<PAGE> 1
As filed with the U.S. Securities and Exchange Commission
on November 25, 1998
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. 6 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 7 [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
787 Seventh Avenue
New York, New York 10019-6099
<PAGE> 2
Approximate Date of Proposed Public Offering: February 22, 1999
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[x] on February 22, 1999 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.
----------------------------------
Title of Securities Being Registered:
Shares of beneficial interest, par value $.001
<PAGE> 3
WARBURG, PINCUS TRUST
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page.......................... Cover Page
2. Synopsis............................ The Portfolio's Expenses
3. Condensed Financial Information..... N/A
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 Portfolio
6. Capital Stock and Other Securities.. General Information
7. Purchase of Securities Being Offered How to Purchase and Redeem Shares;
Management of the Portfolio; Net
Asset Value
8. Redemption or Repurchase............ How to Purchase and Redeem Shares
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
<PAGE> 4
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 Portfolio"
16. Investment Advisory and Other
Services............................ Management of the Trust; See
Prospectus--"Management of the
Portfolio"
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";
"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
Portfolio"
22. Calculation of Performance Data..... Determination of Performance
<PAGE> 5
23. Financial Statements................ N/A
Part C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this registration statement
amendment.
<PAGE> 6
REGISTRANT'S PROSPECTUSES AND COMBINED STATEMENT OF ADDITIONAL
INFORMATION FOR THE OTHER PORTFOLIOS OF THE TRUST ARE INCORPORATED BY
REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 5 TO THE REGISTRATION
STATEMENT ON FORM N-1A, FILED ON APRIL 7, 1998.
<PAGE> 7
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
February 22, 1999
WARBURG PINCUS TRUST
- EMERGING 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.
[WARBURG PINCUS ASSET MANAGEMENT LOGO]
<PAGE> 8
PROSPECTUS February 22, 1999
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers six investment funds, one of which, the Emerging Growth
Portfolio (the "Portfolio"), is offered pursuant to this Prospectus.
The EMERGING GROWTH PORTFOLIO seeks maximum capital appreciation by investing in
equity securities of small- to medium-sized domestic companies with emerging or
renewed growth potential.
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 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
1-800-369-2728. Warburg Pincus Funds maintains a Web site at www.warburg.com.
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.
- --------------------------------------------------------------------------------
<PAGE> 9
THE PORTFOLIO'S EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)....................... 0
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees*.......................................... .84%
12b-1 Fees................................................ 0
Other Expenses*........................................... .41%
----
Total Portfolio Operating Expenses+*...................... 1.25%
----
----
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 year................................................... $ 13
3 years.................................................. $ 40
</TABLE>
- --------------------------------------------------------------------------------
+ Annual Portfolio Operating Expenses are based on estimated expenses for the
Portfolio's first fiscal year ended December 31, 1999.
* Absent the waiver of fees by the Portfolio's investment advise and
co-administrator, Management Fees for the Portfolio would equal .90%; Other
Expenses would equal .51%; and Total Portfolio Operating Expenses would equal
1.41%. Other Expenses for the Portfolio are based on annualized estimates of
expenses for the fiscal year ending December 31, 1998, net of any fee waivers or
expense reimbursements. The Portfolio's investment adviser and co-administrator
have undertaken to limit the Portfolio's Total Portfolio Operating Expenses to
the limit shown in the table above through December 31, 1999.
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> 10
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Emerging Growth Portfolio's investment objective is to seek maximum
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 non-diversified investment fund that pursues its investment
objective by investing in a portfolio of equity securities of domestic
companies. The Portfolio ordinarily will invest at least 65% of its total assets
in common stocks or warrants of emerging growth companies that represent
attractive opportunities for maximum capital appreciation. Emerging growth
companies are 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. These "special situation companies" include companies that are
involved in the following: an acquisition or consolidation; a reorganization; a
recapitalization; a 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
company's stock; or a change in corporate control.
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 Asset Management, 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 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.
The Portfolio's holding of debt securities will be considered investment grade
at the time of purchase. A security will be deemed to be investment grade if it
is rated within the four highest grades by Moody's 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.
3
<PAGE> 11
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 Investment Company Act of 1940, as amended
(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 or Warburg.
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. U.S. government securities 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 net 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" and "Certain Investment Strategies" in this Prospectus.
SMALLER CAPITALIZATION AND EMERGING GROWTH COMPANIES; UNSEASONED ISSUERS. The
Portfolio may invest in securities of emerging growth and small- and
medium-sized companies and companies with continuous operations of less than
three years ("unseasoned issuers"). These investments may involve greater risks
than investing in larger, more established companies since these securities may
have limited marketability and, thus, may be more volatile than securities of
larger, more established companies or the market averages in general. Because
these issuers normally have fewer shares outstanding than larger companies, it
may be more difficult to buy or sell significant amounts of such shares without
an unfavorable impact on prevailing prices. These issuers may have limited
product lines, markets or financial resources and may lack management depth. In
addition, these issuers are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning these issuers
than for larger, more established ones. These "special situation companies"
include companies that are involved in the following: an acquisition or
consolidation; a reorganization; a recapitalization; a 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 company's stock; or a change in
corporate control. Although investing in securities of these companies 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 appreciation by investing in more established,
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
4
<PAGE> 12
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 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 leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment but increases an
investor's risk in the event of a decline in the value of the underlying
security and can result in a complete loss of the amount invested in the
warrant. In addition, the price of a warrant tends to be more volatile than, and
may not correlate exactly to, the price of the underlying security. If the
market price of 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.
YEAR 2000 COMPLIANCE. Warburg is working to address the Year 2000 issue
relating to the change from "99" to "00" on January 1, 2000 and has obtained
assurances from service providers that they are taking similar steps. Warburg is
working on the Year 2000 issue pursuant to a plan designed to address potential
problems and progress is proceeding according to the plan. Warburg anticipates
the completion of testing of internal systems in early 1999, and is developing
contingency plans intended to address any unexpected service problems. However,
there can be no assurance that these efforts will be sufficient, and any
noncompliant computer systems could hurt key Portfolio operations, such as
shareholder servicing, pricing and trading.
The Year 2000 issue affects practically all companies, organizations,
governments, markets and economies throughout the world -- including companies
or governmental entities in which Portfolio invests and markets in which it
trades. However, at this time no one knows precisely what the degree of impact
will be. To the extent that the impact on a Portfolio holding or on markets or
economies is negative, it could seriously affect the Portfolio's performance.
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 higher dealer mark-ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See "Dividends, Distributions and Taxes -- Taxes" 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
5
<PAGE> 13
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)
lending portfolio securities and (ii) 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 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.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
International Depositary Receipts ("IDRs"), instruments that evidence ownership
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.
OPTIONS, FUTURES AND CURRENCY TRANSACTIONS. At the discretion of Warburg, the
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as "derivatives," may be used (i) for the purpose of
hedging against a decline in value of the Portfolio's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE THE PORTFOLIO'S INVESTMENT RISK.
Transaction costs and any premiums associated with these strategies, and any
losses incurred, will affect the Portfolio's net asset value and performance.
Therefore, an investment in the Portfolio may involve a greater risk than an
investment in other mutual funds that do not utilize these strategies. The
Portfolio's use of these strategies may be limited by position and exercise
limits established by securities and commodities exchanges and other applicable
regulatory authorities.
Securities Options and Stock Index Options. The Portfolio may write covered
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 2% of its assets to purchase options on stocks and debt securities that
are traded on U.S. 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
6
<PAGE> 14
options may result in substantial losses to the Portfolio, force the sale or
purchase of portfolio securities at inopportune times or at less advantageous
prices, limit the amount of appreciation the Portfolio could realize on its
investments or require the Portfolio to hold securities it would otherwise sell.
Futures Contracts and Commodity Options. The Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the "CFTC") or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although the Portfolio is limited
in the amount of assets that may be invested in futures transactions, there is
no overall limit on the percentage of the Portfolio's assets that may be at risk
with respect to futures activities.
Currency Exchange Transactions. The Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events. The Portfolio will only engage in
currency exchange transactions for hedging purposes.
Hedging Considerations. The Portfolio may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. 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 and currencies; 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.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Portfolio may
utilize up to 20% of its total assets to purchase securities on a when-issued
basis and purchase or sell securities on a delayed-delivery basis. In these
transactions, payment for and delivery of the securities occurs beyond the
regular settlement dates. The Portfolio will not enter into a when-issued or
delayed-delivery transaction for the purpose of leverage, but may sell the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive securities in a delayed-delivery transaction if
Warburg deems it advantageous to do so. The payment obligation and the interest
rate that will be received in when-issued and delayed-delivery transactions are
fixed at the time the buyer enters into the
7
<PAGE> 15
commitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the prices of such securities may be
higher or lower than the prices available in the market on the dates when the
investments are actually delivered to the buyers.
The Portfolio will establish a segregated account with its custodian
consisting of cash or liquid securities in an amount equal to the amount of its
when-issued and delayed-delivery purchase commitments and will segregate the
securities underlying commitments to sell securities for delayed delivery.
INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
The Portfolio may invest up to 10% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ("illiquid securities"), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. 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 10% 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
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 advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of August 31, 1998,
Warburg managed approximately $18.4 billion of assets, including approximately
$10.2 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
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
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 and semiannual 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 Inc. ("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, exclusive of out-of-pocket expenses. PFPC has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
8
<PAGE> 16
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 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
most of its responsibilities to Boston Financial Data Services, Inc. ("BFDS"),
an affiliated service company. 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 .40%
(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 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
- --------------------------------------------------------------------------------
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.
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 with payment
for purchases to follow no later than the Portfolio's pricing on the next
business day. If payment for purchases is not received by such time, the
Participating Insurance Company could be held liable for resulting fees or
losses. 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. Redemption proceeds will normally be wired to
the Participating Insurance Company the business day following receipt of the
redemption order, but in no event later than seven days after receipt of such
order.
Plan participants may invest in shares of the Portfolio through their Plan by
directing the Plan trustee to purchase shares for their account in a manner
similar to that described above for contract owner purchases through
Participating Insurance Companies. Participants should contact their Plan
sponsor for information concerning the appropriate procedure for investing in
the Portfolio.
9
<PAGE> 17
The Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Warburg's judgment, the Portfolio would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
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.
TELEPHONE TRANSACTIONS. Participating Insurance Companies, Plans or their
agents may elect to conduct transactions by telephone. Neither the Portfolio nor
its agents will be liable for following instructions communicated by telephone
that it reasonably believes to be genuine. Reasonable procedures will be
employed on behalf of the Portfolio to confirm that instructions communicated by
telephone are genuine. Such procedures may include providing written
confirmation of telephone transactions, tape recording telephone instructions
and requiring specific identifying information.
