<PAGE>
As filed with the U.S. Securities and Exchange Commission
on August 12, 1997
Securities Act File No. 33-47880
Investment Company Act File No. 811-6670
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 13 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [x]
Amendment No. 14 [x]
(Check appropriate box or boxes)
Warburg, Pincus Institutional Fund, Inc.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Institutional Fund, Inc.
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>
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[x] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
----------------------------------
DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933, as amended, pursuant to Section
(a)(1) of Rule 24f-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to the number or amount presently registered is added an
indefinite number or amount of such securities. The Rule 24f-2 Notice for
Registrant's fiscal year ended October 31, 1996 was filed on December 27, 1996.
<PAGE>
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page ............................. Cover Page
2. Synopsis ............................... The Fund's Expenses
3. Condensed Financial Information ........ Financial Highlights
4. General Description of
Registrant ............................. Cover Page Investment Objectives
and Policies; Special Risk
Considerations and Certain
Investment Strategies; Investment
Guidelines; Additional Information
5. Management of the Fund ................. Management of the Fund
6. Capital Stock and Other
Securities ............................. Additional Information
7. Purchase of Securities Being
Offered ................................ How to Open an Account in the
Fund; How to Purchase Shares in the
Portfolios; Management of the Fund;
Net Asset Value
8. Redemption or Repurchase ............... How to Redeem and Exchange Shares
in the Portfolios
9. Pending Legal Proceedings .............. Not applicable
10. Cover Page ............................. Cover Page
<PAGE>
Part A
Item No. Prospectus Heading
- -------- ------------------
11. Table of Contents ...................... Contents
12. General Information and History ........ Management of the Fund
13. Investment Objectives
and Policies ........................... Investment Objectives; Investment
Policies
14. Management of the Registrant ........... Management of the Fund
15. Control Persons and Principal
Holders of Securities .................. Management of the Fund;
Miscellaneous See Prospectus--
"Management of the Fund"
16. Investment Advisory and
Other Services ......................... Management of the Fund; See
Prospectus-- "Management of the
Fund"
17. Brokerage Allocation
and Other Practices .................... Investment Policies --
Portfolio Transactions See
Prospectus-- "Portfolio
Transactions and Turnover Rate"
18. Capital Stock and Other
Securities ............................. Management of the Fund--
Organization of the Fund; See
Prospectus-"Additional Information"
19. Purchase, Redemption and Pricing
of Securities Being Offered ............ Additional Purchase and Redemption
Information; See Prospectus-"How to
Open an Account in the Fund," "How
to Purchase Shares in the
Portfolios," "How to Redeem and
Exchange Shares in the Portfolios,"
"Net Asset Value"
-2-
<PAGE>
20. Tax Status ............................. Additional Information Concerning
Taxes; See Prospectus--"Dividend,
Distributions and Taxes"
21. Underwriters ........................... Investment Policies-- Portfolio
Transactions; See Prospectus--
"Management of the Fund"
22. Calculation of Performance Data ........ Determination of Performance
23. Financial Statements ................... Financial Statements
Part C
- ------
Information required to be included in Part C is set forth after the appropriate
item, so numbered, in Part C to this Registration Statement.
-3-
<PAGE>
REGISTRANT'S COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR THE
INTERNATIONAL EQUITY PORTFOLIO, THE MANAGED EAFE(R) COUNTRIES PORTFOLIO, THE
EMERGING MARKETS PORTFOLIO, THE SMALL COMPANY GROWTH PORTFOLIO AND THE GLOBAL
FIXED INCOME PORTFOLIO ARE INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT
NO. 10 TO THE REGISTRATION STATEMENT ON FORM N-1A, FILED ON JANUARY 28, 1997
REGISTRANT'S PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR THE VALUE
PORTFOLIO ARE INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 12 TO
THE REGISTRATION STATEMENT ON FORM N-1A, FILED ON APRIL 16, 1997.
-4-
<PAGE>
PROSPECTUS
October , 1997
WARBURG PINCUS INSTITUTIONAL FUND, INC.
JAPAN GROWTH PORTFOLIO
POST-VENTURE CAPITAL PORTFOLIO
SMALL COMPANY VALUE PORTFOLIO
[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 AUGUST 12, 1997
PROSPECTUS October , 1997
Warburg Pincus Institutional Fund, Inc. (the 'Fund') is an open-end management
investment company that consists of nine managed investment funds, three of
which are offered pursuant to this Prospectus (the 'Portfolios'):
JAPAN GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily
in equity securities of Japanese issuers. International investment entails
special risk considerations, including currency fluctuations, lower liquidity,
economic instability, political uncertainty and differences in accounting
methods. See 'Risk Factors and Special Considerations.'
