<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on March 17, 1997
Securities Act File No. 333-19175
Investment Company Act File No. 811-07999
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. 1 [x]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 1 [x]
(Check appropriate box or boxes)
Warburg, Pincus Trust II
.............................................................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
........................................ ................
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Trust II
466 Lexington Avenue
New York, New York 10017-3147
.........................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>2
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration
Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed
Title of Proposed Maximum
Securities Maximum Aggregate Amount of
Being Amount Being Offering Price Offering Registration
Registered Registered per Unit Price Fee
----------- ---------------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
Shares of
beneficial
interest,
$.001 par
value per
share Indefinite* * Indefinite* $0
- -----------------------
</TABLE>
DECLARATION PURSUANT TO RULE 24f-2
- ------------------------
* An indefinite number of shares of beneficial interest of the
Registrant is being registered by this Registration Statement pursuant
to Rule 24f-2 under the Investment Company Act of 1940, as amended
(the "1940 Act").
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended (the "1933 Act"), or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>3
WARBURG, PINCUS TRUST II
FORM N-1A
CROSS REFERENCE SHEET
--------------------------------------
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page.............................. Cover Page
2. Synopsis................................ The Trust's Expenses
3. Condensed Financial Information......... Not Applicable
4. General Description of Registrant....... Cover Page;
Investment
Objectives and
Policies; Portfolio
Investments; Risk
Factors and Special
Considerations;
Certain Investment
Strategies;
Investment
Guidelines; General
Information
5. Management of the Fund.................. Management of the
Portfolios
6. Capital Stock and Other Securities...... General Information
7. Purchase of
Securities Being
Offered................................ How to Purchase and Redeem
Shares in the Portfolios;
Management of the
Portfolios; Net Asset
Value
8. Redemption or Repurchase................ How to Purchase and Redeem
Shares in the Portfolios
9. Legal Proceedings....................... Not Applicable
<PAGE>4
Part B Heading for the Statement
Item No. of Additional Information
- ---------------------------------- -------------------------
10. Cover Page..............................Cover Page
11. Table of Contents...................... Contents
12. General Information
and History............................ Management of the Trust
13. Investment Objectives Investment Objectives; Investment
and Policies........................... Policies
14. Management of the
Registrant............................. Management of the Trust; See
Prospectus--"Management of the
Portfolios"
15. Control Persons and
Principal Holders of
Securities................... Management of the Trust
16. Investment Advisory
and Other Services........... Management of the Trust; See
Prospectus--"Management of the
Portfolios"
17. Brokerage Allocation......... Investment Policies; See Pros-
pectus-"Portfolio Transactions
and Turnover Rate"
18. Capital Stock and Management of the Trust--
Other Securities............. Organization of the Trust; See
Prospectus--"General Information"
19. Purchase, Redemption
and Pricing of
Securities Being
Offered...................... Additional Purchase and Redemp-
tion Information; See
Prospectus--"How to Purchase and
Redeem Shares in the
Portfolios"; "Net Asset Value"
20. Tax Status................... Additional Information Concerning
Taxes; See Prospectus--
"Dividends, Distributions and
Taxes"
21. Underwriters................. Investment Policies--Portfolio
Transactions; See Prospectus--
"Management of the Portfolios"
22. Calculation of
Performance Data.............. Determination of Performance
23. Financial Statements.......... Report of Independant
Accountants; Financial Statements
<PAGE>5
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.
<PAGE>
PROSPECTUS
March , 1997
WARBURG PINCUS TRUST II
[*] FIXED INCOME PORTFOLIO
[*] GLOBAL FIXED INCOME PORTFOLIO
Warburg Pincus Trust II shares are not available directly to
individual investors but may be offered only through certain
insurance products and pension and retirement plans.
[Logo]
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 17, 1997
PROSPECTUS March , 1997
Warburg Pincus Trust II (the 'Trust') is an open-end management investment
company that currently offers two investment funds, both of which are offered
pursuant to this Prospectus (the 'Portfolios'):
FIXED INCOME PORTFOLIO seeks total return consistent with prudent investment
management.
GLOBAL FIXED INCOME PORTFOLIO seeks total return consistent with prudent
investment management, consisting of a combination of interest income, currency
gains and capital appreciation.
Shares of a Portfolio are not available directly to individual investors but may
be offered only to certain (i) life insurance companies ('Participating
Insurance Companies') for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance contracts (together, 'Variable Contracts') and (ii) tax-qualified
pension and retirement plans ('Plans'), including participant-directed Plans
which elect to make a Portfolio an investment option for Plan participants. A
Portfolio may not be available in every state due to various insurance
regulations.
This Prospectus briefly sets forth certain information about the Portfolios that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. This Prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product that accompanies this Prospectus or with the Plan documents or
other informational materials supplied by Plan sponsors. Additional information
about each Portfolio, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission (the 'SEC'). The SEC
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolios. The Statement of Additional Information is also
available upon request and without charge by calling the Trust at (800)
369-2728. The Statement of Additional Information, as amended or supplemented
from time to time, bears the same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIOS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
THE TRUST'S EXPENSES
________________________________________________________________________________
<TABLE>
<CAPTION>
Fixed Global Fixed
Income Portfolio Income Portfolio
---------------- ----------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................... 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.......................................... .48% .52%
12b-1 Fees............................................... 0 0
Other Expenses........................................... .51% .47%
--- ---
Total Portfolio Operating Expenses (after fee waivers and
expense reimbursements)*............................... .99% .99%
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................................................... $ 10 $ 10
3 years.................................................. $ 32 $ 32
</TABLE>
- --------------------------------------------------------------------------------
* Absent the waiver of fees by the Portfolios' investment adviser and
co-administrator, Management Fees would equal .50% and 1.00%, Other Expenses
would equal .65% and .55%, and Total Portfolio Operating Expenses would
equal 1.15% and 1.55% for the Fixed Income and Global Fixed Income
Portfolios, respectively. Other Expenses are based upon annualized estimates
of expenses for the fiscal year ending December 31, 1997, net of any fee
waivers or expense reimbursements. The investment adviser and
co-administrator have undertaken to limit each Portfolio's Total Portfolio
Operating Expenses to the limits shown in the table above through December
31, 1997.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of a Portfolio. THE TABLE DOES NOT
REFLECT ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE
VARIABLE CONTRACTS OR PLANS; SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE
PROSPECTUS OF THE SPONSORING PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT OR
IN THE PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIALS SUPPLIED BY PLAN
SPONSORS. The Example should not be considered a representation of past or
future expenses; actual Portfolio expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, each Portfolio's
actual performance will vary and may result in a return greater or less than 5%.
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
________________________________________________________________________________
Each Portfolio's objective is a fundamental policy and may not be amended
without first obtaining the approval of a majority of the outstanding shares of
that Portfolio. Any investment involves risk and, therefore, there can be no
assurance that any Portfolio will achieve its investment objective. See
'Portfolio Investments' and 'Certain Investment Strategies' for descriptions of
certain types of investments the Portfolios may make.
FIXED INCOME PORTFOLIO
The Fixed Income Portfolio seeks total return consistent with prudent
investment management. The Portfolio is a non-diversified investment fund which
pursues its investment objective by investing, under normal market conditions,
at least 65% of its total assets in fixed income securities, such as corporate
bonds, debentures and notes; convertible debt securities; convertible and
non-convertible preferred stocks; government obligations; obligations issued by
or on behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities ('Municipal Obligations'); and repurchase agreements with
respect to portfolio securities.
Under normal market conditions, the Portfolio intends that its portfolio of
fixed income securities will have a dollar-weighted average remaining maturity
not exceeding 10 years, using for purposes of this calculation the maturity of a
security on its date of purchase. Individual issues may have maturities longer
than 10 years.
The Portfolio may hold up to 35% of its net assets in fixed income securities
rated below investment grade and may invest in unrated issues that are believed
by Warburg, Pincus Counsellors, Inc., the Portfolios' investment adviser
('Warburg'), to be of equivalent quality.
The Portfolio may invest without limit in U.S. dollar-denominated, investment
grade foreign securities, but limits to 35% of its assets the portion that may
be invested in securities of foreign issuers that either are rated below
investment grade or are denominated in a currency other than U.S. dollars.
The Portfolio may invest up to 35% of its total assets in equity securities,
including common stock, warrants and rights. For temporary defensive purposes,
the Portfolio may invest without limit in short-term money market obligations.
GLOBAL FIXED INCOME PORTFOLIO
The Global Fixed Income Portfolio seeks total return consistent with prudent
investment management, consisting of a combination of interest income, currency
gains and capital appreciation. The Portfolio is a non-diversified investment
fund which pursues its objective by investing, under normal market conditions,
at least 65% of its total assets in fixed income obligations of governmental and
corporate issuers denominated in various
3
<PAGE>
currencies (including U.S. dollars and multinational currency units such as
European Currency Units ('ECUs')), including debt obligations issued or
guaranteed by the United States or foreign governments, their agencies,
instrumentalities or political subdivisions, as well as supranational entities
organized or supported by several national governments, such as the
International Bank for Reconstruction and Development (the 'World Bank') or the
European Investment Bank; corporate bonds, notes and debentures; convertible
debt securities; and convertible and non-convertible preferred stock. The
Portfolio may invest in a wide variety of fixed income obligations issued
anywhere in the world, including the United States. Issuers of these securities
will be located in at least three countries and issuers located in any one
country (other than the United States) will not represent more than 40% of the
Portfolio's total assets. In addition, the Portfolio will not invest 25% or more
of its assets in the securities issued by any one foreign government, its
agencies, instrumentalities or political subdivisions.
The Portfolio may hold up to 35% of its net assets in fixed income securities
rated below investment grade, or in unrated securities that are believed by
Warburg to be of equivalent quality.
Under normal market conditions, the Portfolio intends that its portfolio of
fixed income securities will have a dollar-weighted average maturity between 3
and 10 years, using for purposes of this calculation the maturity of a security
on its date of purchase. Individual issues may have maturities shorter or longer
than 3 to 10 years.
The Portfolio may invest up to 35% of its total assets in equity securities,
including common stock, warrants and rights. For temporary defensive purposes or
during times of international political or economic uncertainty, all of the
Portfolio's investments may be made temporarily in the United States or
denominated in U.S. dollars without regard to maturity.
PORTFOLIO INVESTMENTS
________________________________________________________________________________
MONEY MARKET OBLIGATIONS. Each Portfolio is authorized to invest, under
normal conditions, up to 35% of its total assets in short-term money market
obligations having remaining maturities of less than one year at the time of
purchase. These short-term instruments consist of obligations issued or
guaranteed by the United States government, its agencies or instrumentalities
('Government Securities'); 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 Standard & Poor's Ratings Services ('S&P'), or
Prime-2 by Moody's Investors Service, Inc. ('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;
obligations of foreign governments, their agencies or instrumentalities; and
repurchase agreements with respect to portfolio securities.
4
<PAGE>
For temporary defensive purposes or, in the case of the Global Fixed Income
Portfolio, during times of international political or economic uncertainty, each
Portfolio may invest without limit in short-term money market obligations.
Repurchase Agreements. Under normal market conditions, each Portfolio may
invest up to 20% of its total assets in repurchase agreement transactions with
member banks of the Federal Reserve System and certain non-bank dealers.
Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under the terms of a typical repurchase agreement, a Portfolio
would acquire any underlying security for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Portfolio to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Portfolio's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Portfolio's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Portfolio bears a risk of loss in
the event that the other party to a repurchase agreement defaults on its
obligations or becomes bankrupt and the Portfolio is delayed or prevented from
exercising its right to dispose of the collateral securities, including the risk
of a possible decline in the value of the underlying securities during the
period while the Portfolio seeks to assert this right. Warburg, acting under the
supervision of the Trust's Board of Trustees (the 'Board'), monitors the
creditworthiness of those bank and non-bank dealers with which each Portfolio
enters into repurchase agreements to evaluate this risk. A repurchase agreement
is considered to be a loan under the 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, each Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio, Warburg or
the Portfolios' co-administrator, PFPC Inc. ('PFPC'). A money market mutual fund
is an investment company that invests in short-term high quality money market
instruments. A money market mutual fund generally does not purchase securities
with a remaining maturity of more than one year. As a shareholder in any mutual
fund, a Portfolio will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to payment of the Portfolio's
administration fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. The obligations issued or guaranteed by the U.S.
government in which a Portfolio may invest include direct obligations of the
U.S. Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
5
<PAGE>
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association ('GNMA')); instruments that are supported by the right of the issuer
to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and instruments that are supported by the credit of the instrumentality
(such as Federal National Mortgage Association ('FNMA') and Federal Home Loan
Mortgage Corporation ('FHLMC') bonds).
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolios may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
STRUCTURED SECURITIES. The Portfolios may purchase any type of publicly
traded or privately negotiated fixed income security, including mortgage-backed
securities; structured notes, bonds or debentures; and assignments of and
participations in loans.
Mortgage-Backed Securities. Mortgage-backed securities are collateralized by
mortgages or interests in mortgages and may be issued by government or
non-government entities. Mortgage-backed securities issued by GNMA, FNMA or
FHLMC provide a monthly payment consisting of interest and principal payments,
and additional payments will be made out of unscheduled prepayments of
principal. Neither the value of nor the yield on these mortgage-backed
securities or shares of the Portfolios is guaranteed by the U.S. government.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Foreclosures and
prepayments, which occur when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities on these securities.
The Portfolios' yield may be affected by reinvestment of prepayments at higher
or lower rates than the original investment. Prepayments may tend to increase
due to refinancing of mortgages as interest rates decline. In addition, like
other debt securities, the
6
<PAGE>
values of mortgage-backed securities will generally fluctuate in response to
interest rates.
Structured Notes, Bonds or Debentures. Typically, the value of the principal
and/or interest on these instruments is determined by reference to changes in
the value of specific currencies, interest rates, commodities, indexes or other
financial indicators (the 'Reference') or the relevant change in two or more
References. The interest rate or the principal amount payable upon maturity or
redemption may be increased or decreased depending upon changes in the
applicable Reference. The terms of the structured securities may provide that in
certain circumstances no principal is due at maturity and, therefore, may result
in the loss of a Portfolio's entire investment. The value of structured
securities may move in the same or the opposite direction as the value of the
Reference, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In addition,
the change in interest rate or the value of the security at maturity may be a
multiple of the change in the value of the Reference so that the security may be
more or less volatile than the Reference, depending on the multiple.
Consequently, structured securities may entail a greater degree of market risk
and volatility than other types of debt obligations.
Assignments and Participations. Each Portfolio may invest in assignments of
and participations in loans issued by banks and other financial institutions.
When a Portfolio purchases assignments from lending financial institutions,
the Portfolio will acquire direct rights against the borrower on the loan.
However, since assignments are generally arranged through private negotiations
between potential assignees and potential assignors, the rights and obligations
acquired by a Portfolio as the purchaser of an assignment may differ from, and
be more limited than, those held by the assigning lender.
Participations in loans will typically result in a Portfolio having a
contractual relationship with the lending financial institution, not the
borrower. A Portfolio would have the right to receive payments of principal,
interest and any fees to which it is entitled only from the lender of the
payments from the borrower. In connection with purchasing a participation, a
Portfolio generally will have no right to enforce compliance by the borrower
with the terms of the loan agreement relating to the loan, nor any rights of
set-off against the borrower, and the Portfolio may not benefit directly from
any collateral supporting the loan in which it has purchased a participation. As
a result, a Portfolio purchasing a participation will assume the credit risk of
both the borrower and the lender selling the participation. In the event of the
insolvency of the lender selling the participation, the Portfolio may be treated
as a general creditor of the lender and may not benefit from any set-off between
the lender and the borrower.
A Portfolio may have difficulty disposing of assignments and participations
because there is no liquid market for such securities. The lack of a liquid
secondary market will have an adverse impact on the value of
7
<PAGE>
such securities and on a Portfolio's ability to dispose of particular
assignments or participations when necessary to meet the Portfolio's liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the borrower. The lack of a liquid market for
assignments and participations also may make it more difficult for a Portfolio
to assign a value to these securities for purposes of valuing the Portfolio's
portfolio and calculating its net asset value.
WARRANTS. Each Portfolio may invest up to 10% of its total assets in
warrants. Warrants are securities that give the holder the right, but not the
obligation, to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set
period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
________________________________________________________________________________
For certain additional risks related to each Portfolio's investments, see
'Portfolio Investments' beginning at page 4 and 'Certain Investment Strategies'
beginning at page 11.
Among the factors that may be considered in deciding whether to invest in a
security are the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history and the ability of the issuer's
management. Bond prices generally vary inversely in relation to changes in the
level of interest rates, as well as in response to other market factors and
changes in the creditworthiness of the issuers of the securities. Government
Securities are considered to be of the highest credit quality available.
Government Securities, however, will be affected by general changes in interest
rates. The price volatility of a Portfolio's shares where the Portfolio invests
in intermediate maturity bonds will be substantially less than that of long-term
bonds. An intermediate maturity bond will generally have a lower yield than that
of a long-term bond. Longer-term securities in which the Portfolios may invest
generally offer a higher current yield than is offered by shorter-term
securities, but also generally involve greater volatility of price and risk of
capital than shorter-term securities.
NON-DIVERSIFIED STATUS. Each Portfolio is classified as non-diversified under
the 1940 Act, which means that the Portfolios are not limited by the 1940 Act in
the proportion of its assets that it may invest in the obligations of a single
issuer. Each 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 a 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 a
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.
8
<PAGE>
LOWER-RATED SECURITIES. There are certain risk factors associated with
lower-rated securities. A security will be considered investment grade if it is
rated at the time of purchase within the four highest grades assigned by Moody's
or S&P. Securities rated in the fourth highest grade have speculative
characteristics, and securities rated B have speculative elements and a greater
vulnerability to default than higher-rated securities. Investors should be aware
that ratings are relative and subjective and are not absolute standards of
quality. Subsequent to its purchase by a Portfolio, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. Neither event will require sale of such securities by
the Portfolio, although Warburg will consider such event in its determination of
whether the Portfolio should continue to hold the securities.
The Portfolios may invest in securities rated as low as C by Moody's or D by
S&P. Each Portfolio may invest in unrated securities considered to be of
equivalent quality. Securities that are rated C by Moody's are the lowest rated
class and can be regarded as having extremely poor prospects of ever attaining
any real investment standing. Debt rated D by S&P is in default or is expected
to default upon maturity or payment date.
Lower-rated and comparable unrated securities (commonly referred to as 'junk
bonds') (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
The market value of securities in lower-rated categories is more volatile
than that of higher quality securities. In addition, the Portfolios may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Portfolios' ability to dispose of particular
issues and may make it more difficult for the Portfolios to obtain accurate
market quotations for purposes of valuing the Portfolios and calculating their
respective net asset values.
For a complete description of the rating systems of Moody's and S&P, see the
Appendix to the Statement of Additional Information.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Portfolios may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the 'Securities Act'), but that can be sold to 'qualified institutional
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buyers' in accordance with Rule 144A under the Securities Act ('Rule 144A
Securities'). A Rule 144A Security will be considered illiquid and therefore
subject to each Portfolio's limitation on the purchase of illiquid securities,
unless the Board determines on an ongoing basis that an adequate trading market
exists for the security. In addition to an adequate trading market, the Board
will also consider factors such as trading activity, availability of reliable
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Portfolios to the extent that
qualified institutional buyers become uninterested for a time in purchasing Rule
144A Securities. The Board will carefully monitor any investments by the
Portfolios in Rule 144A Securities. The Board may adopt guidelines and delegate
to Warburg the daily function of determining and monitoring the liquidity of
Rule 144A Securities, although the Board will retain ultimate responsibility for
any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and a
Portfolio may take longer to liquidate these positions than would be the case
for publicly traded securities. Although these securities may be resold in
privately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Portfolio. Further, companies whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements that would be applicable if their
securities were publicly traded. A Portfolio's investment in illiquid securities
is subject to the risk that should the Portfolio desire to sell any of these
securities when a ready buyer is not available at a price that is deemed to be
representative of their value, the value of the Portfolio's net assets could be
adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
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PORTFOLIO TRANSACTIONS AND TURNOVER RATE
________________________________________________________________________________
A Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the relevant Portfolio. In
addition, to the extent it is consistent with a Portfolio's investment
objective, the Portfolio also may engage in short-term trading. A Portfolio will
not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. This investment
approach and use of certain of the investment strategies described below may
result in a high portfolio turnover rate. It is not possible to predict the
portfolio turnover rates for the Portfolios; however, each Portfolio's annual
turnover rate should not exceed 200%. High portfolio turnover rates (100% or
more) may result in dealer markups or underwriting commissions as well as other
transaction costs, including correspondingly higher brokerage commissions. In
addition, short-term gains realized from portfolio transactions are taxable to
shareholders as ordinary income. See 'Dividends, Distributions and
Taxes -- Taxes' below and 'Investment Policies -- Portfolio Transactions' in the
Statement of Additional Information.
Newly issued Government Securities normally are purchased by a Portfolio
directly from the issuer or from an underwriter acting as a principal. Other
purchases and sales usually are placed by a Portfolio with those dealers which
Warburg determines offer the best price and execution. The purchase price paid
by a Portfolio to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from a dealer in the after market normally are executed at a price between the
bid and asked prices.
All orders for transactions in securities or options on behalf of a Portfolio
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Portfolios' distributor ('Counsellors Securities'). A
Portfolio may utilize Counsellors Securities in connection with a purchase or
sale of securities when Warburg believes that the charge for the transaction
does not exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
________________________________________________________________________________
Although there is no intention of doing so during the coming year, each
Portfolio may lend portfolio securities and enter into reverse repurchase
agreements and dollar rolls. Detailed information concerning each Portfolio's
strategies and related risks is contained below and in the Statement of
Additional Information.
STRATEGICS TRANSACTIONS.
Options, Futures and Currency Transactions. At the discretion of Warburg,
each Portfolio may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of the Portfolio's current or anticipated
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portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE A PORTFOLIO'S INVESTMENT RISK. Transaction
costs and any premiums associated with these strategies, and any losses
incurred, will affect a Portfolio's net asset value and performance. Therefore,
an investment in a Portfolio may involve a greater risk than an investment in
other mutual funds that do not utilize these strategies. The Portfolios' use of
these strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the National Association of Securities
Dealers, Inc. and by the Code.
Securities and Index Options. Each Portfolio may purchase and write (sell)
covered put and call options traded on U.S. and foreign exchanges as well as
over-the-counter ('OTC') without limit on 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 purchaser of a
put option on a security has the right to compel the purchase by the writer of
the underlying security, while the purchaser of a call option on a security has
the right to purchase the underlying security from the writer. In addition to
purchasing and writing options on securities, each Portfolio may also purchase
and write without limit 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.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation a
Portfolio could realize on its investments or require a Portfolio to hold
securities it would otherwise sell.
Futures Contracts and Related Options. Each Portfolio may enter into interest
rate, securities index and currency futures contracts and purchase and write
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 securities index and certain other futures contracts, are settled
in cash with reference to a specified multiplier times the change in the
specified interest rate, index or exchange 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.
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Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although the Portfolios are limited
in the amount of assets that may be invested in futures transactions, there is
no overall limit on the percentage of a Portfolio's assets that may be at risk
with respect to futures activities.
Currency Exchange Transactions. The Portfolios may conduct 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 and writing
exchange-traded and OTC currency options. A forward currency contract involves
an obligation to purchase or sell a specific currency at a future date at a
price set at the time of the contract. An option on a foreign currency operates
similarly to an option on a security. Risks associated with currency forward
contracts and purchasing currency options are similar to those described in this
Prospectus for futures contracts and securities 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.
Swap and Interest Rate Transactions. Each Portfolio may enter into interest
rate, index and mortgage swaps and interest rate caps, floors and collars for
hedging purposes or to seek to increase total return and may enter into currency
swaps for hedging purposes. Interest rate swaps involve the exchange by a
Portfolio with another party of their respective commitments to pay or receive
interest, such as an exchange of fixed rate payments for floating rate payments.
Index swaps involve the exchange by a Portfolio with another party of the
respective amounts payable with respect to a notional principal amount related
to one or more indexes. Mortgage swaps are similar to interest rate swaps in
that they represent commitments to pay and receive interest. The notional
principal amount, however, is tied to a reference pool or pools of mortgages.
Currency swaps involve the exchange of cash flows on a notional amount of two or
more currencies based on their relative future values. The purchase of an
interest rate cap entitles the purchaser, to the extent that a specified index
exceeds a predetermined interest rate, to receive payment of interest on a
notional principal amount from the party selling such interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
of interest on a notional principal amount from the party selling the interest
rate floor. An interest rate collar is the combination of a cap and a floor that
preserves a certain return within a predetermined range of interest rates.
A Portfolio will enter into interest rate, index and mortgage swaps only on a
net basis, which means that the two payment streams are netted out, with
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the Portfolio receiving or paying, as the case may be, only the net amount of
the two payments. Interest rate, index and mortgage swaps do not involve the
delivery of securities, other underlying assets or principal. Accordingly, the
risk of loss with respect to interest rate, index and mortgage swaps is limited
to the net amount of interest payments that the Portfolio is contractually
obligated to make. If the other party to an interest rate, index or mortgage
swap defaults, the Portfolio's risk of loss consists of the net amount of
interest payments that the Portfolio is contractually entitled to receive. In
contrast, currency swaps usually involve the delivery of a gross payment stream
in one designated currency in exchange for the gross payment stream in another
designated currency. Therefore, the entire payment stream under a currency swap
is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. To the extent that the net amount payable by a
Portfolio under an interest rate, index or mortgage swap and the entire amount
of the payment stream payable by a Portfolio under a currency swap or an
interest rate cap, floor or collar are held in a segregated account consisting
of cash or other liquid assets, the Portfolios and Warburg believe that swaps do
not constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to each Portfolio's borrowing restriction.
The Portfolios will not enter into interest rate, index, mortgage or currency
swaps, or interest rate cap, floor or collar transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party is
rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's or, if
unrated by such rating organizations, determined to be of comparable quality by
Warburg.
Hedging Considerations. The Portfolios may engage in options, futures and
currency, swap and interest rate 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 these 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 any movement in the hedge. A Portfolio will
engage in hedging transactions only when deemed advisable by Warburg, and
successful use of hedging transactions will depend on Warburg's ability to
correctly predict movements in the hedge and the hedged position and the
correlation between them, which could prove to be inaccurate. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends.
Additional Considerations. To the extent that a Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
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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. Each Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities, indexes and currencies; interest
rate, index and currency futures contracts and options on these futures
contracts; forward currency contracts; and swap and interest rate transactions.
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.
ZERO COUPON SECURITIES. Each Portfolio may invest without limit in 'zero
coupon securities.' Zero coupon securities pay no cash income to their holders
until they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the values of securities
that distribute income regularly and may be more speculative than such other
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. Redemption of shares of a Portfolio that require
it to sell zero coupon securities prior to maturity may result in capital gains
or losses that may be substantial. In addition, a Portfolio's investments in
zero coupon securities will result in special tax consequences, which are
described below under 'Dividends, Distributions and Taxes -- Taxes.'
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each Portfolio may
utilize up to 20% of its total assets to purchase securities on a when-issued
basis and purchase or sell securities on a delayed-delivery basis. In these
transactions, payment for and delivery of the securities occur beyond the
regular settlement dates, normally within 30-45 days after the transaction. A
Portfolio will not enter into a when-issued or delayed-delivery transaction for
the purpose of leverage, but may sell the right to acquire a when-issued
security prior to its acquisition or dispose of its right to deliver or receive
securities in a delayed-delivery transaction if Warburg deems it advantageous to
do so. The payment obligation and the interest rate that will be received in
when-issued and delayed-delivery transactions are fixed at the time the buyer
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enters into the commitment. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. When-issued securities may include securities purchased on a 'when, as
and if issued' basis under which the issuance of the security depends on the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. A Portfolio will establish a segregated
account with its custodian consisting of cash or other liquid assets 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.
SHORT SALES AGAINST THE BOX. Each Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one 'against the box', may be entered into by a Portfolio to, for
example, lock-in a sale price for a security the Portfolio does not wish to sell
immediately or to postpone a gain or loss for Federal income tax purposes. The
proceeds of the sale will generally be held by the broker until the settlement
date when the Portfolio delivers securities to close out its short position. The
Portfolio will deposit, in a segregated account with its custodian or a
qualified subcustodian, the securities sold short or convertible or exchangeable
preferred stocks or debt securities in connection with short sales against the
box. Not more than 10% of a Portfolio's net assets (taken at current value) may
be held as collateral for short sales against the box at any one time.
The extent to which a Portfolio may make short sales may be limited by the
requirement contained in the Code. See 'Dividends, Distributions and Taxes' for
other tax considerations applicable to short sales.