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" 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, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day,
and on the preceding Friday or subsequent Monday when one of 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
10
<PAGE> 18
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 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.
The Portfolio or a Participating Insurance Company or Plan sponsor may compare
the Portfolio's performance 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 appropriate indexes prepared by Frank
Russell Company relating to securities represented in the Portfolio, the T. Rowe
Price New Horizons Fund 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, Mutual Fund Magazine, SmartMoney, The Wall Street Journal and
Worth. 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.
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; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Portfolio with
respect to relevant market and industry benchmarks. The Portfolio may also
discuss measures of risk, the continuum of risk and return relating to different
investments and the potential impact of international securities on a portfolio
otherwise composed of U.S. securities.
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
11
<PAGE> 19
unlimited number of full and fractional shares of beneficial interest, $.001 par
value per share. Shares of six 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 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 1-800
369-2728 or on the Warburg Pincus Funds Web site at www.warburg.com.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE 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.
12
<PAGE> 20
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 21
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 22
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Portfolio's Expenses................................. 2
Investment Objective and Policies........................ 3
Portfolio Investments.................................... 3
Risk Factors and Special Considerations.................. 4
Portfolio Transactions and Turnover Rate................. 5
Certain Investment Strategies............................ 6
Investment Guidelines.................................... 8
Management of the Portfolio.............................. 8
How to Purchase and Redeem Shares........................ 9
Dividends, Distributions and Taxes....................... 10
Net Asset Value.......................................... 10
Performance.............................................. 11
General Information...................................... 11
</TABLE>
[WARBURG PINCUS LOGO]
P.O. BOX 4906, GRAND CENTRAL STATION
NEW YORK, NY 10163
1-800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREGR-1-0299
<PAGE> 23
STATEMENT OF ADDITIONAL INFORMATION
February 22, 1999
WARBURG PINCUS TRUST
EMERGING GROWTH PORTFOLIO
P.O. Box 4906, Grand Central Station, New York, NY 10163
For information, call 1-800 369-2728
CONTENTS
Page
----
INVESTMENT OBJECTIVE.........................................................1
INVESTMENT POLICIES..........................................................1
MANAGEMENT OF THE TRUST.....................................................22
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................27
ADDITIONAL INFORMATION CONCERNING TAXES.....................................27
DETERMINATION OF PERFORMANCE................................................30
INDEPENDENT ACCOUNTANTS AND COUNSEL.........................................31
MISCELLANEOUS...............................................................31
FINANCIAL STATEMENTS........................................................31
Appendix -- Description of Ratings.........................................A-1
Warburg Pincus Trust ("Trust") currently offers six managed investment
funds, one of which, the Emerging Growth Portfolio (the "Portfolio"), is
described in this Statement of Additional Information. This Statement of
Additional Information is meant to be read in conjunction with the Prospectus of
the Portfolio, dated February 22, 1999, as amended or supplemented from time to
time, and is incorporated by reference in its entirety into that Prospectus.
Shares of the Portfolio are not available directly to individual investors but
may be offered only to certain (i) life insurance companies ("Participating
Insurance Companies") for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance policies (together "Variable Contracts") and (ii) tax-qualified
pension and retirement plans ("Plans"), including participant-directed Plans
which elect to make the Portfolio an investment option for Plan participants.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Portfolio should be made solely upon the information
contained herein. Copies of the Trust's Prospectus for the Portfolio and
information regarding the Portfolio's current performance may be obtained by
calling the Trust at 1-800 369-2728 or by writing to the Trust, P.O. Box 4906,
Grand Central Station, New York, NY 10163.
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 ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE> 24
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is maximum capital
appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of the
Portfolio's investment objective and policies in the Prospectus.
Options, Futures and Currency Exchange Transactions
Securities Options. The Portfolio may write covered call options on
stock and debt securities and the Portfolio may purchase U.S. exchange-traded
and over-the-counter ("OTC") put and call options.
The Portfolio realizes fees (referred to as "premiums") for granting
the rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right of
its purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, the Portfolio as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Portfolio as a put or call writer retains the risk of a decline in the price
of the underlying security. The size of the premiums that the Portfolio may
receive may be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-writing
activities.
In the case of options written by the Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stock with respect to which
the Portfolio has written options may exceed the time within which the Portfolio
must make delivery in accordance with an exercise notice. In these instances,
the Portfolio may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Portfolio will not bear any
market risk, since the Portfolio will have the absolute right to receive from
the issuer of the underlying security an equal number of shares to replace the
borrowed securities, but the Portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which the Portfolio may write covered call options. For example, if the
Portfolio writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient
<PAGE> 25
cover. If this occurs, the Portfolio will compensate for the decline in the
value of the cover by purchasing an appropriate additional amount of
mortgage-backed securities.
Options written by the Portfolio will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolio may write (i) in-the-money call
options when Warburg Pincus Asset Management, Inc., the Portfolio's investment
adviser ("Warburg"), expects that the price of the underlying security will
remain flat or decline moderately during the option period, (ii) at-the-money
call options when Warburg expects that the price of the underlying security will
remain flat or advance moderately during the option period and (iii)
out-of-the-money call options when Warburg expects that the premiums received
from writing the call option plus the appreciation in market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. To secure its
obligation to deliver the underlying security when it writes a call option, the
Portfolio will be required to deposit in escrow the underlying security or other
assets in accordance with the rules of the Options Clearing Corporation (the
"Clearing Corporation") and of the securities exchange on which the option is
written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Portfolio prior
to the exercise of options that it has purchased or, 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 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
2
<PAGE> 26
longer effect a closing purchase transaction with respect to an option once it
has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Portfolio's
ability to terminate options positions established in the 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 the Portfolio and other clients of Warburg and certain of its
affiliates may be considered to be such a group. A securities exchange may order
the liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions. These limits may restrict the number of options
the Portfolio will be able to purchase on a particular security.
Securities Index Options. The Portfolio may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities 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 securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
3
<PAGE> 27
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 securities 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. Securities index options may be offset by entering into
closing transactions as described above for securities options.
OTC Options. The Portfolio may purchase OTC or dealer options or
sell covered OTC options. Unlike exchange-listed options where an intermediary
or clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Portfolio, the Portfolio would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Portfolio will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Portfolio writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Portfolio originally wrote the option. Although the Portfolio will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Portfolio, there can be no assurance that the Portfolio will be able to
liquidate a dealer option at a favorable price at any time prior to expiration.
The inability to enter into a closing transaction may result in material losses
to the Portfolio. Until the Portfolio, as a covered OTC call option writer, is
able to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair the Portfolio's ability to
sell portfolio securities or, with respect to currency options, currencies at a
time when such sale might be advantageous. In the event of insolvency of the
other party, the Portfolio may be unable to liquidate a dealer option.
Futures Activities. The Portfolio may enter into foreign currency,
interest rate and securities 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.
4
<PAGE> 28
The Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolio reserves the right to engage in transactions
involving futures contracts and options on futures contracts to the extent
allowed by CFTC regulations in effect from time to time and in accordance with
the Portfolio's policies. There is no overall limit on the percentage of
Portfolio assets that may be at risk with respect to futures activities.
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. Securities indexes are capitalization weighted
indexes which reflect the market value of the securities listed on the indexes.
A securities index futures contract is an agreement to be settled by delivery of
an amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract and
the price at which the agreement is made.
No consideration is paid or received by the Portfolio upon entering
into a futures contract. Instead, the Portfolio is required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt obligations,
equal to approximately 1% to 10% of the contract amount (this amount is subject
to change by the exchange on which the contract is traded, and brokers may
charge a higher amount). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Portfolio fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or securities
index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." The Portfolio will also incur brokerage costs in connection
with entering into futures transactions.
At any time prior to the expiration of a futures contract, the
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio's existing position in the contract.
Positions in futures contracts and options on futures contracts (described
below) may be closed out only on the exchange on which they were entered into
(or through a linked exchange). No secondary market for such contracts exists.
Although the Portfolio intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading,
5
<PAGE> 29
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting the Portfolio to substantial losses. In such event, and in
the event of adverse price movements, the Portfolio would be required to make
daily cash payments of variation margin. In such situations, if the Portfolio
had insufficient cash, it might have to sell securities to meet daily variation
margin requirements at a time when it would be disadvantageous to do so. In
addition, if the transaction is entered into for hedging purposes, in such
circumstances the Portfolio may realize a loss on a futures contract or option
that is not offset by an increase in the value of the hedged position. Losses
incurred in futures transactions and the costs of these transactions will affect
the Portfolio's performance.
Options on Futures Contracts. The Portfolio may purchase and write
put and call options on foreign currency, interest rate and stock index futures
contracts and may enter 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 securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Portfolio.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of the Portfolio that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any non-U.S. currency
into U.S. dollars or into other appropriate currencies. The Portfolio will
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options.
Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
6
<PAGE> 30
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 Portfolio may purchase exchange-traded put and
call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
Currency Hedging. The Portfolio's currency hedging will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Portfolio generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. The Portfolio may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
A decline in the U.S. dollar value of a foreign currency in which
the Portfolio's securities are denominated will reduce the U.S. dollar value of
the securities, even if their value in the foreign currency remains constant.
The use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. For example, in order to protect against diminutions in
the U.S. dollar value of securities it holds, the Portfolio may purchase
currency put options. If the value of the currency does decline, the Portfolio
will have the right to sell the currency for a fixed amount in dollars and will
thereby offset, in whole or in part, the adverse effect on the U.S. dollar value
of its securities that otherwise would have resulted. Conversely, if a rise in
the U.S. dollar value of a currency in which securities to be acquired are
denominated is projected, thereby potentially increasing the cost of the
securities, the Portfolio may purchase call options on the particular currency.
The purchase of these options could offset, at least partially, the effects of
the adverse movements in exchange rates. The benefit to the Portfolio derived
from purchases of currency options, like the benefit derived from other types of
options, will be reduced by premiums and other transaction costs. Because
transactions in currency exchange are generally conducted on a principal basis,
no fees or commissions are generally involved. Currency hedging involves some of
the same risks and considerations as other transactions with similar
instruments. Although currency hedges limit the risk of loss due to a decline in
the value of a hedged currency, at the same time, they also limit any potential
gain that might result should the value of the currency increase. If a
devaluation is generally anticipated, the Portfolio may not be able to contract
to sell a currency at a price above the devaluation level it anticipates.
7
<PAGE> 31
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, the Portfolio may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in the value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by the
Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether the Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of prices in the securities market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in the price of a particular security. 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. Securities index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the securities 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 a securities index and movements in the price
of securities index futures, a correct forecast of general market trends by
Warburg still may not result in a successful hedging transaction.