POST-VENTURE CAPITAL PORTFOLIO seeks long-term growth of capital by investing
primarily in equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy. Because of the nature
of the Portfolio's investments and certain strategies it may use, an investment
in the Portfolio involves certain risks and may not be appropriate for all
investors.
SMALL COMPANY VALUE PORTFOLIO seeks long-term capital appreciation by investing
primarily in a portfolio of equity securities of small capitalization companies.
The Fund is designed for institutional investors although, at its discretion,
the Fund may permit shares to be purchased by individuals, as well as
institutions, who meet the minimum investment requirements.
This Prospectus briefly sets forth certain information about the Fund and the
Portfolios that investors should know before investing. Investors are encouraged
to read this Prospectus carefully and retain it for future reference. Additional
information about the Fund and the Portfolios has been filed with the Securities
and Exchange Commission (the 'SEC') in a document entitled 'Statement of
Additional Information.' 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 Fund. The Statement of Additional
Information is also available upon request and without charge by calling the
Fund at (800) 369-2728. Information regarding the status of shareholder accounts
may also be obtained by calling the Fund at the same number. Warburg Pincus
Funds maintain a Web sit at www.warburg.com. The Statement of Additional
Information relating to the Portfolios, 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 FUND 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 FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
THE PORTFOLIOS'EXPENSES
________________________________________________________________________________
<TABLE>
<CAPTION>
Small
Japan Post-Venture Company
Growth Capital Value
Portfolio Portfolio Portfolio
------------- ------------ -------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............. 0 0 0
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees................................... .15% .41% .33 %
12b-1 Fees........................................ 0 0 0
Other Expenses.................................... 1.10% .84% .66 %
----- ----- -------
Total Portfolio Operating Expenses (after fee
waivers)`D'..................................... 1.25% 1.25% .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........................................... $13 $13 $10
3 years.......................................... $40 $40 $32
</TABLE>
- --------------------------------------------------------------------------------
`D' Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, Management Fees for the Japan Growth Portfolio, the
Post-Venture Capital Portfolio and the Small Company Value Portfolio would
equal 1.10%, 1.10% and .90%, respectively, Other Expenses would equal 1.22%,
.94% and .76%, respectively, and Total Portfolio Operating Expenses would
equal 2.32%, 2.04% and 1.66%, respectively. Other Expenses for these
Portfolios are based on annualized estimates of expenses for the fiscal year
ending October 31, 1998, net of any fee waivers or expense reimbursements.
The Portfolios' investment adviser and co-administrator are under no
obligation to continue these waivers, except that the investment adviser has
undertaken to limit Total Portfolio Operating Expenses to the limits shown
in the table above through October 31, 1998.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of a Portfolio. Institutions also may
charge their clients fees in connection with investments in a Portfolio's
shares, which fees are not reflected in the table. This example should not be
considered a representation of past or future expenses; actual expenses may be
greater or less than those shown. Moreover, while the table assumes a 5% annual
return, a Portfolio's actual performance will vary and may result in an actual
return greater or less than 5%.
2
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INVESTMENT OBJECTIVES AND POLICIES
________________________________________________________________________________
Set forth below is a description of the investment objective and policies of
each Portfolio. The investment objective of a Portfolio is a fundamental policy
and may not be changed without the approval of the holders of a majority of the
outstanding voting securities of that Portfolio. Any investment involves risk
and, therefore, there can be no assurance that a Portfolio will achieve its
investment objective. See 'Special Risk Considerations and Certain Investment
Strategies' for descriptions of certain types of investments the Portfolios may
make.
JAPAN GROWTH PORTFOLIO
The Japan Growth Portfolio seeks long-term growth of capital. The Portfolio
is a non-diversified management investment company that pursues its objective by
investing primarily in equity securities of Japanese issuers that present
attractive opportunities for growth. Under current market conditions the
Portfolio intends to invest at least 80% of its total assets -- but will invest
no less than 65% of its assets under normal market conditions -- in common and
preferred stocks, warrants and other rights, securities convertible into or
exchangeable for common stocks and American Depositary Receipts ('ADRs') of
Japanese issuers.
Warburg, Pincus Counsellors, Inc., the Portfolios' investment adviser
('Warburg'), believes that Japanese industry is in the process of deregulation
and restructuring. The Portfolio is designed to provide an opportunity to
participate in the dynamic structural changes in the Japanese industrial system
through investment in higher growth companies that can be expected to benefit
from these changes. The Portfolio will seek to identify and invest in Japanese
issuers that are showing or are expected to show a rapid or high rate of growth,
based on comparisons with Japanese or non-Japanese companies in the same
industry or other considerations. The Portfolio will also invest in Japanese
companies that Warburg believes are undervalued based on price/earnings ratios,
comparisons with Japanese or non-Japanese companies or other factors.