FOREIGN SECURITIES. Each Portfolio may invest in the securities of foreign
issuers. There are certain risks involved in investing in securities of
companies and governments of foreign nations which are in addition to the usual
risks inherent in domestic investments. These risks include those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers, the lack of
uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often less rigorous than those
applied in the United States. The yield of the Portfolios may be adversely
affected by fluctuations in the value of one or more currencies relative to the
U.S. dollar. Moreover, securities of many foreign companies may be less liquid
and their prices more volatile than
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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. Due to the increased exposure of the Portfolios to
market and foreign exchange fluctuations brought about by such delays and due to
the corresponding negative impact on the Portfolios' liquidity, the Portfolios
will avoid investing in countries that are known to experience settlement delays
which may expose the Portfolios to unreasonable risk of loss. 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.
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 may also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians. Certain of the above risks may be involved with American Depositary
Receipts ('ADRs') and European Depositary Receipts ('EDRs'), instruments that
evidence ownership in underlying securities issued by a foreign corporation.
ADRs and EDRs 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 and EDRs (sometimes referred to as Continental Depositary
Receipts) are issued in Europe, typically by non-U.S. banks and trust companies.
REITS. Each Portfolio may invest in real estate investment trusts ('REITs'),
which are pooled investment vehicles that invest primarily in income-producing
real estate or real estate related loans or interests. Like regulated investment
companies such as the Trust, REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the Code. A
Portfolio investing in a REIT will indirectly bear its proportionate share of
any expenses paid by the REIT in addition to the expenses of the Portfolio.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, the possibilities of failing to qualify
for the exemption from tax for distributed income under the Code and failing to
maintain their exemptions from the 1940 Act. REITs are also subject to interest
rate risks.
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ADDITIONAL STRATEGIES AVAILABLE TO THE FIXED INCOME PORTFOLIO ONLY
MUNICIPAL OBLIGATIONS. The Fixed Income Portfolio may invest in Municipal
Obligations. The two principal types of Municipal Obligations, in terms of the
source of payment of debt service on the bonds, are general obligation bonds and
revenue bonds and the Portfolio may hold both in any proportion. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source but not from the general taxing power. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
The Portfolio may invest without limit in Municipal Obligations that are
repayable out of revenue streams generated from economically related projects or
facilities or Municipal Obligations whose issuers are located in the same state.
Sizeable investments in such obligations could involve an increased risk to the
Portfolio should any of such related projects or facilities experience financial
difficulties. The Portfolio intends during the coming year to limit investments
in such obligations to less than 25% of its assets.
ALTERNATIVE MINIMUM TAX BONDS. The Fixed Income Portfolio may invest without
limit in 'Alternative Minimum Tax Bonds,' which are certain bonds issued after
August 7, 1986 to finance certain non-governmental activities. While the income
from Alternative Minimum Tax Bonds is exempt from regular federal income tax, it
is a tax preference item for purposes of the federal individual and corporate
'alternative minimum tax.' The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments or tax
preference items. Available returns on Alternative Minimum Tax Bonds acquired by
the Portfolio may be lower than those from other Municipal Obligations acquired
by the Portfolio due to the possibility of federal, state and local alternative
minimum or minimum income tax liability on Alternative Minimum Tax Bonds.
VARIABLE RATE AND MASTER DEMAND NOTES. Municipal Obligations purchased by the
Fixed Income Portfolio may include variable rate and master demand notes issued
by industrial development authorities and other governmental entities. Variable
rate demand notes are tax-exempt Municipal Obligations that provide for a
periodic adjustment in the interest rate paid on the notes. Master demand notes
are tax-exempt Municipal Obligations that provide for a periodic adjustment in
the interest rate paid (usually tied to the Treasury Bill auction rate) and
permit daily changes in the amount borrowed. While there may be no active
secondary market with respect to a particular variable rate or master demand
note purchased by the Portfolio, the Portfolio may, upon the notice specified in
the note, demand payment of the principal of and accrued interest on the note at
any time and may resell the note at any time to a third party. The absence of
such an active secondary market,
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however, could make it difficult for the Portfolio to dispose of the variable
rate or master demand note involved in the event the issuer of the note
defaulted on its payment obligations, and the Portfolio could, for this or other
reasons, suffer a loss to the extent of the default plus any expenses involved
in an attempt to recover the investment.
STAND-BY COMMITMENTS. The Fixed Income Portfolio may acquire stand-by
commitments with respect to Municipal Obligations held in its portfolio. Under a
stand-by commitment, which is commonly known as a 'put', a dealer agrees to
purchase, at the Portfolio's option, specified Municipal Obligations at a
specified price. The Portfolio may pay for stand-by commitments either
separately in cash or by paying a higher price for the securities acquired with
the commitment, thus increasing the cost of the securities and reducing the
yield otherwise available from them, and will be valued at zero in determining
the Portfolio's net asset value. A stand-by commitment is not transferable by
the Portfolio, although the Portfolio can sell the underlying Municipal
Obligations to a third party at any time. The principal risk of stand-by
commitments is that the writer of a commitment may default on its obligation to
repurchase the securities acquired with it. The Portfolio intends to enter into
stand-by commitments only with brokers, dealers and banks that, in the opinion
of Warburg, present minimal credit risks. In evaluating the creditworthiness of
the issuer of a stand-by commitment, Warburg will periodically review relevant
financial information concerning the issuer's assets, liabilities and contingent
claims. The Portfolio will acquire stand-by commitments only in order to
facilitate portfolio liquidity and does not intend to exercise its rights under
stand-by commitments for trading purposes.
INVESTMENT GUIDELINES
________________________________________________________________________________
Each Portfolio may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. Each Portfolio may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Portfolio may
not exceed 30% of its total assets, and may pledge its assets in connection with
borrowings. Whenever borrowings (including reverse repurchase agreements) exceed
5% of the value of a Portfolio's total assets, the Portfolio will not make any
investments (including roll-overs). Except for the limitations on borrowing, the
investment guidelines set forth in this paragraph may be changed at any time
without shareholder consent by vote of the Board, subject to the limitations
contained in the 1940 Act. A complete list of investment restrictions that each
Portfolio has adopted identifying additional restrictions that cannot be
changed without the
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approval of the majority of the Portfolio's outstanding shares is contained
in the Statement of Additional Information.
MANAGEMENT OF THE PORTFOLIOS
________________________________________________________________________________
INVESTMENT ADVISER. The Trust employs Warburg as investment adviser to each
Portfolio. Warburg, subject to the control of the Trust's officers and the
Board, manages the investment and reinvestment of the assets of each Portfolio
in accordance with the Portfolio's investment objective and stated investment
policies. Warburg makes investment decisions for each Portfolio and places
orders to purchase or sell securities on behalf of the Portfolio. Warburg also
employs a support staff of management personnel to provide services to the
Portfolios and furnishes each Portfolio with office space, furnishings and
equipment.
For the services provided by Warburg, the Fixed Income and the Global Fixed
Income Portfolios pay Warburg a fee calculated at an annual rate of .50% and
1.00%, respectively, of the relevant Portfolio's average daily net assets.
Warburg and the Trust's co-administrators may voluntarily waive a portion of
their fees from time to time and temporarily limit the expenses to be paid by a
Portfolio.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of January 31,
1997, Warburg managed approximately $17.9 billion of assets, including
approximately $10.7 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership, which itself is controlled by
Warburg, Pincus & Co. ('WP&Co.'), also a New York general partnership. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg G.P. has no business other than being a holding company of
Warburg and its subsidiaries. Warburg's address is 466 Lexington Avenue, New
York, New York 10017-3147.
PORTFOLIO MANAGERS. Dale C. Christensen is a co-portfolio manager of each of
the Portfolios. Mr. Christensen is a managing director of Warburg and has been
associated with Warburg since 1989, before which time he was a senior vice
president at Citibank, N.A. He has been with each Portfolio since inception. M.
Anthony E. van Daalen is a co-portfolio manager of the Fixed Income Portfolio.
Mr. van Daalen is a senior vice president at Warburg and has been a co-portfolio
manager at Warburg since 1992, prior to which time he was an assistant vice
president at Citibank, N.A. Laxmi C. Bhandari, also a senior vice president of
Warburg, is a co-portfolio manager of the Global Fixed Income Portfolio. Mr.
Bhandari has been a co-portfolio manager at Warburg since 1993, before which
time he was a vice president at the Paribas Corporation.
CO-ADMINISTRATORS. The Trust employs Counsellors Funds Service, Inc., a
wholly owned subsidiary of Warburg ('Counsellors Service'), as a co-
20
<PAGE>
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Portfolios, including responding to shareholder
inquiries and providing information on shareholder investments. Counsellors
Service also performs a variety of other services, including furnishing certain
executive and administrative services, acting as liaison between the Portfolios
and their various service providers, furnishing corporate secretarial services,
which include preparing materials for meetings of the Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and monitoring and developing compliance procedures
for the Portfolios. As compensation, each Portfolio pays Counsellors Service a
fee calculated at an annual rate of .10% of the Portfolio's average daily net
assets.
The Trust employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates each
Portfolio's net asset value, provides all accounting services for the Portfolio
and assists in related aspects of the Portfolio's operations. As compensation
the Fixed Income Portfolio pays PFPC a fee calculated at an annual rate of .05%
of the Portfolio's average daily net assets and the Global Fixed Income
Portfolio pays PFPC a fee calculated at an annual rate of .12% of the
Portfolio's first $250 million in average daily net assets, .10% of the next
$250 million in average daily net assets, .08% of the next $250 million in
average daily net assets, and .05% of average daily net assets over $750
million. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
U.S. assets of each of the Portfolios. State Street Bank and Trust Company
('State Street') also serves as custodian of the non-U.S. assets of each of the
Portfolios. Like PFPC, PNC is a 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.
TRANSFER AGENT. State Street serves as shareholder servicing agent, transfer
agent and dividend disbursing agent for the Portfolios. It has delegated to
Boston Financial Data Services, Inc., a 50% owned subsidiary ('BFDS'),
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as
distributor of the shares of the Portfolios. Counsellors Securities is a wholly
owned subsidiary of Warburg and is located at 466 Lexington Avenue, New York,
New York 10017-3147.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ('Service Organizations') with whom it enters into agreements up to
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.25% (the 'Service Fee') of the annual average value of accounts maintained by
such Organizations with a Portfolio. The Service Fee payable to any one
Service Organization is determined based upon a number of factors, including
the nature and quality of the services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of a
Portfolio, consisting of securities dealers who have sold Portfolio shares or
others, including banks and other financial institutions, under special
arrangements. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for 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 promotions. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of a Portfolio's shares.
TRUSTEES AND OFFICERS. The officers of the Trust manage each Portfolio's
day-to-day operations and are directly responsible to the Board. The Board sets
broad policies for each Portfolio and chooses the Trust's officers. A list of
the Trustees and officers and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES IN THE PORTFOLIOS
________________________________________________________________________________
Individual investors may not purchase or redeem shares of a Portfolio
directly; shares may be purchased or redeemed only through Variable Contracts
offered by separate accounts of Participating Insurance Companies or through
Plans, including participant-directed Plans which elect to make a Portfolio an
investment option for Plan participants. Please refer to the prospectus of the
sponsoring Participating Insurance Company separate account or to the Plan
documents or other informational materials supplied by Plan sponsors for
instructions on purchasing or selling a Variable Contract and on how to select a
Portfolio as an investment option for a Variable Contract or Plan.
PURCHASES. All investments in the Portfolios are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by a Portfolio. Each Participating Insurance Company receives orders
from its contract owners to purchase or redeem shares of a Portfolio on any day
that the Portfolio calculates its net asset value (a 'business day'). That
night, all orders received by the Participating Insurance Company prior to the
close of regular trading on the New York Stock Exchange Inc. (the 'NYSE')
(currently 4:00 p.m., Eastern time) on that business day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of a Portfolio during the
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<PAGE>
morning of the next business day. These orders are executed at the net asset
value (described below under 'Net Asset Value') computed at the close of
regular trading on the NYSE on the previous business day in order to provide
a match between the contract owners' orders to the Participating Insurance
Company and that Participating Insurance Company's orders to a Portfolio.
Plan participants may invest in shares of a Portfolio through their Plan by
directing the Plan trustee to purchase shares for their account. Participants
should contact their Plan sponsor for information concerning the appropriate
procedure for investing in the Portfolio.
Each Portfolio reserves the right to suspend the offering of shares for a
period of time or to reject any specific purchase order. Purchase orders may be
refused if, in Warburg's opinion, they are of a size that would disrupt the
management of a Portfolio. A Portfolio may discontinue sales of its shares if
management believes that a substantial further increase in assets may adversely
affect that Portfolio's ability to achieve its investment objective. In such
event, however, it is anticipated that existing Variable Contract owners and
Plan participants would be permitted to continue to authorize investment in such
Portfolio and to reinvest any dividends or capital gains distributions.
REDEMPTIONS. Shares of a Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company or
Plan or its agent prior to the close of regular trading on the NYSE on any
business day and transmitted to the Trust or its specified agent during the
morning of the next business day will be processed at the net asset value
computed at the close of regular trading on the NYSE on the previous business
day. Redemption proceeds will normally be wired to the Participating Insurance
Company or Plan the business day following receipt of the redemption order, but
in no event later than seven days after receipt of such order.
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS. Each Portfolio calculates its dividends from
net investment income. Net investment income includes interest accrued and
dividends earned on the Portfolio's portfolio securities for the applicable
period less applicable expenses. Each Portfolio declares dividends from its net
investment income annually. Net investment income earned on weekends and when
the NYSE is not open will be computed as of the next business day. Distributions
of net realized long-term and short-term capital gains are declared annually
and, as a general rule, will be distributed or paid after the end of the fiscal
year in which they are earned. Dividends and distributions will automatically be
reinvested in additional shares of the relevant Portfolio at net asset value
unless, in the case of a Variable Contract, a Participating Insurance Company
elects to have dividends or distributions paid in cash.
TAXES. For a discussion of the tax status of a Variable Contract or Plan,
refer to the sponsoring Participating Insurance Company separate account
prospectus or Plan documents or other informational materials supplied by Plan
sponsors.
23
<PAGE>
Each Portfolio intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Portfolio intends to distribute
all of its net income and capital gains to its shareholders (the Variable
Contracts and Plans).
Because shares of the Portfolios may be purchased only through Variable
Contracts and Plans, it is anticipated that any income dividends or capital gain
distributions from a Portfolio are taxable, if at all, to the Participating
Insurance Companies and Plans and will be exempt from current taxation of the
Variable Contract owner or Plan participant if left to accumulate within the
Variable Contract or Plan. Generally, withdrawals from Variable Contracts or
Plans may be subject to ordinary income tax and, if made before age 59 1/2, a
10% penalty tax.
The investments by the Portfolios in zero coupon securities may create
special tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between a zero coupon security's maturity
value and its purchase price is imputed as income to the Portfolios each year
even though the Portfolios receive no cash distribution until maturity. Under
the U.S. federal tax laws applicable to mutual funds, the Portfolios will not be
subject to tax on this income if they pay dividends to their shareholders
substantially equal to all the income received from, or imputed with respect to,
their investments during the year, including their zero coupon securities. These
dividends ordinarily will constitute taxable income to the shareholders of the
Portfolios.
Certain provisions of the Code may require that a gain recognized by a
Portfolio upon the closing of a short sale be treated as a short-term capital
gain, and that a loss recognized by the Portfolio upon the closing of a short
sale be treated as a long-term capital loss, regardless of the amount of time
that the Portfolio held the securities used to close the short sale. A
Portfolio's use of short sales may also affect the holding periods of certain
securities held by the Portfolio if such securities are 'substantially
identical' to securities used by the Portfolio to close the short sale. The
Portfolios' short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
Special Tax Matters Relating to the Fixed Income Portfolio. The Fixed Income
Portfolio does not expect to meet the tax requirements that would enable it to
pay exempt-interest dividends with respect to income derived from its holdings
of Municipal Obligations.
INTERNAL REVENUE SERVICE REQUIREMENTS. Each Portfolio intends to comply with
the diversification requirements currently imposed by the Internal Revenue
Service on separate accounts of insurance companies as a condition of
maintaining the tax-deferred status of Variable Contracts. See the Statement of
Additional Information for more specific information.
NET ASSET VALUE
________________________________________________________________________________
Each Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to
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be closed on New Year's Day, Washington's Birthday, Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day,
and on the preceding Friday or subsequent Monday when one of the holidays
falls on a Saturday or Sunday, respectively. The net asset value per share
of each Portfolio generally changes every day.
The net asset value per share of each Portfolio is computed by dividing the
value of the Portfolio's net assets by the total number of its shares
outstanding.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an OTC market will be valued on the basis of the closing value on the
date on which the valuation is made. Options and futures contracts will be
valued similarly. Debt obligations that mature in 60 days or less from the
valuation date are valued on the basis of amortized cost, unless the Board
determines that using this valuation method would not reflect the investments'
value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
________________________________________________________________________________
From time to time, each Portfolio may advertise yield and average annual
total return of its shares over various periods of time. The yield refers to net
investment income generated by the Portfolio's shares over a specified thirty-
day period, which is then annualized. That is, the amount of net investment
income generated by the Portfolio's shares during that thirty-day period is
assumed to be generated over a 12-month period and is shown as a percentage of
the investment. These total return figures show the average percentage change in
value of an investment in the Portfolio from the beginning of the measuring
period to the end of the measuring period. The figures reflect changes in the
price of the Portfolio's shares assuming that any income dividends and/or
capital gain distributions made by the Portfolio during the period were
reinvested in shares of the Portfolio. Total return will be shown for recent
one-, five- and ten-year periods, and may be shown for other periods as well
(such as from commencement of the Portfolio's operations or on a year-by-year,
quarterly or current year-to-date basis).
Total returns quoted for the Portfolios include the effect of deducting each
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan. Accordingly, the prospectus of the
sponsoring Participating Insurance Company separate account or Plan documents or
other informational materials supplied by Plan sponsors should be carefully
reviewed for information on relevant charges and expenses. Excluding these
charges and expenses from quotations of each Portfolio's performance has
the effect of increasing the performance quoted,
25
<PAGE>
and the effect of these charges should be considered when comparing a
Portfolio's performance to that of other mutual funds.
When considering average annual total return figures for periods longer than
one year, it is important to note that the annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that each Portfolio seeks long term appreciation
and that such return may not be representative of a Portfolio's return over a
longer market cycle. Each Portfolio may also advertise its aggregate total
return figures for various periods, representing the cumulative change in value
of an investment in the Portfolio for the specific period (again reflecting
changes in Portfolio's 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 yield and 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 yield and
total return. Current total return figures may be obtained by calling (800)
369-2728.
In reports or other communications to investors or in advertising material, a
Portfolio or a Participating Insurance Company or Plan sponsor may describe
general economic and market conditions affecting the Portfolio. Performance may
be compared with (i) that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar investment services that
monitor the performance of mutual funds or as set forth in the publications
listed below; (ii) in the case of the Fixed Income Portfolio, with the Lehman
Brothers Intermediate Government/Corporate Bond Index (an unmanaged index of
government and corporate bonds calculated by Lehman Brothers); and in the case
of the Global Fixed Income Portfolio, with the Salomon Brothers World Government
Bond Index-Hedged (a hedged, market-capitalization weighted index designed to
track major government debt markets), the J.P. Morgan Traded Index (an index of
non-U.S. dollar bonds of ten countries with active bond markets); or (iii) other
appropriate indexes of investment securities or with data developed by Warburg
derived from such indexes. A Portfolio or a Participating Insurance Company may
also include evaluations published by nationally recognized ranking services and
by financial publications that are nationally recognized, such as Barron's,
Business Week, Financial Times, Forbes, Fortune, Inc., Institutional Investor,
Investor's Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine,
SmartMoney and The Wall Street Journal.
In reports or other communications to investors or in advertising, each
Portfolio or a Participating Insurance Company or Plan sponsor may also describe
the general biography or work experience of the portfolio managers of the
Portfolio and may include quotations attributable to the portfolio
26
<PAGE>
managers describing approaches taken in managing the Portfolio's investments,
research methodology underlying stock selection or the Portfolio's investment
objective. In addition, a Portfolio and its portfolio managers may render
periodic updates of Portfolio activity, which may include a discussion of
significant portfolio holdings and analysis of holdings by industry, country,
credit quality and other characteristics. Each Portfolio may also discuss the
continuum of risk and return relating to different investments and the
potential impact of foreign securities on a portfolio otherwise composed
of domestic securities. Morningstar, Inc. rates funds in broad categories
based on risk/reward analyses over various periods of time. In addition, each
Portfolio or a Participating Insurance Company or Plan sponsor may from time
to time compare the Portfolio's expense ratio to that of investment companies
with similar objectives and policies, based on data generated by Lipper
Analytical Services, Inc. or similar investment services that monitor mutual
funds.
GENERAL INFORMATION
________________________________________________________________________________
TRUST ORGANIZATION. The Trust was organized on December 16, 1996 under the
laws of The Commonwealth of Massachusetts as a 'Massachusetts business trust.'
The Trust's Declaration of Trust authorizes the Board to issue an unlimited
number of full and fractional shares of beneficial interest, $.001 par value per
share. Shares of two series have been authorized. The Board may classify or
reclassify any of its shares into one or more additional series without
shareholder approval.
VOTING RIGHTS. When matters are submitted for shareholder vote, shareholders
of each Portfolio will have one vote for each full share held and fractional
votes for fractional shares held. Generally, shares of the Trust will vote by
individual Portfolio on all matters except where otherwise required by law.
There will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the members
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Under current law, a Participating Insurance
Company is required to request voting instructions from Variable Contract owners
and must vote all Trust shares held in the separate account in proportion to the
voting instructions received. Plans may or may not pass through voting rights to
Plan participants, depending on the terms of the Plan's governing documents. For
a more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company separate account prospectus or the Plan
documents or other informational materials supplied by Plan sponsors.
CONFLICTS OF INTEREST. Each Portfolio offers its shares to (i) Variable
Contracts offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with each other and (ii) Plans
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<PAGE>
including Participant-directed Plans which elect to make a Portfolio an
investment option for Plan participants. Due to differences of tax
treatment and other considerations, the interests of various Variable Contract
owners and Plan participants participating in a Portfolio may conflict. The
Board will monitor the Portfolios for any material conflicts that may arise and
will determine what action, if any, should be taken. If a conflict occurs, the
Board may require one or more Participating Insurance Company separate accounts
and/or Plans to withdraw its investments in one or both Portfolios. As a
result, a Portfolio may be forced to sell securities at disadvantageous
prices and orderly portfolio management could be disrupted. In addition, the
Board may refuse to sell shares of a Portfolio to any Variable Contract or Plan
or may suspend or terminate the offering of shares of a Portfolio if such
action is required by law or regulatory authority or is in the best
interests of the shareholders of the Portfolio.
SHAREHOLDER COMMUNICATIONS. Participating Insurance Companies and Plan
trustees will receive semiannual and audited annual reports, each of which
includes a list of the investment securities held by the Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by the Portfolios, as well as certain statistical
characteristics of a Portfolio, may be obtained by calling the Trust at (800)
369-2728.
Since the prospectuses of the Portfolios are combined in this single
Prospectus, it is possible that a Portfolio may become liable for a
misstatement, inaccuracy or omission in this Prospectus with regard to the other
Portfolio.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE PORTFOLIOS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIOS, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
SHARES OF THE PORTFOLIOS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
28
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust's Expenses.................................................... 2
Investment Objectives and Policies...................................... 3
Portfolio Investments................................................... 4
Risk Factors and Special Considerations................................. 8
Portfolio Transactions and Turnover Rate................................ 11
Certain Investment Strategies........................................... 11
Investment Guidelines................................................... 19
Management of the Portfolios............................................ 20
How to Purchase and Redeem Shares in the Portfolios..................... 22
Dividends, Distributions and Taxes...................................... 23
Net Asset Value......................................................... 25
Performance............................................................. 25
General Information..................................................... 27
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TRBDF-1-0397
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>1
Subject to Completion dated March 17, 1997
STATEMENT OF ADDITIONAL INFORMATION
March __, 1997
WARBURG PINCUS TRUST II
Fixed Income Portfolio
Global Fixed Income Portfolio
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 369-2728
Contents
Page
Investment Objectives.......................................................2
Investment Policies.........................................................2
Management of the Trust.....................................................27
Additional Purchase and Redemption Information..............................34
Additional Information Concerning Taxes.....................................34
Determination of Performance................................................37
Independent Accountants and Counsel.........................................38
Financial Statements........................................................38
Appendix -- Description Of Ratings..........................................A-1
Statements of Assets and Liabilities........................................F-1
This Statement of Additional Information is meant to be read
in conjunction with the Prospectus of Warburg Pincus Trust II (the "Trust"),
dated March __, 1997, as amended or supplemented from time to time, and is
incorporated by reference in its entirety into that Prospectus. The Trust
currently offers two managed investment funds, the Fixed Income Portfolio and
the Global Fixed Income Portfolio (together the "Portfolios" and each a
"Portfolio") which are described in this Statement of Additional Information.
Shares of a Portfolio are not available directly to individual investors but may
be offered only to certain (i) life insurance companies ("Participating
Insurance Companies") for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance policies (together "Variable Contracts") and (ii) tax-qualified
pension and retirement plans ("Plans"), including participant-directed Plans
which elect to make a Portfolio an investment option for Plan participants.
Because this Statement of Additional Information is not itself a prospectus, no
investment in shares of a Portfolio should be made solely upon the information
contained herein. Copies of the Trust's Prospectus and information regarding
each of the
<PAGE>2
Portfolios' current performance may be obtained by calling the Trust at (800)
369-2728 or by writing to the Trust, P.O. Box 9030, Boston, Massachusetts
02205-9030.
INVESTMENT OBJECTIVES
The investment objective of the Fixed Income Portfolio is
total return consistent with prudent investment management. The investment
objective of the Global Fixed Income Portfolio is total return consistent with
prudent investment management, consisting of a combination of interest income,
currency gains and capital appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of each
Portfolio's investment objective and policies in the Prospectus.
Options, Futures and Currency Exchange Transactions
Securities Options. Each Portfolio may write covered put and
call options on stock and debt securities and may purchase such options that are
traded on foreign and U.S. exchanges, as well as over-the-counter ("OTC").
Each 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, a Portfolio
as the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Portfolio as a put or call writer retains the risk of a decline in the price
of the underlying security. The size of the premiums that the Portfolio may
receive may be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-writing
activities.
If security prices rise, a put writer would generally expect
to profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
<PAGE>3
In the case of options written by a Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stock with respect to which
the Portfolio has written options may exceed the time within which the Portfolio
must make delivery in accordance with an exercise notice. In these instances,
the Portfolio may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Portfolio will not bear any
market risk, since the Portfolio will have the absolute right to receive from
the issuer of the underlying security an equal number of shares to replace the
borrowed securities, but the Portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the
securities for which the Portfolios may write covered call options. For example,
if a Portfolio writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, the Portfolio will compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of mortgage-backed securities.
Options written by a Portfolio will normally have expiration
dates between one and nine months from the date written. The exercise price of
the options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolios may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., the Portfolios' investment
adviser ("Warburg"), expects that the price of the underlying security will
remain flat or decline moderately during the option period, (ii) at-the-money
call options when Warburg expects that the price of the underlying security will
remain flat or advance moderately during the option period and (iii)
out-of-the-money call options when Warburg expects that the premiums received
from writing the call option plus the appreciation in market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be used in the same market
environments that such call options are used in equivalent transactions. To
secure its obligation to deliver the underlying security when it writes a call
option, a Portfolio will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on which
the option is written.
Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by the Portfolio
prior to the exercise of options that it has purchased or 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
<PAGE>4
transaction, whether the Portfolio realizes a profit or loss will depend upon
whether the amount received in the closing sale transaction is more or less than
the premium the Portfolio initially paid for the original option plus the
related transaction costs. Similarly, in cases where the Portfolio has written
an option, it will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the original option
and will incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the original option. The Portfolio may engage
in a closing purchase transaction to realize a profit, to prevent an underlying
security with respect to which it has written an option from being called or put
or, in the case of a call option, to unfreeze an underlying security (thereby
permitting its sale or the writing of a new option on the security prior to the
outstanding option's expiration). The obligation of the Portfolio under an
option it has written would be terminated by a closing purchase transaction, but
the Portfolio would not be deemed to own an option as a result of the
transaction. So long as the obligation of the Portfolio as the writer of an
option continues, the Portfolio may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Portfolio to
deliver the underlying security against payment of the exercise price. This
obligation terminates when the option expires or the Portfolio effects a closing
purchase transaction. The Portfolio can no longer effect a closing purchase
transaction with respect to an option once it has been assigned an exercise
notice.