The Portfolio will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Portfolio of hedging
transactions will be subject to Warburg's ability to predict trends in
currencies, interest rates or securities markets, as the
8
<PAGE> 32
case may be, and to predict correctly 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, the Portfolio will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Portfolio on securities and indexes; and currency, interest rate and
index futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Portfolio of cash or
liquid securities.
For example, a call option written by the Portfolio on securities
may require the Portfolio to hold the securities subject to the call (or
securities convertible into the securities without additional consideration) or
to segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Portfolio on
an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. The Portfolio
could purchase a put option if the strike price of that option is the same or
higher than the strike price of a put option sold by the Portfolio. If the
Portfolio holds a futures or forward contract, the Portfolio could purchase a
put option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. The Portfolio may enter into
fully or partially offsetting transactions so that its net position, coupled
with any segregated assets (equal to any remaining obligation), equals its net
obligation. Asset coverage may be achieved by other means when consistent with
applicable regulatory policies.
Additional Information on Other Investment Practices
Foreign Investments. The portfolio may invest up to 20% of its total
assets in the securities of foreign issuers. Investors should recognize that
investing in foreign companies involves certain risks, including those discussed
below, which are not typically associated with investing in U.S. issuers.
Foreign Currency Exchange. Since the Portfolio may invest in
securities denominated in currencies other than the U.S. dollar, and since the
Portfolio may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Portfolio's investments in
foreign companies may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the
dollar. A change in the value of a foreign currency relative to the U.S. dollar
will result in a corresponding change in the dollar value of the Portfolio's
assets denominated in that foreign currency. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed by the Portfolio with
9
<PAGE> 33
respect to its foreign investments. The rate of exchange between the U.S. dollar
and other currencies is determined by the forces of supply and demand in the
foreign exchange markets. Changes in the exchange rate may result over time from
the interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Of particular
importance are rates of inflation, interest rate levels, the balance of payments
and the extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of the United States and
foreign countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. The Portfolio may use hedging
techniques with the objective of protecting against loss through the fluctuation
of the valuation of foreign currencies against the U.S. dollar, particularly the
forward market in foreign exchange, currency options and currency futures.
Euro Conversion. The planned introduction of a single European
currency, the euro, on January 1, 1999 for participating European nations in the
Economic and Monetary Union presents unique risks and uncertainties for
investors in those countries, including (i) whether the payment and operational
systems of banks and other financial institutions will be ready by the scheduled
launch date; (ii) the creation of suitable clearing and settlement payment
schemes for the euro; (iii) the legal treatment of outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the euro; (iv) the fluctuation of the euro relative to non-euro currencies
during the transition period from January 1, 1999 to December 31, 2000 and
beyond; and (v) whether the interest rate, tax and labor regimes of the European
countries participating in the euro will converge over time. Further, the
conversion of the currencies of other Economic and Monetary Union countries,
such as the United Kingdom, and the admission of other countries, including
Central and Eastern European countries, to the Economic and Monetary Union could
adversely affect the euro. These or other factors may cause market disruptions
before or after the introduction of the euro and could adversely affect the
value of foreign securities and currencies held by the Portfolio.
Information. The majority of the foreign securities held by the
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally not subject to uniform financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.
Political Instability. With respect to some foreign countries, there
is the possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Portfolio, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
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
10
<PAGE> 34
known to experience long delays between the trade and settlement dates of
securities purchased or sold. Due to the increased exposure of the Portfolio to
market and foreign exchange fluctuations brought about by such delays, and due
to the corresponding negative impact on the Portfolio's liquidity, the Portfolio
will avoid investing in countries which are known to experience settlement
delays which may expose the Portfolio to unreasonable risk of loss.
Increased Expenses. The operating expenses of the Portfolio, to the
extent it invests in foreign securities, may be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Portfolio associated with foreign investing, such as custodial costs,
valuation costs and communication costs, are higher than those costs incurred by
other investment companies.
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.
General. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency, and
balance of payments positions. The Portfolio may invest in securities of foreign
governments (or agencies or instrumentalities thereof), and many, if not all, of
the foregoing considerations apply to such investments as well.
U.S. Government Securities. The Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. Government Securities").
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
Government Securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration, Export-Import
Bank of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, 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, the Portfolio will invest in obligations issued by such an
instrumentality only if Warburg determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Portfolio.
Securities of Other Investment Companies. The Portfolio may invest
in securities of other investment companies to the extent permitted under the
Investment
11
<PAGE> 35
Company Act of 1940, as amended (the "1940 Act"). Presently, under the 1940 Act,
the Portfolio may hold securities of another investment company in amounts which
(i) do not exceed 3% of the total outstanding voting stock of such company, (ii)
do not exceed 5% of the value of the Portfolio's total assets and (iii) when
added to all other investment company securities held by the Portfolio, do not
exceed 10% of the value of the Portfolio's total assets.
Lending of Portfolio Securities. The Portfolio may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Trust's Board of Trustees (the "Board"). These loans, if and when made, may not
exceed 20% of the Portfolio's total assets taken at value. The Portfolio will
not lend portfolio securities to Warburg or its affiliates unless it has applied
for and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of credit or U.S. Government
Securities, which are maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio involved. From time to time,
the Portfolio may return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Portfolio and that is acting as a "finder."
By lending its securities, the Portfolio can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as collateral. Although the
generation of income is not an investment objective of the Portfolio, income
received could be used to pay the Portfolio's expenses and would increase an
investor's total return. The Portfolio will adhere to the following conditions
whenever its portfolio securities are loaned: (i) the Portfolio must receive at
least 100% cash collateral or equivalent securities of the type discussed in the
preceding paragraph from the borrower; (ii) the borrower must increase such
collateral whenever the market value of the securities rises above the level of
such collateral; (iii) the Portfolio must be able to terminate the loan at any
time; (iv) the Portfolio must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Portfolio may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Portfolio's ability to recover the loaned
securities or dispose of the collateral for the loan.
When-Issued Securities and Delayed-Delivery Transactions. The
Portfolio may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). The Portfolio will enter into a when-issued transaction for the
purpose of acquiring portfolio securities and not for the purpose of leverage,
but may sell the securities before the settlement date if Warburg deems it
advantageous to do so. The payment obligation and the interest rate that will be
received on when-issued securities are fixed at the time the buyer enters into
the commitment. Due to
12
<PAGE> 36
fluctuations in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the prices obtained on such securities may be higher or
lower than the prices available in the market on the dates when the investments
are actually delivered to the buyers.
When the Portfolio agrees to purchase when-issued or
delayed-delivery securities, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a segregated account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Portfolio may be required
subsequently to place additional assets in the segregated account in order to
ensure that the value of the account remains equal to the amount of the
Portfolio's commitment. It may be expected that the Portfolio's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. When the Portfolio
engages in when-issued or delayed-delivery transactions, it relies on the other
party to consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Reverse Repurchase Agreements and Dollar Rolls. The Portfolio may
enter into reverse repurchase agreements with the same parties with whom it may
enter into repurchase agreements. Reverse repurchase agreements involve the sale
of securities held by the Portfolio pursuant to its agreement to repurchase them
at a mutually agreed upon date, price and rate of interest. At the time the
Portfolio enters into a reverse repurchase agreement, it will establish and
maintain a segregated account with an approved custodian containing cash or
liquid securities having a value not less than the repurchase price (including
accrued interest). The assets contained in the segregated account will be
marked-to-market daily and additional assets will be placed in such account on
any day in which the assets fall below the repurchase price (plus accrued
interest). The Portfolio's liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale may decline below the price of
the securities the Portfolio has sold but is obligated to repurchase. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities, and the Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
decision.
The Portfolio also may enter into "dollar rolls," in which the
Portfolio sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Portfolio would forego principal and interest paid on such
securities. The Portfolio would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
the interest earned on the cash proceeds of the initial sale. At the time the
Portfolio enters into a dollar roll transaction, it will place in a segregated
account maintained with an approved custodian cash or liquid securities having a
value not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that its value is maintained. Reverse
repurchase agreements and dollar rolls that are accounted for as financings are
considered to be borrowings under the 1940 Act.
13
<PAGE> 37
Warrants. The Portfolio may invest up to 10% of net assets in
warrants to purchase newly created equity securities consisting of common and
preferred stock. The equity security underlying a warrant is outstanding at the
time the warrant is issued or is issued together with the warrant.
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. The Portfolio may not
invest more than 10% of its total 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 and certain Rule 144A Securities
(as defined below). 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
14
<PAGE> 38
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Portfolio's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board or its
delegates may consider, inter alia, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Borrowing. The Portfolio may borrow up to 10% 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 total assets. Although the principal of such borrowings will be
fixed, the Portfolio's assets may change in value during the time the borrowing
is outstanding. The Portfolio expects that some of its borrowings may be made on
a secured basis. In such situations, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made with a
suitable sub-custodian, which may include the lender.
Non-Diversified Status. The Portfolio is classified as
non-diversified within the meaning of the 1940 Act, which means that the
Portfolio is not limited by such Act in the proportion of its assets that it may
invest in securities of a single issuer. The Portfolio's investments will be
limited, however, in order to qualify as a "regulated investment company" for
purposes of the Code. 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.
Small Capitalization and Emerging Growth Companies; Unseasoned
Issuers. Investments in small- and medium- sized and emerging growth companies
and companies with continuous operations of less than three years ("unseasoned
issuers") 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 financial
disclosure requirements, illiquidity of securities and markets, higher brokerage
commissions and fees and greater market risk in general. In addition, securities
of these companies may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile.
15
<PAGE> 39
"Special situation companies" are 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. Warburg believes, however, that if it 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 of an investment will be consummated under the terms and within the time
period contemplated.
Below Investment Grade Securities. While the market values of below
investment grade securities tend to react less to fluctuations in interest rate
levels than do those of investment grade 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 investment grade
securities. In addition, below investment grade securities generally present a
higher degree of credit risk. Issuers of below investment grade 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 below investment grade securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The market for below investment grade 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.
The Portfolio may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the Portfolio
anticipates 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 Portfolio's
ability to dispose of particular issues when necessary to meet the Portfolio's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Portfolio to obtain accurate market quotations for purposes of valuing the
Portfolio and calculating its net asset value.
The market value of below investment grade securities is more
volatile than that of investment grade 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
16
<PAGE> 40
quality of the issuer's management and regulatory matters. Normally, below
investment grade securities are not intended for short-term investment. The
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings of such securities.
Other Investment Limitations
The investment limitations numbered 1 through 9 may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations 10 through 13
may be changed by a vote of the Board at any time.