The Portfolio may invest in companies of any size, whether traded on an
exchange or over-the-counter. Currently, there are eight exchanges in Japan --
the Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo
exchanges -- and two over-the-counter markets -- JASDAQ and the Japanese Second
Section OTC Market (the 'Frontier Market'). The Portfolio considers Japanese
issuers to be (i) companies (A) organized under the laws of Japan, or (B) whose
principal business activities are conducted in Japan and which derive at least
50% of their revenues or profits from goods produced or sold, investments made,
or services performed in Japan, or have at least 50% of their assets in one or
more such countries, or (C) which have issued securities which are traded
principally in Japan, and (ii) Japanese governmental entities or political
subdivisions. Determinations as to the eligibility of issuers under the
foregoing definition will be made by Warburg based on publicly available
information and inquiries made to the companies. The portion of the
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<PAGE>
Portfolio's assets not invested in Japanese issuers may be invested in
securities of other Asian issuers. The Portfolio does not, except during
temporary defensive periods, intend to invest in securities of non-Asian
issuers. From time to time, the Portfolio may hedge part or all of its exposure
to the Japanese yen, thereby reducing or substantially eliminating any favorable
or unfavorable impact of changes in the value of the yen in relation to the U.S.
dollar.
POST-VENTURE CAPITAL PORTFOLIO
Because of the nature of the Post-Venture Capital Portfolio's investments and
certain strategies it may use, such as investing in Private Funds (as defined
below), an investment in the Portfolio should be considered only for the
aggressive portion of an investor's portfolio and may not be appropriate for all
investors.
The Post-Venture Portfolio seeks long-term growth of capital. The Portfolio
is a diversified management investment company that pursues an aggressive
investment strategy. The Portfolio pursues its investment objective by investing
primarily in equity securities of companies considered by Warburg to be in their
post-venture capital stage of development. The Portfolio intends to invest in
securities of post-venture capital companies, as defined below, that are traded
on a national securities exchange or in an organized over-the-counter market.
Although the Portfolio may invest up to 10% of its assets in venture capital
and other investment funds, the Portfolio is not designed primarily to provide
venture capital financing. Rather, under normal market conditions, the Portfolio
will invest at least 65% of its total assets in equity securities of
'post-venture capital companies.' A post-venture capital company is a company
that has received venture capital financing either (a) during the early stages
of the company's existence or the early stages of the development of a new
product or service, or (b) as part of a restructuring or recapitalization of the
company. The investment of venture capital financing, distribution of such
company's securities to venture capital investors, or initial public offering
('IPO'), whichever is later, will have been made within ten years prior to the
Portfolio's purchase of the company's securities.
Warburg believes that venture capital participation in a company's capital
structure can lead to revenue/earnings growth rates above those of older, public
companies such as those in the Dow Jones Industrial Average, the Fortune 500 or
the Morgan Stanley Capital International Europe, Australasia and Far East
('EAFE') Index. Venture capitalists finance start-up companies, companies in the
early stages of developing new products or services and companies undergoing a
restructuring or recapitalization, since these companies may not have access to
conventional forms of financing (such as bank loans or public issuances of
stock). Venture capitalists may hold substantial positions in companies that may
have been acquired at prices significantly below the initial public offering
price. This may create a potential adverse impact in the short-term on the
market price of a company's stock due to sales in the open market by a venture
capitalist or
4
<PAGE>
others who acquired the stock at lower prices prior to the company's IPO.
Warburg will consider the impact of such sales in selecting post-venture capital
investments. Venture capitalists may be individuals or funds organized by
venture capitalists which are typically offered only to large institutions, such
as pension funds and endowments, and certain accredited investors. Outside of
the United States, venture capitalists may also consist of merchant banks and
other banking institutions that provide venture capital financing in a manner
similar to U.S. venture capitalists. Venture capital participation in a company
is often reduced when the company engages in an IPO of its securities or when it
is involved in a merger, tender offer or acquisition.
Warburg has experience in researching smaller companies, companies in the
early stages of development and venture capital-financed companies. Its team of
analysts, led by Elizabeth Dater and Stephen Lurito, regularly monitors
portfolio companies whose securities are held by over 250 of the larger domestic
venture capital funds. Ms. Dater and Mr. Lurito have managed post-venture equity
securities in separate accounts for institutions since 1989 and currently manage
over $1 billion of such assets for investment companies and other institutions.