There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
a Portfolio's ability to terminate options positions established in the OTC
market may be more limited than for exchange-traded options and may also involve
the risk that securities dealers participating in OTC transactions would fail to
meet their obligations to the Portfolio. The Portfolio, however, intends to
purchase OTC options only from dealers whose debt securities, as determined by
Warburg, are considered to be investment grade. If, as a covered call option
writer, the Portfolio is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. In either
case, the Portfolio would continue to be at market risk on the security and
could face higher transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised in
one or more accounts or through one or more brokers). It is possible that the
Trust or a Portfolio and other clients of Warburg and certain of its affiliates
may be considered to be such a
<PAGE>5
group. A securities exchange may order the liquidation of positions found to be
in violation of these limits and it may impose certain other sanctions. These
limits may restrict the number of options a Portfolio will be able to purchase
on a particular security.
Securities Index Options. Each 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.
Securities index options may be based on a broad or narrow market index or 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 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 Portfolios may purchase OTC or dealer options
or sell covered OTC options. Unlike exchange-listed options where an
intermediary or clearing corporation, such as the Clearing Corporation, assures
that all transactions in such options are properly executed, the responsibility
for performing all transactions with respect to OTC options rests solely with
the writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying 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 a Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Portfolio, the Portfolio would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Portfolio will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Portfolio writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Portfolio originally wrote the option. Although the Portfolios will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Portfolios, there can be no assurance that a Portfolio will be able to liquidate
a dealer option at a favorable price at any time prior to expiration. The
inability to enter
<PAGE>6
into a closing transaction may result in material losses to a Portfolio. Until a
Portfolio, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Portfolio's ability to sell portfolio
securities or, with respect to currency options, currencies at a time when such
sale might be advantageous. In the event of insolvency of the other party, the
Portfolio may be unable to liquidate a dealer option.
Futures Activities. Each Portfolio may enter into foreign
currency, interest rate and 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.
A Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolios reserve the right to engage in transactions
involving futures contracts and options on futures contracts to the extent
allowed by CFTC regulations in effect from time to time and in accordance with a
Portfolio's policies. Although each Portfolio is limited in the amount of assets
it may invest in futures transactions (as described above and in the
Prospectus), there is no overall limit on the percentage of Portfolio assets
that may be at risk with respect to futures activities. The ability of the
Portfolio to trade in futures contracts and options on futures contracts may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), applicable to a regulated investment company.
Futures Contracts. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified non-U.S. currency at a specified price, date,
time and place. An interest rate futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specific interest rate sensitive financial instrument (debt security) at a
specified price, date, time and place. 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 a Portfolio upon
entering into a futures contract. Instead, the Portfolio is required to deposit
in a segregated account with its custodian an amount of cash or liquid
securities acceptable to the broker, equal to approximately 1% to 10% of the
contract amount (this amount is subject to change by the exchange on which the
contract is traded, and brokers may charge a higher amount). This amount is
known as "initial margin" and is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract, assuming all contractual
<PAGE>7
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 Portfolios will also incur brokerage costs in
connection with entering into futures transactions.
At any time prior to the expiration of a futures contract, a
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio's existing position in the contract.
Positions in futures contracts and options on futures contracts (described
below) may be closed out only on the exchange on which they were entered into
(or through a linked exchange). No secondary market for such contracts exists.
Although the Portfolios intend to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting a Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
the Portfolio had insufficient cash, it might have to sell securities to meet
daily variation margin requirements at a time when it would be disadvantageous
to do so. In addition, if the transaction is entered into for hedging purposes,
in such circumstances the Portfolio may realize a loss on a futures contract or
option that is not offset by an increase in the value of the hedged position.
Losses incurred in futures transactions and the costs of these transactions will
affect the Portfolio's performance.
Options on Futures Contracts. Each Portfolio may purchase and
write put and call options on foreign currency, interest rate and securities
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
<PAGE>8
cash payments by the purchaser to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Portfolio.
Currency Exchange Transactions. The value in U.S. dollars of
the assets of a Portfolio that are invested in foreign securities may be
affected favorably or unfavorably by changes in exchange control regulations,
and the Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any non-U.S. currency
into U.S. dollars or into other appropriate currencies. Each Portfolio will
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing and writing exchange-traded currency options.
Forward Currency Contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are standardized
as to contract size and delivery date.
At or before the maturity of a forward contract, the Portfolio
may either sell a portfolio security and make delivery of the currency, or
retain the security and fully or partially offset its contractual obligation to
deliver the currency by negotiating with its trading partner to purchase a
second, offsetting contract. If the Portfolio retains the portfolio security and
engages in an offsetting transaction, the Portfolio, at the time of execution of
the offsetting transaction, will incur a gain or a loss to the extent that
movement has occurred in forward contract prices.
Currency Options. The Portfolios may purchase and write
exchange-traded put and call options on foreign currencies. Put options convey
the right to sell the underlying currency at a price which is anticipated to be
higher than the spot price of the currency at the time the option is exercised.
Call options convey the right to buy the underlying currency at a price which is
expected to be lower than the spot price of the currency at the time the option
is exercised.
Currency Hedging. The Portfolios' currency hedging will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward currency with
respect to specific receivables or payables of a Portfolio generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. A Portfolio may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
A decline in the U.S. dollar value of a foreign currency in
which the Portfolio's securities are denominated will reduce the U.S. dollar
value of the securities, even if their value in
<PAGE>9
the foreign currency remains constant. The use of currency hedges does not
eliminate fluctuations in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the future. For example, in
order to protect against diminutions in the U.S. dollar value of securities it
holds, a Portfolio may purchase currency put options. If the value of the
currency does decline, the Portfolio will have the right to sell the currency
for a fixed amount in U.S. dollars and will thereby offset, in whole or in part,
the adverse effect on the U.S. dollar value of its securities that otherwise
would have resulted. Conversely, if a rise in the U.S. dollar value of a
currency in which securities to be acquired are denominated is projected,
thereby potentially increasing the cost of the securities, the Portfolio may
purchase call options on the particular currency. The purchase of these options
could offset, at least partially, the effects of the adverse movements in
exchange rates. The benefit to the Portfolio derived from purchases of currency
options, like the benefit derived from other types of options, will be reduced
by premiums and other transaction costs. Because transactions in currency
exchange are generally conducted on a principal basis, no fees or commissions
are generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although currency
hedges limit the risk of loss due to a decline in the value of a hedged
currency, at the same time, they also limit any potential gain that might result
should the value of the currency increase. If a devaluation is generally
anticipated, the Portfolio may not be able to contract to sell a currency at a
price above the devaluation level it anticipates.
While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of the Portfolio's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Portfolio's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect the
Portfolio against a price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and
currency exchange transactions for other purposes, including generating current
income to offset expenses or increase return, each Portfolio may enter into
these transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by the
Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether a Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of securities prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular security. The risk of
<PAGE>10
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 stock index
and futures markets. Secondly, from the point of view of speculators, the
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Because of the possibility of price distortions in the futures market and the
imperfect correlation between movements in an index and movements in the price
of index futures, a correct forecast of general market trends by Warburg still
may not result in a successful hedging transaction.
A Portfolio will engage in hedging transactions only when
deemed advisable by Warburg, and successful use by the Portfolio of hedging
transactions will be subject to Warburg's ability to predict trends in currency,
interest rate or securities markets, as the case may be, and to correctly
predict movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect the
Portfolio's performance.
Asset Coverage for Forward Contracts, Options, Futures and
Options on Futures. As described in the Prospectus, each Portfolio will comply
with guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Portfolio on securities indexes and currencies; 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 that are acceptable as collateral to the appropriate
regulatory authority.
For example, a call option written by the Portfolio on
securities may require the Portfolio to hold the securities subject to the call
(or securities convertible into the securities without additional consideration)
or to segregate assets (as described above) sufficient to purchase and deliver
the securities if the call is exercised. A call option written by the Portfolio
on an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Portfolio could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Portfolio. If the Portfolio holds a futures or
forward contract, the Portfolio
<PAGE>11
could purchase a put option on the same futures or forward contract with a
strike price as high or higher than the price of the contract held. The
Portfolio may enter into fully or partially offsetting transactions so that its
net position, coupled with any segregated assets (equal to any remaining
obligation), equals its net obligation. Asset coverage may be achieved by other
means when consistent with applicable regulatory policies.
Additional Information on Investment Practices
Foreign Investments.
General. The Fixed Income Portfolio may not invest more than
35% of its assets in securities denominated in a currency other than U.S.
dollars. 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. Since the Global Fixed Income
Portfolio will be investing substantially, and the Fixed Income may be
investing, in securities denominated in currencies other than the U.S. dollar,
and since the Portfolios may temporarily hold funds in bank deposits or other
money market investments denominated in foreign currencies, each Portfolio's
investments in foreign companies may be affected favorably or unfavorably by
exchange control regulations or changes in the exchange rate between such
currencies and the U.S. dollar. A change in the value of a foreign currency
relative to the U.S. dollar will result in a corresponding change in the U.S.
dollar value of a Portfolio's assets denominated in that foreign currency.
Changes in foreign currency exchange rates may also affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed by a
Portfolio with respect to its foreign investments. The rate of exchange between
the U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. Changes in the exchange rate may result
over time from the interaction of many factors directly or indirectly affecting
economic and political conditions in the United States and a particular foreign
country, including economic and political developments in other countries. Of
particular importance are rates of inflation, interest rate levels, the balance
of payments and the extent of government surpluses or deficits in the United
States and the particular foreign country, all of which are in turn sensitive to
the monetary, fiscal and trade policies pursued by the governments of the United
States and other 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. A Portfolio may use
hedging techniques with the objective of protecting against loss through the
fluctuation of the value of foreign currencies against the U.S. dollar,
particularly the forward market in foreign exchange, currency options and
currency futures. See "Currency Transactions" and "Futures Transactions" above.
Information. Many of the foreign securities held by a
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about such 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
<PAGE>12
standards, practices and requirements comparable to those applicable to U.S.
companies. In addition, with respect to some foreign countries, there is the
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Portfolio, political or social
instability, or domestic developments which could affect U.S. investments in
those countries.
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.
Delays. Securities of some foreign companies are less liquid
and their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. Due to the increased
exposure of a Portfolio to market and foreign exchange fluctuations brought
about by such delays, and due to the corresponding negative impact on a
Portfolio's liquidity, the Portfolios will avoid investing in countries which
are known to experience settlement delays which may expose the Portfolios to
unreasonable risk of loss.
Increased Expenses. To the extent that each Portfolio invests
in foreign securities, the operating expenses of the Fixed Income Portfolio may,
and the Global Fixed Income Portfolio can, be expected to be higher than those
of an investment company investing exclusively in U.S. securities, since the
expenses of each Portfolio associated with foreign investing, such as custodial
costs, valuation costs and communication costs, may be higher than those costs
incurred by other investment companies not investing in foreign securities.
Foreign Debt Securities. The returns on foreign debt
securities reflect interest rates and other market conditions prevailing in
those countries and the effect of gains and losses in the denominated currencies
against the U.S. dollar, which have had a substantial impact on investment in
foreign fixed income securities. The relative performance of various countries'
fixed income markets historically has reflected wide variations relating to the
unique characteristics of each country's economy. Year-to-year fluctuations in
certain markets have been significant, and negative returns have been
experienced in various markets from time to time.
The foreign government securities in which the Portfolios may
invest generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated,
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities
<PAGE>13
owned by either a national, state or equivalent government or are obligations of
a political unit that is not backed by the national government's full faith and
credit and general taxing powers. An example of a multinational currency unit is
the European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
U.S. Government Securities. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. Government Securities").
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
Government Securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration, Export-Import
Bank of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, Federal Maritime Administration,
Tennessee Valley Authority, District of Columbia Armory Board and Student Loan
Marketing Association. Each Portfolio may also invest in instruments that are
supported by the right of the issuer to borrow from the U.S. Treasury and
instruments that are supported by the credit of the instrumentality. Because the
U.S. government is not obligated by law to provide support to an instrumentality
it sponsors, a Portfolio will invest in obligations issued by such an
instrumentality only if Warburg determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Portfolio.
Loan Participations and Assignments. The Portfolios may invest
in fixed and floating rate loans ("Loans") arranged through private negotiations
between a foreign government (a "Borrower") and one or more financial
institutions ("Lenders"). The majority of the Portfolios' investments in Loans
are expected to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans from third parties ("Assignments").
Participations typically will result in a Portfolio having a contractual
relationship only with the Lender, not with the Borrower. A Portfolio will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the Borrower. In connection with purchasing
Participations, a Portfolio generally will have no right to enforce compliance
by the Borrower with the terms of the loan agreement relating to the Loan, nor
any rights of set-off against the Borrower, and the Portfolio may not directly
benefit from any collateral supporting the Loan in which it has purchased the
Participation. As a result, a Portfolio will assume the credit risk of both the
Borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, a Portfolio may be treated as
a general creditor of the Lender and may not benefit from any set-off between
the Lender and the Borrower. A Portfolio will acquire Participations only if the
Lender interpositioned between the Portfolio and the Borrower is determined by
Warburg to be creditworthy.
<PAGE>14
When a Portfolio purchases Assignments from Lenders, the
Portfolio will acquire direct rights against the Borrower on the Loan. However,
since Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by a Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
There are risks involved in investing in Participations and
Assignments. A Portfolio may have difficulty disposing of them because there is
no liquid market for such securities. The lack of a liquid secondary market will
have an adverse impact on the value of such securities and on a Portfolio's
ability to dispose of particular Participations or Assignments when necessary to
meet the Portfolio's liquidity needs or in response to a specific economic
event, such as a deterioration in the creditworthiness of the Borrower. The lack
of a liquid market for Participations and Assignments also may make it more
difficult for a Portfolio to assign a value to these securities for purposes of
valuing the Portfolio's portfolio and calculating its net asset value.
Securities of Other Investment Companies. Each Portfolio may
invest in securities of other investment companies to the extent permitted under
the Investment Company Act of 1940, as amended (the "1940 Act"). Presently,
under the 1940 Act, a Portfolio may hold securities of another investment
company in amounts which (i) do not exceed 3% of the total outstanding voting
stock of such company, (ii) do not exceed 5% of the value of the Portfolio's
total assets and (iii) when added to all other investment company securities
held by the Portfolio, do not exceed 10% of the value of the Portfolio's total
assets.
Below Investment Grade Securities. Each Portfolio may hold up
to 35% of its net assets in fixed income securities rated below investment grade
and as low as C by Moody's Investors Service, Inc. ("Moody's") or D by Standard
& Poor's Ratings Services ("S&P"), and in comparable unrated securities
considered to be of equivalent quality. While the market values of medium and
lower-rated securities and unrated securities of comparable quality tend to
react less to fluctuations in interest rate levels than do those of higher-rated
securities, the market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-quality securities. In addition, medium and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. Issuers of medium and lower-rated securities and unrated
securities are often highly leveraged and may not have more traditional methods
of financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because medium and lower-rated securities and unrated
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness.
The market for medium- and lower-rated and unrated securities
is relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
The Portfolios 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
<PAGE>15
many of these securities, the Portfolios anticipate that these securities could
be sold only to a limited number of dealers or institutional investors. To the
extent a secondary trading market for these securities does exist, it generally
is not as liquid as the secondary market for higher-rated securities. The lack
of a liquid secondary market, as well as adverse publicity and investor
perception with respect to these securities, may have an adverse impact on
market price and the ability to dispose of particular issues when necessary to
meet the liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Portfolios to obtain accurate market quotations for purposes of valuing the
Portfolios and calculating their net asset values.
The market value of securities in lower-rated categories is
more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the
Portfolios' net asset value. The Portfolios will rely on the judgment, analysis
and experience of Warburg in evaluating the creditworthiness of an issuer. In
this evaluation, Warburg will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
its operating history, the quality of the issuer's management and regulatory
matters. Normally, medium- and lower-rated and comparable unrated securities are
not intended for short-term investment. Each 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.
Recent adverse publicity regarding lower-rated bonds may have depressed the
prices for such securities to some extent. Whether investor perceptions will
continue to have a negative effect on the price of such securities is uncertain.
Lending of Portfolio Securities. Each 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 a Portfolio's total assets taken at value. A 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. From time to time, a
Portfolio may return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Portfolio and that is acting as a "finder."
By lending its securities, a 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. Each Portfolio
will adhere to the following conditions whenever its portfolio securities are
loaned: (i) the Portfolio must receive at least 100% cash collateral or
equivalent securities of the type discussed in the preceding paragraph from the
borrower; (ii) the borrower must increase such collateral whenever the market
value of the securities rises above the level of such collateral; (iii) the
Portfolio must be able to terminate the loan at any time; (iv) the Portfolio
must receive
<PAGE>16
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 or possible decline in the value of the loaned
securities during the period in which the Portfolio seeks to assert its rights.
Reverse Repurchase Agreements and Dollar Rolls. The Portfolios
may enter into reverse repurchase agreements with the same parties with whom
they may enter into repurchase agreements. Reverse repurchase agreements involve
the sale of securities held by a 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 cash equivalent 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). A 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 a 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 Portfolios also may enter into "dollar rolls," in which
the Portfolios sell fixed-income securities for delivery in the current month
and simultaneously contract to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, a 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 other liquid assets 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 are considered to be borrowings under the 1940 Act.
Zero Coupon Securities. The Portfolios may invest in "zero
coupon" U.S. Treasury, foreign government and U.S. and foreign corporate
convertible and nonconvertible debt securities, which are bills, notes and bonds
that have been stripped of their unmatured interest coupons and custodial
receipts or certificates of participation representing interests in such
stripped debt obligations and coupons. A zero coupon security pays no interest
to its holder prior
<PAGE>17
to maturity. Accordingly, such securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest. The Portfolios
anticipate that they will not normally hold zero coupon securities to maturity.
Federal tax law requires that a holder of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year,
even though the holder receives no interest payment on the security during the
year. Such accrued discount will be includible in determining the amount of
dividends the Portfolios must pay each year and, in order to generate cash
necessary to pay such dividends, the Portfolios may liquidate portfolio
securities at a time when they would not otherwise have done so. At present, the
U.S. Treasury and certain U.S. agencies issue stripped Government Securities. In
addition, in the recent past, a number of banks and brokerage firms have
separated the principal portions from the coupon portions of U.S. Treasury bonds
and notes and sold them separately in the form of receipts or certificates
representing undivided interests on these instruments.
Short Sales "Against the Box." In a short sale, a Portfolio
sells a borrowed security and has a corresponding obligation to the lender to
return the identical security. The seller does not immediately deliver the
securities sold and is said to have a short position in those securities until
delivery occurs. If a Portfolio engages in a short sale, the collateral for the
short position will be maintained by the Portfolio's custodian or qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in value to the securities sold
short.
While a short sale is made by selling a security a Portfolio
does not own, a short sale is "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. The Portfolios do not intend to engage in short
sales against the box for investment purposes. A Portfolio may, however, make a
short sale as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security), or when a Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for U.S. federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in the Portfolio's
long position should be offset by a gain in the short position and, conversely,
any gain in the long position should be reduced by a loss in the short position.
The extent to which such gains or losses are reduced will depend upon the amount
of the security sold short relative to the amount the Portfolio owns. There will
be certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
Municipal Obligations. (Fixed Income Portfolio) Municipal
Obligations are debt obligations issued by or on behalf of states, territories
and possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities. Municipal Obligations
are issued by governmental entities to obtain funds for various public purposes,
including the construction of a wide range of public facilities, the refunding
of outstanding obligations, the payment of general operating expenses and the
extension of loans to public
<PAGE>18
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Obligations if the interest paid thereon
is exempt from federal income tax.
The two principal types of Municipal Obligations, in terms of
the source of payment of debt service on the bonds, consist of "general
obligation" and "revenue" issues. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from
a particular facility or class of facilities or in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Consequently, the credit quality of revenue bonds is
usually directly related to the credit standing of the user of the facility
involved.
There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's and S&P represent their opinions as to the quality of
Municipal Obligations. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate and rating may have different yields while
Municipal Obligations of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the Fixed Income
Portfolio, an issue of Municipal Obligations may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Portfolio.
Warburg will consider such an event in determining whether the Portfolio should
continue to hold the obligation. See the Appendix attached hereto for further
information concerning the ratings of Moody's and S&P and their significance.
Among other instruments, the Fixed Income Portfolio may
purchase short term Tax Anticipation Notes, Bond Anticipation Notes, Revenue
Anticipation Notes and other forms of short term loans. Such notes are issued
with a short term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements or other revenues.
The yields on Municipal Obligations are dependent upon a
variety of factors, including general economic and monetary conditions, money
market factors, conditions of the municipal bond market, size of a particular
offering, maturity of the obligation offered and rating of the issue.
Municipal Obligations are also subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. There
is also the possibility that as a result of litigation or other conditions, the
power or ability of any one or more issuers to pay, when due, principal of and
interest on its, or their, Municipal Obligations may be materially affected.
<PAGE>19
Variable Rate and Master Demand Notes. (Fixed Income
Portfolio) The Fixed Income Portfolio may invest in variable rate and master
demand notes. Variable rate demand notes ("VRDNs") are obligations issued by
corporate or governmental entities which contain a floating or variable interest
rate adjustment formula and an unconditional right of demand to receive payment
of the unpaid principal balance plus accrued interest upon a short notice period
not to exceed seven days. The interest rates are adjustable at intervals ranging
from daily to up to every six months to some prevailing market rate for similar
investments, such adjustment formula being calculated to maintain the market
value of the VRDN at approximately the par value of the VRDN upon the adjustment
date. The adjustments are typically based upon the prime rate of a bank or some
other appropriate interest rate adjustment index.
Master demand notes are notes which provide for a periodic
adjustment in the interest rate paid (usually tied to the Treasury Bill auction
rate) and permit daily changes in the principal amount borrowed. While there may
be no active secondary market with respect to a particular VRDN purchased by a
Portfolio, the Portfolio may, upon the notice specified in the note, demand
payment of the principal of and accrued interest on the note at any time and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for the Portfolio to dispose
of the VRDN involved in the event the issuer of the note defaulted on its
payment obligations, and the Portfolio could, for this or other reasons, suffer
a loss to the extent of the default.
Stand-By Commitment Agreements. (Fixed Income Portfolio) The
Portfolios may acquire "stand-by commitments" with respect to securities held in
their portfolios. Under a stand-by commitment, a dealer agrees to purchase at a
Portfolio's option specified securities at a specified price. The Portfolio's
right to exercise stand-by commitments is unconditional and unqualified.
Stand-by commitments acquired by a Portfolio may also be referred to as "put"
options. A stand-by commitment is not transferable by a Portfolio, although the
Portfolio can sell the underlying securities to a third party at any time.
The principal risk of stand-by commitments is that the writer
of a commitment may default on its obligation to repurchase the securities
acquired with it. The Portfolios intend to enter into stand-by commitments only
with brokers, dealers and banks that, in the opinion of Warburg, present minimal
credit risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, Warburg will periodically review relevant financial information
concerning the issuer's assets, liabilities and contingent claims. The
Portfolios will acquire stand-by commitments only in order to facilitate
portfolio liquidity and do not intend to exercise their rights under stand-by
commitments for trading purposes.
The amount payable to a Portfolio upon its exercise of a
stand-by commitment is normally (i) the Portfolio's acquisition cost of the
securities (excluding any accrued interest which the Portfolio paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Portfolio owned the securities,
plus (ii) all interest accrued on the securities since the last interest payment
date during that period.
The Portfolios expect that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable,
<PAGE>20
the Portfolios may pay for stand-by commitments either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to
such commitments (thus reducing the yield to maturity otherwise available for
the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in a Portfolio's portfolio will not exceed 1/2 of 1%
of the value of the Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
The Portfolios would acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment would
not affect the valuation or assumed maturity of the underlying securities.
Stand-by commitments acquired by a Portfolio would be valued at zero in
determining net asset value. Where a Portfolio paid any consideration directly
or indirectly for a stand-by commitment, its cost would be reflected as
unrealized depreciation for the period during which the commitment was held by
the Portfolio. Stand-by commitments would not affect the average weighted
maturity of the Portfolio's portfolio.
The Internal Revenue Service has issued a revenue ruling to
the effect that a registered investment company will be treated for federal
income tax purposes as the owner of Municipal Obligations acquired subject to a
stand-by commitment and the interest on the Municipal Obligations will be tax
exempt to a Portfolio.
American, European and Continental Depositary Receipts. The
assets of a Portfolio may be invested in the securities of foreign issuers in
the form of American Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe typically by non-U.S. banks and trust companies that
evidence ownership of either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in U.S. securities markets and EDRs and
CDRs in bearer form are designed for use in European securities markets.
A Portfolio may purchase warrants issued by domestic and
foreign companies 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.
<PAGE>21
Non-Publicly Traded and Illiquid Securities. A Portfolio may
not invest more than 15% of its net assets in non-publicly traded and 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 calendar days and,
with respect to the Fixed Income Portfolio, VRDNs and master demand notes
providing for settlement upon more than seven days notice by the Portfolio.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A Securities. Rule 144A under the Securities Act
adopted by the SEC allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. Warburg anticipates that the market for certain restricted securities
such as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to the Portfolio's limits 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 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
<PAGE>22
purchase or sell the security and the number of other potential purchasers; (iv)
dealer undertakings to make a market in the security and (v) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Borrowing. Each Portfolio may borrow up to 30% of its total
assets for temporary or emergency purposes, including to meet portfolio
redemption requests so as to permit the orderly disposition of portfolio
securities or to facilitate settlement transactions on portfolio securities.
Investments (including roll-overs) will not be made when borrowings exceed 5% of
the Portfolio's net assets. Although the principal of such borrowings will be
fixed, the Portfolio's assets may change in value during the time the borrowing
is outstanding. Each Portfolio expects that some of its borrowings may be made
on a secured basis. In such situations, either the custodian will segregate the
pledged assets for the benefit of the lender or arrangements will be made with a
suitable subcustodian, which may include the lender.
Non-Diversified Status. Each Portfolio is classified as
non-diversified within the meaning of the 1940 Act, which means that it is not
limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. Each Portfolio's investments will be limited,
however, in order to qualify as a "regulated investment company" for purposes of
the Code. See "Additional Information Concerning Taxes." To qualify, each
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.
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 a
Portfolio's outstanding shares. Such majority is defined as the lesser of (i)
67% or more of the shares present at the meeting, if the holders of more than
50% of the outstanding shares of the Portfolio are present or represented by
proxy, or (ii) more than 50% of the outstanding shares. Investment limitations
10 through 13 may be changed by a vote of the Board at any time.
<PAGE>23
A Portfolio may not:
1. Borrow money except that the Portfolio may (i) borrow from
banks for temporary or emergency purposes and (ii) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Portfolio may not exceed 30% of the value of the
Portfolio's total assets. For purposes of this restriction, short sales, the
entry into currency transactions, options, futures contracts, options on futures
contracts, forward commitment transactions and dollar roll transactions that are
not accounted for as financings (and the segregation of assets in connection
with any of the foregoing) shall not constitute borrowing.
2. Purchase any securities which would cause 25% or more of the
value of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Make loans, except that the Portfolio may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
4. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
in accordance with the Portfolio's investment objective, policies and
limitations may be deemed to be underwriting.
5. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs or oil, gas and mineral leases, except that
the Portfolio may invest in (i) securities secured by real estate, mortgages or
interests therein and (ii) securities of companies that invest in or sponsor
oil, gas or mineral exploration or development programs.
6. Make short sales of securities or maintain a short position,
except that the Portfolio may maintain short positions in forward currency
contracts, options, futures contracts and options on futures contracts and make
short sales "against the box."
7. Issue any senior security except as permitted under the 1940
Act.
8. Purchase securities on margin, except that the Portfolio may
obtain any short-term credits necessary for the clearance of purchases and sales
of securities. For purposes of this restriction, the deposit or payment of
initial or variation margin in connection with transactions in currencies,
options, futures contracts or related options will not be deemed to be a
purchase of securities on margin.
9. Invest in commodities, except that the Portfolio may purchase
and sell futures contracts, including those relating to securities, currencies
and indexes, and options on futures contracts, securities, currencies or
indexes, and purchase and sell currencies or securities on a forward commitment
or delayed-delivery basis.
<PAGE>24
10. 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.
11. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
12. Invest more than 15% of the value of the Portfolio's net
assets in securities which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available
market quotations. For purposes of this limitation, (a) repurchase agreements
with maturities greater than seven days, (b) VRDNs and master demand notes
providing for settlement upon more than seven days notice by the Portfolio and
(c) time deposits maturing in more than seven calendar days shall be considered
illiquid securities.
13. Make additional investments (including roll-overs) if the
Portfolio's borrowings exceed 5% of its net assets.
General. If a percentage restriction (other than the
percentage limitation set forth in No. 1, above) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Portfolio's assets will not constitute a violation of such restriction.