The Portfolio may not:
1. Borrow money or issue senior securities except that the Portfolio
may (a) borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing and (b) enter into
futures contracts; or mortgage, pledge or hypothecate any assets except in
connection with any bank borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Portfolio's total assets
at the time of such borrowing. Whenever borrowings described in (a) exceed 5% of
the value of the Portfolio's total assets, the Portfolio will not make any
additional investments (including roll-overs). For purposes of this restriction,
(a) the deposit of assets in escrow in connection with the purchase of
securities on a when-issued or delayed-delivery basis and (b) collateral
arrangements with respect to initial or variation margin for futures contracts
will not be deemed to be pledges of the Portfolio's assets.
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Make loans, except that the Portfolio may purchase or hold publicly
distributed fixed-income securities, lend portfolio securities and enter into
repurchase agreements.
4. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the purchase of fixed-income
securities directly from the issuer thereof in accordance with the Portfolio's
investment objective, policies and limitations may be deemed to be underwriting.
5. Purchase or sell real estate, real estate investment trust
securities, real estate limited partnerships, and distributed commodities
contracts or invest in oil, gas or mineral exploration or development programs,
except that the Portfolio may invest in (a) fixed-income securities secured by
real estate, mortgages or interests therein, (b) securities of companies that
17
<PAGE> 41
invest in or sponsor oil, gas or mineral exploration or development programs and
(c) futures contracts and related options.
6. Make short sales of securities or maintain a short position.
7. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Portfolio may (a) purchase put and call
options on securities, (b) write covered call options on securities, (c)
purchase and write put and call options on stock indices and (d) enter into
options on futures contracts.
8. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange or as otherwise permitted under the 1940 Act.
9. Purchase securities on margin, except that the Portfolio may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with futures contracts or related options will
not be deemed to be a purchase of securities on margin.
10. Invest more than 10% of the value of the Portfolio's total 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.
11. Invest more than 10% of the value of the Portfolio's total assets
in time deposits maturing in more than seven calendar days.
12. 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.
13. Invest in oil, gas or mineral leases.
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 the
Portfolio is determined for purposes of sales and redemptions. The following is
a description of the procedures used by the Portfolio in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the Nasdaq National Market System) or foreign securities exchange
or traded in an
18
<PAGE> 42
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 highest bid and
lowest asked quotations. If there are no such quotations, the value of the
securities will be taken to be the lowest bid quotation on the exchange or
market. Options and 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. The valuation of
short sales of securities, which are not traded on a national exchange, will be
at the mean of bid and asked prices. Amortized cost involves valuing a portfolio
instrument at its initial cost and thereafter assuming a constant amortization
to maturity of an discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. Short-term obligations
with maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Board. Amortized cost involves
valuing a portfolio instrument at its initial cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. The
amortized cost method of valuation may also be used with respect to other debt
obligations with 60 days or less remaining to maturity. Notwithstanding the
foregoing, in determining the market value of portfolio investments, the
Portfolio may employ outside organizations (each, 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, futures contracts
and other assets for which market quotations are not available will be valued at
their fair value as determined in good faith pursuant to consistently applied
procedures established by the Board. In addition, the Board or its delegates may
value a security at fair value if it determines that such security's value
determined by the methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which The New York Stock Exchange, Inc. (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which the Portfolio's net asset value is not calculated. As a
result, calculation of the Portfolio's net asset value may not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. 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 as of 12:00
noon (Eastern time). If such quotations are not available, the rate of exchange
will be determined in good faith pursuant to consistently applied procedures
established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying the Portfolio's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio securities
are usually principal transactions without brokerage commissions effected
directly with the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
19
<PAGE> 43
over-the-counter, depending on where it appears that the best price or execution
will be obtained. The purchase price paid by the Portfolio to underwriters of
newly issued securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or mark-down.
Transactions on U.S. stock exchanges and some foreign stock exchanges involve
the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. There is
generally no stated commission in the case of securities traded in domestic or
foreign 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.
Warburg will select specific portfolio investments and effect
transactions for the Portfolio and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to
the Portfolio and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction or
of the overall responsibilities of Warburg. Research and other services received
may be useful to Warburg in serving both the Portfolio and its other clients
and, conversely, research or other services obtained by the placement of
business of other clients may be useful to Warburg in carrying out its
obligations to the Portfolio. Research may include furnishing advice, either
directly or through publications or writings, as to the value of securities, the
advisability of purchasing or selling specific securities and the availability
of securities or purchasers or sellers of securities; furnishing seminars,
information, analyses and reports concerning issuers, industries, securities,
trading markets and methods, legislative developments, changes in accounting
practices, economic factors and trends and portfolio strategy; access to
research analysts, corporate management personnel, industry experts, economists
and government officials; comparative performance evaluation and technical
measurement services and quotation services; and products and other services
(such as third party publications, reports and analyses, and computer and
electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
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.
20
<PAGE> 44
Because the Portfolio has not yet commenced operations as of the
date of this Statement of Additional Information, no brokerage commissions have
been paid by the Portfolio.
Investment decisions for the Portfolio concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as the
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which Warburg believes to be equitable to each client, including the
Portfolio. In some instances, this investment procedure may adversely affect the
price paid or received by the Portfolio or the size of the position obtained or
sold for the Portfolio. To the extent permitted by law, securities to be sold or
purchased for the Portfolio may be aggregated with those to be sold or purchased
for such other investment clients in order to obtain best execution.
Any portfolio transaction for the Portfolio may be executed through
Counsellors Securities Inc., the Trust's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the
Portfolio a commission rate consistent with those charged by Counsellors
Securities to comparable unaffiliated customers in similar transactions. All
transactions with affiliated brokers will comply with Rule 17e-1 under the 1940
Act. No portfolio transactions have been executed through Counsellors Securities
since the commencement of the 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 Portfolio may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Portfolio will deal directly with the dealers who make
a market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
The Portfolio may participate, if and when practicable, in bidding
for the purchase of securities for the Portfolio's portfolio directly from an
issuer in order to take advantage of the lower purchase price available to
members of such a group. The Portfolio will engage in this practice, however,
only when Warburg, in its sole discretion, believes such practice to be
otherwise in the Portfolio's interest.
Portfolio Turnover
The Portfolio does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the
Portfolio deems it desirable to sell or purchase securities. The Portfolio's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the
21
<PAGE> 45
portfolio securities. Securities with remaining maturities of one year or less
at the date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Portfolio could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. 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 Portfolio may be higher than mutual funds
having similar objectives that do not utilize these strategies.
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 (64)* Trustee
Harvard University Professor at Harvard University;
1737 Cambridge Street National Intelligence Council from June
Cambridge, Massachusetts 02138 1995 until January 1997; Director or
Trustee of Circuit City Stores, Inc.
(Retail electronics and appliances) and
Phoenix Home Life Mutual Insurance
Company; Director/Trustee of other
investment companies advised by Warburg.
Jack W. Fritz (71) Trustee
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations); Director
of Advo, Inc. (direct mail advertising);
Director/Trustee of other investment
companies advised by Warburg.
John L. Furth* (68) Chairman of the Board
466 Lexington Avenue Vice Chairman, Managing Director and
New York, New York 10017-3147 Director of Warburg; Associated with
Warburg since 1970; Director of
Counsellors Securities; Chairman of the
Board of other investment companies
advised by Warburg.
</TABLE>
- ------------------
* Indicates Trustee who is an "interested person" of the Trust as defined in
the 1940 Act.
22
<PAGE> 46
<TABLE>
<S> <C>
Jeffrey E. Garten (52) Trustee
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and
Finance; Undersecretary of Commerce for
International Trade from November 1993 to
October 1995; Professor at Columbia
University from September 1992 to
November 1993; Director/Trustee of other
investment companies advised by Warburg.
Thomas A. Melfe (67) Trustee
1251 Avenue of the Americas Partner in the law firm Piper & Marbury,
29th Floor L.L.P.; Partner in the law firm of
New York, New York 10020-1104 Donovan Leisure Newton & Irvin from
April 1998; Chairman of the Board,
Municipal Fund for New York Investors,
Inc.; Director/Trustee of other
investment companies advised by Warburg.
Arnold M. Reichman* (50) Trustee
466 Lexington Avenue Managing Director, Chief Operating
New York, New York 10017-3147 Officer and Assistant Secretary of
Warburg; Director of The RBB Fund, Inc.;
Associated with Warburg since 1984;
Director and officer of Counsellors
Securities; Director/Trustee of other
investment companies advised by Warburg.
Alexander B. Trowbridge (69) Trustee
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990
to January 1994; Director or Trustee of
New England Mutual Life Insurance Co.,
ICOS Corporation (biopharmaceuticals),
Waste Management, Inc. (solid and
hazardous waste collection and
disposal), IRI International (energy
services), 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);
Director/Trustee of other investment
companies advised by Warburg.
</TABLE>
- ------------------
* Indicates a Trustee who is an "interested person" of the Trust as defined
in the 1940 Act.
23
<PAGE> 47
<TABLE>
<S> <C>
Eugene L. Podsiadlo (42) President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1991; Officer of
Counsellors Securities and other
investment companies advised by Warburg.
Stephen Distler (45) Vice President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1984; Officer of
Counsellors Securities and other
investment companies advised by Warburg.
Eugene P. Grace (47) Vice President and Secretary
466 Lexington Avenue Senior Vice President of Warburg;
New York, New York 10017-3147 Associated with Warburg since April
1994; Attorney-at-law from September 1989
to April 1994; Life insurance agent, New
York Life Insurance Company from 1993 to
1994; Officer of Counsellors Securities
and other investment companies advised by
Warburg.
Howard Conroy, CPA (44) Vice President and Chief Financial
466 Lexington Avenue Officer
New York, New York 10017-3147 Vice President of Warburg;
Associated with Warburg since
1992; Officer of other investment
companies advised by Warburg.
Daniel S. Madden, CPA (32) Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1995; Associated with
BlackRock Financial Management, Inc. from
September 1994 to October 1996;
Associated with BEA Associates from April
1993 to September 1994; Officer of other
investment companies advised by Warburg.
Janna Manes, Esq. (31) Assistant Secretary
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1996; Associated with
the law firm of Willkie Farr & Gallagher
from 1993 to 1996; Officer of other
investment companies advised by Warburg.
</TABLE>
No employee of Warburg, 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.
24
<PAGE> 48
Trustees' Compensation
(for the fiscal year ended December 31, 1997)
<TABLE>
<CAPTION>
Total Compensation from
Total all Investment
Compensation from Companies
Name of Trustee Trust Managed by Warburg*
--------------- ----- --------------------
<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
Jeffrey E. Garten*** N/A N/A
Thomas A. Melfe $1,500 $44,500
Alexander B. Trowbridge $1,500 $44,500
</TABLE>
- --------------------------
* Each Trustee also serves as a Director or Trustee of 24 investment
companies advised by Warburg, except for Mr. Melfe, who also serves as a
Director or Trustee of 23 investment companies advised by Warburg.