PRIVATE FUND INVESTMENTS. Up to 10% of the Portfolio's assets may be invested
in United States or foreign private limited partnerships or other investment
funds ('Private Funds') that themselves invest in equity or debt securities of
(a) companies in the venture capital or post-venture capital stages of
development or (b) companies engaged in special situations or changes in
corporate control, including buyouts. In selecting Private Funds for investment,
Abbott Capital Management, LLC, the Portfolio's sub-investment adviser with
respect to Private Funds ('Abbott'), attempts to invest in a mix of Private
Funds that will provide an above average internal rate of return (i.e., the
discount rate at which the present value of an investment's future cash inflows
(dividend income and capital gains) are equal to the cost of the investment).
Warburg believes that the Fund's investments in Private Funds offers individual
investors a unique opportunity to participate in venture capital and other
private investment funds, providing access to investment opportunities typically
available only to large institutions and accredited investors. Although the
Portfolio's investments in Private Funds are limited to a maximum of 10% of the
Portfolio's assets, these investments are highly speculative and volatile and
may produce gains or losses in the portion of the Portfolio that exceed those of
the Portfolio's other holdings and of more mature companies generally.
Because Private Funds generally are investment companies for purposes of the
Investment Company Act of 1940, as amended (the '1940 Act'), the Portfolio's
ability to invest in them will be limited. In addition, Portfolio shareholders
will remain subject to the Portfolio's expenses while also bearing their pro
rata share of the operating expenses of the Private Funds. The ability of the
Portfolio to dispose of interests in Private Funds is very limited and
5
<PAGE>
will involve the risks described under 'Special Risk Considerations and Certain
Investment Strategies -- Non-Publicly Traded Securities; Rule 144A Securities.'
In valuing the Portfolio's holdings of interests in Private Funds, the Portfolio
will be relying on the most recent reports provided by the Private Funds
themselves prior to calculation of the Portfolio's net asset value. These
reports, which are provided on an infrequent basis, often depend on the
subjective valuations of the managers of the Private Funds and, in addition,
would not generally reflect positive or negative subsequent developments
affecting companies held by the Private Fund. See 'Net Asset Value.' Debt
securities held by a Private Fund will tend to be rated below investment grade
and may be rated as low as C by Moody's Investors Service, Inc. ('Moody's') or D
by Standard & Poor's Ratings Services ('S&P'). Securities in these rating
categories are in payment default or have extremely poor prospects of attaining
any investment standing. For a discussion of the risks of investing in below
investment grade debt, see 'Investment Policies -- Below Investment Grade Debt
Securities' in the Statement of Additional Information. For a discussion of the
possible tax consequences of investing in foreign Private Funds, see 'Additional
Information Concerning Taxes -- Investment in Passive Foreign Investment
Companies' in the Statement of Additional Information.
The Portfolio may also hold non-publicly traded equity securities of
companies in the venture and post-venture stages of development, such as those
of closely-held companies or private placements of public companies. The portion
of the Portfolio's assets invested in these non-publicly traded securities will
vary over time depending on investment opportunities and other factors. The
Portfolio's illiquid assets, including interests in Private Funds and other
illiquid non-publicly traded securities, may not exceed 15% of the Portfolio's
net assets.
OTHER STRATEGIES. The Portfolio may invest up to 35% of its assets in
exchange-traded and over-the-counter securities that do not meet the definition
of post-venture capital companies without regard to market capitalization. Up to
10% of the Portfolio's assets may be invested, directly or through Private
Funds, in securities of issuers engaged at the time of purchase in 'special
situations,' such as a restructuring or recapitalization; an acquisition,
consolidation, merger or tender offer; a change in corporate control or
investment by a venture capitalist.
To attempt to reduce risk, the Portfolio will diversify its investments over
a broad range of issuers operating in a variety of industries. The Portfolio may
hold securities of companies of any size, and will not limit capitalization of
companies it selects to invest in. However, due to the nature of the venture
capital to post-venture cycle, the Portfolio anticipates that the average market
capitalization of companies in which it invests will be less than $1 billion at
the time of investment. Although the Portfolio will invest primarily in U.S.
companies, up to 20% of the Portfolio's assets may be invested in securities of
issuers located in foreign countries. Equity securities in which the Portfolio
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<PAGE>
will invest are common stock, preferred stock, warrants, securities convertible
into or exchangeable for common stock and partnership interests. The Portfolio
may engage in a variety of strategies to reduce risk or seek to enhance return,
including engaging in short selling (see 'Special Risk Considerations and
Certain Investment Strategies').
SMALL COMPANY VALUE PORTFOLIO
The Small Company Value Portfolio seeks long-term capital appreciation. The
Portfolio is a diversified management investment company that pursues its
investment objective by investing primarily in a portfolio of equity securities
of small capitalization companies that Warburg considers to be relatively
undervalued. Current income is a secondary consideration in selecting portfolio
investments. Under normal market conditions the Portfolio will invest at least
65% of its total assets in common stocks, preferred stocks, debt securities
convertible into common stocks, warrants and other rights of small companies
(i.e., companies having stock market capitalizations of $1 billion or less at
the time of initial purchase).
