSETS> 12399532
<DIVIDEND-INCOME> 15
<INTEREST-INCOME> 10972
<OTHER-INCOME> 0
<EXPENSES-NET> 6696
<NET-INVESTMENT-INCOME> 4291
<REALIZED-GAINS-CURRENT> (48100)
<APPREC-INCREASE-CURRENT> 178562
<NET-CHANGE-FROM-OPS> 134753
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12267019
<NUMBER-OF-SHARES-REDEEMED> 2240
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 12399532
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4821
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27060
<AVERAGE-NET-ASSETS> 2125271
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (.24)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