[/R]
** Mr. Furth and Mr. Reichman receive compensation as affiliates of
Warburg, and, accordingly, receive no compensation from the Trust or any
other investment company advised by Warburg.
*** Mr. Garten became a Trustee of the Trust effective February 6, 1998.
**** Mr. Donahue resigned as a Trustee of the Trust effective February 6, 1998.
As of October 30, 1998, no Trustees or officers of the Trust owned any of
the outstanding shares of the Portfolio.
Portfolio Managers
Elizabeth B. Dater is Co-Portfolio Manager of the Portfolio and
manages other Warburg Pincus Funds. 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 with Louis
Rukeyser since 1976. Ms. Dater earned a B.A. degree from Boston University
in Massachusetts.
Stephen J. Lurito is Co-Portfolio Manager of the Portfolio and
manages other Warburg Pincus Funds. Mr. Lurito has been with Warburg since
1987. Prior to that he was a research analyst at Sanford C. Bernstein &
Company, Inc. Mr. Lurito earned a B.A. degree from the University of
Virginia and a M.B.A. from the University of Pennsylvania.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Portfolio and
Counsellors Funds Service, Inc. ("Counsellors Service") and PFPC serve as
co-administrators to the Trust pursuant to separate written agreements (the
"Advisory Agreement," the "Counsellors Service Co-Administration Agreements" and
the "PFPC Co-Administration Agreement," respectively). The services provided by,
and the fees payable by the Trust to, Warburg under the Advisory
25
<PAGE> 49
Agreement, Counsellors Service under the Counsellors Service Co-Administration
Agreement and PFPC under the PFPC Co-Administration Agreement are described in
the Prospectus. These fees are calculated at an annual rate based on a
percentage of the Portfolio's average daily net assets. See the Prospectus,
"Management of the Portfolio."
Because the Portfolio has not yet commenced operations as of the
date of this Statement of Additional Information no advisory fees or
co-administration fees have been paid by this Portfolio.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC") serves as custodian of the
Portfolio's U.S. assets and State Street Bank and Trust Company ("State Street")
serves as custodian of the Portfolio's non-U.S. assets. Each custodian serves
pursuant to separate custodian agreements (the "Custodian Agreements"). Under
the Custodian Agreements, PNC and State Street each (i) maintains a separate
account or accounts in the name of the Portfolio, (ii) holds and transfers
portfolio securities on account of the Portfolio, (iii) makes receipts and
disbursements of money on behalf of the Portfolio, (iv) collects and receives
all income and other payments and distributions on account of the Portfolio's
portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Trust's custodial arrangements. PNC may delegate its duties under
its Custodian Agreement with the Trust to a wholly owned direct or indirect
subsidiary of PNC or PNC Bank Corp. upon notice to the Trust and upon the
satisfaction of certain other conditions. State Street is authorized to select
one or more foreign banking institutions and foreign securities depositaries as
sub-custodian on behalf of the relevant Portfolio and PNC is authorized to
select one or more domestic banks or trust companies to serve as sub-custodian
on behalf of the 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.
State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Trust pursuant to a Transfer Agency and Service
Agreement, under which State Street (i) issues and redeems shares of the
Portfolio, (ii) addresses and mails all communications by the Trust to record
owners of Portfolio shares, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders, (iii)
maintains shareholder accounts and, if requested, sub-accounts and (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., an affiliate of State Street ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.
Organization of the Trust
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Portfolio.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration of Trust provides for
26
<PAGE> 50
indemnification from the Portfolio's property for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio would be unable to
meet its obligations, a possibility that Warburg believes is remote and
immaterial. Upon payment of any liability incurred by the Trust, the shareholder
paying the liability will be entitled to reimbursement from the general assets
of the Portfolio. The Trustees intend to conduct the operations of the Trust in
such a way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trust.
All shareholders of the Portfolio, upon liquidation, will
participate ratably in the Portfolio's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can elect all Trustees. Shares are transferable but
have no preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As described in the Prospectus, shares of the Portfolio may not be
purchased or redeemed by individual investors directly 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 the Portfolio an investment
option for Plan participants. The offering price of the Portfolio's shares is
equal to its per share net asset value. Additional information on how to
purchase and redeem the Portfolio's shares and how such shares are priced is
included in the Prospectus under "Net Asset Value."
Under the 1940 Act, the Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair valuation
of portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (The Portfolio may also suspend or postpone the
recordation of an exchange of its shares upon the occurrence of any of the
foregoing conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Portfolio may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds. The Trust intends to comply with Rule 18f-1 promulgated under the 1940
Act with respect to redemptions in kind.
27
<PAGE> 51
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Trust and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult the sponsoring Participating
Insurance Company separate account prospectus or the Plan documents or other
informational materials supplied by Plan sponsors and their own tax advisers
with respect to the particular tax consequences to them of an investment in the
Portfolio.
The Portfolio intends to continue to qualify to be treated as a
regulated investment company each taxable year under the Internal Revenue Code
of 1986, as amended (the "Code"). To so qualify, the Portfolio must, among other
things: (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities, loans and gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; and (b) diversify its holdings so that, at the
end of each quarter of the Portfolio's taxable year, (i) at least 50% of the
market value of the Portfolio's assets is represented by cash, securities of
other regulated investment companies, U.S. Government securities and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Portfolio's assets and not greater than 10%
of the outstanding voting securities of such issuer and (ii) not more than 25%
of the value of its assets is invested in the securities (other than U.S.
Government Securities or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the Portfolio controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. The Portfolio expects that all of its foreign currency
gains will be directly related to its principal business of investing in stocks
and securities.
In addition, the Portfolio intends to comply with the
diversification requirements of Section 817(h) of the Code related to the
tax-deferred status of insurance company separate accounts. To comply with
regulations under Section 817(h) of the Code, the Portfolio will be required to
diversify its investments so that on the last day of each calendar quarter no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments and no more than 90% is represented by any
four investments. Generally, all securities of the same issuer are treated as a
single investment. For the purposes of Section 817(h), obligations of the United
States Treasury and each U.S. government 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 that rules or regulations are
adopted, there can be no assurance that the Portfolio will be able
28
<PAGE> 52
to operate as currently described, or that the Trust will not have to change the
investment goal or investment policies of the Portfolio. While the Portfolio's
investment goal is fundamental and may be changed only by a vote of a majority
of the Portfolio's outstanding shares, the Board reserves the right to modify
the investment policies of the Portfolio as necessary to prevent any such
prospective rules and regulations from causing a Variable Contract owner to be
considered the owner of the shares of the Portfolio underlying the separate
account.
The Portfolio's transactions in foreign currencies, forward
contracts, options and futures contracts (including options and futures
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
realized by the Portfolio (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Portfolio and defer
Portfolio losses. These rules could therefore affect the character, amount and
timing of distributions to shareholders. These provisions also (a) will require
the Portfolio to mark-to-market certain types of the positions in its portfolio
(i.e., treat them as if they were closed out) and (b) may cause the Portfolio to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The Portfolio will monitor its transactions,
will make the appropriate tax elections and will make the appropriate entries in
its books and records when it acquires any foreign currency, forward contract,
option, futures contract or hedged investment in order to mitigate the effect of
these rules and prevent disqualification of the Portfolio as a regulated
investment company.
As described in the Prospectus, because shares of the Portfolio may
only be purchased through Variable Contracts and Plans, it is anticipated that
dividends and distributions will be exempt from current taxation if left to
accumulate within the Variable Contracts or Plans.
Investment in Passive Foreign Investment Companies
If the Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed by the Portfolio to its shareholders, the Variable
Contracts and Plans. In addition, gain on the disposition of shares in a PFIC
generally is treated as ordinary income even though the shares are capital
assets in the hands of the Portfolio. Certain interest charges may be imposed on
the Portfolio with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Portfolio may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Portfolio compared to a
fund that did not make the election. In addition, information required to make
such an election may not be available to the Portfolio.
Alternatively, the Portfolio may make a mark-to-market election for
regulated investment companies that will result in the Portfolio being treated
as if it had sold and
29
<PAGE> 53
repurchased all of the PFIC stock at the end of each year. In this case, the
Portfolio would report gains as ordinary income and would deduct losses as
ordinary losses to the extent of previously recognized gains. The election, once
made, would be effective for all subsequent taxable years of the Portfolio,
unless revoked with the consent of the IRS. By making the election, the
Portfolio could potentially ameliorate the adverse tax consequences with respect
to its ownership of shares in a PFIC, but in any particular year may be required
to recognize income in excess of the distributions it receives from PFICs and
its proceeds from dispositions of PFIC company stock. The Portfolio may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The Portfolio will
make the appropriate tax elections, if possible, and take any additional steps
that are necessary to mitigate the effect of these rules.
DETERMINATION OF PERFORMANCE
From time to time, the Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders.
Total return is calculated by finding the average annual compounded
rates of return for the one-, five-, and ten- (or such shorter period as the
Portfolio has been offered) year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula: P (1
+ T)(n) = ERV. For purposes of this formula, "P" is a hypothetical investment of
$1,000; "T" is average annual total return; "n" is number of years; and "ERV" is
the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods (or fractional portion
thereof). Total return or "T" is computed by finding the average annual change
in the value of an initial $1,000 investment over the period and assumes that
all dividends and distributions are reinvested during the period.
The Portfolio may advertise, from time to time, comparisons of its
performance with that of one or more other mutual funds with similar investment
objectives. The Portfolio may advertise average annual calendar-year-to-date and
calendar quarter returns, which are calculated according to the formula set
forth in the preceding paragraph, except that the relevant measuring period
would be the number of months that have elapsed in the current calendar year or
most recent three months, as the case may be. Investors should note that this
performance may not be representative of the Portfolio's total return in longer
market cycles.
The Portfolio's performance will vary from time to time depending
upon market conditions, the composition of its portfolio and operating expenses
allocable to it. As described above, total return is based on historical
earnings and is not intended to indicate future performance. Consequently, any
given performance quotation should not be considered as representative of
performance for any specified period in the future. Performance information may
be useful as a basis for comparison with other investment alternatives. However,
the Portfolio's performance will fluctuate, unlike certain bank deposits or
other investments which pay a fixed yield for a stated period of time.
Performance quotations for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan, which would reduce the returns
described in this section. See the Prospectus, "Performance."
30
<PAGE> 54
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Trust. The financial statements for the Trust that are
incorporated by reference in this Statement of Additional Information have been
audited by PwC, 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 the date of this Statement of Additional Information, the
Portfolio has not yet begun selling shares. Consequently, there are no persons
that own of record 5% or more of the Portfolio's outstanding shares.