Warburg will determine whether a company is undervalued based on a variety of
measures, including price/earnings ratio, price/book ratio, price/cash flow
ratio, earnings growth and debt/capital ratio. Other relevant factors, including
a company's asset value, franchise value and quality of management, will also be
considered. The Portfolio will invest primarily in companies whose securities
are traded on U.S. stock exchanges or in the U.S. over-the-counter market, but
may invest up to 20% of its assets in foreign securities.
ADDITIONAL INVESTMENTS
MONEY MARKET OBLIGATIONS. Each Portfolio is authorized to invest, under
normal circumstances, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) and medium-term (five years
or less remaining to maturity) money market obligations, although each Portfolio
intends to stay invested in securities satisfying its investment objective to
the extent practical. In addition, on occasion, Warburg may deem it advisable to
adopt a temporary defensive posture by investing without limit in money market
obligations. These instruments consist of obligations of the U.S. government or
foreign governments, their agencies or instrumentalities; obligations of foreign
and U.S. banks; commercial paper; and money market mutual funds that invest in
the foregoing. A shareholder in the Portfolio would bear both its ratable share
of that mutual fund's expenses, as well as the Portfolio's administration fees
and other expenses with respect to assets so invested.
Repurchase Agreements. The Portfolios may invest in repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Under the terms of a typical repurchase agreement, a Portfolio
would acquire an underlying security for a relatively short period (usually not
more than one week) subject to an obligation of the seller to
7
<PAGE>
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.
The value of the underlying securities will at all times be at least equal to
the total amount of the purchase obligation, including accrued interest. A
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.
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to a Portfolio and appropriate considering the factors of return and liquidity,
the Portfolio may invest up to 5% of its assets in securities of money market
mutual funds that are unaffiliated with the Fund, Warburg or the Fund's
co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any mutual fund, the
Portfolio will bear its ratable share of the mutual fund's expenses, including
management fees, and will remain subject to payment of the Portfolio's
administration fees and other expenses with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. The U.S. government securities in which each
Portfolio may invest include: direct obligations of the U.S. Treasury (such as
Treasury bills, notes and bonds) and obligations issued by U.S. government
agencies and instrumentalities, including instruments that are supported by the
full faith and credit of the United States, instruments that are supported by
the right of the issuer to borrow from the U.S. Treasury and instruments that
are supported by the credit of the instrumentality.
DEBT SECURITIES. The Japan Growth Portfolio may invest up to 35% of its total
assets, and each of the Post-Venture Capital Portfolio and the Small Company
Value Portfolio may invest up to 20% of its total assets, in investment grade
debt securities. The interest income to be derived may be considered as one
factor in selecting debt securities for investment by Warburg. Because the
market value of debt obligations can be expected to vary inversely to changes in
prevailing interest rates, investing in debt obligations may provide an
opportunity for capital growth when interest rates are expected to decline. The
success of such a strategy is dependent upon Warburg's ability to forecast
accurately changes in interest rates. The market value of debt obligations may
also be expected to vary depending upon, among other factors, the ability of the
issuer to repay principal and interest, any change in investment rating and
general economic conditions.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's or S&P or, if unrated, is determined to be of
comparable quality by Warburg. Bonds rated in the fourth highest grade may have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by a Portfolio, an issue of securities may cease to be rated or its
rating may be reduced below the minimum required for
8
<PAGE>
purchase by the Portfolio. Neither event will require sale of such securities,
although Warburg will consider such event in its determination of whether the
Portfolio should continue to hold the securities.
When Warburg believes that a defensive posture is warranted, each Portfolio
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
Japan Growth Portfolio. Although it does not currently intend to do so during
the coming year, the Japan Growth Portfolio may invest or hold up to 5% of its
net assets in securities rated below investment grade, including convertible and
non-convertible debt securities downgraded below investment grade subsequent to
acquisition by the Portfolio.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. In addition to the Japan Growth
Portfolio's authority to invest in money market securities, but within the 35%
limitation investments in debt securities, the Portfolio may invest up to 5% of
its net assets in asset-backed and mortgage-backed securities:
Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle had not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The Portfolio may purchase
asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
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.