Portfolio Valuation
The Prospectus discusses the time at which the net asset value
of each Portfolio is determined for purposes of sales and redemptions. The
following is a description of the procedures used by each Portfolio in valuing
its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an OTC market will be valued at the most recent
sale as of the time the valuation is made or, in the absence of sales, at the
mean between the bid and asked quotations. If there are no such quotations, the
value of the securities will be taken to be the highest bid quotation on the
exchange or market. Options or futures contracts will be valued similarly. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, 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, a Portfolio may employ
<PAGE>25
outside organizations (a "Pricing Service") which may use a matrix, formula or
other objective method that takes into consideration market indexes, matrices,
yield curves and other specific adjustments. The procedures of Pricing Services
are reviewed periodically by the officers of the Trust under the general
supervision and responsibility of the Board, which may replace a Pricing Service
at any time. Securities, options and futures contracts for which market
quotations are not available and certain other assets of a Portfolio will be
valued at their fair value as determined in good faith pursuant to consistently
applied procedures established by the Board. In addition, the Board or its
delegates may value a security at fair value if it determines that such
security's value determined by the methodology set forth above does not reflect
its fair value.
Trading in securities in certain foreign countries is
completed at various times prior to the close of business on each business day
in New York (i.e., a day on which the New York Stock Exchange (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 a Portfolio's net asset value is not
calculated. As a result, calculation of a Portfolio's net asset value may not
take place contemporaneously with the determination of the prices of certain
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of regular trading on the NYSE will not be reflected in the
Portfolios' calculation of net asset value unless the Board or its delegates
deemed that the event would materially affect net asset value, in which case an
adjustment may be made. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
prevailing rate as quoted by a Pricing Service. If such quotations are not
available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board. No brokerage
commissions are typically paid on purchases and sales of U.S. Government
Securities.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying each Portfolio's investment program to achieve its
investment objectives. 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 OTC, depending
on where it appears that the best price or execution will be obtained. The
purchase price paid by a Portfolio to underwriters of newly issued securities
usually includes a concession paid by the issuer to the underwriter, and
purchases of securities from dealers, acting as either principals or agents in
the after market, are normally executed at a price between the bid and asked
price, which includes a dealer's mark-up or mark-down. Transactions on U.S.
stock exchanges and some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. On most
foreign exchanges, commissions are generally fixed. 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
<PAGE>26
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 each Portfolio and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to a
Portfolio and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction or
of the overall responsibilities of Warburg. Research and other services received
may be useful to Warburg in serving both the Portfolios and its other clients
and, conversely, research or other services obtained by the placement of
business of other clients may be useful to Warburg in carrying out its
obligations to the Portfolios. Research may include furnishing advice, either
directly or through publications or writings, as to the value of securities, the
advisability of purchasing or selling specific securities and the availability
of securities or purchasers or sellers of securities; furnishing seminars,
information, analyses and reports concerning issuers, industries, securities,
trading markets and methods, legislative developments, changes in accounting
practices, economic factors and trends and portfolio strategy; access to
research analysts, corporate management personnel, industry experts, economists
and government officials; comparative performance evaluation and technical
measurement services and quotation services; and products and other services
(such as third party publications, reports and analyses, and computer and
electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
Research received from brokers or dealers is supplemental to Warburg's own
research program. The fees to Warburg under its advisory agreements with the
Trust are not reduced by reason of its receiving any brokerage and research
services.
Investment decisions for each 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 a
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which Warburg believes to be equitable to each client, including the
Portfolios. In some instances, this investment procedure may adversely affect
the price paid or received by a Portfolio or the size of the position obtained
or sold for a Portfolio. To the extent permitted by law, Warburg may aggregate
the securities to be sold or purchased for a Portfolio with those to be sold or
purchased for such other investment clients in order to obtain best execution.
<PAGE>27
Any portfolio transaction for a Portfolio may be executed
through Counsellors Securities Inc., the Trust's distributor ("Counsellors
Securities"), if, in Warburg's judgment, the use of Counsellors Securities is
likely to result in price and execution at least as favorable as those of other
qualified brokers, and if, in the transaction, Counsellors Securities charges
the Portfolio a commission rate consistent with those charged by Counsellors
Securities to comparable unaffiliated customers in similar transactions. All
transactions with affiliated brokers will comply with Rule 17e-1 under the 1940
Act. In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities or any affiliated person of such companies.
Transactions for the Portfolios may be effected on foreign
securities exchanges. In transactions for securities not actively traded on a
foreign securities exchange, the Portfolios will deal directly with the dealers
who make a market in the securities involved, except in those circumstances
where better prices and execution are available elsewhere. Such dealers usually
are acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such portfolio securities are generally
traded on a net basis and do not normally involve brokerage commissions.
Securities firms may receive brokerage commissions on certain portfolio
transactions, including options, futures and options on futures transactions and
the purchase and sale of underlying securities upon exercise of options.
Each Portfolio may participate, if and when practicable, in
bidding for the purchase of securities for the Portfolio's portfolio directly
from an issuer in order to take advantage of the lower purchase price available
to members of such a group. A Portfolio will engage in this practice, however,
only when Warburg, in its sole discretion, believes such practice to be
otherwise in the Portfolio's interest.
Portfolio Turnover
A Portfolio's portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of its portfolio securities for the
year by the monthly average value of the portfolio securities. Securities with
remaining maturities of one year or less at the date of acquisition are excluded
from the calculation.
The Portfolios do not intend to seek profits through
short-term trading, but the rate of turnover will not be a limiting factor when
the Portfolios deem it desirable to sell or purchase securities. Certain
practices that may be employed by each Portfolio could result in high portfolio
turnover. For example, portfolio securities may be sold in anticipation of a
rise in interest rates (market decline) or purchased in anticipation of a
decline in interest rates (market rise) and later sold. In addition, a security
may be sold and another of comparable quality purchased at approximately the
same time to take advantage of what Warburg believes to be a temporary disparity
in the normal yield relationship between the two securities. These yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, such as changes
in the overall demand for, or supply of, various types of securities. In
addition, 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.
<PAGE>28
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>
<CAPTION>
<S> <C>
Richard N. Cooper (62)...................................Trustee
Harvard University Professor at Harvard University;
1737 Cambridge Street National Intelligence Counsel from June 1995
Cambridge, Massachusetts 02138 until January 1997; Director or Trustee of Circuit
City Stores, Inc. (retail electronics and
appliances) and Phoenix Home Life Mutual Insurance
Company
Donald J. Donahue (72)...................................Trustee
27 Signal Road Chairman of Magma Copper Company
Stamford, Connecticut 06902 from December 1987 until December 1995; Chairman and
Director of NAC Holdings from September 1990-June
1993; Director of Chase Brass Industries, Inc.
since December 1994; Director of Pioneer
Companies, Inc. (chlor-alkali chemicals) and
predecessor companies since 1990 and Vice Chairman
since December 1995.
Jack W. Fritz (69).......................................Trustee
2425 North Fish Creek Road Private investor; Consultant
P.O. Box 483 and Director of Fritz
Wilson, Wyoming 83014 Broadcasting, Inc. and Fritz Communications (developers
and operators of radio stations); Director of
Advo, Inc. (direct mail advertising).
John L. Furth* (66)......................................Chairman of the Board and Trustee
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970; Chairman of the
Board and Officer of other investment companies
advised by Warburg.
Thomas A. Melfe (65).....................................Trustee
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton & Irvine; Chairman of the Board,
Municipal Fund for New York Investors, Inc.
</TABLE>
<PAGE>29
<TABLE>
<CAPTION>
<S> <C>
Arnold M. Reichman* (48).................................Trustee
466 Lexington Avenue Managing Director and Assistant
New York, New York 10017-3147 Secretary of Warburg; Associated with Warbrug since
1984; Senior Vice President, Secretary and Chief
Operating Officer of Counsellors Securities;
Trustee and officer of other investment companies
advised by Warburg.
Alexander B. Trowbridge (67).............................Trustee
1317 F Street, N.W., 5th Floor President of Trowbridge Partners,
Washington, DC 20004 Inc. (business consulting) from
January 1990-November 1996; President of the
National Association of Manufacturers from
1980-1990; Director or Trustee of New England
Mutual Life Insurance Co., ICOS Corporation
(biopharmaceuticals), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), Harris Corp. (electronics and
communications equipment), The Gillette Co.
(personal care products) and Sun Company Inc.
(petroleum refining and marketing).
Eugene L. Podsiadlo (40).................................President
466 Lexington Avenue Managing Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1991; Vice President of
Citibank, N.A. from 1987-1991; Senior Vice
President of Counsellors Securities and officer of
other investment companies advised by Warburg.
Stephen Distler (43).....................................Vice President
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of Warburg; Associated with Warburg
since 1984; Treasurer of Counsellors Securities;
Vice President of other investment companies
advised by Warburg.
Eugene P. Grace (45).....................................Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April
New York, New York 10017-3147 1994; Attorney-at-law from September 1989-April 1994;
life insurance agent, New York Life Insurance
Company from 1993-1994; General Counsel and
Secretary, Home Unity Savings Bank from 1991-1992;
Vice President, Chief
</TABLE>
<PAGE>30
<TABLE>
<CAPTION>
<S> <C>
Compliance Officer and Assistant Secretary of
Counsellors Securities; Vice President and
Secretary of other investment companies advised by
Warburg.
Howard Conroy (43).................................... Vice President and Chief Financial Officer
466 Lexington Avenue Associated with Warburg since 1992; Associated
New York, New York 10017-3147 with Martin Geller, C.P.A. from 1990-1992; Vice
President, Finance with Gabelli/Rosenthal &
Partners, L.P. until 1990; Vice President,
Treasurer and Chief Financial Officer of other
investment companies advised by Warburg.
Daniel S. Madden, CPA (31)............................. Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial Management, Inc.
from September 1994 to October 1996; Associated
with BEA Associates from April 1993 to September
1994; Associated with Ernst & Young LLP from 1990
to 1993. Treasurer and Chief Accounting Officer of
other investment companies advised by Warburg.
Janna Manes (29).........................................Assistant Secretary
466 Lexington Avenue Associated with Warburg since 1996; Associated
New York, New York, 10022-4677 with the law firm of Willkie Farr & Gallagher from
1993-1996; Assistant Secretary of other investment
companies advised by Warburg.
</TABLE>
<PAGE>31
No employee of Warburg or PFPC Inc., the Trust's
co-administrator ("PFPC"), or any of their affiliates receives any compensation
from the Trust for acting as an officer or Trustee of the Trust. Each Trustee
who is not a director, trustee, officer or employee of Warburg, PFPC or any of
their affiliates receives an annual fee of $500 and $250 for each meeting of the
Board attended by him for his services as Trustee and is reimbursed for expenses
incurred in connection with his attendance at Board meetings.
Trustees' Compensation
(estimated for the fiscal year ended December 31, 1997)+
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Trust Managed by Warburg*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $44,500
Donald J. Donahue $1,500 $44,500
Jack W. Fritz $1,500 $44,500
Thomas A. Melfe $1,500 $44,500
Alexander B. Trowbridge $1,500 $44,500
<FN>
- --------------------------
+ Estimates of future payments to be made pursuant to existing arrangements.
* Each Trustee also serves as a Director or Trustee of 23 other investment companies advised by Warburg.
** Mr. Furth and Mr. Reichman are considered to be interested persons of the Trust and Warburg, as defined
under Section 2(a)(19) of the 1940 Act, and, accordingly, receive no compensation from the Trust or any
other investment company managed by Warburg.
</TABLE>
As of February 28, 1997, no Trustees or officers of the Trust owned
any of the outstanding shares of the Portfolios.
Portfolio Managers
Mr. Dale C. Christensen, co-portfolio manager of each of the
Portfolios, earned a B.S. in Agriculture from the University of Alberta and a
B.Ed. in Mathematics from the University of Calgary, both located in Canada. Mr.
Christensen is also co-portfolio manager of Warburg Pincus Global Fixed Income
Fund, Warburg Pincus Fixed Income Fund, Warburg Pincus Intermediate Maturity
Government Fund and Warburg Pincus New York Intermediate Municipal Fund. Mr.
Christensen directs the fixed income group at Warburg, which he joined in 1989,
providing portfolio management for Warburg Pincus Funds and institutional
clients around the
<PAGE>32
world. Mr. Christensen was a Vice President in the International Private Banking
division and the domestic pension fund management division at Citicorp from 1984
to 1989. Prior to that, Mr. Christensen was a fixed income portfolio manager at
CIC Asset Management from 1982 to 1984.
Mr. M. Anthony E. van Daalen, co-portfolio manager of the
Fixed Income Portfolio, earned a B.A. degree from Wesleyan University and a
M.B.A. degree from New York University. Mr. van Daalen is also co-portfolio
manager of Warburg Pincus Fixed Income Fund and Warburg Pincus Intermediate
Maturity Government Fund. He has been a portfolio manager for Warburg Pincus
Funds since joining Warburg in 1992, specializing in government and high yield
bonds. Mr. van Daalen was an Assistant Vice President, Portfolio Manager at
Citibank in the Private Banking Group from 1985 to 1991. Prior to that Mr. van
Daalen was a Retail Banking Manager at The Connecticut Bank and Trust Co. from
1983 to 1985 and an Analyst at Goldstein/Krall Market Research from 1982 to
1983.
Laxmi C. Bhandari, co-portfolio manager of the Global Fixed
Income Portfolio, earned a Ph.D in Finance and a M.B.A. from the University of
Chicago, his P.G.D.M. degree (M.B.A. equivalent) from the Indian Institute of
Management, Ahmedabad, India and B.Com. degree from Rajasthan University, India.
He has also been a co-portfolio manager of Warburg Pincus Global Fixed Income
Fund since joining EMW in 1993, specializing in derivative-based products. Mr.
Bhandari was a Vice President in charge of Arbitrage Trading at the Paribas
Corporation from 1991 to 1993. Prior to that Mr. Bhandari was a Vice President
of Asset Liability Management at Chemical Bank from 1987 to 1991 and an
Assistant Professor of Advanced Portfolio Management and Advanced Corporate
Finance at the University of Alberta from 1982 to 1987.
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to each Portfolio,
Counsellors Funds Service, Inc. ("Counsellors Service") serves as a
co-administrator to the Trust and PFPC serves as a co-administrator to the Trust
pursuant to separate written agreements (the "Advisory Agreements," the
"Counsellors Service Co-Administration Agreement" and the "PFPC
Co-Administration Agreement," respectively). The services provided by, and the
fees payable by the Trust to, Warburg under the Advisory Agreements, Counsellors
Service under the Counsellors Service Co-Administration Agreement and PFPC under
the PFPC Co-Administration Agreement are described in the Prospectus.
Custodian and Transfer Agent
PNC Bank, National Association ("PNC") serves as custodian of
each Portfolio's U.S. assets and also provides certain custodial services for
each Portfolio in connection with purchase and sale of Portfolio shares. State
Street Bank and Trust Company ("State Street") serves as custodian of each
Portfolio's non-U.S. assets. Under the custodian agreement, PNC and State
Street each (i) maintains a separate account or accounts in the name of the
relevant Portfolio, (ii) holds and transfers portfolio securities on account of
the relevant Portfolio, (iii) makes receipts and disbursements of money on
behalf of the relevant Portfolio, (iv) collects and receives all income and
other payments and distributions on
<PAGE>33
account of the relevant Portfolio's portfolio securities held by it and (v)
makes periodic reports to the Board concerning the Trust's custodial
arrangements. PNC is an indirect wholly owned subsidiary of PNC Bank Corp., and
its principal business address is 1600 Market Street, Philadelphia, Pennsylvania
19101. The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110.
State Street Bank and Trust Company ("State Street") serves as
the shareholder servicing, transfer and dividend disbursing agent of the Trust
pursuant to a Transfer Agency and Service Agreement, under which State Street
(i) issues and redeems shares of each Portfolio, (ii) addresses and mails all
communications by the Trust to record owners of Portfolio shares, including
reports to shareholders, dividend and distribution notices and proxy material
for its meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts and (iv) makes periodic reports to the Board concerning
the transfer agent's operations with respect to the Trust. State Street has
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
("BFDS"), responsibility for most shareholder servicing functions. BFDS's
principal business address is 2 Heritage Drive, Boston, Massachusetts 02171.
Organization of the Trust
The Trust was organized as an unincorporated Massachusetts
business trust under the name "Warburg, Pincus Trust II."
Massachusetts law provides that shareholders could, under
certain circumstances, be held personally liable for the obligations of a
Portfolio. However, the Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from a Portfolio's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the relevant Portfolio would be unable to meet
its obligations, a possibility that Warburg believes is remote and immaterial.
Upon payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
relevant Portfolio. The Trustees intend to conduct the operations of the Trust
in such a way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Trust.
All shareholders of a Portfolio, upon liquidation, will
participate ratably in the Portfolio's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Trustees can elect all Trustees. Shares are transferable but
have no preemptive, conversion or subscription rights.
<PAGE>34
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As described in the Prospectus, shares of the Portfolios may
not be purchased or redeemed by individual investors directly but may be
purchased or redeemed only through Variable Contracts offered by separate
accounts of Participating Insurance Companies and through Plans, including
participant-directed Plans which elect to make a Portfolio an investment option
for Plan participants. The offering price of each Portfolio's shares is equal to
its per share net asset value. Additional information on how to purchase and
redeem a Portfolio's shares and how such shares are priced is included in the
Prospectus under "Net Asset Value."
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair valuation
of portfolio securities is not reasonably practicable, or for such other periods
as the SEC may permit. (A Portfolio may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, a Portfolio
may make payment wholly or partly in securities or other investment instruments
which may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. The Trust intends to comply with Rule 18f-1 promulgated
under the 1940 Act with respect to redemptions in kind.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Trust and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult the sponsoring Participating
Insurance Company separate account prospectus or the Plan documents or other
informational materials supplied by Plan sponsors and their own tax advisers
with respect to the particular tax consequences to them of an investment in a
Portfolio.
Each Portfolio intends to qualify as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a regulated
investment company, a Portfolio will pay no federal income taxes on its taxable
net investment income (that is, taxable income other than net realized capital
gains) and its net realized capital gains that are distributed to shareholders.
To qualify under Subchapter M, a Portfolio must, among other things: (i)
distribute to its shareholders the sum of at least 90% of its taxable net
investment income (for this purpose consisting of taxable net investment income
and net realized short-term capital gains) plus at least 90% of its net
tax-exempt interest income; (ii) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of securities, gains from
the sale or other
<PAGE>35
disposition of securities or foreign currencies, or other income (including, but
not limited to, gains from options, futures, and forward contracts) derived with
respect to its business of investing in such securities or foreign currencies;
(iii) derive less than 30% of its annual gross income from the sale or other
disposition of securities, options, futures, forward contracts or certain other
assets held for less than three months; and (iv) diversify its holdings so that,
at the end of each fiscal quarter of the Portfolio (a) at least 50% of the
market value of the Portfolio's assets is represented by cash, U.S. Government
Securities and other securities, with those other securities limited, with
respect to any one issuer, to an amount no greater in value than 5% of the
Portfolio's total assets and to not more than 10% of the outstanding voting
securities of the issuer, and (b) not more than 25% of the market value of the
Portfolio's assets is invested in the securities of any one issuer (other than
U.S. Government Securities or securities of other regulated investment
companies) or of two or more issuers that the Portfolio controls and that are
determined to be in the same or similar trades or businesses or related trades
or businesses. In meeting these requirements, a Portfolio may be restricted in
the selling of securities held by the Portfolio for less than three months and
in the utilization of certain of the investment techniques described above and
in the Trust's Prospectus
In addition, each Portfolio intends to comply with the
diversification requirements of Section 817(h) of the Code related to the
tax-deferred status of insurance company separate accounts. To comply with
regulations under Section 817(h) of the Code, each Portfolio will be required to
diversify its investments so that on the last day of each calendar quarter no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments and no more than 90% is represented by any
four investments. Generally, all securities of the same issuer are treated as a
single investment. For the purposes of Section 817(h), obligations of the United
States Treasury and each U.S. government agency or instrumentality are treated
as securities of separate issuers. The Treasury Department has indicated that it
may issue future pronouncements addressing the circumstances in which a Variable
Contract owner's control of the investments of a separate account may cause the
Variable Contract owner, rather than the Participating Insurance Company, to be
treated as the owner of the assets held by the separate account. If the Variable
Contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the Variable Contract owner's gross income. It is not known what
standards will be set forth in such pronouncements or when, if at all, these
pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Portfolios will be able to operate
as currently described, or that the Trust will not have to change the investment
goal or investment policies of a Portfolio. While a Portfolio's investment goal
is fundamental and may be changed only by a vote of a majority of the
Portfolio's outstanding shares, the Board reserves the right to modify the
investment policies of a Portfolio as necessary to prevent any such prospective
rules and regulations from causing a Variable Contract owner to be considered
the owner of the shares of the Portfolio underlying the separate account.
A Portfolio's transactions, if any, in foreign currencies,
forward contracts, options and futures contracts (including options, futures
contracts and forward contracts on foreign currencies) will be subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses recognized by the Portfolio (i.e., may affect
whether gains or
<PAGE>36
losses are ordinary or capital), accelerate recognition of income to the
Portfolio, defer Portfolio losses and cause the Portfolio to be subject to
hyperinflationary currency rules. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (i) will require a Portfolio to mark-to-market certain types of its
positions (i.e., treat them as if they were closed out) and (ii) may cause the
Portfolio to recognize income without receiving cash with which to pay dividends
or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. Each Portfolio will monitor
its transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment so
that (a) neither the Portfolio nor its shareholders will be treated as receiving
a materially greater amount of capital gains or distributions than actually
realized or received, (b) the Portfolio will be able to use substantially all of
its losses for the fiscal years in which the losses actually occur and (c) the
Portfolio will continue to qualify as a regulated investment company.
As described in the Prospectus, because shares of a Portfolio
may only be purchased through Variable Contracts and Plans, it is anticipated
that dividends and distributions will be exempt from current taxation if left to
accumulate within the Variable Contracts or Plans.
Investment in Passive Foreign Investment Companies
If a Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed by the Portfolio to its shareholders, the Variable
Contracts and Plans. In addition, gain on the disposition of shares in a PFIC
generally is treated as ordinary income even though the shares are capital
assets in the hands of the Portfolio. Certain interest charges may be imposed on
the Portfolio with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
A Portfolio may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Portfolio compared to a
fund that did not make the election. In addition, information required to make
such an election may not be available to the Portfolio.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice indicating
that final regulations will provide that regulated investment companies may
elect the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of a Portfolio is unclear. If the Portfolio is not able to make
the foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if
<PAGE>37
it were sold for fair market value). Such an election could result in
acceleration of income to the Portfolio
DETERMINATION OF PERFORMANCE
From time to time, a Portfolio may quote its total return or
yield 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.
A Portfolio may advertise, from time to time, comparisons of
its performance with that of one or more other mutual funds with similar
investment objectives. A Portfolio may advertise average annual
calendar-year-to-date and calendar quarter returns, which are calculated
according to the formula set forth in the preceding paragraph, except that the
relevant measuring period would be the number of months that have elapsed in the
current calendar year or most recent three months, as the case may be. Investors
should note that this performance may not be representative of the Portfolio's
total return in longer market cycles.
Yield is calculated by annualizing the net investment income
generated by a Portfolio over a specified thirty-day period according to the
following formula:
YIELD = 2[( a-b +1)6**-1]
---
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
A Portfolio's performance will vary from time to time
depending upon market conditions, the composition of its portfolio and operating
expenses allocable to it. As described above, total return is based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Portfolio's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time. Performance quotations for the Portfolios include the
effect of deducting each Portfolio's expenses, but may not include charges and
expenses
- ---------------------
* As used here, "n" is an integer.
** As used here, "6" is an integer.
<PAGE>38
attributable to any particular Variable Contract or Plan, which would reduce the
returns described in this section. See the Prospectus, "Performance."
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with
principal offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103,
serves as independent accountants for the Trust. The statement of assets and
liabilities for the Trust that appears in this Statement of Additional
Information have been audited by Coopers & Lybrand, whose report thereon
appears elsewhere herein and have been included herein in reliance upon the
report of such firm of independent accountants given upon their authority as
experts in accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Trust as
well as counsel to Warburg, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENTS
The Trust's statement of assets and liabilities dated as of
March 12, 1997 follows the Report of Independent Accountants.
<PAGE>A-1
APPENDIX
DESCRIPTION OF RATINGS
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 it normally
exhibits 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.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions, which could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic
<PAGE>A-2
conditions, it is not likely to have the capacity to pay interest and repay
principal. The CCC rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated
to senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." 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
<PAGE>A-3
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect
to the bonds rated "Aa" through "B". 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.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect
to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Short-Term Note Ratings
The following summarizes the two highest ratings used by S&P
for short-term notes:
SP-1 - Loans bearing this designation evidence a very strong
or strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus sign
designation.
SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest.
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1 - Obligations bearing these designations are of
the best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of
high quality with margins of protection ample although not so large as in the
preceding group.
<PAGE>A-4
Commercial Paper Ratings
The following summarizes the two highest ratings for
commercial paper used by S&P and Moody's, respectively:
Commercial paper rated A-1 by S&P's 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. 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.
Municipal Obligations Ratings
The following summarizes the ratings used by S&P for Municipal
Obligations:
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 adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is
regarded, on balance, as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB represents a lower degree of speculation than B and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
<PAGE>A-5
BB - Bonds rated BB have less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions, which could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB rating.
B - Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings from "AA" to "CCC" may be modified by the addition of a plus or minus
sign to show relative standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the highest four municipal ratings
used by Moody's:
Aaa - Bonds which 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.
<PAGE>A-6
Aa - Bonds which are rated as are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols Aa1, A1, Baa1, Ba1, and B1.
Caa - Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
<PAGE>F-1
WARBURG, PINCUS TRUST II
STATEMENT OF ASSETS AND LIABILITIES
as of March 12, 1997
Assets:
Cash $100,000
Deferred Organizational Costs 18,600
Deferred Offering Costs 44,720
-------
Total Assets 163,320
-------
Liabilities:
Accrued Organizational Costs 18,600
Accrued Offering Costs 44,720
-------
Total Liabilities 63,320
-------
Net Assets $100,000
=======
Net Asset Value, Redemption and Offering
Price Per Share ($.001 par value applicable
to 5,000 shares outstanding of the Fixed
Income Portfolio and 5,000 shares outstanding
of the Global Fixed Income Portfolio). $10.00
======
The accompanying notes are an integral part of this financial statement.
<PAGE>F-2
WARBURG, PINCUS TRUST II
Notes to Financial Statement
March 12, 1997
1. Organization:
Warburg, Pincus Trust II (the "Trust"), consisting of the Fixed Income Portfolio
and the Global Fixed Income Portfolio was organized on December 16, 1996 under
the laws of the Commonwealth of Massachusetts. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Trust's Declaration of Trust authorizes its Board to issue an
unlimited number of full and fractional shares of beneficial interest, $.001 par
value per share. Shares of two series have been authorized. The Board may
classify or reclassify any of its shares into one or more additional series
without shareholder approval. The Trust has not commenced operations except
those related to organizational matters and the sale of 5,000 Shares of the
Fixed Income Portfolio and 5,000 Shares of the Global Fixed Income Portfolio,
respectively, (the "Initial Shares") to Warburg, Pincus Counsellors, Inc., the
Trust's investment adviser (the "Adviser"), on March 12, 1997.
2. Organizational Costs, Offering Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Trust and are being amortized
over sixty months commencing with operations. In the event any of the Initial
Shares of the Trust are redeemed by any holder thereof during the period that
the Trust is amortizing its organizational costs, the redemption proceeds
payable to the holder thereof by the Trust will be reduced by unamortized
organizational costs in the same ratio as the number of Initial Shares being
redeemed bears to the number of Initial Shares outstanding at the time of
redemption. Offering costs, including initial registration costs, have been
deferred and will be charged to expense during the fund's first year of
operation.
Certain officers and a director of the Trust are also officers and a director of
the Adviser. These officers and director are paid no fees by the Trust for
serving as an officer or director of the Trust.
<PAGE>F-3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Warburg, Pincus Trust II:
We have audited the accompanying Statement of Assets and Liabilities of Warburg,
Pincus Trust II (the "Trust"), comprised of the Fixed Income Portfolio and
Global Fixed Income Portfolio, as of March 12, 1997. This financial statement is
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Trust II as of
March 12, 1997 in conformity with generally accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 14, 1997
<PAGE>C-1
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B:
(1) Statement of Assets and Liabilities
(2) Report of Independent Accountants
(b) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Agreement and Declaration of Trust.(1)
2 By-Laws.(1)
3 Not applicable.
4 Form of Share Certificate.
5 Investment Advisory Agreements.
6 Form of Distribution Agreement.
7 Not applicable.
8(a) Form of Custodian Agreement between PNC Bank and
the Trust.
8(b) Form of Custodian Agreement between State Street Bank and
Trust Company and the Trust.
9(a) Form of Transfer Agency Agreement.
(b) Forms of Co-Administration Agreement between Counsellors
Funds Service and the Trust.