FINANCIAL STATEMENTS
As of the date of this Statement of Additional Information, the
Portfolio has not yet commenced operations. Consequently, there are no financial
statements for the Portfolio at this time.
31
<PAGE> 55
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.
The following summarizes the ratings used by Moody's for corporate bonds:
A-1
<PAGE> 56
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> 57
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements--
(1) Financial Statements included in Part A:
(incorporated by reference to Post-Effective
Amendment No. 5 to the Trust's Registration Statement
on Form N-1A filed with the Commission on April 7,
1998)
(2) Audited Financial Statements incorporated by
reference in Part B (incorporated by reference to the
Trust's annual report dated December 31, 1997)
(a) Report of Coopers & Lybrand L.L.P.
(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
(b) Exhibits:
Exhibit No. Description of Exhibit
----------- ----------------------
1(a) Declaration of Trust.(1)
1(b) Amendment to Declaration of Trust.(2)
1(c) Designation of Series relating to addition of
Post-Venture Capital and Emerging Markets
Portfolios.(3)
- --------
(1) Incorporated by reference to Registrant's Registration Statement on
Form N-1A filed with the Commission on March 17, 1995.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed with the
Commission on June 14, 1995.
(3) Incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on April 18, 1996.
C-1
<PAGE> 58
Exhibit No. Description of Exhibit
----------- ----------------------
1(d) Designation of Series relating to addition of Growth & Income
Portfolio.(4)
1(e) Designation of Series relating to addition of Emerging Growth
Portfolio.
2(a) By-Laws.(1)
2(b) Amendment to By-Laws.(5)
3 Not applicable.
4 Form of Share Certificate.(2)
5(a) Forms of Investment Advisory Agreements pertaining to the
International Equity and Small Company Growth Portfolios.(2)
5(b) Forms of Investment Advisory Agreements pertaining to the
Post-Venture Capital and Emerging Markets Portfolios.(3)
5(c) Form of Sub-Investment Advisory Agreement pertaining to the
Post-Venture Capital Portfolio.(3)
5(d) Form of Investment Advisory Agreement pertaining to the Growth
& Income Portfolio.(4)
5(e) Form of Investment Advisory Agreement pertaining to the
Emerging Growth Portfolio
6(a) Form of Distribution Agreement.(2).
- ----------
(4) Incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on August 11, 1997.
(5) Incorporated by reference; material provisions of this exhibit are
substantially similar to those of the corresponding exhibit to
Post-Effective Amendment No. 19 to the Registration Statement on Form
N-1A of Warburg, Pincus Capital Appreciation Fund filed on February 23,
1998 (Securities Act File No. 33-12344; Investment Company Act File No.
811-5041).
C-2
<PAGE> 59
Exhibit No. Description of Exhibit
----------- ----------------------
6(b) Form of Letter Agreement pertaining to inclusion of
the Growth & Income Portfolio to the existing
Distribution Agreement.(4)
6(c) Form of Letter Agreement pertaining to inclusion of
the Emerging Growth Portfolio to the existing
Distribution Agreement.
7 Not applicable
8(a) Form of Custodian Agreement with PNC Bank, National
Association.(2).
8(b) Form of Custodian Agreement with State Street Bank
and Trust Company.(6)
8(c) Form of Custodian Services Agreement with PNC Bank,
National Association and the Growth & Income
Portfolio.(4)
8(d) Form of Custodian Services Agreement with PNC Bank,
National Association and the Emerging Growth
Portfolio.
9(a) Form of Transfer Agency Agreement.(2)
9(b) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc.(2)
9(c) Form of Co-Administration Agreement with PFPC Inc.(2)
9(d) Form of Letter Agreement between Registrant and PFPC
Inc. pertaining to inclusion of the Post-Venture
Capital and Emerging Markets Portfolios to the
existing Co-Administration Agreement.(3)
9(e) Form of Participation Agreement.(2)
- ----------
(6) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit to the
Registration Statement on Form N-14 of Warburg, Pincus Major Foreign
Markets Fund, Inc. (formerly known as Warburg, Pincus Managed EAFE(R)
Countries Fund, Inc.) on November 5, 1997 (Securities Act File No.
333-39611).
C-3
<PAGE> 60
Exhibit No. Description of Exhibit
----------- ----------------------
9(f) Form of Co-Administration Agreement between
Registrant and PFPC Inc. pertaining to inclusion of
the Growth & Income Portfolio.(4)
9(g) Form of Co-Administration Agreement between
Registrant and Counsellors Funds Service, Inc.
pertaining to inclusion of the Growth & Income
Portfolio.(4)
9(h) Form of Letter Agreement between Registrant and State
Street pertaining to the inclusion of the Growth &
Income Portfolio under the Transfer Agency and
Service Agreement.(4)
9(i) Form of Letter Agreement between Registrant and PFPC
Inc. pertaining to inclusion of the Emerging Growth
Portfolio under the existing Co-Administration
Agreement.
9(j) Form of Letter Agreement between Registrant and State
Street pertaining to the inclusion of the Emerging
Growth Portfolio under the Transfer Agency and
Service Agreement.
10(a) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Trust.
10(b) Opinion of Sullivan & Worcester LLP
11 Consent of PricewaterhouseCoopers LLP, independent
accountants.(7)
12(a) Purchase Agreement pertaining to the International
Equity and Small Company Growth Portfolios.(2)
12(b) Form of Purchase Agreement pertaining to the
Post-Venture Capital and Emerging Markets
Portfolios.(3)
12(c) Form of Purchase Agreement pertaining to the Growth &
Income Portfolio.(4)
(7) Incorporated by reference to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on April 7, 1998.
C-4
<PAGE> 61
Exhibit No. Description of Exhibit
----------- ----------------------
12(d) Form of Purchase Agreement pertaining to the Emerging
Growth Portfolio.
13 Retirement Plans.(8)
14 Not applicable
16 N/A
17 N/A
Item 25. Persons Controlled by or Under Common Control
with Registrant
From time to time, Warburg Pincus Asset Management, Inc.
("Warburg"), Registrant's investment adviser, may be deemed to control
Registrant and other registered investment companies it advises through its
beneficial ownership of more than 25% of the relevant fund's shares on behalf of
discretionary advisory clients. Warburg has five wholly-owned subsidiaries:
Counsellors Securities Inc., a New York corporation; Counsellors Funds Service,
Inc., a Delaware corporation; Counsellors Agency Inc., a New York corporation;
Warburg, Pincus Investments International (Bermuda), Ltd., a Bermuda
corporation; Warburg, Pincus Asset Management International, Inc., a Delaware
corporation; Warburg Pincus Asset Management (Japan), Inc., a Japanese
corporation; and Warburg Pincus Asset Management (Dublin) Limited, an Irish
corporation.
Item 26. Number of Holders of Securities
N/A
Item 27. Indemnification
Registrant, and officers and directors of Warburg, Counsellors
Securities, Inc., Registrant's distributor ("Counsellors Securities"), and
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).
(8) Incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on March 4, 1996.
C-5
<PAGE> 62
Item 28. Business and Other Connections of Investment
Adviser
Warburg, a wholly owned subsidiary of Warburg, Pincus Asset
Management Holdings, Inc., 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, LLC ("Abbott") acts as
sub-investment adviser for the 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 Directors of Abbott, together
with information as to their other business, profession, vocation, or employment
of a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Abbott (SEC File No. 801-27914).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for Warburg
Pincus Balanced Fund; Warburg Pincus Capital Appreciation Fund; Warburg Pincus
Cash Reserve Fund; Warburg Pincus Central & Eastern Europe Fund; Warburg Pincus
Emerging Growth Fund; Warburg Pincus Emerging Markets Fund; Warburg Pincus
Emerging Markets II Fund; Warburg Pincus European Equity Fund; Warburg Pincus
Fixed Income Fund; Warburg Pincus Global Fixed Income Fund; Warburg Pincus
Global Post-Venture Capital Fund; Warburg Pincus Global Telecommunications Fund;
Warburg Pincus Growth & Income Fund; Warburg Pincus Health Sciences Fund;
Warburg Pincus High Yield Fund; Warburg Pincus Institutional Fund; Warburg
Pincus Intermediate Maturity Government Fund; Warburg Pincus International
Equity Fund; Warburg Pincus International Growth Fund; Warburg Pincus
International Small Company Fund; Warburg Pincus Japan Growth Fund; Warburg
Pincus Japan Small Company Fund; Warburg Pincus Long-Short Equity Fund; Warburg
Pincus Long-Short Market Neutral Fund; Warburg Pincus Major Foreign Markets
Fund; Warburg Pincus Municipal Bond Fund; Warburg Pincus New York Intermediate
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus
Post-Venture Capital Fund; Warburg Pincus Select Economic Value Equity Fund;
Warburg Pincus Small Company Growth Fund; Warburg Pincus Small Company Value
Fund; Warburg Pincus Strategic Global Fixed Income Fund; Warburg Pincus
Strategic Value Fund; Warburg Pincus Trust II; Warburg Pincus U.S. Core Equity
Fund; Warburg Pincus U.S. Core Fixed Income Fund; Warburg Pincus WorldPerks
Money Market Fund; and Warburg Pincus WorldPerks Tax Free Money Market Fund.
C-6
<PAGE> 63
(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)
(4) Counsellors Securities Inc.
335 Madison Avenue
New York, New York 10017
(records relating to its functions as distributor)
(5) Warburg Pincus Asset Management, 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 custodian,
shareholder servicing agent, transfer agent and
dividend disbursing agent)
(7) PNC Bank, National Association
1600 Market Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
C-7
<PAGE> 64
(8) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as shareholder
servicing agent, 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-8
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York, on the 25th day of November, 1998.
WARBURG, PINCUS TRUST
By:/s/Eugene L. Podsiadlo
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act, this Amendment has
been signed below 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 Board of November 25, 1998
- ----------------
John L. Furth Trustees
/s/Eugene L. Podsiadlo President November 25, 1998
- ----------------------
Eugene L. Podsiadlo
/s/Howard Conroy Vice President and Chief November 25, 1998
- ----------------
Howard Conroy Financial Officer
/s/Daniel S. Madden Treasurer and Chief Accounting November 25, 1998
- -------------------
Daniel S. Madden Officer
/s/Richard N. Cooper Trustee November 25, 1998
- --------------------
Richard N. Cooper
/s/Jack W. Fritz Trustee November 25, 1998
- ----------------
Jack W. Fritz
/s/Jeffrey E. Garten Trustee November 25, 1998
- --------------------
Jeffrey E. Garten
/s/Thomas A. Melfe Trustee November 25, 1998
- ------------------
Thomas A. Melfe
/s/Arnold M. Reichman Trustee November 25, 1998
- ---------------------
Arnold M. Reichman
/s/Alexander B. Trowbridge Trustee November 25, 1998
- --------------------------
Alexander B. Trowbridge
</TABLE>
C-9
<PAGE> 66
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
1(e) Designation of Series relating to addition of Emerging Growth
Portfolio.