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 is to be in the best interests of the relevant Portfolio and
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. In
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addition, to the extent it is consistent with a Portfolio's investment
objective, each Portfolio also may engage in short-term trading. This investment
approach and the use of certain of the investment strategies described below may
result in a high portfolio turnover rate for the Portfolios. It is not possible
to predict the portfolio turnover rates for the Portfolios. However, the Japan
Growth Portfolio's annual turnover rate should not exceed 100%, the Post-Venture
Capital Portfolio's turnover rate should not exceed 150% and the Small Company
Value Portfolio's annual turnover rate should not exceed 100%. High portfolio
turnover rates (100% or more) may result in dealer markups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See 'Dividends,
Distributions and Taxes -- Taxes' and 'Investment Policies -- Portfolio
Transactions' in the Statement of Additional Information. All orders for
transactions in securities or options on behalf of a Portfolio are placed by
Warburg with broker-dealers that it selects.
SPECIAL RISK CONSIDERATIONS AND
CERTAIN INVESTMENT STRATEGIES
________________________________________________________________________________
In attempting to achieve its investment objective, a Portfolio may engage in
one or more of the strategies set forth below. Although there is no intention of
doing so during the coming year, each Portfolio is authorized to engage in the
following investment strategies: (i) purchasing securities on a when-issued
basis and purchasing or selling securities for delayed delivery, (ii) lending
portfolio securities and (iii) entering into reverse repurchase agreements and
dollar rolls. The Japan Growth Portfolio may also invest in zero coupon
securities, although the Portfolio currently anticipates that during the coming
year zero coupon securities will not exceed 5% of net assets. Detailed
information concerning these strategies and their related risks is contained in
the Statement of Additional Information.
CONVERTIBLE SECURITIES. Each Portfolio may invest in fixed income obligations
convertible into equity securities at either a stated price or at a stated rate.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality.
A security will be deemed to be investment grade if it is rated within the
four highest grades by Moody's or S&P or, if unrated, is determined to be of
comparable quality by Warburg. Securities rated in the fourth highest grade have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Subsequent
to its purchase by a Portfolio, an issue of securities may cease to be rated or
its rating may be reduced. Neither event will require sale of such securities,
although Warburg will consider such event in its determination of whether the
Portfolio should continue to hold the securities. Securities rated below
investment grade are regarded as predominantly speculative with
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respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve large uncertainties or
major risk exposures to adverse conditions. A Portfolio may have difficulty
disposing of certain lower quality obligations because there may be a thin
trading market for such securities. In addition, the market value of lower
quality securities may be more volatile than that of higher quality securities.
Neither the Japan Growth Portfolio nor the Small Company Value Portfolio
currently intends to hold more than 5% of its net assets in convertible
securities rated below investment grade.
FOREIGN SECURITIES. The Japan Growth Portfolio will invest substantially in
foreign securities, and each of the Post-Venture Capital and the Small Company
Value Portfolios may invest up to 20% of its total assets in the securities of
foreign issuers. There are certain risks involved in investing in securities of
companies and governments of foreign nations which are in addition to the usual
risks inherent in 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 and the lack of
uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of a Portfolio,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
expenses due to the cost of converting foreign currency into U.S. dollars, the
payment of fixed brokerage commissions on foreign exchanges, which generally are
higher than commissions on U.S. exchanges, higher valuation and communications
costs and the expense of maintaining securities with foreign custodians.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with American
Depositary Receipts ('ADRs'), European Depositary Receipts ('EDRs') and
International Depositary Receipts ('IDRs'), instruments that evidence ownership
of underlying securities issued by a foreign corporation. ADRs, EDRs and IDRs
may not necessarily be denominated in the same
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currency as the securities whose ownership they represent. ADRs are typically
issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in Europe and IDRs (sometimes
referred to as Global Depositary Receipts) are issued outside the United States,
each typically by non-U.S. banks and trust companies. The risks associated with
investing in securities of non-U.S. issuers are generally heightened for
investments in securities of issuers in emerging markets.
JAPANESE INVESTMENTS. Investing in Japanese securities may involve the risks
described above associated with investing in foreign securities generally. In
addition, because the Japan Growth Portfolio invests primarily in Japan, it will
be subject to general economic and political conditions in Japan. The Japan
Growth Portfolio should be considered a vehicle for diversification, but the
Portfolio itself is not diversified.
Securities in Japan are denominated and quoted in 'yen.' Yen are fully
convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of the
Japan Growth Portfolio, assets or liabilities initially expressed in terms of
Japanese yen will be translated into U.S. dollars at the current selling rate of
Japanese yen against U.S. dollars. As a result, in the absence of a successful
currency hedge, the value of the Portfolio's assets as measured in U.S. dollars
may be affected favorably or unfavorably by fluctuations in the value of
Japanese yen relative to the U.S. dollar.