(c) Forms of Co-Administration Agreement between PFPC Inc.
and the Trust.
(d) Form of Participation Agreement.
- ----------------------
1 Incorporated by reference to Registrant's Registration Statement
on Form N-1A filed on January 2, 1997 (Securities Act File
No. 333-19175).
<PAGE>C-2
10(a) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Trust.
(b) Opinion and Consent of Sullivan & Worcester,
Massachusetts counsel to the Trust.
11 Consent of Coopers & Lybrand L.L.P.,
Independent Accountants.
12 Not Applicable.
13 Form of Purchase Agreement.
14 Not Applicable.
15 Not Applicable
16 Computation of Performance Quotations.(2)
17 Financial Data Schedules.(2)
_______________________
(2) To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control with Registrant
From time to time, Warburg may be deemed to control the Trust
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 four wholly-owned subsidiaries:
Counsellors Securities Inc., a New York Corporation; Counsellors Funds Service
Inc., a New York corporation; Counsellors Agency Inc., a New York corporation;
and Warburg, Pincus Investments International (Bermuda), Ltd., a Bermuda
corporation.
Item 26. Number of Holders of Securities
Warburg will hold all Registrant's shares of beneficial
interest, par value $0.001 per share, on the date Registrant's Registration
Statement becomes effective.
Item 27. Indemnification
Registrant, officers and directors of Warburg, of Counsellors
Securities Inc. ("Counsellors Securities") and of Registrant are covered by
insurance policies indemnifying them for liability incurred in connection with
the operation of Registrant. Discussion of this coverage is incorporated by
reference to Item 27 of Part C of the Trust's initial Registration Statement on
Form N-1A filed on January 2, 1997.
<PAGE>C-3
Item 28. Business and Other Connections of Investment Adviser
Warburg, a wholly owned subsidiary of Warburg, Pincus
Counsellors G.P., acts as investment adviser to Registrant. Warburg renders
investment advice to a wide variety of individual and institutional clients. The
list required by this Item 28 of officers and directors of Warburg, together
with information as to their other business, profession, vocation or employment
of a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Warburg (SEC File No. 801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for The RBB
Fund, Inc., Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation
Fund; Warburg Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund;
Warburg Pincus Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg
Pincus Global Fixed Income Fund; Warburg Pincus Global Post-Venture Capital
Fund; Warburg Pincus Growth & Income Fund, Inc.; Warburg Pincus Health Sciences
Fund, Inc.; Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate
Maturity Government Fund; Warburg Pincus International Equity Fund; Warburg
Pincus Japan Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus New York
Intermediate Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg
Pincus Post-Venture Capital Fund; Warburg, Pincus Small Company Growth Fund;
Warburg Pincus Small Company Value Fund; Warburg Pincus Strategic Value Fund;
Warburg Pincus Tax Free Fund; and Warburg Pincus Trust.
(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 II
466 Lexington Avenue
New York, New York 10017-3147
(Registrant's Agreement and Declaration of Trust,
By-laws and minute books)
<PAGE>C-4
(2) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
(3) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)
(4) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator)
(5) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(6) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its function as custodian, transfer
agent and dividend disbursing agent)
(7) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer agent
and dividend disbursing agent)
(8) PNC Bank, National Association
1600 Market Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees of Registrant when requested in writing to do so by the holders of
at least 10% of Registrant's outstanding shares. Registrant undertakes further,
in connection with the meeting, to comply with the provisions of Section 16(c)
<PAGE>C-5
of the 1940 Act relating to communications with the shareholders of certain
common-law trusts.
(b) Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of Registrant's latest annual report
to shareholders, upon request and without charge.
(c) Registrant hereby undertakes to file a post-effective
amendment, with financial statements of the Fixed Income Portfolio and the
Global Fixed Income Portfolio which need not be certified with four to six
months from the effective date of Registrant's Registration Statement under the
Act.
<PAGE>C-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and the State of New York, on the 17th day of March, 1997.
WARBURG, PINCUS TRUST II
By:/s/ Eugene L. Podsiadlo
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Amendment has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ John L. Furth Chairman of the March 17, 1997
John L. Furth Board of Trustees
/s/ Eugene L. Podsiadlo President March 17, 1997
Eugene L. Podsiadlo
/s/ Howard Conroy Vice President and March 17, 1997
Howard Conroy Chief Financial
Officer
/s/ Daniel S. Madden Treasurer and March 17, 1997
Daniel S. Madden Chief Accounting
Officer
/s/ Richard N. Cooper Trustee March 17, 1997
Richard N. Cooper
/s/ Donald J. Donahue Trustee March 17, 1997
Donald J. Donahue
/s/ Jack W. Fritz Trustee March 17, 1997
Jack W. Fritz
/s/ Thomas A. Melfe Trustee March 17, 1997
Thomas A. Melfe
/s/ Arnold M. Reichman Trustee March 17, 1997
Arnold M. Reichman
/s/ Alexander B. Trowbridge Trustee March 17, 1997
Alexander B. Trowbridge
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
4 Form of Share Certificate
5 Investment Advisory Agreements
6 Form of Distribution Agreement
8(a) Form of Custodian Agreement between PNC Bank and
the Trust.
8(b) Form of Custodian Agreement between State Street Bank and
Trust Company and the Trust.
9(a) Form of Transfer Agency Agreement.
(b) Forms of Co-Administration Agreement between Counsellors
Funds Service and the Trust.
(c) Forms of Co-Administration Agreement between PFPC Inc.
and the Trust.
(d) Form of Participation Agreement.
10(a) Opinion and Consent Willkie Farr & Gallagher,
counsel to the Trust.
(b) Opinion and Consent of Sullivan & Worcester,
Massachusetts counsel to the Trust.
11 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
13 Form of Purchase Agreement
<PAGE>
[FRONT OF SHARE CERTIFICATE]
The Commonwealth of Massachusetts
NUMBER SHARES
- -0- -0-
WARBURG, PINCUS TRUST II
____________________ Portfolio
par value $.001
This Certifies that -Specimen- of ___________ is the owner of -0- Shares in the
______________________ Portfolio of Warburg, Pincus Trust II created by a
Declaration of Trust dated December 16, 1996 and recorded with the Secretary of
The Commonwealth of Massachusetts which shares are fully paid and
non-assessable, and subject to the provisions of this Trust, are transferable
by assignment endorsed thereon, and, the surrender of this certificate.
IN WITNESS WHEREOF, the Trustees hereunto set their hands and have caused their
seal to be affixed hereto this
__________________ day of ________________ A.D. 19____
- -------------------------- ----------------------------
President Treasurer
<PAGE>
[BACK OF SHARE CERTIFICATE]
WARBURG, PINCUS TRUST II
____________________ Portfolio
par value $.001
Certificate
FOR
-0- shares
ISSUED TO
--Specimen--
DATED
------------------
For Value Received, ______________ hereby sell, assign and transfer
unto _________________________ _____________________________ Shares of the
capital represented by the within Certificate, and do hereby irrevocably
constitute and appoint _____________________ Attorney to transfer the said
Shares on the books of the within named Organization with full power of
substitution in the premises. Dated _________________________ 19___ in
presence of
- --------------------------- -----------------------------
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
________ __, 1997
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust II (the "Trust"), a business trust organized and
existing under the laws of the Commonwealth of Massachusetts is an open-end,
management investment company that currently offers two portfolios, one of which
is the Fixed Income 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 Agreement and 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, 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
Agreement and 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
1
<PAGE>
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 the diversification requirements of Section 817(h) of the
Internal Revenue Code of 1986, as the same may be amended from time to time, and
regulations thereunder. 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
2
<PAGE>
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.
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
.50% of the Trust'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
3
<PAGE>
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,
trustees, 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 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
4
<PAGE>
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 Trust. 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, 1998 and thereafter
shall continue automatically for successive annual periods, provided such
continuance is specifically approved at least annually by (a) the Board of
Trustees of the Trust or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Portfolio's outstanding
voting securities, provided that in either event the continuance is also
approved by a majority of the Board of Trustees who are not "interested persons"
(as defined in said Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval. This Agreement
is terminable, without penalty, on 60 days' written notice, by the Board of
Trustees of the Trust or by vote of holders of a majority of the Portfolio's
shares, or upon 90 days' written notice, by the Adviser. This Agreement will
also terminate automatically in the event of its assignment (as defined in said
Act).
11. Representation by the Trust
---------------------------
The Trust represents that a copy of its Agreement and Declaration of
Trust, dated December 16, 1996, together with all amendments thereto, is on file
in the Secretary of State of the Commonwealth of Massachusetts.
5
<PAGE>
12. Miscellaneous
-------------
The Trust recognizes that trustees, officers and employees of the
Adviser may from time to time serve as trustees, 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 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 II
By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President & Secretary
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By: /s/ Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President
6
<PAGE>1
INVESTMENT ADVISORY AGREEMENT
__________, 1997
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust II (the "Trust"), a business trust
organized and existing under the laws of the Commonwealth of Massachusetts is an
open-end, management investment company that currently offers two portfolios,
one of which is the Global Fixed Income 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 Agreement and 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, 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 Agreement and 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
<PAGE>2
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 the diversification
requirements of Section 817(h) of the Internal Revenue Code of 1986, as the same
may be amended from time to time, and regulations thereunder. 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.
<PAGE>3
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.
6. Limitation of Liability
The Trust and the adviser agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Portfolio, as provided in the Declaration of Trust. The
execution and delivery of this Agreement have been authorized by the Trustees of
the Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Portfolio as provided in the Declaration of Trust. No series of
the Trust, including the Portfolio, will be liable for any claims against any
other series.
7. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Portfolio will pay the Adviser an annual fee calculated at an
annual rate of 1.00% of the Trust'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.
<PAGE>4
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, trustees, 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 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
<PAGE>5
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
Trust. 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, 1998 and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (a) the Board of
Trustees of the Trust or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940, as amended) of the Portfolio's outstanding
voting securities, provided that in either event the continuance is also
approved by a majority of the Board of Trustees who are not "interested persons"
(as defined in said Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval. This Agreement
is terminable, without penalty, on 60 days' written notice, by the Board of
Trustees of the Trust or by vote of holders of a majority of the Portfolio's
shares, or upon 90 days' written notice, by the Adviser. This Agreement will
also terminate automatically in the event of its assignment (as defined in said
Act).
11. Representation by the Trust
The Trust represents that a copy of its Agreement and
Declaration of Trust, dated December 16, 1996, together with all amendments
thereto, is on file in the Secretary of State of the Commonwealth of
Massachusetts.
12. Miscellaneous
The Trust recognizes that trustees, officers and employees of
the Adviser may from time to time serve as trustees, 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 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 II
By: /s/Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President &
Secretary
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By: /s/Eugene P. Grace
Name: Eugene P. Grace
Title: Vice President
<PAGE>
DISTRIBUTION AGREEMENT
__________, 1997
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, Warburg, Pincus Trust II (the "Trust"), an open-end,
management investment company organized as a business trust under the laws of
the Commonwealth of Massachusetts, has agreed that Counsellors Securities Inc.
("Counsellors Securities") shall be, for the period of this Agreement, the
distributor of shares of beneficial interest of the Trust, par value $.001 per
share, of various series of the Trust that may be offered from time to time (the
"Shares").
1. Services as Distributor
-----------------------
1.1 Counsellors Securities will act as agent for the distribution of
the Shares covered by the Trust's registration statement on Form N-1A, under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940, as amended (the "1940 Act") (the registration statement, together
with the prospectus (the "prospectus") and statement of additional information
(the "statement of additional information") included as part of the registration
statement, any amendments to the registration statement, and any supplements to,
or material incorporated by reference into the prospectus or statement of
additional information, being referred to collectively in this Agreement as the
"registration statement").
1.2 Counsellors Securities agrees to use appropriate efforts to solicit
orders for the sale of the Shares at such prices and on the terms and conditions
set forth in the registration statement and will undertake such advertising and
promotion as it believes is reasonable in connection with such solicitation.
1.3 All activities by Counsellors Securities as distributor of the
Shares shall comply with all applicable laws, rules and regulations, including,
without limitation, all rules and regulations made or adopted by the Securities
and Exchange
<PAGE>
Commission (the "SEC") or by any securities association registered
under the Securities Exchange Act of 1934.
1.4 Counsellors Securities agrees to (a) provide one or more persons
during normal business hours to respond to telephone questions concerning the
Trust and its performance and (b) perform such other services as are described
in the registration statement to be performed by Counsellors Securities, without
limitation, distributing and receiving subscription order forms and receiving
written redemption requests.
1.5 Counsellors Securities acknowledges that, whenever in the judgment
of the Trust's officers such action is warranted for any reason, including,
without limitation, market, economic or political conditions, those officers may
decline to accept any orders for, or make any sales of, the Shares until such
time as those officers deem it advisable to accept such orders and to make such
sales.
1.6 Counsellors Securities will act only on its own behalf as principal
should it choose to enter into selling agreements with selected dealers or
others.
1.7 Counsellors Securities will transmit any orders received by it for
purchase or redemption of the Shares to State Street Bank and Trust Company
("State Street"), the Trust's transfer and dividend disbursing agent, or its
successor of which Counsellors Securities is notified in writing. The Trust will
promptly advise Counsellors Securities of the determination to cease accepting
orders or selling Shares or to recommence accepting orders or selling Shares.
The Trust (or its agent) will confirm orders for Shares placed through
Counsellors Securities upon their receipt, or in accordance with any exemptive
order of the SEC, and will make appropriate book entries pursuant to the
instructions of Counsellors Securities. Counsellors Securities agrees to cause
payment for Shares and instructions as to book entries to be delivered promptly
to the Trust (or its agent).
1.8 The outstanding Shares are subject to redemption as set forth in
the prospectus. The price to be paid to redeem the Shares will be determined as
set forth in the prospectus.
2. Duties of the Trust
-------------------
2.1 The Trust agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions that
may be reasonably necessary in connection with the sale of Shares in those
states that Counsellors Securities may designate.
2.2 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such informational
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reports with respect to the Trust and the Shares as Counsellors
Securities may reasonably request, all of which shall be signed by one or more
of the Trust's duly authorized officers; and the Trust warrants that the
statements contained in any such reports, when so signed by one or more of the
Trust's officers, shall be true and correct. The Trust shall also furnish
Counsellors Securities upon request with: (a) annual audits of the Trust's books
and accounts made by independent public accountants regularly retained by the
Trust, (b) semiannual unaudited financial statements pertaining to the Trust,
(c) quarterly earnings statements prepared by the Trust, (d) a monthly itemized
list of the securities held by the Trust, (e) monthly balance sheets as soon as
practicable after the end of each month and (f) from time to time such
additional information regarding the Trust's financial condition as Counsellors
Securities may reasonably request.
3. Representations and Warranties
------------------------------
The Trust represents to Counsellors Securities that all registration
statements, prospectuses and statements of additional information filed by the
Trust with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been carefully prepared in conformity with the requirements of the
1933 Act, the 1940 Act and the rules and regulations of the SEC thereunder. As
used in this Agreement the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration statement,
prospectus and statement of additional information filed by the Trust with
respect to the Shares with the SEC and any amendments and supplements thereto
which at any time shall have been filed with the SEC. The Trust represents and
warrants to Counsellors Securities that any registration statement with respect
to the Shares, or prospectus and statement of additional information contained
therein, when such registration statement becomes effective, will include all
statements required to be contained therein in conformity with the 1933 Act, the
1940 Act and the rules and regulations of the SEC; that all statements of fact
contained in any registration statement with respect to the Shares, prospectus
or statement of additional information will be true and correct when such
registration statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information with respect
to the Shares when such registration statement becomes effective will include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading to
a purchaser of the Shares. Counsellors Securities may, but shall not be
obligated to, propose from time to time such amendment or amendments to any
registration statement and such supplement or supplements to any prospectus or
statement of additional information as, in the light of future developments,
may, in the opinion of Counsellors Securities' counsel, be necessary or
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advisable. If the Trust shall not propose such amendment or amendments
and/or supplement or supplements within fifteen (15) days after receipt by the
Trust of a written request from Counsellors Securities to do so, Counsellors
Securities may, at its option, terminate this Agreement. The Trust shall not
file any amendment to any registration statement or supplement to any prospectus
or statement of additional information without giving Counsellors Securities
reasonable notice thereof in advance; provided, however, that nothing contained
in this Agreement shall in any way limit the Trust's right to file at any time
such amendments to any registration statement and/or supplements to any
prospectus or statement of additional information with respect to the Shares, of
whatever character, as the Trust may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
---------------
4.1 The Trust agrees to indemnify, defend and hold Counsellors
Securities, its several officers and directors, and any person who controls
Counsellors Securities within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Counsellors Securities, its officers and directors, or any such controlling
person, may incur under the 1933 Act, the 1940 Act or common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement, any prospectus or any
statement of additional information with respect to the Shares, or arising out
of or based upon any omission or alleged omission to state a material fact
required to be stated in any registration statement, any prospectus or any
statement of additional information with respect to the Shares, or necessary to
make the statements in any of them not misleading; provided, however, that the
Trust's agreement to indemnify Counsellors Securities, its officers or
directors, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of or based upon any
statements or representations made by Counsellors Securities or its
representatives or agents other than such statements and representations as are
contained in any registration statement, prospectus or statement of additional
information with respect to the Shares and in such financial and other
statements as are furnished to Counsellors Securities pursuant to paragraph 2.2
hereof; and further provided that the Trust's agreement to indemnify Counsellors
Securities and the Trust's representations and warranties hereinbefore set forth
in paragraph 3 shall not be deemed to cover any liability to the Trust or its
shareholders to which Counsellors Securities would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of Counsellors Securities' reckless disregard of its
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obligations and duties under this Agreement. The Trust's agreement to
indemnify Counsellors Securities, its officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned upon the Trust's
being notified of any action brought against Counsellors Securities, its
officers or directors, or any such controlling person, such notification to be
given by letter or by telegram addressed to the Trust at its principal office in
New York, New York and sent to the Trust by the person against whom such action
is brought, within ten (10) days after the summons or other first legal process
shall have been served. The failure to so notify the Trust of any such action
shall not relieve the Trust from any liability that the Trust may have to the
person against whom such action is brought by reason of any such untrue or
alleged untrue statement or omission or alleged omission otherwise than on
account of the Trust's indemnity agreement contained in this paragraph 4.1. The
Trust's indemnification agreement contained in this paragraph 4.1 and the
Trust's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Counsellors Securities, its officers and directors, or any controlling
person, and shall survive the delivery of any of the Trust's shares. This
agreement of indemnity will inure exclusively to Counsellors Securities'
benefit, to the benefit of its several officers and directors, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Trust agrees to notify Counsellors Securities promptly of the
commencement of any litigation or proceedings against the Trust or any of its
officers or directors in connection with the issuance and sale of any of the
Shares.
4.2 Counsellors Securities agrees to indemnify, defend and hold the
Trust, its several officers and trustees, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that the Trust, its officers or
trustees or any such controlling person may incur under the 1933 Act, the 1940
Act or common law or otherwise, but only to the extent that such liability or
expense incurred by the Trust, its officers or trustees or such controlling
person resulting from such claims or demands shall arise out of or be based upon
(a) any unauthorized sales literature, advertisements, information, statements
or representations or (b) any untrue or alleged untrue statement of a material
fact contained in information furnished in writing by Counsellors Securities to
the Trust specifically for use in the registration statement and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission or alleged
omission to state a material fact in connection with such information furnished
in writing by Counsellors Securities
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<PAGE>
to the Trust and required to be stated in such answers or necessary to
make such information not misleading. Counsellors Securities' agreement to
indemnify the Trust, its officers and trustees, and any such controlling person,
as aforesaid, is expressly conditioned upon Counsellors Securities' being
notified of any action brought against the Trust, its officers or trustees, or
any such controlling person, such notification to be given by letter or telegram
addressed to Counsellors Securities at its principal office in New York, New
York and sent to Counsellors Securities by the person against whom such action
is brought, within ten (10) days after the summons or other first legal process
shall have been served. The failure to so notify Counsellors Securities of any
such action shall not relieve Counsellors Securities from any liability that
Counsellors Securities may have to the Trust, its officers or trustees, or to
such controlling person by reason of any such untrue or alleged untrue statement
or omission or alleged omission otherwise than on account of Counsellors
Securities' indemnity agreement contained in this paragraph 4.2. Counsellors
Securities agrees to notify the Trust promptly of the commencement of any
litigation or proceedings against Counsellors Securities or any of its officers
or trustees in connection with the issuance and sale of any of the Shares.
4.3 In case any action shall be brought against any indemnified party
under paragraph 4.1 or 4.2, and it shall timely notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel would be
inappropriate due to actual or potential differing interests between them in the
conduct of the defense of such action.
5. 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
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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.
6. Effectiveness of Registration
-----------------------------
None of the Shares shall be offered by either Counsellors Securities or
the Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of the Shares shall be accepted by the Trust if and so long as
the effectiveness of the registration statement shall be suspended under any of
the provisions of the 1933 Act or if and so long as the prospectus is not on
file with the SEC; provided, however, that nothing contained in this paragraph 5
shall in any way restrict or have an application to or bearing upon the Trust's
obligation to repurchase its shares from any shareholder in accordance with the
provisions of the prospectus or statement of additional information.
7. Notice to Counsellors Securities
--------------------------------
The Trust agrees to advise Counsellors Securities immediately in
writing:
(a) of any request by the SEC for amendments to the registration
statement, prospectus or statement of additional information then in effect
with respect to the Shares or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement, prospectus or
statement of additional information then in effect with respect to the
Shares or the initiation of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the registration statement, prospectus or
statement of additional information then in effect with respect to the
Shares or that requires the making of a change in such registration
statement, prospectus or statement of additional information in order to
make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to any
registration statement, prospectus or statement of additional information
with respect to the Shares which may from time to time be filed with the
SEC.
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8. Term of Agreement
-----------------
This Agreement shall continue until April 17, 1998 and thereafter shall
continue automatically for successive annual periods ending on April 17th of
each year, provided such continuance is specifically approved at least annually
by (a) a vote of a majority of the Trust's Board of Trustees or (b) a vote of a
majority (as defined in the 1940 Act) of each of the outstanding Shares,
respectively, provided that the continuance is also approved by a vote of a
majority of the Trust's Trustees who are not interested persons (as defined in
the 1940 Act) of the Trust or any party to this Agreement ("Qualified
Trustees"), by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable with respect to the Trust without
penalty (a) on sixty (60) days' written notice, by a vote of a majority of the
Trust's Qualified Trustees or by vote of a majority (as defined in the 1940 Act)
of the outstanding Shares, or (b) on ninety (90) days' written notice by
Counsellors Securities. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
9. Amendments
----------
This Agreement may be amended by the parties only if the amendment is
specifically approved by (a) the Trust's Board of Trustees or by vote of a
majority of the outstanding Shares, and (b) by a vote of a majority of the
Qualified Trustees, cast in person at a meeting called for the purpose of voting
on the approval.
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 II
By:
---------------------------------
Name:
Title:
Accepted:`
COUNSELLORS SECURITIES INC.
By:
-------------------------
Name:
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CUSTODIAN SERVICES AGREEMENT TERMS AND CONDITIONS
This Agreement is made as of ___________, 199_ by and between PNC
BANK, NATIONAL ASSOCIATION, a national banking association, and WARBURG, PINCUS
TRUST II, a Massachusetts business trust (the "Fund").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund wishes to
retain PNC Bank to provide custodian services, and PNC Bank wishes to furnish
custodian services, either directly or through an affiliate or affiliates, as
more fully described herein.
In consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is duly authorized by
the Fund's Governing Board, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix as such appendix may be amended in writing by the
Fund's Governing Board from time to time.
(b) "Book-Entry System". The term "Book-Entry System"
means Federal Reserve Treasury book-entry system for United States and federal
agency securities, its successor or successors, and its nominee or nominees and
any book-entry system maintained by an
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exchange registered with the SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities
Futures Trading Commission.
(d) "Governing Board". The term "Governing Board" shall mean
the Fund's Board of Directors if the Fund is a corporation or the Fund's Board
of Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by PNC Bank from an Authorized Person or from a
person reasonably believed by PNC Bank to be an Authorized Person.
(f) "PNC Bank". The term "PNC Bank" shall mean PNC Bank,
National Association or a subsidiary or affiliate of PNC Bank, National
Association.
(g) "SEC". The term "SEC" shall mean the Securities and
Exchange Commission.
(h) "Securities and Commodities Laws". The term shall mean
the "1933 Act", the Securities Act of 1933, as amended, the "1934 Act", the
Securities Exchange Act of 1934, as amended, the "1940 Act", and the "CEA", the
Commodities Exchange Act, as amended.
(i) "Shares". The term "Shares" shall mean the shares of
stock of any series or class of the Fund, or, where appropriate, units of
beneficial interest in a trust where the Fund is organized as a Trust.
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<PAGE>
(j) "Property". The term "Property" shall mean:
(i) any and all securities and other investment
items which the Fund may from time to time
deposit, or cause to be deposited, with PNC
Bank or which PNC Bank may from time to time
hold for the Fund;
(ii) All income in respect of any of such securities or
other investment items;
(iii) all proceeds of the sale of any of such securities
or investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by PNC Bank from time to
time, from or on behalf of the Fund.
(k) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by two Authorized Persons and received
by PNC Bank. The instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to
provide custodian services, and PNC Bank accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Governing Board,
approving the appointment of PNC Bank or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement or
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agreements;
(e) a copy of the Fund's administration agreements if
PFPC is not providing the Fund with such services;
(f) copies of any shareholder servicing agreements
made in respect of the Fund; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PNC Bank
undertakes to comply with all applicable requirements of the Securities and
Commodities Laws, and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to all duties to be performed by
PNC Bank hereunder. Except as specifically set forth herein, PNC Bank assumes
no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, PNC Bank
shall act only upon Oral and Written Instructions. PNC Bank shall be entitled
to rely upon any Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to be an Authorized
Person) pursuant to this Agreement. PNC Bank may assume that any Oral or
Written Instructions received hereunder are not in any way inconsistent with
the provisions of organizational documents of the Fund or of any vote,
resolution or proceeding of the Fund's Governing Board or of the Fund's
shareholders.
The Fund agrees to forward to PNC Bank Written Instructions confirming
Oral Instructions so that PNC Bank receives the Written Instructions by the
close of business on the same day that such
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Oral Instructions are received. The fact that such confirming Written
Instructions are not received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions authorized by the Oral
Instructions.
The Fund further agrees that PNC Bank shall incur no liability to the
Fund in acting upon Oral or Written Instructions provided such instructions
reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt as to any
action it should or should not take, PNC Bank may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to
any questions of law pertaining to any action it should or should not take, PNC
Bank may request advice at its own cost from such counsel of its own choosing
(who may be counsel for the Fund, the Fund's advisor or PNC Bank, at the option
of PNC Bank).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PNC Bank receives from the
Fund, and the advice it receives from counsel, PNC Bank shall be entitled to
rely upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be protected
in any action it takes or does not take in reliance upon
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directions, advice or Oral or Written Instructions it receives from the Fund or
from counsel and which PNC Bank believes, in good faith, to be consistent with
those directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed so as to impose an
obligation upon PNC Bank (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PNC Bank's properly taking or not taking
such action.
7. Records. The books and records pertaining to the Fund, which are in
the possession of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during PNC Bank's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by PNC Bank to
the Fund or to an authorized representative of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep confidential all records
of the Fund and information relative to the Fund and its Shareholders (past,
present and potential), unless the release of such records or information is
otherwise consented to, in
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writing, by the Fund. The Fund further agrees that, should PNC Bank be required
to provide such information or records to duly constituted authorities (who may
institute civil or criminal contempt proceedings for failure to comply), PNC
Bank shall not be required to seek the Fund's consent prior to disclosing such
information; provided that PNC Bank gives the Fund prior written notice of the
provision of such information and records.
9. Cooperation with Accountants. PNC Bank shall cooperate with the
Fund's independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. Disaster Recovery. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions but shall have no liability with respect
thereto.
11. Compensation. As compensation for custody services rendered by
PNC Bank during the term of this Agreement, the Fund will pay to PNC Bank a fee
or fees as may be agreed to in writing from time to time by the Fund and PNC
Bank.