5(e) Form of Investment Advisory Agreement pertaining to the
Emerging Growth Portfolio
6(c) Form of Letter Agreement pertaining to inclusion of the
Emerging Growth Portfolio to the existing Distribution
Agreement.
8(d) Form of Custodian Services Agreement with PNC Bank, National
Association and the Emerging Growth Portfolio.
9(i) Form of Letter Agreement between Registrant and PFPC Inc.
pertaining to inclusion of the Emerging Growth Portfolio under
the existing Co-Administration Agreement.
9(j) Form of Letter Agreement between Registrant and State Street
pertaining to the inclusion of the Emerging Growth Portfolio
under the Transfer Agency and Service Agreement.
10(a) Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Trust.
10(b) Opinion of Sullivan & Worcester LLP
12(d) Form of Purchase Agreement pertaining to the Emerging Growth
Portfolio.
<PAGE> 1
WARBURG, PINCUS TRUST
Certificate of Establishment and
Designation of the Emerging Growth Portfolio
The undersigned, being the Assistant Secretary of Warburg, Pincus Trust, a
Massachusetts trust with transferable shares (the "Fund"), being hereunto
authorized by vote of a Majority of the Trustees of the Fund acting pursuant to
Section 6.1(b) and Section 9.3 of the Agreement and Declaration of Trust of the
Fund dated March 15, 1995, as now in effect (the "Declaration"), does hereby
establish and designate the following Portfolio (in addition to the Portfolios
now existing) into which the assets of the Fund shall be divided:
Emerging Growth Portfolio
(the "Additional Portfolio"), having relative rights and preferences as
follows:
1. The beneficial interest in the Additional Portfolio shall be
represented by a separate series (the "Additional Series") of shares of
beneficial interest, par value one mil ($.001) per share ("Shares"), which shall
bear the name of the Additional Portfolio to which it relates and shall
represent the beneficial interest only in such Additional Portfolio. An
unlimited number of Shares of the Additional Series may be issued.
2. The Additional Portfolio shall be authorized to invest in cash,
securities, instruments and other property as from time to time described in the
Fund's then currently effective registration statement under the Securities Act
of 1933, as amended.
3. The Shares of the Additional Portfolio, and the Series thereof, shall
have the additional relative rights and preferences, shall be subject to the
liabilities, shall have the other characteristics, and shall be subject to the
powers of the Trustees, all as set forth in paragraphs (a) through (l) of
Section 6.2 of the Declaration. Without limitation of the foregoing sentence,
each Share of the Additional Series shall be redeemable, shall be entitled to
one vote, or a ratable fraction of one vote in respect of a fractional share, as
to matters on which Shares of such Series shall be entitled to vote, and shall
represent a share of the beneficial interest in the assets of the Portfolio to
which that Additional Series relates, all as provided in the Declaration of
Trust.
4. This Certificate may be executed in several counterparts, each of which
shall be an original and all of which shall constitute one instrument.
<PAGE> 2
IN WITNESS WHEREOF, I have hereunto set my hand as of the day and year set
forth opposite my signature below.
Dated: November 24, 1998 /s/ Janna Manes
------------------------
Name: Janna Manes
Title: Assistant Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK )
)
COUNTY OF NEW YORK ) ss. November 24, 1998
Then personally appeared the above named Janna Manes and acknowledged
the foregoing instrument to be her free act and deed.
Before me,
/s/ Maryann Canfield
--------------------
Notary Public
My Commission Expires: September 12, 2000
- 2 -
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
February __, 1999
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, is an open-end, management
investment company that currently offers six portfolios, one of which is the
Emerging Growth Portfolio (the "Portfolio"). The Trust on behalf of the
Portfolio herewith confirms its agreement with Warburg, Pincus Counsellors, Inc.
(the "Adviser") as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Portfolio by
investing and reinvesting in investments of the kind and in accordance with the
limitations specified in its Declaration of Trust, as may be amended from time
to time, and in its Prospectus and Statement of Additional Information relating
to the Portfolio as from time to time in effect, and in such manner and to such
extent as may from time to time be approved by the Board of Trustees of the
Trust. Copies of the Trust's Prospectus and Statement of Additional Information
relating to the Portfolio and Declaration of Trust, as each may be amended from
time to time, have been or will be submitted to the Adviser. The Trust desires
to employ and hereby appoints the Adviser to act as investment adviser to the
Portfolio. The Adviser accepts the appointment and agrees to furnish the
services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of Trustees of
the Trust, the Adviser will (a) act in strict conformity with the Trust's
Declaration of Trust, the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, as the same may from time to time be amended, (b) manage
the Portfolio in accordance with the Portfolio's investment objective and
policies as stated in the Trust's Prospectus and Statement of Additional
Information relating to the Portfolio as from time to time in effect, (c) make
investment decisions for the Portfolio, (d) place purchase and sale orders for
securities on behalf of the Portfolio and (e) calculate and monitor the
Portfolio's asset diversification each calendar quarter so that on the last day
of each calendar quarter the Portfolio will be in compliance with
diversification requirements of Section 817(h) of the Internal
<PAGE> 2
Revenue Code of 1986, as the same may be amended from time to time, and
regulations thereunder. In providing those services, the Adviser will provide
investment research and supervision of the Portfolio's investments and conduct a
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Portfolio's assets. In addition, the Adviser will furnish
the Trust with whatever statistical information the Trust may reasonably request
with respect to the securities that the Portfolio may hold or contemplate
purchasing.
3. Brokerage
In executing transactions for the Portfolio and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any portfolio
transaction, the Adviser will consider all factors it deems relevant including,
but not limited to, breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
for transactions executed through the broker or dealer in the aggregate. In
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as the same may from time to time be
amended) provided to the Portfolio and/or other accounts over which the Adviser
or an affiliate exercises investment discretion.
4. Information Provided to the Trust
The Adviser will keep the Trust informed of developments materially
affecting the Portfolio, and will, on its own initiative, furnish the Trust from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Portfolio in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport to
protect the Adviser against any liability to the Trust or the Portfolio or to
shareholders of the Trust or the Portfolio to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement.
2
<PAGE> 3
6. Limitation of Liability
The Trust and the Adviser agree that the obligations of the Trust
under this Agreement will not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Trust, individually, but are binding only upon the assets and property of the
Portfolio, as provided in the Declaration of Trust. The execution and delivery
of this Agreement have been authorized by the Trustees of the Trust, and signed
by an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer will
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Portfolio as provided in the Declaration of Trust. No series of the Trust,
including the Portfolio, will be liable for any claims against any other series.
7. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Portfolio will pay the Adviser an annual fee calculated at an
annual rate of .90% of the Portfolio's average daily net assets. The fee for the
period from the date the Trust's initial registration statement relating to the
Portfolio is declared effective by the Securities and Exchange Commission to the
end of the year during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period bears
to the full yearly period. Upon any termination of this Agreement before the end
of a year, the fee for such part of that year shall be prorated according to the
proportion that such period bears to the full yearly period and shall be payable
upon the date of termination of this Agreement. For the purpose of determining
fees payable to the Adviser, the value of the Portfolio's net assets shall be
computed at the times and in the manner specified in the Trust's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
8. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Portfolio will bear its
proportionate share of certain other expenses to be incurred in its operation,
including: investment advisory and administration fees; taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Trust who are
not officers, directors, or employees of the Adviser or any of its affiliates;
fees of any pricing service employed to value shares of the Portfolio;
Securities and Exchange Commission fees and state Blue Sky qualification fees;
charges of custodians and transfer and dividend disbursing agents; the
Portfolio's proportionate share of insurance premiums; outside auditing and
legal expenses; costs of maintenance of the Portfolio's
3
<PAGE> 4
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of the shareholders of the Portfolio and of the officers or Board
of Trustees of the Trust; and any extraordinary expenses.
The Portfolio will be responsible for nonrecurring expenses which
may arise, including costs of litigation to which the Portfolio is a party and
of indemnifying officers and Trustees of the Trust with respect to such
litigation and other expenses as determined by the Trustees.
9. Services to Other Companies or Accounts
The Trust understands that the Adviser now acts, will continue to
act and may act in the future as investment adviser to fiduciary and other
managed accounts and to one or more other investment companies or series of
investment companies, and the Trust has no objection to the Adviser so acting,
provided that whenever the Portfolio and one or more other accounts or
investment companies or portfolios advised by the Adviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed to be equitable to each entity. The Trust
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Portfolio. In addition, the Trust understands
that the persons employed by the Adviser to assist in the performance of the
Adviser's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right of the
Adviser or any affiliate of the Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
10. Term of Agreement
This Agreement shall continue until April 17, 2000 and thereafter
shall continue automatically for successive annual periods, provided such
continuance is specifically approved at least annually by (a) the Board of
Trustees of the Trust or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Portfolio's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 60 days' written notice, by the Board of Trustees of the
Trust or by vote of holders of a majority of the Portfolio's shares, or upon 90
days' written notice, by the Adviser. This
4
<PAGE> 5
Agreement will also terminate automatically in the event of its assignment (as
defined in said Act).
11. Representation by the Trust
The Trust represents that a copy of its Declaration of Trust, dated
March 15, 1995, together with all amendments thereto, is on file in the office
of the Secretary of State of The Commonwealth of Massachusetts.
12. Miscellaneous
The Trust recognizes that directors, officers and employees of the
Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Trust agrees that, at the Adviser's request, the Trust's
license to use the words "Warburg, Pincus" will terminate and that the Trust
will take all necessary action to change the name of the Trust and the Portfolio
to names not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By: ______________________________
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By: ____________________________
Name:
Title:
5
<PAGE> 1
DISTRIBUTION AGREEMENT
February __, 1999
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
This is to confirm that Counsellors Securities Inc. shall be the
distributor of shares of beneficial interest, par value $.001 per share, issued
by the Emerging Growth Portfolio of Warburg, Pincus Trust (the "Trust") under
terms of the Distribution Agreement between the Trust and Counsellors Securities
Inc., dated June 20, 1995.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By: _________________________________
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By: ______________________
Name:
Title:
<PAGE> 1
CUSTODIAN SERVICES AGREEMENT
February __, 1999
PNC Bank
Airport Business Center
International Court 2
200 Stevens Drive
Philadelphia, Pennsylvania 19113
Dear Sirs:
In accordance with Article 17 of the Custodian Services Agreement
Terms and Conditions, dated June 20, 1995 (the "Agreement"), between Warburg,
Pincus Trust (the "Trust") and PNC Bank, National Association (the "Bank"), the
Trust hereby notifies the Bank of the Trust's desire to amend Exhibit A of the
Agreement to include the Emerging Growth Portfolio, a series of shares of
beneficial interest of the Trust (the "Portfolio"), and to have the Bank render
services as custodian under the terms of the Agreement with respect to the
Portfolio.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By: ______________________
Name:
Title:
Accepted:
PNC BANK, NATIONAL ASSOCIATION
By:__________________________
Name:
Title:
<PAGE> 1
February __, 1999
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
Gentlemen:
This letter constitutes our agreement with respect to compensation
to be paid to PFPC Inc. ("PFPC") under the terms of a Co-Administration
Agreement dated ___________ ___, 1997 between you (the "Trust"), and PFPC.