The Japan Growth Portfolio's assets may be invested in securities traded
through JASDAQ. JASDAQ traded securities can be volatile, which may result in a
Fund's net asset value fluctuating in response. Trading of equity securities
through the JASDAQ market is conducted by securities firms in Japan, primarily
through an organization which acts as a 'matching agent,' as opposed to a
recognized stock exchange. Consequently, securities traded through JASDAQ may,
from time to time, and especially in falling markets, become illiquid and
experience short-term price volatility and wide spreads between bid and offer
prices. This combination of limited liquidity and price volatility may have an
adverse effect on the investment performance of the Portfolio. In periods of
rapid price increases, the limited liquidity of JASDAQ restricts the Portfolio's
ability to adjust its portfolio quickly in order to take full advantage of a
significant market increase, and conversely, during periods of rapid price
declines, it restricts the ability of the Portfolio to dispose of securities
quickly in order to realize gains previously made or to limit losses on
securities held in its portfolio. In addition, although JASDAQ has generally
experienced sustained growth in aggregate market capitalization and trading
volume, there have been periods in which aggregate market capitalization and
trading volume have declined. The Frontier Market is expected to present greater
liquidity, volatility and trading considerations than JASDAQ.
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At August 6, 1997, 783 issues were traded through JASDAQ, having an aggregate
market capitalization in excess of 13 trillion yen (approximately $109 billion
as of August 6, 1997). The entry requirements for JASDAQ generally require a
minimum of 2 million shares outstanding at the time of registration, a minimum
of 200 shareholders, minimum pre-tax profits of 10 yen per share (approximately
$.08 per share as of August 6, 1997) over the prior fiscal year and net worth of
200 million yen (approximately $1.68 million as of August 6, 1997). JASDAQ has
generally attracted small growth companies or companies whose major shareholders
wish to sell only a small portion of the company's equity.
The Frontier Market is a second over-the-counter market and is under the
jurisdiction of JASDAQ, which is overseen by the Japanese Securities and
Exchange Commission. The Frontier Market has less stringent entry requirements
than those described above for JASDAQ and is designed to enable early stage
companies access to capital markets. Frontier Market companies need not have a
history of earnings, provided their spending on research and development equals
at least 3% of net sales. In addition, companies traded through the Frontier
Market are not required to have 2 million shares outstanding at the time of
registration. As a result, investments in companies traded through the Frontier
Market may involve a greater degree of risk than investments in companies traded
through JASDAQ. The Frontier Market was created in July 1995, and as of the date
of this Prospectus, a limited number of issues were traded through this market.
The decline in the Japanese securities markets since 1989 has contributed to
a weakness in the Japanese economy, and the impact of a further decline cannot
be ascertained. The common stocks of many Japanese companies continue to trade
at high price-earnings ratios in comparison with those in the United States,
even after the recent market decline. Differences in accounting methods make it
difficult to compare the earnings of Japanese companies with those of companies
in other countries, especially the United States.
Japan is largely dependent upon foreign economies for raw materials.
International trade is important to Japan's economy, as exports provide the
means to pay for many of the raw materials it must import. Because of the
concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest.
Japan has a parliamentary form of government. In 1993, a coalition government
was formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leadership
in Japan. What, if any, effect the current political situation will have on
prospective regulatory reforms on the economy in Japan cannot be predicted.
Recent and future developments in Japan and neighboring Asian
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countries may lead to changes in policy that might adversely affect a Portfolio
investing there. For additional information, see 'Investment Policies --
Japanese Investments' in the Statement of Additional Information.
EMERGING MARKETS. The Japan Growth Portfolio may invest in securities of
issuers located in less developed Asian countries considered to be 'emerging
markets.' Investing in securities of issuers located in emerging markets
involves not only the risks described below with respect to investing in foreign
securities, but also other risks, including exposure to economic structures that
are generally less diverse and mature than, and to political systems that can be
expected to have less stability than, those of developed countries. Other
characteristics of emerging markets that may affect investment there include
certain national policies that may restrict investment by foreigners in issuers
or industries deemed sensitive to relevant national interests and the absence of
developed legal structures governing private and foreign investments and private
property. The typically small size of the markets for securities of issuers
located in emerging markets and the possibility of a low or nonexistent volume
of trading in those securities may also result in a lack of liquidity and in
price volatility of those securities.
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of emerging
growth and small-sized companies, which may include JASDAQ and Frontier Market
securities, may involve greater risks than investing in larger, more established
issuers since these securities may have limited marketability and, thus, may be
more volatile than securities of larger, more established companies or the
market averages in general. Because small- and medium-sized companies normally
have fewer shares outstanding than larger companies, it may be more difficult
for a Portfolio to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices. Small-sized companies may have limited
product lines, markets or financial resources and may lack management depth. In
addition, small- and medium-sized companies are typically subject to a greater
degree of changes in earnings and business prospects than are larger, more
established companies. There is typically less publicly available information
concerning small- and medium-sized companies than for larger, more established
ones.