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12. Indemnification. The Fund agrees to indemnify and hold harmless PNC
Bank and its nominees from all taxes, charges, expenses, assessment, claims and
liabilities (including, without limitation, liabilities arising under the
Securities and Commodities Laws, and any state and foreign securities and blue
sky laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PNC Bank takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its nominees, shall be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of PNC Bank's or its nominees'
own willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under this Agreement or PNC Bank's own grossly
negligent failure to perform its duties under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be under no duty to take
any action on behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by PNC Bank, in writing. PNC Bank shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within reasonable
limits, in performing Services provided for under this Agreement. PNC Bank shall
be responsible for its own or its nominees' own
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willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties and obligations under this Agreement or PNC Bank's own grossly negligent
failure to perform its duties under this Agreement.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PNC Bank, in connection with its duties under this
Agreement, shall not be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or authority or lack thereof of
any Oral or Written Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PNC Bank reasonably
believes to be genuine; or (b) delays or errors or loss of data occurring by
reason of circumstances beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank
shall have no liability to the Fund for any consequential, special or indirect
losses or damages which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. Notwithstanding anything
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in this Agreement to the contrary, PNC Bank shall be the custodian of all
securities, cash and other property of the Fund received by it for the account
of the Fund, including cash received as a result of the distribution of its
Shares, during the period that is set forth in this Agreement. PNC Bank will not
be responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon
Written Instructions, shall open and maintain separate account(s) in the Fund's
name using all cash received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written Instructions, PNC Bank shall
open separate custodial accounts for each separate series, portfolio or class of
the Fund and shall hold in such account(s) all cash received from or for the
accounts of the Fund specifically designated to each separate series, portfolio
or class.
PNC Bank shall make cash payments from or for the account of the Fund
only for:
(i) purchases of securities in the name of the
Fund or PNC Bank or PNC Bank's nominee as
provided in sub-paragraph j and for which
PNC Bank has received a copy of the broker's
or dealer's confirmation or payee's invoice,
as appropriate;
(ii) purchase or redemption of Shares of the
Fund delivered to PNC Bank;
(iii) payment of, subject to Written Instructions,
interest, taxes, administration, accounting,
distribution, advisory, management fees or similar
expenses which are to be borne by the Fund;
10
<PAGE>
(iv) payment to, subject to receipt of
Written Instructions, the Fund's
transfer agent, as agent for the
shareholders, an amount equal to the
amount of dividends and distributions
stated in the Written Instructions to be
distributed in cash by the transfer
agent to shareholders, or, in lieu of
paying the Fund's transfer agent,
PNC Bank may arrange for the direct
payment of cash dividends and
distributions to shareholders in
accordance with procedures mutually
agreed upon from time to time by and
among the Fund, PNC Bank and the Fund's
transfer agent.
(v) payments, upon receipt Written
Instructions, in connection with the
conversion, exchange or surrender of
securities owned or subscribed to by the
Fund and held by or delivered to
PNC Bank;
(vi) payments of the amounts of dividends
received with respect to securities sold
short;
(vii) payments made to a sub-custodian
pursuant to provisions in sub-paragraph
c of this Paragraph 14; and
(viii) payments, upon Written Instructions made for other
proper Fund purposes.
PNC Bank is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities
received by it for the account of the
Fund in a separate account that
physically segregates such securities
from those of any other persons, firms
or corporations. All such securities
shall be held or disposed of only upon
Written Instructions of the Fund
11
<PAGE>
pursuant to the terms of this Agreement. PNC
Bank shall have no power or authority to
assign, hypothecate, pledge or otherwise
dispose of any such securities or
investment, except upon the express terms of
this Agreement and upon Written
Instructions, accompanied by a certified
resolution of the Fund's Governing Board,
authorizing the transaction. In no case may
any member of the Fund's Governing Board, or
any officer, employee or agent of the Fund
withdraw any securities.
At PNC Bank's own expense and for its own
convenience, PNC Bank may enter into
sub-custodian agreements with other United
States banks or trust companies to perform
duties described in this sub-paragraph c.
Such bank or trust company shall have an
aggregate capital, surplus and undivided
profits, according to its last published
report, of at least one million dollars
($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least twenty
million dollars ($20,000,000) if such bank
or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such
bank or trust company must be qualified to
act as custodian and agree to comply with
the relevant provisions of the 1940 Act and
other applicable rules and regulations. Any
such arrangement will not be entered into
without prior written notice to the Fund.
PNC Bank shall remain responsible for the
performance of all of its duties as
described in this Agreement and shall hold
the Fund and the Money Market Series
harmless from its own acts or omissions,
under the standards of care provided for
herein, or the acts and omissions of any
sub-custodian chosen by PNC Bank under the
terms of this sub-paragraph c.
(d) Transactions Requiring Instructions. Upon receipt
of Oral or Written Instructions and not otherwise, PNC Bank,
directly or through the use of the Book-Entry System, shall:
12
<PAGE>
(i) deliver any securities held for the Fund
against the receipt of payment for the
sale of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral or Written Instructions,
proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as
owner of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are called, redeemed,
retired or otherwise become payable; provided that,
in any such case, the cash or other consideration is
to be delivered to PNC Bank;
(iv) deliver any securities held for the Fund against
receipt of other securities or cash issued or paid in
connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise
of any conversion privilege;
(v) deliver any securities held for the Fund to any
protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization
or sale of assets of any corporation, and receive
and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Fund and take such other steps as shall be stated in
said Oral or Written Instructions to be for the
purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to the Fund
13
<PAGE>
to any bank or trust company for the purpose of a
pledge or hypothecation to secure any loan incurred
by the Fund; provided, however, that securities shall
be released only upon payment to PNC Bank of the
monies borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released for
that purpose; and repay such loan upon redelivery to
it of the securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing
the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into
on behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in
connection with such repurchase agreements, but only
upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by
the Fund in connection with any conversion of such
securities, pursuant to their terms, into other
securities;
(x) release and deliver securities owned by the fund for
the purpose of redeeming in kind shares of the Fund
upon delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by
the Fund for other corporate purposes.
PNC Bank must also receive a certified
resolution describing the nature of the
corporate purpose and the name and address
of the person(s) to whom delivery shall be
made when such action is pursuant to
sub-paragraph d.
(e) Use of Book-Entry System. The Fund shall deliver to
PNC Bank certified resolutions of the Fund's Governing Board
14
<PAGE>
approving, authorizing and instructing PNC Bank on a continuous and on-going
basis, to deposit in the Book-Entry System all securities belonging to the Fund
eligible for deposit therein and to utilize the Book-Entry System to the extent
possible in connection with settlements of purchases and sales of securities by
the Fund, and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. PNC Bank shall
continue to perform such duties until it receives Written or Oral Instructions
authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions
shall apply:
(i) With respect to securities of the Fund
which are maintained in the Book-Entry
system, established pursuant to this
sub-paragraph e hereof, the records of PNC
Bank shall identify by Book-Entry or
otherwise those securities belonging to the
Fund. PNC Bank shall furnish the Fund a
detailed statement of the Property held for
the Fund under this Agreement at least
monthly and from time to time and upon
written request.
(ii) Securities and any cash of the Fund
deposited in the Book-Entry System will
at all times be segregated from any
assets and cash controlled by PNC Bank
in other than a fiduciary or custodian
capacity but may be commingled with
other assets held in such capacities.
PNC Bank and its sub-custodian, if any,
will pay out money only upon receipt of
securities and will deliver securities
only upon the receipt of money.
(iii) All books and records maintained by PNC
Bank which relate to the Fund's
participation in the Book-Entry System will
at all times during PNC Bank's
15
<PAGE>
regular business hours be open to the
inspection of the Fund's duly authorized
employees or agents, and the Fund will be
furnished with all information in respect
of the services rendered to it as it may
require.
(iv) PNC Bank will provide the Fund with copies
of any report obtained by PNC Bank on the
system of internal accounting control of
the Book-Entry System promptly after
receipt of such a report by PNC Bank.
PNC Bank will also provide the Fund with such reports on its
own system of internal control as the Fund may reasonably request
from time to time.
(f) Registration of Securities. All Securities held for the Fund which
are issued or issuable only in bearer form, except such securities held in the
Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name of the Fund; PNC
Bank; the Book-Entry System; a sub-custodian; or any duly appointed nominee(s)
of the Fund, PNC Bank, Book-Entry system or sub-custodian. The Fund reserves
the right to instruct PNC Bank as to the method of registration and safekeeping
of the securities of the Fund. The Fund agrees to furnish to PNC Bank
appropriate instruments to enable PNC Bank to hold or deliver in proper form
for transfer, or to register its registered nominee or in the name of the
Book-Entry System, any securities which it may hold for the account of the Fund
and which may from time to time be registered in the name of the Fund. PNC Bank
shall hold all such securities which are not
16
<PAGE>
held in the Book-Entry System in a separate account for the Fund in the name of
the Fund physically segregated at all times from those of any other person or
persons.
(g) Voting and Other Action. Neither PNC Bank nor its nominee shall
vote any of the securities held pursuant to this Agreement by or for the account
of the Fund, except in accordance with Written Instructions. PNC Bank, directly
or through the use of the Book-Entry System, shall execute in blank and promptly
deliver all notice, proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not the Fund then Written
or Oral Instructions must designate the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account
of the Fund, all income, dividends,
distributions, coupons, option
premiums, other payments and similar
items, included or to be included in
the Property, and, in addition,
promptly advise the Fund of such
receipt and credit such income, as
collected, to the Fund's custodian
account;
17
<PAGE>
(B) endorse and deposit for collection,
in the name of the Fund, checks,
drafts, or other orders for the
payment of money;
(C) receive and hold for the account of
the Fund all securities received as
a distribution on the Fund's
portfolio securities as a result of
a stock dividend, share split-up or
reorganization, recapitalization,
readjustment or other rearrangement
or distribution of rights or
similar securities issued with
respect to any portfolio securities
belonging to the Fund held by
PNC Bank hereunder;
(D) present for payment and collect the
amount payable upon all securities
which may mature or be called,
redeemed, or retired, or otherwise
become payable on the date such
securities become payable; and
(E) take any action which may be
necessary and proper in connection
with the collection and receipt of
such income and other payments and
the endorsement for collection of
checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver
or cause to be delivered Property
against payment or other
consideration or written receipt
therefor in the following cases:
(1) for examination by a broker
or dealer selling for the
account of the Fund in
accordance with street
delivery custom;
(2) for the exchange of
interim receipts
18
<PAGE>
or temporary securities for
definitive securities; and
(3) for transfer of securities
into the name of the Fund
or PNC Bank or nominee of
either, or for exchange of
securities for a different
number of bonds,
certificates, or other
evidence, representing the
same aggregate face amount
or number of units bearing
the same interest rate,
maturity date and call
provisions, if any;
provided that, in any such
case, the new securities
are to be delivered to PNC
Bank.
(B) Unless and until PNC Bank receives
Oral or Written Instructions to the
contrary, PNC Bank shall:
(1) pay all income items held
by it which call for
payment upon presentation
and hold the cash received
by it upon such payment for
the account of the Fund;
(2) collect interest and cash
dividends received, with
notice to the Fund, to the
account of the Fund;
(3) hold for the account of
the Fund all stock
dividends, rights and
similar securities issued
with respect to any
securities held by us; and
(4) execute as agent on behalf
of the Fund all necessary
ownership certificates
required by the Internal
Revenue Code or the Income
Tax Regulations of the
United States Treasury
Department or under the
laws of any State now or
hereafter in effect,
19
<PAGE>
inserting the Fund's name
on such certificate as the
owner of the securities
covered thereby, to the
extent it may lawfully do
so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or
Oral Instructions establish and maintain a
segregated accounts(s) on its records for
and on behalf of the Fund. Such account(s)
may be used to transfer cash and securities,
including securities in the Book-Entry
System:
(A) for the purposes of compliance by
the Fund with the procedures
required by a securities or option
exchange, providing such procedures
comply with the 1940 Act and any
releases of the SEC relating to the
maintenance of segregated accounts
by registered investment companies;
and
(B) Upon receipt of Written
Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such shareholders holding
shares through IRA accounts, in accordance with the
Prospectus, the Internal Revenue Code (including
regulations), and with such other procedures as are
mutually agreed upon from time to time by and among
the Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle
purchased securities upon receipt of Oral or Written Instructions
from the fund or its investment advisor(s) that specify:
(i) the name of the issuer and the title of
the securities, including CUSIP number
if applicable;
(ii) the number of shares or the principal
20
<PAGE>
amount purchased and accrued interest,
if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker
through whom the purchase was made. PNC Bank shall
upon receipt of securities purchased by or for the
Fund pay out of the moneys held for the account of
the Fund the total amount payable to the person from
whom or the broker through whom the purchase was
made, provided that the same conforms to the total
amount payable as set forth in such Oral or Written
Instructions.
(k) Sales of Securities. PNC Bank shall sell securities
upon receipt of Oral Instructions from the Fund that specify:
(i) the name of the issuer and the title of the
security, including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and
accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to
whom the sale was made; and
(vii) the location to which the security must be delivered
and delivery deadline, if any.
PNC Bank shall deliver the securities upon receipt of the
21
<PAGE>
total amount payable to the Fund upon such sale, provided that the total amount
payable is the same as was set forth in the Oral or Written Instructions.
Subject to the foregoing, PNC Bank may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the
following reports:
(A) such periodic and special reports
as the Fund may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the
account of the Fund, listing the
portfolio securities belonging to
the fund with the adjusted average
cost of each issue and the market
value at the end of such month, and
stating the cash account of the
Fund including disbursement;
(C) the reports to be furnished to the
Fund pursuant to Rule 17f-4; and
(D) such other information as may be
agreed upon from time to time
between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any
proxy statement, proxy material, notice of a call or
conversion or similar communication received by it as
custodian of the Property. PNC Bank shall be under no
other obligation to inform the Fund as to such
actions or events.
(m) Collections. All collections of monies or other
property in respect, or which are to become part, of the Property
22
<PAGE>
(but not the safekeeping thereof upon receipt by PNC Bank) shall be at the sole
risk of the Fund. If payment is not received by PNC Bank within a reasonable
time after proper demands have been made, PNC Bank shall notify the Fund in
writing, including copies of all demand letters, any written responses,
memoranda of all oral responses and to telephonic demands thereto, and await
instructions from the Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to its satisfaction. PNC
Bank shall also notify the Fund as soon as reasonably practicable whenever
income due on securities is not collected in due course.
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days' prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or other
property), PNC Bank shall not deliver cash, securities or other property of the
Fund to the Fund. It may deliver them to a bank or trust company of PNC Bank's,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars ($20,000,000), as a
custodian for the Fund to be held under terms similar to those of this
Agreement. PNC Bank shall not be required to make any such delivery or payment
until full payment shall have been made to PNC
23
<PAGE>
Bank of all of its fees, compensation, costs and expenses. PNC Bank shall have a
security interest in and shall have a right of setoff against Property in the
Fund's possession as security for the payment of such fees, compensation, costs
and expenses.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address, Airport Business Center, International Court 2, 200 Stevens
Drive, Philadelphia, Pennsylvania 19113, marked for the attention of the
Custodian Services Department (or its successor) (b) if to the Fund, at the
address of the Fund; or (c) if to neither of the foregoing, at such other
address as shall have been notified to the sender of any such Notice or other
communication. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have been given five
days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered.
17. Amendments. This Agreement, or any term hereof, may be
changed or waived only by a written amendment, signed by the party
against whom enforcement of such change or waiver is sought.
18. Delegation. PNC Bank may assign its rights and delegate
its duties hereunder to any wholly-owned direct or indirect
24
<PAGE>
subsidiary of PNC Bank, National Association or PNC Bank Corp., provided that
(i) PNC Bank gives the Fund thirty (30) days prior written notice; (ii) the
delegate agrees with PNC Bank to comply with all relevant provisions of the 1940
Act; and (iii) PNC Bank and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation, including (without limitation) the capabilities of
the delegate.
19. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such
further acts and execute such further documents as are necessary to
effectuate the purposes hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one more separate documents their agreement, if any, with respect
to delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law. If any provision of
25
<PAGE>
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding and shall inure to the benefit of the parties
hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION
By:______________________________
Title:___________________________
WARBURG, PINCUS TRUST II
By:______________________________
Title:___________________________
26
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
- ----------- ---------
27
<PAGE>
DRAFT
CUSTODIAN CONTRACT
Between
WARBURG, PINCUS TRUST II
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
1
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be Held By
It.............................................................. 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States.......... 2
2.1 Holding Securities..................................... 2
2.2 Delivery of Securities................................. 2
2.3 Registration of Securities............................. 4
2.4 Bank Accounts.......................................... 4
2.5 Availability of Federal Funds.......................... 5
2.6 Collection of Income................................... 5
2.7 Payment of Fund Monies................................. 5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased................................... 6
2.9 Appointment of Agents.................................. 7
2.10 Deposit of Fund Assets in U.S. Securities System....... 7
2.11 Fund Assets Held in the Custodian's Direct
Paper System........................................... 8
2.12 Segregated Account..................................... 9
2.13 Ownership Certificates for Tax Purposes................ 9
2.14 Proxies................................................ 10
2.15 Communications Relating to Portfolio
Securities............................................. 10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...................... 10
3.1 Appointment of Foreign Sub-Custodians.................. 10
3.2 Assets to be Held...................................... 10
3.3 Foreign Securities Systems............................. 11
3.4 Holding Securities..................................... 11
3.5 Agreements with Foreign Banking Institutions........... 11
3.6 Access of Independent Accountants of the Fund.......... 11
3.7 Reports by Custodian................................... 11
3.8 Transactions in Foreign Custody Account................ 12
3.9 Liability of Foreign Sub-Custodians.................... 12
3.10 Liability of Custodian................................. 12
3.11 Reimbursement for Advances............................. 12
3.12 Monitoring Responsibilities............................ 13
3.13 Branches of U.S. Banks................................. 13
3.14 Tax Law................................................ 14
2
<PAGE>
4. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund.......................................... 14
5. Proper Instructions............................................ 14
6. Actions Permitted Without Express Authority.................... 15
7. Evidence of Authority.......................................... 15
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income.............. 15
9. Records........................................................ 16
10. Opinion of Fund's Independent Accountants...................... 16
11. Reports to Fund by Independent Public Accountants.............. 16
12. Compensation of Custodian...................................... 16
13. Responsibility of Custodian.................................... 17
14. Effective Period, Termination and Amendment.................... 18
15. Successor Custodian............................................ 19
16. Interpretive and Additional Provisions......................... 19
17. Additional Funds............................................... 20
18. Massachusetts Law to Apply..................................... 20
19. Prior Contracts................................................ 20
20. Reproduction of Documents...................................... 20
21. Shareholder Communications Election............................ 20
3
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Warburg, Pincus Trust II , a business trust
organized and existing under the laws of The Commonwealth of Massachusetts ,
having its principal place of business at 466 Lexington Avenue, New York, New
York 10017-3147 hereinafter called the "Fund", and State Street Bank and Trust
Company, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, the
Fixed Income Portfolio and the Global Fixed Income Portfolio (such series
together with all other series subsequently established by the Fund and made
subject to this Contract in accordance with paragraph 17, being herein
referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
4
<PAGE>
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
--------------------------------------------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury (each, a U.S. Securities System") and (b) commercial paper of
an issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same
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aggregate face amount or number of units; provided that, in any
such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of
the Fund;
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13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of
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1940. Funds held by the Custodian for a Portfolio may be deposited by
it to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that every
such bank or trust company shall be qualified to act as a custodian
under the Investment Company Act of 1940 and that each such bank or
trust company and the funds to be deposited with each such bank or
trust company shall on behalf of each applicable Portfolio be approved
by vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3
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hereof or in proper form for transfer; (b) in the case of a
purchase effected through a U.S. Securities System, in
accordance with the conditions set forth in Section 2.10
hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered
into between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of
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<PAGE>
receipt of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received
by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S.
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the U.S.
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the U.S. Securities System that payment
for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the U.S. Securities System
of transfers of securities for the account of the Portfolio
shall identify the Portfolio, be maintained for the Portfolio by
the Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio in the form of a written advice or
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notice and shall furnish to the Fund on behalf of the Portfolio
copies of daily transaction sheets reflecting each day's
transactions in the U.S. Securities System for the account of
the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the U.S. Securities
System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights
as it may have against the U.S. Securities System; at the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against
the U.S. Securities System or any other person which the
Custodian may have as a consequence of any such loss or damage
if and to the extent that the Portfolio has not been made whole
for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry
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on the records of the Custodian to reflect such transfer and
receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
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2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
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3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a
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foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a
Portfolio, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a holder
of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation,
15
<PAGE>
except such loss as may result from (a) political risk (including, but
not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or (b) other losses (excluding a bankruptcy or insolvency
of State Street London Ltd. not caused by political risk) due to Acts
of God, nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
16
<PAGE>
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
----------------------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford
17
<PAGE>
adequate safeguards for the Portfolios' assets. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three - party agreement which requires a segregated asset
account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be
accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property of
the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
-----------------------------------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so,
18
<PAGE>
shall advise the Transfer Agent periodically of the division of such net income
among its various components. The calculations of the net asset value per share
and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
19
<PAGE>
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable
20
<PAGE>
for the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio ; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
21
<PAGE>
15. Successor Custodian
-------------------
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
---------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
22
<PAGE>
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Global Fixed Income Portfolio with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Reproduction of Documents
-------------------------
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. Shareholder Communications Election
-----------------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
23
<PAGE>
YES [ ] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [ ] The Custodian is not authorized to release the
Fund's name, address, and share positions.
24
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 199 .
ATTEST WARBURG PINCUS TRUST II
_____________________ By ______________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
______________________ By ______________________________
Executive Vice President
25
<PAGE>
Schedule A
----------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Warburg, Pincus
Trust II for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
_________________________
Fund's Authorized Officer
Date:___________________
26
<PAGE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
WARBURG, PINCUS TRUST II
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
1
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment; Duties of the Bank..............................1
2. Fees and Expenses.....................................................3
3. Representations and Warranties of the Bank............................4
4. Representations and Warranties of the Fund............................4
5. Data Access and Proprietary Information...............................5
6. Indemnification.......................................................6
7. Standard of Care......................................................7
8. Covenants of the Fund and the Bank....................................8
9. Termination of Agreement..............................................9
10. Additional Funds......................................................9
11. Assignment............................................................9
12. Amendment.............................................................9
13. Massachusetts Law to Apply...........................................10
14. Force Majeure........................................................10
15. Consequential Damages................................................10
16. Merger of Agreement..................................................10
17. Limitations of Liability of the Trustees
or Shareholders......................................................10
18. Counterparts.........................................................10
19. Reproduction of Documents............................................11
2
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the day of , 199 , by and between WARBURG, PINCUS TRUST II
, a Massachusetts business trust, having its principal office and place of
business at 466 Lexington Avenue, New York, New York 10017-3147 (the "Fund"),
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having
its principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, the Fixed
Income Portfolio and the Global Fixed Income Portfolio (each such series,
together with all other series subsequently established by the Fund and made
subject to this Agreement in accordance with Article 10, being herein
referred to as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to
act as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of beneficial interest, $ 0.001 par value,
("Shares"), dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus")
of the Fund on behalf of the applicable Portfolio, including without
limitation any periodic investment plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund on behalf of each of the
Portfolios, as applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and
appropriate documentation thereof to the Custodian
of
3
<PAGE>
the Fund authorized pursuant to the Declaration of
Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the appropriate
Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii)
and (iii) above, the Bank shall execute
transactions directly with broker-dealers
authorized by the Fund who shall thereby be deemed
to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any
redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the
redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon
receipt by the Bank of indemnification satisfactory to
the Bank and protecting the Bank and the Fund, and the
Bank at its option, may issue replacement certificates
in place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total
number of shares of the Fund which are authorized, based
upon data provided to it by the Fund, and issued and
outstanding. The Bank shall also provide the Fund on a
regular basis with the total number of shares which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of shares, to
monitor the issuance of such shares or to take
cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole
responsibility of the Fund.
4
<PAGE>
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank
shall: (i) perform the customary services of a transfer
agent, dividend disbursing agent, custodian of certain
retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, mailing Shareholder reports
and prospectuses to current Shareholders, withholding taxes
on U.S. resident and non-resident alien accounts, preparing
and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information
and (ii) provide a system which will enable the Fund to
monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as
exempt from blue sky reporting for each State and (ii)
verify the establishment of transactions for each State on
the system prior to activation and thereafter monitor the
daily activity for each State. The responsibility of the
Bank for the Fund's blue sky State registration status is
solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting
of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services
in Section 1 may be established from time to time by
agreement between the Fund on behalf of each Portfolio and
the Bank per the attached service responsibility schedule.
The Bank may at times perform only a portion of these
services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Fund (i.e., escheatment services) which may be agreed upon
in writing between the Fund and the Bank.
2. Fees and Expenses
-----------------
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the
initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between
the Fund and the Bank.
5
<PAGE>
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees
on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation
production, postage, forms, telephone, microfilm, microfiche,
tabulating proxies, records storage, or advances incurred by the Bank
for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or
with the consent of the Fund, will be reimbursed by the Fund on behalf
of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of
the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all shareholder accounts
shall be advanced to the Bank by the Fund at least seven (7) days
prior to the mailing date of such materials.
3. Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
6
<PAGE>
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended
on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all Shares of
the Fund being offered for sale.
5. Data Access and Proprietary Information
---------------------------------------
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of
the Fund's ability to access certain Fund-related data ("Customer
Data") maintained by the Bank on data bases under the control and
ownership of the Bank or other third party ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary
information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all
Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person
or organization except as may be provided hereunder. Without limiting
the foregoing, the Fund agrees for itself and its employees and
agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing the data acquired
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
7
<PAGE>
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal
copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make
no claim against the Bank arising out of the contents of such
third-party data, including, but not limited to, the accuracy
thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES
EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash or Shares or (ii) transmit
Shareholder information or other information, then in such event the
Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as
such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
6. Indemnification
---------------
6.1 The Bank shall not be responsible for, and the Fund shall on behalf
of the applicable Portfolio indemnify and hold the Bank harmless from
and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable
to:
(a) All actions of the Bank or its agents or subcontractors
required to be taken pursuant to this Agreement, provided
that such actions are taken in good faith and without
negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or
services which (i) are received by the Bank or its agents or
8
<PAGE>
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous
transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of
the Fund on behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop
order or other determination or ruling by any federal agency
or any state with respect to the offer or sale of such
Shares in such state.
(f) The negotiation and processing by the Bank of checks not
made payable to the order of the Bank, the Fund, the Fund's
management company, transfer agent or distributor or the
retirement account custodian or trustee for a plan account
investing in Shares, which checks are tendered to the Bank
for the purchase of Shares (i.e., checks made payable to
prospective or existing Shareholders, such checks are
commonly known as "third party checks").
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the
Fund on behalf of the applicable Portfolio for any action taken or
omitted by it in reliance upon such instructions or upon the opinion
of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document,
reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data,
records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to
have notice of any change of authority of any person, until receipt
of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which the
Fund may be required to indemnify the Bank, the Bank shall promptly
notify the Fund of such assertion, and shall keep the Fund advised
with respect to all developments concerning such claim. The Fund
shall have the option to participate with the Bank in the defense of
such claim or to defend against said claim in its own name or in the
name of the Bank. The Bank shall in no case confess any claim or
8
<PAGE>
make any compromise in any case in which the Fund may be required
to indemnify the Bank except with the Fund's prior written consent.
7. Standard of Care
----------------
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
----------------------------------
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish
to the Bank the following:
(a) A certified copy of the resolution of the Board of Trustees
of the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund
and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services
to be performed by the Bank hereunder are the property of the Fund
and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered promptly to the
Fund on and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required
by law.
8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. The Bank reserves the right,
9
<PAGE>
however, to exhibit the Shareholder records to any person whenever
it is advised by its counsel that it may be held liable for the
failure to exhibit the Shareholder records to such person.
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
10. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares
in addition to Global Fixed Income Portfolio with respect to which it
desires to have the Bank render services as transfer agent under the
terms hereof, it shall so notify the Bank in writing, and if the Bank
agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
11. Assignment
----------
11.1 Except as provided in Section 11.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"),
(ii) a BFDS subsidiary duly registered as a transfer agent pursuant
to Section 17A(c)(2) or (iii) a BFDS affiliate; provided, however,
that the Bank shall be as fully responsible to the Fund for the acts
and omissions of any subcontractor as it is for its own acts and
omissions.
10
<PAGE>
12. Amendment
---------
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution
of the Board of Trustees of the Fund.
13. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
14. Force Majeure
-------------
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
15. Consequential Damages
---------------------
Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to
act hereunder.
16. Merger of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
---------------------------------------------------------
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of
the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or
Shareholders individually but are binding only upon the assets and
property of the Fund.
18. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
11
<PAGE>
19. Reproduction of Documents
-------------------------
This Agreement and all schedules, exhibits, attachments and
amendments hereto may be reproduced by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar
process. The parties hereto all/each agree that any such reproduction
shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is
in existence and whether or not such reproduction was made by a party
in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise
be admissible in evidence.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
WARBURG, PINCUS TRUST II
BY:______________________________
ATTEST:
__________________________________
STATE STREET BANK AND TRUST
COMPANY
BY:_____________________________
Executive Vice President
ATTEST:
__________________________________
13
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
14
<PAGE>
Service Performed Responsibility
Bank Fund
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Section 1.2 (a), (b) and (c) of the
Agreement.