Pursuant to Paragraph 11 of that Agreement, and in consideration of the services
to be provided to you, on behalf of the Emerging Growth Portfolio (the
"Portfolio"), you will pay PFPC an annual co-administration fee, to be
calculated daily and paid monthly. You will also reimburse PFPC for its
out-of-pocket expenses incurred on behalf of the Portfolios, including, but not
limited to: postage and handling, telephone, telex, FedEx and outside pricing
service charges.
The annual administration and accounting fee with respect to the
Portfolio shall be .10% of the Portfolio's first $500 million in average daily
net assets, .075% of the Portfolio's next $1 billion in average daily net assets
and .05% of the Portfolio's average daily net assets over $1.5 billion,
exclusive of out-of-pocket expenses.
In each month the Portfolio shall pay to PFPC the asset based fee as
calculated above. The fee for the period from the day of the year this agreement
is entered into until the end of that year shall be pro-rated according to the
proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement, and you intend
to be legally bound thereby, please execute a copy of this letter and return it
to us.
Very truly yours,
PFPC INC.
By: _________________________________
Name:
Title:
Accepted: WARBURG, PINCUS TRUST
By: ___________________________
Name:
Title:
<PAGE> 1
TRANSFER AGENCY AND SERVICE AGREEMENT
February __, 1999
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Dear Sirs:
In accordance with Article 10 of the Transfer Agency and Service
Agreement, dated June 20, 1995 (the "Agreement"), between Warburg, Pincus Trust
(the "Trust") and State Street Bank and Trust Company (the "Bank"), the Trust
hereby notifies the Bank of the Trust's desire to have the Bank render services
as transfer agent under the terms of the Agreement with respect to the Emerging
Growth Portfolio, a series of shares of beneficial interest of the Trust.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By: ______________________
Name:
Title:
Accepted:
STATE STREET BANK AND TRUST COMPANY
By:__________________________
Name:
Title:
<PAGE> 1
[WILLKIE FARR & GALLAGHER LETTERHEAD]
November 25, 1998
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Trust (the "Trust"), a business
trust organized under the laws of The Commonwealth of Massachusetts, in
connection with the Trust's establishment of a new series, the Emerging Growth
Portfolio (the "Portfolio").
We have examined copies of the Trust's Declaration of Trust, as amended (the
"Declaration"), the Trust's By-Laws, the Trust's Registration Statement, as
amended, on Form N-1A, Securities Act File No. 33-58125 and Investment Company
Act File No. 811-07261 (the "Registration Statement"), and all resolutions
adopted by the Trust's Board of Trustees at a telephonic meeting held on
November 20, 1998. We have also examined such other records, documents, papers,
statutes and authorities as we have deemed necessary to form a basis for the
opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Trust and
others.
Based upon the foregoing, we are of the opinion that the shares of beneficial
interest of the Portfolio, par value $.001 per share (the "Shares"), when duly
sold, issued and paid for in accordance with the terms of the Declaration, the
Trust's By-Laws and the Registration Statement, will be validly issued and will
be fully paid and non-assessable shares of beneficial interest of the Trust,
except that, as set forth in the Registration Statement, shareholders of the
Trust may under certain circumstances be held personally liable for its
obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the statement of additional
information included as part of the Registration Statement and to the filing of
this opinion as an exhibit to any
<PAGE> 2
application made by or on behalf of the Trust or any distributor or dealer in
connection with the registration or qualification of the Trust or the Shares
under the securities laws of any state or other jurisdiction.
We are admitted to practice only in the State of New York and are not admitted
to practice under, nor are we experts with respect to, the laws of the
Commonwealth of Massachusetts. Accordingly, in rendering the opinions set forth
above we have relied with your consent on the opinion of Sullivan & Worcester
LLP, special Massachusetts counsel to the Trust, as to all matters of
Massachusetts law, which opinion is attached hereto.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
[SULLIVAN & WORCESTER LLP LETTERHEAD]
Boston
November 25, 1998
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Re: Warburg Pincus Trust-Emerging Growth Portfolio
Post Effective Amendment on Form N-1A
Ladies and Gentlemen:
You have requested our opinion as to certain matters of Massachusetts
law in connection with the filing by Warburg Pincus Trust, a Massachusetts trust
with transferable shares (the "Trust"), of Post-Effective Amendment No. 6 to the
Trust's Registration Statement on Form N-1A (the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), Registration No.
33-58125, and Amendment No. 7 to the Trust's Registration Statement under the
Investment Company Act of 1940, as amended, Registration No. 811-07261
(collectively, the "Amendment"), relating to the registration of shares of
beneficial interest, par value $.001 per share (the "Portfolio Shares") of the
Emerging Growth Portfolio, a series of the Trust (the "Portfolio").
We have acted as Massachusetts counsel to the Trust in connection with
the preparation of the Amendment and the authorization by the Trustees of the
Trust of the issuance and sale of the Portfolio Shares. In this connection we
have examined and are familiar with the Trust's Declaration of Trust filed with
the Secretary of the Commonwealth of Massachusetts on March 15, 1995, as amended
by a Certificate of Amendment filed April 4, 1995 and supplemented by
Certificates of Establishment and Designation filed April 18, 1996 and August 8,
1997, respectively, and further supplemented by a Certificate of Establishment
and Designation of the Emerging Growth Portfolio filed November 24, 1998 (as so
amended and supplemented, the "Declaration"), the Bylaws of the Trust, the forms
of the Prospectus (the "Prospectus") and the Statement of Additional Information
(the "SAI") relating to the Portfolio and included the Amendment, substantially
in the form in which it is to be filed with the Securities and Exchange
Commission (the "SEC"), the actions of the Trustees to organize the Trust and
the Portfolio and to authorize the issuance of the Portfolio Shares,
certificates of Trustees and officers of the Trust and of public officials as to
matters of fact, and such other documents and instruments, certified or
otherwise identified to our satisfaction, and such questions of law and fact, as
we have considered necessary or appropriate for purposes of the opinions
expressed herein. We have assumed the genuineness of the signatures on, and the
authenticity of, all documents furnished to us, and the conformity to the
originals of documents submitted to us as certified copies, which facts we have
not independently verified.
<PAGE> 2
Willkie Farr & Gallagher -2- November 25, 1998
Based upon and subject to the foregoing, we hereby advise you that, in
our opinion, under the laws of The Commonwealth of Massachusetts:
1. The Trust has been duly organized and is validly existing as a
trust with transferable shares of the type commonly called a
Massachusetts business trust.
2. The Trust is authorized to issue an unlimited number of
Portfolio Shares; the Portfolio Shares to be offered for sale
by the Prospectus and SAI have been duly and validly
authorized by all requisite action of the Trustees of the
Trust, and no action of the shareholders of the Trust is
required in such connection.
3. The Portfolio Shares, when duly sold, issued and paid for as
contemplated by the Registration Statement, will be validly
and legally issued, fully paid and nonassessable by the Trust.
With respect to the opinion stated in paragraph 3 above, we wish to
point out that the shareholders of a Massachusetts business trust may under some
circumstances be subject to assessment at the instance of creditors to pay the
obligations of such trust in the event that its assets are insufficient for the
purpose.
This letter expresses our opinions as to the provisions of the
Declaration and the laws of Massachusetts applying to business trusts generally,
but does not extend to the Massachusetts Securities Act, or to federal
securities or other laws.
You may rely upon the foregoing opinions in rendering your opinion
letter on the same matters which is to be filed with the Amendment as an exhibit
to the Registration Statement, and we hereby consent to the reference to us in
the Prospectus, and to the filing of this letter with the SEC as an exhibit to
the Registration Statement. In giving such consent, we do not thereby concede
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act.
Very truly yours,
/s/ Sullivan & Worcester LLP
Sullivan & Worcester LLP
<PAGE> 1
PURCHASE AGREEMENT
Warburg, Pincus Trust (the "Trust"), a business trust organized
under the laws of the Commonwealth of Massachusetts, with respect to the
Emerging Growth Portfolio (the "Portfolio"), and Warburg, Pincus Counsellors,
Inc. ("Counsellors") hereby agree as follows:
1. The Trust offers Counsellors and Counsellors hereby purchases one
share of beneficial interest of the Portfolio, having a par value $.001 per
share, at a price of $10.00 per Share (the "Initial Share"). Counsellors hereby
acknowledges receipt of a certificate representing the Initial Share, and the
Trust hereby acknowledges receipt from Counsellors of $10.00 in full payment for
the Initial Share.
2. Counsellors represents and warrants to the Trust that the Initial
Share is being acquired for investment purposes and not for the purpose of
distribution.
3. Counsellors agrees that if any holder of the Initial Share
redeems it before five years after the date upon which the Portfolio commences
its investment activities, the redemption proceeds will be reduced by the amount
of unamortized organizational expenses, in the same proportion as the Initial
Share being redeemed bears to the number of Initial Shares outstanding at the
time of redemption. The parties hereby acknowledge that any shares acquired by
Counsellors other than the Initial Share have not been acquired to fulfill the
requirements of Section 14 of the Investment Company Act of 1940, as amended,
and, if redeemed, their redemption proceeds will not be subject to reduction
based on the unamortized organizational expenses of the Portfolio.
4. The Trust and Counsellors agree that the obligations of the Trust
under this Agreement will not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Trust, individually, but are binding only upon the assets and property of the
Trust, as provided in the Declaration of Trust. The execution and delivery of
this Agreement have been authorized by the Trustees of the Trust, and signed by
an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer will
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Trust as provided in the Declaration of Trust. No series of the Trust,
<PAGE> 2
including the Portfolio, will be liable for any claims against any other series.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day of February, 1999.
WARBURG, PINCUS TRUST
By: ____________________________
Name:
Title:
ATTEST:
____________________
WARBURG, PINCUS COUNSELLORS, INC.
By: ____________________________
Name:
Title:
ATTEST:
____________________