WARBURG, PINCUS TRUST II
BY:_________________________
ATTEST:
_________________________
STATE STREET BANK AND TRUST COMPANY
BY:____________________________
Executive Vice President
ATTEST:
__________________________
<PAGE>
CO-ADMINISTRATION AGREEMENT
__________, 1997
Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust II (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, confirms its agreement with
Counsellors Funds Service, Inc. ("Counsellors Service") with respect to series
of the Trust that may be offered from time to time (each a "Portfolio" and
collectively the "Portfolios"), as follows:
1. Investment Description; Appointment
The Trust desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in its
Agreement and Declaration of Trust, as amended from time to time (the
"Declaration of Trust"), in its By-laws, as amended from time to time (the
"By-laws"), in the Trust's prospectus (the "Prospectus") and Statement of
Additional Information (the "Statement of Additional Information") relating to
the Portfolios as in effect from time to time, and in such manner and to the
extent as may from time to time be approved by the Board of Trustees of the
Trust. Copies of the Prospectus, Statement of Additional Information and the
Declaration of Trust and By-laws have been submitted to Counsellors Service. The
Trust employs Warburg, Pincus Counsellors, Inc. (the "Adviser") as its
investment adviser with respect to the Portfolios and desires to employ and
hereby appoints Counsellors Service as its co-administrator with respect to the
Portfolios. Counsellors Service accepts this appointment and agrees to furnish
the services for the compensation set forth below.
2. Services as Co-Administrator
----------------------------
Subject to the supervision and direction of the Board of Trustees of
the Trust, Counsellors Service will:
(a) assist in supervising all aspects of the Portfolios' operations,
except those performed by other parties pursuant to written agreements with the
Trust;
(b) provide various shareholder liaison services including, but not
limited to, responding to inquiries of shareholders regarding the Portfolios,
providing information on
1
<PAGE>
shareholder investments, assisting shareholders of the Portfolios in changing
dividend options, account designations and addresses, and other similar
services;
(c) provide certain administrative services including, but not limited
to, providing periodic statements showing the account balance of a Portfolio
shareholder and integrating the statements with those of other transactions and
balances in the shareholder's other accounts serviced by the Portfolios'
custodian or transfer agent;
(d) supply the Portfolios with office facilities (which may be
Counsellors Service's own offices), data processing services, clerical, internal
executive and administrative services, and stationery and office supplies;
(e) furnish corporate secretarial services, including assisting in the
preparation of materials for Board of Trustees meetings and distributing those
materials and preparing minutes of meetings of the Trust's Board of Trustees and
any Committees thereof and of the Trust's shareholders;
(f) coordinate the preparation of reports to the Portfolios'
shareholders of record and filings with the Securities and Exchange Commission
(the "SEC") including, but not limited to, proxy statements; annual, semi-annual
and quarterly reports to shareholders; and post-effective amendments to the
Trust's Registration Statement on Form N-1A with respect to the Portfolios (the
"Registration Statement");
(g) assist in the preparation of the Trust's tax returns with respect
to the Portfolios and assist in other regulatory filings as necessary;
(h) assist the Adviser, at the Adviser's request, in monitoring and
developing compliance procedures for the Portfolios which will include, among
other matters, procedures to assist the Adviser in monitoring compliance with
the Portfolios' investment objectives, policies, restrictions, tax matters and
applicable laws and regulations; and
(i) acting as liaison between the Trust and the Trust's independent
public accountants, counsel, custodian or custodians, transfer agent and
co-administrator and taking all reasonable action in the performance of its
obligations under this Agreement to assure that all necessary information is
made available to each of them.
In performing all services under this Agreement, Counsellors Service
shall act in conformity with applicable law, the Trust's Declaration of Trust
and By-laws, and all amendments thereto, and the investment objectives,
investment policies and other practices and policies set forth in the
Registration
2
<PAGE>
Statement, as such Registration Statement and practices and policies may be
amended from time to time.
3. Compensation
------------
In consideration of services rendered pursuant to this Agreement, the
Trust will pay Counsellors Service on the first business day of each month a fee
for the previous month at an annual rate of .10% of each Portfolio's average
daily net assets. The fee for the period from the date a Portfolio commences its
investment operations to the end of the month during which the Portfolio
commences its investment operations shall be prorated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such part
of a month shall be prorated according to the proportion which such period bears
to the full monthly period and shall be payable upon the date of termination of
this Agreement. For the purpose of determining fees payable to Counsellors
Service, fees shall be calculated monthly and the value of each Portfolio's net
assets shall be computed at the times and in the manner specified in the
Prospectus and Statement of Additional Information as from time to time in
effect.
4. Expenses
--------
Counsellors Service will bear all expenses in connection with the
performance of its services under this Agreement; provided, however, that the
Trust will reimburse Counsellors Service for the out-of-pocket expenses incurred
by it on behalf of the Portfolios. Such reimbursable expenses shall include, but
not be limited to, postage, telephone, telex and FedEx charges. Counsellors
Service will bill the Portfolios as soon as practicable after the end of each
calendar month for the expenses it is entitled to have reimbursed.
Each Portfolio will bear its proportionate share of certain other
expenses to be incurred in its operation, including: 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 Counsellors Service; SEC
fees and state Blue Sky qualification fees; charges of custodians and transfer
and dividend disbursing agents; certain insurance premiums; outside auditing and
legal expenses; costs of maintenance of corporate existence; except as otherwise
provided herein, 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, and meetings of the officers of Board of Trustees of the Trust;
costs of any pricing services; and any extraordinary expenses.
3
<PAGE>
5. Standard of Care
----------------
Counsellors Service shall exercise its best judgment in rendering the
services listed in paragraph 2 above. Counsellors Service shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Portfolios in connection with the matters to which this Agreement
relates provided that nothing in this Agreement shall be deemed to protect or
purport to protect Counsellors Service against liability to the Trust or the
Portfolios to their shareholders to which Counsellors Service would otherwise be
subject by reason of willful misfeasance, bad faith or negligence on its part in
the performance of its duties or by reason of Counsellors Service's reckless
disregard of its obligations and duties under this Agreement.
6. Limitation of Liability
-----------------------
The Trust and Counsellors Service 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 or the Portfolios, 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 Portfolios as provided in the Declaration of
Trust. No series of the Trust including the Portfolios will be liable for any
claims against any other series.
7. Term of Agreement
-----------------
This Agreement shall become effective with respect to a Portfolio as of
the date the Portfolio commences its investment operations and shall continue
until April 17, 1998 and shall continue automatically (unless terminated as
provided herein) for successive annual periods ending on April 17th of each
year, provided that such continuance is specifically approved at least annually
by the Board of Trustees of the Trust, including a majority of the Board of
Trustees who are not "interested persons" (as defined in the Investment Company
Act of 1940, as amended) 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 sixty (60) days' written notice, by the Board
of Trustees of the Trust or, with respect to a Portfolio, by vote of holders of
a majority of the Portfolio's shares, or upon sixty (60) days' written notice,
by Counsellors Service.
4
<PAGE>
8. Service to Other Companies or Accounts
--------------------------------------
The Trust understands that Counsellors Service now acts, will continue
to act and may act in the future as administrator, co-administrator or
administrative services agent to one or more other investment companies, and the
Trust has no objection to Counsellors Service's so acting. The Trust understands
that the persons employed by Counsellors Service to assist in the performance of
Counsellors Service's duties hereunder will not devote their full time to such
service and nothing contained in this Agreement shall be deemed to limit or
restrict the right of Counsellors Service or any affiliate of Counsellors
Service to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed copy
hereof.
Very truly yours,
WARBURG, PINCUS TRUST II
By:
------------------------------
Name: Eugene P. Grace
Title: Vice President
Accepted:
COUNSELLORS FUNDS SERVICE, INC.
By:
----------------------------
Name: Eugene P. Grace
Title: Vice President
5
<PAGE>1
CO-ADMINISTRATION AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of __________, 1997 by and between
Warburg, Pincus Trust II (the "Trust"), a Massachusetts business trust, and PFPC
Inc. ("PFPC"), a Delaware corporation, which is an indirect, wholly owned
subsidiary of PNC Bank Corp.
The Trust is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust wishes to
retain PFPC to provide certain administration and accounting services with
respect to series of the Trust that may be offered from time to time (each a
"Portfolio" and collectively the "Portfolios"), and PFPC wishes to furnish such
services.
In consideration of the promises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
-----------
(a) "Authorized Person." The term "Authorized Person" shall mean any
officer of the Trust and any other person, who is duly authorized by the Trust's
Governing Board, to give Oral and Written Instructions on behalf of the Trust.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix to each Services Attachment to this Agreement. If PFPC provides
more than one service hereunder, the Trust's designation of Authorized Persons
may vary by service.
(b) "CFTC." The term "CFTC" shall mean the Commodities Futures Trading
Commission.
(c) "Governing Board." The Term "Governing Board" shall mean the
Trust's Board of Directors if the Trust is a corporation or the Trust's Board of
Trustees if the Trust is a trust, or, where duly authorized, a competent
committee thereof.
(d) "Oral Instructions." The term "Oral Instructions" shall mean oral
instructions received by PFPC from an Authorized Person or from a person
reasonably believed by PFPC to be an Authorized Person.
(e) "PNC." The term "PNC" shall mean PNC Bank or a subsidiary or
affiliate of PNC Bank.
(f) "SEC." The term "SEC" shall mean the Securities and Exchange
Commission.
<PAGE>2
(g) "Securities and Commodities Laws." The terms the "1933 Act" shall
mean the Securities Act of 1933, as amended, the "1934 Act" shall mean the
Securities Exchange Act of 1934, as amended, the "1940 Act" shall mean the
Investment Company Act 1940, as amended, and the "CEA" shall mean the
Commodities Exchange Act, as amended.
(h) "Services." The term "Services" shall mean the service provided to
the Trust by PFPC.
(i) "Shares." The terms "Shares" shall mean the shares of beneficial
interest of any series or class of the Trust.
(j) "Property." The term "Property" shall mean:
(i) any and all securities and other investment items which the
Trust may from time to time deposit, or cause to be
deposited, with PNC or which PNC may from time to time hold
for the Trust;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Trust,
which are received by PNC from time to time, from or on
behalf of the Trust.
(k) "Written Instructions." The term "Written Instructions" shall mean
written instructions signed by one Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Appointment.
-----------
The Trust hereby appoints PFPC to provide administration and accounting
services with respect to the Portfolios, in accordance with the terms set forth
in this Agreement. PFPC accepts such appointment and agrees to furnish such
services.
3. Delivery of Documents.
---------------------
The Trust has provided or, where applicable, will provide PFPC with the
following:
<PAGE>3
(a) certified or authenticated copies of the resolutions of the
Trust's Governing Board, approving the appointment of PNC or its
affiliates to provide services with respect to the Portfolios;
(b) a copy of the Trust's most recent effective registration statement
with respect to the Portfolios;
(c) a copy of the Trust's advisory agreement or agreements with
respect to the Portfolios;
(d) a copy of the Trust's distribution agreement or agreements with
respect to the Portfolios;
(e) a copy of the Trust's administration or co-administration
agreement with respect to the Portfolios if PFPC is not providing
the Trust with such services;
(f) copies of any shareholder servicing agreements made in respect of
the Trust with respect to the Portfolios; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PFPC undertakes to
comply with all applicable requirements of the 1933 Act, the 1934 Act, the 1940
Act, and the CEA, and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to all duties to be performed by
PFPC hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Trust.
5. Instructions.
------------
Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral and Written Instructions.
PFPC shall be entitled to rely upon any Oral and Written Instructions
it receives from an Authorized Person (or from a person reasonably believed by
PFPC to be an Authorized Person) pursuant to this Agreement. PFPC may assume
that any Oral or Written Instruction received hereunder is not in any way
inconsistent with the provisions of organizational documents or this Agreement
or of any vote, resolution or proceeding of the Trust's Governing Board or of
the Trust's shareholders.
The Trust agrees to forward to PFPC Written Instructions confirming
Oral Instructions so that PFPC receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such
<PAGE>4
confirming Written Instructions are not received by PFPC shall in no
way invalidate the transactions or enforceability of the transactions authorized
by the Oral Instructions. The Trust further agrees that PFPC shall incur no
liability to the Trust in acting upon Oral or Written Instructions provided such
instructions reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
-----------------------
(a) Advice of the Trust. If PFPC is in doubt as to any action
it should or should not take, PFPC may request directions or advice, including
Oral or Written Instructions, from the Trust.
(b) Advice of Counsel. If PFPC shall be in doubt as to any questions of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Trust, the Portfolios' adviser (the "Adviser") or PFPC, at the option of
PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PNC receives from the Trust, and the
advice it receives from counsel, PFPC shall be entitled to rely upon and follow
the advice of counsel.
(d) Protection of PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Trust or from counsel and which PFPC believes,
in good faith, to be consistent with those directions, advice and Oral or
Written Instructions.
Nothing in this paragraph shall be construed so as to impose an
obligation upon PFPC (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PFPC's properly taking or not taking such
action.
7. Records.
-------
The book and records pertaining to the Portfolios, which are in the
possession of PFPC, shall be the property of the Trust. Such books and records
shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Trust, or the Trust's
Authorized Persons, shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Trust,
copies of any such books and records shall be
<PAGE>5
provided by PFPC to the Trust or to an Authorized Person of the Trust,
at the Trust's expense.
PFPC shall keep the following records:
(a) all books and records with respect to the Portfolios' books of
account;
(b) records of the Portfolios' securities transactions; and
(c) all other books and records as PFPC is required to maintain
pursuant to Rule 31a-1 of the 1940 Act and as specifically set
forth in Appendix A hereto.
8. Confidentiality.
---------------
PPFC agrees to keep confidential all records of the Portfolios and
information relative to the Portfolios and its shareholders (past, present and
potential), unless the release of such records or information is otherwise
consented to, in writing, by the Trust. The Trust agrees that such consent shall
not be unreasonably withheld. The Trust further agrees that, should PFPC be
required to provide such information or records to duly constituted authorities
(who may institute civil or criminal contempt proceedings for failure to
comply), PFPC shall not be required to seek the Trust's consent prior to
disclosing such information.
9. Liaison with Accountants.
------------------------
PFPC shall act as liaison with the Portfolios' independent public
accountants and shall provide account analyses, fiscal year summaries, and other
audit-related schedules. PFPC shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such accountants for the expression of their
opinion, as such may be required by the Trust from time to time.
10. Disaster Recovery.
-----------------
PFPC shall enter into and shall maintain in effect with appropriate
parties one or more agreements making reasonable provision of emergency use of
electronic data processing equipment to the extent appropriate equipment is
available. In the event of equipment failures, PFPC shall, at no additional
expense to the Portfolios, take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
11. Compensation.
------------
<PAGE>6
As compensation for services rendered by PFPC during the term of this
Agreement, the Portfolios will pay to PFPC a fee or fees as may be agreed to in
writing by the Trust and PFPC.
12. Indemnification.
---------------
The Portfolios agree to indemnify and hold harmless PFPC and its
nominees from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act, the 1934
Act, the 1940 Act, the CEA, and any state and foreign securities and blue sky
laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PFPC takes or does not take (i) at the request or on the direction
of or in reliance on the advice of the Trust or (ii) upon Oral or Written
Instructions. Neither PFPC, nor any of its nominees, shall be indemnified
against any liability to the Portfolios or to its shareholders (or any expenses
incident to such liability) arising out of PFPC's own willful misfeasance, bad
faith, negligence or reckless disregard of its duties and obligations under this
Agreement.
13. Responsibility of PFPC.
----------------------
PFPC shall be under no duty to take any action on behalf of the Trust
except as specifically set forth herein or as may be specifically agreed to by
PFPC, in writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC shall be responsible for its own negligent failure to
perform its duties under this Agreement. Notwithstanding the foregoing, PFPC
shall not be responsible for losses beyond its control, provided that PFPC has
acted in accordance with the standard of care set forth above; and provided
further that PFPC shall only be responsible for that portion of losses or
damages suffered by the Portfolios that are attributable to the negligence of
PFPC.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC, in connection with its duties under this
Agreement, shall not be liable for (a) the validity or invalidity or authority
or lack thereof of any Oral or Written Instruction, notice or other instrument
which conforms to the applicable requirements of this Agreement, and which PFPC
reasonably believes to be genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood or catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
<PAGE>7
Notwithstanding anything in this Agreement to the contrary, PFPC shall
have no liability to the Trust for any consequential, special or indirect losses
or damages which the Trust may incur or suffer by or as a consequence of PFPC's
performance of the services provided hereunder, whether or not the likelihood of
such losses or damages was known by PFPC.
14. Description of Accounting Services.
----------------------------------
(a) Services on a Continuing Basis. PFPC will perform the following
accounting functions if required:
(i) Journalize the Portfolios' investment, capital share and
income and expense activities;
(ii) Verify investment buy/sell trade tickets when received from
the Adviser and transmit trades to the Portfolios' custodian
for proper settlement;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Reconcile cash and investment balances of the Portfolios
with the custodian, and provide the Adviser with the
beginning cash balance available for investment purposes;
(vi) Update the cash availability throughout the day as required
by the Adviser;
(vii) Post to and prepare the Portfolios' Statement of Assets and
Liabilities and the Statement of Operations;
(viii) Calculate various contractual expenses (e.q., advisory and
custody fees);
(ix) Monitor the expense accruals and notify Portfolios'
management of any proposed adjustments;
(x) Control all disbursements from the Trust and authorize such
disbursements upon Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine the Portfolios' net income;
<PAGE>8
(xiii) Obtain security market quotes from independent pricing
services approved by the Adviser, or if such quotes are
unavailable, then obtain such prices from the Adviser, and
in either case calculate the market value of the Portfolios'
investments;
(xiv) Transmit or mail a copy of the daily portfolio valuation to
the Adviser;
(xv) Compute the net asset value of the Portfolios;
(xvi) As appropriate, compute the Portfolios' yields, total
return, expense ratios, portfolio turnover rate, and, if
required, portfolio average dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement, which will include
the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. Description of Administration Services.
--------------------------------------
(a) Services on a Continuing Basis.
(i) Prepare quarterly broker security transactions summaries;
(ii) Prepare monthly security transaction listings;
(iii) Prepare for execution and file the Trust's federal and state
tax returns;
(iv) Prepare and file the Portfolios' semi-annual reports with
the SEC on Form N-SAR;
(v) Prepare and file with the SEC the Portfolios' annual and
semi-annual shareholder reports;
(vi) Assist with the preparation of registration statements and
other filings relating to the registration of Shares; and
<PAGE>9
(vii) Monitor the Trust's status as a regulated investment company
under Sub-Chapter M of the Internal Revenue Code of 1986, as
amended.
16. Duration and Termination.
------------------------
This Agreement shall continue until terminated by the Trust or by PFPC
on sixty (60) days' prior written notice to the other party.
17. Notices.
-------
All notices and other communications, including Written Instructions,
shall be in writing or by confirming telegram, cable, telex or facsimile sending
device. If notice is sent by confirming telegram, cable, telex or facsimile
sending device, it shall be deemed to have been given immediately. If notice is
sent by first-class mail, it shall be deemed to have been given three days after
it has been mailed. If notice is sent by messenger, it shall be deemed to have
been given on the day it is delivered. Notices shall be addressed (a) if to PFPC
at PFPC's address, 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to
the Trust, at the address of the Trust; or (c) if to neither of the foregoing,
at such other address as shall have been notified to the sender of any such
notice or other communication.
18. Amendments.
----------
This Agreement, or any term thereof, may be changed or waived only by
written amendment, signed by the party against whom enforcement of such change
or waiver is sought.
19. Delegation.
----------
PFPC may assign its rights and delegate its duties hereunder to any
wholly owned direct or indirect subsidiary of PNC Bank or PNC Bank Corp.,
provided that (i) PFPC gives the Trust thirty (30) days' prior written notice;
(ii) the delegate agrees with PFPC to comply with all relevant provisions of the
1940 Act; and (iii) PFPC and such delegate promptly provide such information as
the Trust may request, and respond to such questions as the Trust may ask,
relative to the delegation, including (without limitation) the capabilities of
the delegate.
20. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21. Further Actions.
---------------
<PAGE>10
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
22. Limitation of Liability.
-----------------------
The Trust and PFPC agree that the obligations of the Trust and the
Portfolios 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 or the Portfolios, individually, but are binding only upon
the assets and property of the Portfolios, as provided in the Trust's
Declaration of Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust, and signed by an authorized officer of
the Trust, acting as such, and neither the authorization by the Trustees nor the
execution and delivery by the officer will be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but will
bind only the trust property of the Trust as provided in the Declaration of
Trust. No series of the Trust, including the Portfolios, will be liable for any
claims against any other series.
23. Miscellaneous.
-------------
This Agreement embodies the entire agreement and understanding between
the parties and supersedes all prior agreements and understandings relating to
the subject matter hereof, provided that the parties may embody in one or more
separate documents their agreement, if any, with respect to delegated and/or
Oral Instructions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware law. If any provision of this agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
and shall inure to the benefit of the parties hereto and their respective
successors.
<PAGE>11
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first above written.
PFPC INC.
By:
------------------------------
Name:
Title:
WARBURG, PINCUS TRUST II
By:
------------------------------
Name: Eugene P. Grace
Title: Secretary
<PAGE>
APPENDIX A
None.
__________, 1997
Warburg, Pincus Trust II
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"), on behalf of the Fixed Income
Portfolio and the Global Fixed Income Portfolio (the "Portfolios" and each a
"Portfolio"), and PFPC. Pursuant to Paragraph 11 of that Agreement, and in
consideration of the services to be provided to you, you will pay PFPC an annual
co-administration fee, to be calculated daily and paid monthly. You will also
reimburse PFPC for its out-of-pocket expenses incurred on behalf of the
Portfolios, including, but not limited to: postage and handling, telephone,
telex, Federal Express and outside pricing service charges.
The annual administration and accounting fee with respect to the Fixed
Income Portfolio shall be .05% of the Portfolio's average daily net assets.
The annual administration and accounting fee with respect to the Global
Fixed Income Portfolio shall be .12% of the Portfolio's first $250 million in
average daily net assets, .10% of the next $250 million in average daily net
assets, .08% of the next $250 million in average daily net assets, and .05% of
average daily net assets over $750 million.
In each month each Portfolio shall pay to PFPC the greater of the asset
based fee as calculated above or the minimum fee. The fee for the period from
the day of the year this agreement is entered into until the end of that year
shall be pro-rated according to the proportion which such period bears to the
full annual period.
<PAGE>
Warburg, Pincus Trust
__________, 1997
Page 2
If the foregoing accurately sets forth our agreement, and you intend to
be legally bound thereby, please execute a copy of this letter and return it to
us.
Very truly yours,
PFPC INC.
By:
-------------------------------
Name:
Title:
Accepted: WARBURG, PINCUS TRUST II
By:
----------------------------
Name: Eugene P. Grace
Title: Vice President
<PAGE>
PARTICIPATION AGREEMENT
By and Among
-----------------------------
And
WARBURG, PINCUS TRUST II
And
WARBURG, PINCUS COUNSELLORS, INC.
And
COUNSELLORS SECURITIES INC.
THIS AGREEMENT, made and entered into this day of _____________, 199_, by
and among ______________________ organized under the laws of ________________
(the "Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 to this Agreement as may be amended from time to
time (each account referred to as the "Account"), Warburg, Pincus Trust II, an
open-end management investment company and business trust organized under the
laws of the Commonwealth of Massachusetts (the "Fund"); Warburg, Pincus
Counsellors, Inc., a corporation organized under the laws of the State of
Delaware (the "Adviser"); and Counsellors Securities Inc., a corporation
organized under the laws of the State of New York ("CSI").
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies that have
entered into participation agreements similar to this Agreement (the
"Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity separate accounts and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and qualified pension and retirement plans outside of the
separate account context (the "Mixed and Shared Funding Exemptive Order"). The
parties to
<PAGE>
this Agreement agree that the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order and that may be imposed on the Company,
the Fund, the Adviser and/or CSI by virtue of the receipt of such order by the
SEC will be incorporated herein by reference, and such parties agree to comply
with such conditions and undertakings to the extent applicable to each such
party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company
under the insurance laws of ______________, to set aside and invest assets
attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act; and
WHEREAS, CSI, the Fund's distributor, is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934 (the "1934 Act") and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 2, as such schedule may be amended from time to time (the "Designated
Portfolios"), on behalf of the Account to fund the Contracts, and the Fund is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and CSI agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account orders, executing such orders on a daily basis at
the net asset value next
2
<PAGE>
computed after receipt and acceptance by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee will constitute receipt by the Fund; provided that the
Fund receives notice of such order by 10:00 a.m. Eastern Time on the next
following Business Day ("T+1"). "Business Day" will mean any day on which the
New York Stock Exchange, Inc. (the "NYSE") is open for trading and on which the
Fund calculates its net asset value pursuant to the rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 in each case that an order to
purchase Fund shares is made in accordance with Section 1.1 above. Payment will
be in federal funds transmitted by wire. This wire transfer will be initiated by
12:00 p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those days on
which the Fund calculates its Designated Portfolio net asset value pursuant to
rules of the SEC and the Fund shall use reasonable efforts to calculate such net
asset value on each day the NYSE is open for trading; provided, however, that
the Fund, the Adviser or CSI may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in its or their sole discretion acting in good faith, necessary in the best
interests of the shareholders of such Portfolio.
1.4. On each Business Day on which the Fund calculates its net asset value, the
Company will aggregate and calculate the net purchase or redemption orders for
each Account maintained by the Fund in which contract owner assets are invested.
Net orders will only reflect orders that the Company has received prior to the
close of regular trading on the NYSE currently 4:00 p.m., Eastern Time) on that
Business Day. Orders that the Company has received after the close of regular
trading on the NYSE will be treated as though received on the next Business Day.
Each communication of orders by the Company will constitute a representation
that such orders were received by it prior to the close of regular trading on
the NYSE on the Business Day on which the purchase or redemption order is priced
in accordance with Rule 22c-1 under the 1940 Act. Other procedures relating to
the handling of orders will be in accordance with the prospectus and statement
of information of
3
<PAGE>
the relevant Designated Portfolio or with oral or written instructions that CSI
or the Fund will forward to the Company from time to time.
1.5. The Fund agrees that shares of the Fund will be sold only to Participating
Insurance Companies and their separate accounts, qualified pension and
retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which will
not impair the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold to the general public except as set forth in this Section
1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any full or
fractional shares of the Fund held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt and acceptance by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee will
constitute receipt by the Fund, provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment will be in federal funds transmitted by wire to the Company's account as
designated by the Company in writing from time to time, on the same Business Day
the Fund receives notice of the redemption order from the Company. The Fund
reserves the right to delay payment of redemption proceeds, but in no event may
such payment be delayed longer than the period permitted by the 1940 Act. The
Fund will not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds; the Company alone will be responsible for such
action. If notification of redemption is received after 10:00 a.m. Eastern Time,
payment for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance with
the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.9. The Fund will furnish same day notice (by telecopier, followed by written
confirmation) to the Company of the declaration of any income, dividends or
capital gain distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Designated Portfolio shares
4
<PAGE>
in the form of additional shares of that Designated Portfolio. The Fund will
notify the Company of the number of shares so issued as payment of such
dividends and distributions. The Company reserves the right to revoke this
election upon reasonable prior notice to the Fund and to receive all such
dividends and distributions in cash.
1.10. The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use its
best efforts to make such net asset value per share available by 6:00 p.m.,
Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each Business
Day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or CSI will
notify the Company as soon as practicable after discovering the need for those
adjustments that result in an aggregate reimbursement of $150 or more to any one
Account maintained by a Designated Portfolio unless notified otherwise by the
Company (or, if lesser, results in an adjustment of $10 or more to each
contractowner's account). Any such notice will state for each day for which an
error occurred the incorrect price, the correct price and, to the extent
communicated to the Fund's shareholders, the reason for the price change. The
Company may send this notice or a derivation thereof (so long as such derivation
is approved in advance by CSI or the Adviser) to contractowners whose accounts
are affected by the price change. The parties will negotiate in good faith to
develop a reasonable method for effecting such adjustments.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws, including state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account as a separate
account under applicable state law and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, and that it will maintain such
registration for so long as any Contracts are outstanding. The Company will
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company will register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
5
<PAGE>
2.2. The Company represents that the Contracts are currently and at the time of
issuance will be treated as annuity contracts under applicable provisions of the
Internal Revenue Code, and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Adviser immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.3. The Company represents and warrants that it will not purchase shares of the
Designated Portfolios with assets derived from tax-qualified retirement plans
except, indirectly, through Contracts purchased in connection with such plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the 1933 Act
and duly authorized for issuance in accordance with applicable law and that the
Fund is and will remain registered under the 1940 Act for as long as such shares
of the Designated Portfolios are outstanding. The Fund will amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares or as may otherwise be required by applicable law. The Fund will register
and qualify the shares of the Designated Portfolios for sale in accordance with
the laws of the various states only if and to the extent deemed advisable by the
Fund.
2.5. The Fund represents that each Designated Portfolio is currently qualified
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code and that it will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify the
Company immediately upon having a reasonable basis for believing that a
Designated Portfolio has ceased to so qualify or that it might not so qualify in
the future.
2.6. The Fund represents and warrants that in performing the services described
in this Agreement, the Fund will comply with all applicable laws, rules and
regulations. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies, objectives and restrictions) complies with the insurance laws and
regulations of any state. The Fund and CSI agree that upon request they will use
their best efforts to furnish the information required by state insurance laws
so that the Company can obtain the authority needed to issue the Contracts in
the various states.
2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses
6
<PAGE>
pursuant to Rule 12b-1 the Fund undertakes to have its Fund Board formulate and
approve any plan under Rule 12b-1 to finance distribution expenses in accordance
with the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of The Commonwealth of Massachusetts and that it does and will
comply in all material respects with applicable provisions of the 1940 Act.
2.9. CSI represents and warrants that it will distribute the Fund shares of the
Designated Portfolios in accordance with all applicable federal and state
securities laws including, without limitation, the 1933 Act, the 1934 Act and
the 1940 Act.
2.10. CSI represents and warrants that it is and will remain duly registered
under all applicable federal and state securities laws and that it will perform
its obligations for the Fund in accordance in all material respects with any
applicable state and federal securities laws.
2.11. The Fund represents and warrants that all of its trustees, officers,
employees, and other individuals/entities having access to the funds and/or
securities of the Fund are and continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund in an amount not
less than the minimal coverage as required currently by Rule 17g-(1) of the 1940
Act or related provisions as may be promulgated from time to time. The aforesaid
bond includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. CSI and the Fund's investment advisers represent and warrant
that they are and continue to be at all times covered by policies similar to the
aforesaid bond.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Fund or CSI will provide the Company, at the Fund's or its affiliate's
expense, with as many copies of the current Fund prospectus for the Designated
Portfolios as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners and applicants. The Fund or CSI
will provide, at the Fund's or its affiliate's expense, as many copies of said
prospectus as necessary for distribution, at the Company's expense, to existing
contractowners. The Fund or CSI will provide the copies of said prospectus to
the Company or to its mailing agent. If requested by the Company, the Fund or
CSI will provide such documentation, including a computer diskette of the
Company's specification or a final copy of a current prospectus set in type at
the Fund's or its affiliate's expense, and such other assistance as is
reasonably necessary in order for the Company at least annually (or more
frequently if the Fund prospectus is amended more frequently) to have the Fund's
prospectus, the prospectus for the Contracts and the prospectuses of other
mutual funds in which assets attributable to the Contracts may be invested
printed together in one
7
<PAGE>
document (the "Multifund Prospectus"), in which case the Fund or its affiliate
will bear its reasonable share of expenses as described above, allocated based
on the proportionate number of pages of the Fund's and other fund's respective
portions of the document.
3.2. The Fund or CSI will provide the Company, at the Fund's or its affiliate's
expense, with as many copies of the statement of additional information as the
Company may reasonably request for distribution, at the Company's expense, to
prospective contractowners and applicants. The Fund or CSI will provide, at the
Fund's or its affiliate's expense, as many copies of said statement of
additional information as necessary for distribution, at the Company's expense,
to any existing contractowner who requests such statement or whenever state or
federal law otherwise requires that such statement be provided. The Fund or CSI
will provide the copies of said statement of additional information to the
Company or to its mailing agent.
3.3. To the extent that the Fund or CSI desires to change (whether by revision
or supplement) any of the information contained in any form of Fund prospectus
or statement of additional information provided to the Company for inclusion in
a Multifund Prospectus, the Company agrees to make such changes within a
reasonable period of time after receipt of a request to make such change from
the Fund or CSI, subject to the following limitation. To the extent that the
Fund is legally required to make a change to a Fund prospectus or statement of
additional information provided to the Company for inclusion in a Multifund
Prospectus, the Company agrees to make any such change as soon as possible
following receipt of the form of revised prospectus and/or statement of
additional information or supplement, as applicable, but in no event later than
five days following receipt. To the extent that the Fund is required by law to
cease selling shares of a Designated Portfolio, the Company agrees to cease
offering shares of the Designated Portfolio until the Fund or CSI notifies the
Company otherwise.
3.4. The Fund or CSI, at the Fund's or its affiliate's expense, will provide the
Company or its mailing agent with copies of its proxy material, if any, reports
to shareholders and other communications to shareholders in such quantity as the
Company will reasonably require. The Company will distribute this proxy
material, reports and other communications to existing contract owners and
tabulate the votes.
3.5. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the
Account in accordance with instructions received from contractowners; and
8
<PAGE>
(c) vote shares of the Designated Portfolios held in the Account
for which no timely instructions have been received, as well as shares it owns,
in the same proportion as shares of such Designated Portfolio for which
instructions have been received from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contractowners.
Except as set forth above, the Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Company will be responsible for assuring that each of its separate
accounts participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Mixed and Shared Funding
Exemptive Order.
3.6. The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will provide for annual
meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not
to require such meetings) or, as the Fund currently intends, will comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. CSI will provide the Company on a timely basis with investment performance
information for each Designated Portfolio in which the Company maintains an
Account, including total return for the preceding calendar month and calendar
quarter, the calendar year to date, and the prior one-year, five-year, and ten
year (or life of the Designated Portfolio) periods. The Company may, based on
the SEC mandated information supplied by CSI, prepare communications for
contractowners ("Contractowner Materials"). The Company will provide copies of
all Contractowner Materials concurrently with their first use for CSI's internal
recordkeeping purposes. It is understood that neither CSI nor any Designated
Portfolio will be responsible for errors or omissions in, or the content of,
Contractowner Materials except to the extent that the error or omission resulted
from information provided by or on behalf of CSI or the Designated Portfolio.
Any printed information that is furnished to the Company pursuant to this
Agreement other than each Designated Portfolio's prospectus or statement of
additional information (or information supplemental thereto), periodic reports
and proxy solicitation materials is CSI's sole responsibility and not the
responsibility of any
9
<PAGE>
Designated Portfolio or the Fund. The Company agrees that the Portfolios, the
shareholders of the Portfolios and the officers and governing Board of the Fund
will have no liability or responsibility to the Company in these respects.
4.2. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement, prospectus or statement of additional information
for Fund shares, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in published reports for the Fund
which are in the public domain or approved by the Fund or CSI for distribution,
or in sales literature or other material provided by the Fund, the Adviser or by
CSI, except with permission of CSI. The Company will furnish, or will cause to
be furnished, to the Fund, the Adviser or CSI, each piece of sales literature or
other promotional material in which the Company or its Account is named, at
least ten (10) business days prior to its use. No such sales literature or other
promotional material which requires the permission of CSI prior to use will be
used if CSI reasonably objects to such use within five (5) business days after
receipt.
Nothing in this Section 4.2 will be construed as preventing the Company or
its employees or agents from giving advice on investment in the Fund.
4.3. The Fund, the Adviser and CSI will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each Account or the
Contracts which are in the public domain or approved by the Company for
distribution to contractowners, or in sales literature or other material
provided by the Company, except with permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis. The
Fund, the Adviser or CSI will furnish, or will cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material in which the Company or its Account is named at least ten (10) business
days prior to its use. No such material will be used if the Company reasonably
objects to such use within five (5) business days after receipt of such
material.
4.4. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additions information,
reports, proxy statements, sales
10
<PAGE>
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document with the SEC, the NASD or other regulatory authority.
4.5. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC,
the NASD or other regulatory authority.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media (e.g., on-line
networks such as the Internet or other electronic messages)), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisements sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, proxy materials and
any other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
4.7. The Fund and CSI hereby consent to the Company's use of the names Warburg,
Pincus Trust II _____________________ Portfolio, or other Designated Portfolio,
and Warburg, Pincus Counsellors, Inc. in connection with the marketing of the
Contracts, subject to the terms of Sections 4.1 and 4.2 of this Agreement. Such
consent will continue only as long as any Contracts are invested in the relevant
Designated Portfolio.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund, the Adviser and CSI will pay no fee or other compensation to the
Company (other than as set forth in the administrative services letter agreement
between CSI and the Company) except if the Fund or any Designated Portfolio
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then, subject to obtaining any required exemptive
orders or other regulatory approvals, the Fund may make
11
<PAGE>
payments to the Company or to the underwriter for the Contracts if and in such
amounts agreed to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement will be
paid by the Fund to the extent permitted by law. The Fund will bear the expenses
for the cost of registration and qualification of the Fund's shares; preparation
and filing of the Fund's prospectus, statement of additional information and
registration statement, proxy materials and reports; setting in type and
printing the Fund's prospectus; setting in type and printing proxy materials and
reports by it to contractowners (including the costs of printing a Fund
prospectus that contains an annual report); the preparation of all statements
and notices required by any federal or state law; all taxes on the issuance or
transfer of the Fund's shares; any expenses permitted to be paid or assumed by
the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act; and
all other expenses set forth in Article III of this Agreement.
ARTICLE VI. Diversification
---------------
6.1. The Adviser will ensure that the Fund will at all times invest money from
the Contracts in such a manner as to ensure that the Contracts will be treated
as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury
Regulation 1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps: (a) to notify the Company of such breach; and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the Fund
for the existence of any irreconcilable material conflict among the interests of
the contractowners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax or securities laws or regulations, or
a public ruling, private letter ruling, no-action or interpretative letter, or
any similar action by insurance, tax or securities regulatory authorities; (c)
an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by Participating Insurance Companies
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<PAGE>
or by variable annuity and variable life insurance contractowners; or (f) a
decision by an insurer to disregard the voting instructions of contractowners.
The Fund Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in carrying
out its responsibilities, as delineated in the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are to be disregarded. The Company's
responsibilities hereunder will be carried out with a view only to the interest
of contractowners.
7.3. If it is determined by a majority of the Fund Board, or a majority of its
disinterested trustees, that an irreconcilable material conflict exists, the
Company will, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (a) withdrawing the assets allocable to some or all of the Accounts
from the Fund or any Designated Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contractowners and, as appropriate,
segregating the assets of any appropriate group (i.e., variable annuity
contractowners or variable life insurance contractowners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contractowners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
subaccount of the Account's investment in the Fund and terminate this Agreement
with respect to such subaccount; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested trustees of the Fund Board. No charge or penalty will be imposed
as a result of such withdrawal.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state
13
<PAGE>
insurance regulators, then the Company will withdraw the affected subaccount of
the Account's investment in the Fund and terminate this Agreement with respect
to such subaccount; provided, however, that such withdrawal and termination will
be limited to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested directors of the Fund
Board. No charge or penalty will be imposed as a result of such withdrawal.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund or the Adviser (or any other investment adviser to the Fund) be
required to establish a new funding medium for the Contracts. The Company will
not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
contractowners materially affected by the irreconcilable material conflict.
7.7. The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the Fund
Board may fully carry out the duties imposed upon it as delineated in the Mixed
and Shared Funding Exemptive Order, and said reports, materials and data will be
submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then: (a) the Fund and/or the Participating Insurance
Companies, as appropriate, will take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement will continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Company
------------------------------
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, CSI, and each person, if any, who controls or is associated with the
Fund, the Adviser or CSI within the meaning of such terms under the federal
securities laws and any director, trustee,
14
<PAGE>
officer, partner, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation (including
reasonable legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration statement,
prospectus or statement of additional information for the Contracts or contained
in the Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), including
any prospectuses or statements of additional information of the Fund to which
the Company has made any changes to the information provided to the Company or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated or necessary to make such
statements not misleading in light of the circumstances in which they were made;
provided that this agreement to indemnify will not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company by the Fund, the Adviser or CSI for use in the registration
statement, prospectus or statement of additional information for the Contracts
or in the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(2) arise out of or as a result of statements or representations by or
on behalf of the Company or wrongful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts or Fund
shares (other than statements or representations contained in the Fund
registration statement, Fund prospectus, Fund statement of additional
information, sales literature or other promotional material of the Fund not
supplied by the Company or persons under its control); or
(3) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Fund registration statement, prospectus,
statement of additional information or sales literature or other promotional
material of the Fund (or amendment or supplement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make such statements not misleading in light of the circumstances
in which they were made, if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by or on behalf of
the Company or persons under its control; or
15
<PAGE>
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(5) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or result from
any other material breach by the Company of this Agreement, including, but not
limited to, a failure to comply with the provisions of Section 3.3;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company otherwise
may have.
(b) No party will be entitled to indemnification under Section 8.1(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party seeking
indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by regulatory
authorities against them in connection with the issuance or sale of the Fund
shares or the Contracts or the operation of the Fund.
8.2. Indemnification By The Adviser, the Fund and CSI
------------------------------------------------
(a) The Adviser, the Fund and CSI, in each case solely to the extent
relating to such party's responsibilities hereunder, agree to indemnify and hold
harmless the Company and each person, if any, who controls or is associated with
the Company within the meaning of such terms under the federal securities laws
and any director, trustee, officer, partner, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Adviser) or
litigation (including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Fund or sales
literature or other promotional material of the Fund (or any amendment or
supplement to any of the foregoing) or arise out of or are based
16
<PAGE>
upon the omission or the alleged omission to state therein a material fact
required to be stated or necessary to make such statements not misleading in
light of the circumstances in which they were made (in each case substantially
as transmitted to you by the Fund or CSI), provided that this agreement to
indemnify will not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Adviser, CSI or the Fund by or on
behalf of the Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales literature of the
Fund (or any amendment or supplement thereto) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations or
wrongful conduct of the Adviser, the Fund or CSI or persons under the control of
the Adviser, the Fund or CSI respectively, with respect to the sale of the Fund
shares (other than statements or representations contained in a registration
statement, prospectus, statement of additional information, sales literature or
other promotional material covering the Contracts not supplied by CSI or persons
under its control); or
(3) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, statement of
additional information or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto), or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make such statement or statements not misleading in light of the
circumstances in which they were made, if such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Adviser, the Fund or CSI or persons under the control of the
Adviser, the Fund or CSI; or
(4) arise as a result of any failure by the Fund, the Adviser or CSI to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements and procedures related thereto
specified in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or CSI in this
Agreement, or arise out of or result from any other material breach of this
Agreement by the Adviser the Fund or CSI;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. These
indemnifications will be in addition to any liability that the Fund, Adviser or
CSI otherwise may have.
17
<PAGE>
(b) No party will be entitled to indemnification under Section 8.2(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party seeking
indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the Fund and
CSI of the commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or sale of
the Contracts or the operation of the account.
8.3. Indemnification Procedure
-------------------------
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such service
on any designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of failure to give such notice. In case any such action is brought against the
Indemnified Party, the Indemnifying Party will be entitled to participate, at
its own expense, in the defense thereof. The Indemnifying Party also will be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Indemnifying Party to the Indemnified
Party of the Indemnifying Party's election to assume the defense thereof, the
Indemnified Party will bear the fees and expenses of any additional counsel
retained by it, and the Indemnifying Party will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the Indemnifying Party and the
Indemnified Party will have mutually agreed to the retention of such counsel; or
(b) the named parties to any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the
18
<PAGE>
same counsel would be inappropriate due to actual or potential differing
interests between them. The Indemnifying Party will not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. A successor by
law of the parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification provisions
contained in this Article VIII will survive any termination of this Agreement.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
9.2. This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof will be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to some
or all of the Designated Portfolios, upon ninety (90) days' advance written
notice to the other parties; or
(b) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if shares
of the Designated Portfolio are not reasonably available to meet the
requirements of the Contracts as determined in good faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio in the
event any of the Designated Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/or Federal law or such law
precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by Company; or
19
<PAGE>
(d) at the option of the Fund, upon receipt of the Fund's written notice by
the other parties, upon institution of formal proceedings against the Company by
the NASD, the SEC, the insurance commission of any state or any other regulatory
body regarding the Company's duties under this Agreement or related to the sale
of the Contracts, the administration of the Contracts, the operation of the
Account, or the purchase of the Fund shares, provided that the Fund determines
in its sole judgment, exercised in good faith, that any such proceeding would
have a material adverse effect on the Company's ability to perform its
obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's written
notice by the other parties, upon institution of formal proceedings against the
Fund, Adviser or CSI by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided that the Company determines in
its sole judgment, exercised in good faith, that any such proceeding would have
a material adverse effect on the Fund's, Adviser's or CSI's ability to perform
its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if the
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, or under any successor or similar
provision, or if the Company reasonably and in good faith believes that the
Designated Portfolio may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if the
Designated Portfolio fails to meet the diversification requirements specified in
Article VI hereof or if the Company reasonably and in good faith believes the
Designated Portfolio may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any provision of this
Agreement which material breach is not cured within thirty (30) days of said
notice; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith, that either the Fund, the Adviser or CSI has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company, such termination to be
20
<PAGE>
effective sixty (60) days' after receipt by the other parties of written notice
of the election to terminate; or
(j) at the option of the Fund or CSI, if the Fund or CSI respectively,
determines in its sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Fund or the Adviser, such termination to be effective
sixty (60) days' after receipt by the other parties of written notice of the
election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the contractowners having an interest in
the Account (or any subaccount) to substitute the shares of another investment
company for the corresponding Designated Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Designated Portfolio
shares had been selected to serve as the underlying investment media. The
Company will give sixty (60) days' prior written notice to the Fund of the date
of any proposed vote or other action taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of:
(1) all contractowners of variable insurance products of all separate accounts;
or (2) the interests of the Participating Insurance Companies investing in the
Fund as set forth in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without notice.
10.2.Notice Requirement
------------------
Except as specified in Section 10.1(m), no termination of this Agreement
will be effective unless and until the party terminating this Agreement gives
prior written notice to all other parties of its intent to terminate, which
notice will set forth the basis for the termination.
10.3.Effect of Termination
---------------------
21
<PAGE>
In the event of any termination of this Agreement other than pursuant to
subsection (d), (j), (l) or (m) of Section 10.1, the Fund and CSI will, at the
option of the Company, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement ( hereinafter
referred to as "Existing Contracts.") . Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Designated Portfolios (as in effect on such date), redeem investments in the
Designated Portfolios and/or invest in the Designated Portfolios upon the making
of additional purchase payments under the Existing Contracts.
10.4.Surviving Provisions
--------------------
Notwithstanding any termination of this Agreement, each party's obligations
under Article VIII to indemnify other parties will survive and not be affected
by any termination of this Agreement. In addition, each party's obligations
under Section 12.6 will survive and not be affected by any termination of this
Agreement. Finally, with respect to Existing Contracts, all provisions of this
Agreement also will survive and not be affected by any termination of this
Agreement.
ARTICLE XI. Notices
-------
11.1. Any notice will be deemed duly given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other parties.
If to the Company: If to the Fund, the Adviser and/or CSI:
466 Lexington Avenue
10th Floor
New York, NY 10017
Attn:. Attn: Eugene P. Grace
ARTICLE XII. Miscellaneous
-------------
12.1. The Fund, the Adviser and CSI acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the "Company
Protected Parties" for purposes of this Section 12.1), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Company Protected Parties or any of their
employees or agents in connection with the Company's performance of
22
<PAGE>
its duties under this Agreement are the valuable property of the Company
Protected Parties. The Fund, the Adviser and CSI agree that if they come into
possession of any list or compilation of the identities of or other information
about the Company Protected Parties' customers, or any other information or
property of the Company Protected Parties, other than such information as is
publicly available or as may be independently developed or compiled by the Fund,
the Adviser or CSI from information supplied to them by the Company Protected
Parties' customers who also maintain accounts directly with the Fund, the
Adviser or CSI, the Fund, the Adviser and CSI will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with the Company's prior written
consent; or (b) as required by law or judicial process. The Company acknowledges
that the identities of the customers of the Fund, the Adviser, CSI or any of
their affiliates (collectively the "Adviser Protected Parties" for purposes of
this Section 12.1), information maintained regarding those customers, and all
computer programs and procedures or other information developed or used by the
Adviser Protected Parties or any of their employees or agents in connection with
the Fund's, the Adviser's or CSI's performance of their respective duties under
this Agreement are the valuable property of the Adviser Protected Parties. The
Company agrees that if it comes into possession of any list or compilation of
the identities of or other information about the Adviser Protected Parties'
customers, or any other information or property of the Adviser Protected
Parties, other than such information as is publicly available or as may be
independently developed or compiled by the Company from information supplied to
them by the Adviser Protected Parties' customers who also maintain accounts
directly with the Company, the Company will hold such information or property in
confidence and refrain from using, disclosing or distributing any of such
information or other property except: (a) with the Fund's, the Adviser's or
CSI's prior written consent; or (b) as required by law or judicial process. Each
party acknowledges that any breach of the agreements in this Section 12.1 would
result in immediate and irreparable harm to the other parties for which there
would be no adequate remedy at law and agree that in the event of such a breach,
the other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.2. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
23
<PAGE>
12.4. If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will not be
affected thereby.
12.5. This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
12.6. Each party to this Agreement will maintain all records required by law,
including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities reasonable access to
its books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby. Upon request by the
Fund or CSI, the Company agrees to promptly make copies or, if required,
originals of all records pertaining to the performance of services under this
Agreement available to the Fund or CSI, as the case may be. The Fund agrees that
the Company will have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to the
requirements of any state insurance department. Each party also agrees to
promptly notify the other parties if it experiences any difficulty in
maintaining the records in an accurate and complete manner. This provision will
survive termination of this Agreement.
12.7. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate or board action, as applicable, by such
party and when so executed and delivered this Agreement will be the valid and
binding obligation of such party enforceable in accordance with its terms.
12.8. The parties to this Agreement acknowledge and agree that all liabilities
of the Fund arising, directly or indirectly, under this agreement, will be
satisfied solely out of the assets of the Fund and that no trustee, officer,
agent or holder of shares of beneficial interest of the Fund will be personally
liable for any such liabilities. No Portfolio or series of the Fund will be
liable for the obligations or liabilities of any other Portfolio or series.
12.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Designated Portfolios of the Fund or other applicable terms of
this Agreement.
24
<PAGE>
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
SEAL By:------------------------------------
ATTEST By:
------------------------------
SEAL WARBURG, PINCUS TRUST II
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
SEAL WARBURG, PINCUS COUNSELLORS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
SEAL COUNSELLORS SECURITIES INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
ATTEST:
25
<PAGE>
Schedule 1
PARTICIPATION AGREEMENT
By and Among
------------------------------
And
WARBURG, PINCUS TRUST II
And
WARBURG, PINCUS COUNSELLORS, INC.
And
COUNSELLORS SECURITIES INC.
The following separate accounts of __________________________ are permitted in
accordance with the provisions of this Agreement to invest in Designated
Portfolios of the Fund shown in Schedule 2:
--------------------------------------
established -----------
- ---------------, 1997
26
<PAGE>
Schedule 2
PARTICIPATION AGREEMENT
By and Among
-----------------------
And
WARBURG, PINCUS TRUST II
And
WARBURG, PINCUS COUNSELLORS, INC.
And
COUNSELLORS SECURITIES INC.
The Separate Account(s) shown on Schedule 1 may invest in the following
Designated Portfolios of the Warburg, Pincus Trust II:
- ----------------, 1997
27
<PAGE>1
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
March 17, 1997
Warburg, Pincus Trust II
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Trust II (the "Trust"), a business
trust organized under the laws of the Commonwealth of Massachusetts, in
connection with the preparation of a Registration Statement on Form N-1A as
filed with the Securities and Exchange Commission (the "Commission") on January
2, 1997 (the "Registration Statement"). The Registration Statement covers the
offer and sale of an indefinite number of shares of beneficial interest of each
of two series of the Trust, the Fixed Income Portfolio and the Global Fixed
Income Portfolio (the "Portfolios"), in each case par value $.001 per share
(collectively, the "Shares").
We have examined copies of the Trust's Declaration of Trust, (the
"Declaration"), the Trust's By-Laws, the Trust's Registration Statement, as
amended, on Form N-1A, Securities Act File No. 333-19175 and Investment Company
Act File No. 811-07999 (the "Registration Statement"), and all resolutions
adopted by the Trust's Board of Trustees at the Portfolios' organizational
meeting held on January 15, 1997. 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, 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
<PAGE>2
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 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 when we have relied with your consent on the opinion of Sullivan &
Worcester, special Massachusetts counsel to the Trust, as to all matters of
Massachusetts law.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>1
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 021109
Boston
March 17, 1997
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Re: Warburg, Pincus Trust II
Ladies and Gentlemen:
You have requested our opinion as to certain matters of Massachusetts
law relating to the organization of Warburg, Pincus Trust II, a Massachusetts
trust with transferable shares (the "Trust"), established under an Agreement and
Declaration of Trust dated December 16, 1996 (the "Declaration").
We have acted as Massachusetts counsel to the Trust in connection with
the execution and delivery of the Declaration and the actions of the Trustees to
organize the Trust and to authorize the issuance and sale of the shares of
beneficial interest, $.001 par value, of the several series of shares authorized
by the Declaration (the "Shares"). In this connection we have participated in
the drafting of, and are familiar with, the Declaration and the Bylaws of the
Trust, and we have examined the Prospectus (the "Prospectus") and the Statement
of Additional Information included in the Trust's Registration Statement on Form
N-1A (the "Registration Statement"), substantially in the form in which the
Registration Statement is about to become effective, the records of the actions
of the Trust to organize the Trust and to authorize the issuance of the 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 of the
originals of documents submitted to us as certified copies, which facts we have
not independently verified.
<PAGE>2
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
Shares; the presently outstanding Shares (the "Outstanding
Shares)" and the Shares to be offered for sale by the
Prospectus (the "New Shares") 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 Outstanding Shares are, and the New Shares when duly sold,
issued and paid for as contemplated by the Prospectus 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 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 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 Securities and Exchange
Commission 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>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated March 14, 1997 on our audit of
the Statement of Assets and Liabilities of Warburg, Pincus Trust II, comprised
of the Fixed Income Portfolio and Global Fixed Income Portfolio, as of March 12,
1997 with respect to this Pre-Effective Amendment No. 1 to the Registration
Statement (No. 333-19175) under the Securities Act of 1933 on Form N-1A. We also
consent to the reference to our Firm under the heading "Independent Accountants
and Counsel" in the Statement of Additional Information.
/s/Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 17, 1997
<PAGE>
PURCHASE AGREEMENT
------------------
Warburg, Pincus Trust II (the "Trust"), a business trust organized
under the laws of the Commonwealth of Massachusetts, and Warburg, Pincus
Counsellors, Inc. ("Warburg") hereby agree as follows:
1. The Trust offers Warburg and Warburg hereby purchases shares of
beneficial interest of the Trust, par value $.001 per share (the "Shares"),
consisting of (a) 5,000 shares in the Trust's Fixed Income Portfolio and (b)
5,000 Shares in the Trust's Global Fixed Income Portfolio (each of the Fixed
Income Portfolio and the Global Fixed Income Portfolio, a "Portfolio") at a
price of $10.00 per Share (the "Initial Shares"). Warburg hereby acknowledges
receipt of certificates representing the Initial Shares and the Trust hereby
acknowledges receipt from Warburg of $100,000.00 in full payment for the
Initial Shares.
2. Warburg represents and warrants to the Trust that the Initial Shares
are being acquired for investment purposes and not for the purpose of
distributing them.
3. Warburg agrees that if any holder of the Initial Shares redeems any
Initial Share in a Portfolio before five years after the date upon which the
Portfolio commences its investment activities, the redemption proceeds will be
reduced by the amount of unamortized organizational expenses, in the same
proportion as the number of Initial Shares being redeemed bears to the number of
Initial Shares outstanding at the time of redemption. The parties
1
<PAGE>
hereby acknowledge that any Shares acquired by Warburg other than the Initial
Shares have not been acquired to fulfill the requirements of Section 14 of the
Investment Company Act of 1940, as amended, and, if redeemed, their redemption
proceeds will not be subject to reduction based on the unamortized
organizational expenses of the Portfolio.
4. The Trust and Warburg agree that the obligations of the Trust under
this agreement will not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Trust, individually, but are binding only upon the assets and property of the
Trust, as provided in the Declaration of Trust. The execution and delivery of
this Agreement have been authorized by the Trustees of the Trust, and signed by
an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer will
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Trust as provided in the Declaration of Trust. No series of the Trust,
including the Portfolios, will be liable for any claims against any other
series.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 12th day of March, 1997.
WARBURG, PINCUS TRUST II
By:
---------------------------------
Name: Eugene P. Grace
Title: Vice President & Secretary
ATTEST:
WARBURG, PINCUS COUNSELLORS, INC.
By:
----------------------------------
Name: Eugene P. Grace
Title: Vice President
ATTEST:
3