The Post-Venture Capital Portfolio may invest in securities of issuers in
'special situations.' Securities of issuers in 'special situations' also may be
more volatile, since the market value of these securities may decline in value
if the anticipated benefits do not materialize. Companies in 'special
situations' include, but are not limited to, companies involved in an
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; litigation which, if
resolved favorably, would improve the value of the companies' securities; or a
change in corporate control.
Although investing in securities of emerging growth companies or, with
respect to the Post-Venture Capital Portfolio, 'special situations' offers
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potential for above-average returns if the companies are successful, the risk
exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in a
Portfolio may involve a greater degree of risk than an investment in other
mutual funds that seek growth of capital or capital appreciation by investing in
better-known, larger companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, each
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures, forward currency contracts and, in the case of the
Japan Growth Portfolio, swaps. These strategies, commonly referred to as
'derivatives,' may be used (i) for the purpose of hedging against a decline in
value of a Portfolio's current or anticipated portfolio holdings, (ii) as a
substitute for purchasing or selling portfolio securities or (iii) to seek to
generate income to offset expenses or increase return. TRANSACTIONS THAT ARE NOT
CONSIDERED HEDGING SHOULD BE CONSIDERED SPECULATIVE AND MAY SERVE TO INCREASE A
PORTFOLIO'S INVESTMENT RISK. Transaction costs and any premiums associated with
these strategies, and any losses incurred, will affect a Portfolio's net asset
value and performance. Therefore, an investment in a Portfolio may involve a
greater risk than an investment in other mutual funds that do not utilize these
strategies. A Portfolio's use of these strategies may be limited by position and
exercise limits established by securities and commodities exchanges and other
applicable regulatory authorities.
Securities Options and Stock Index Options. Each Portfolio may write put and
call options on up to 25% of the net asset value of the stock and debt
securities in its portfolio and will realize fees (referred to as 'premiums')
for granting the rights evidenced by the options. Each Portfolio may utilize up
to 10% of its assets to purchase options on stocks and debt securities that are
traded on U.S. and foreign exchanges, as well as over-the-counter ('OTC')
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option on a security has the right to purchase the underlying security from the
writer. In addition to purchasing and writing options on securities, each
Portfolio may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the
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amount of appreciation the Portfolio could realize on its investments or require
the Portfolio to hold securities it would otherwise sell.
Futures Contracts and Related Options. Each Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options that are traded on an exchange designated by the
Commodity Futures Trading Commission (the 'CFTC') or, if consistent with CFTC
regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although a Portfolio is limited in
the amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of a Portfolio's assets that may be at risk with
respect to futures activities.
Currency Exchange Transactions. Each Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing or writing exchange-traded or 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 and
stock index options. In addition, the use of currency transactions could result
in losses from the imposition of foreign exchange controls, suspension of
settlement or other governmental actions or unexpected events.
Swaps. The Japan Growth Portfolio may enter into swaps relating to indexes,
currencies and equity interests of foreign issuers. A swap transaction is an
agreement between the Portfolio and a counterparty to act in accordance with the
terms of the swap contract. Index swaps involve the exchange by the Portfolio
with another party of the respective amounts payable with respect to a notional
principal amount related to one or more indexes. Currency swaps involve the
exchange of cash flows on a notional amount of two or more currencies based on
their relative future values. An equity swap is an agreement to exchange streams
of payments computed by reference to a notional amount based on the performance
of a stock index, a basket of
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stocks or a single stock. The Portfolio may enter into these transactions to
preserve a return or spread on a particular investment or portion of its assets,
to protect against currency fluctuations, as a duration management technique or
to protect against any increase in the price of securities the Portfolio
anticipates purchasing at a later date. The Portfolio may also use these
transactions for speculative purposes, such as to obtain the price performance
of a security without actually purchasing the security in circumstances where,
for example, the subject security is illiquid, or is unavailable for direct
investment. Swaps have risks associated with them including possible default by
the counterparty to the transaction, illiquidity and, where swaps are used as
hedges, the risk that the use of a swap could result in losses greater than if
the swap had not been employed.
The Japan Growth Portfolio will usually enter into swaps on a net basis,
i.e., the two payment streams are netted out in a cash settlement on the payment
date or dates specified in the agreement, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two payments. Swaps do
not involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps is limited to the net amount
of payments that the Portfolio is contractually obligated to make. If the
counterparty to a swap defaults, the Portfolio's risk of loss consists of the
net amount of payments that the Portfolio is contractually entitled to receive.
Where swaps are entered into for good faith hedging purposes, Warburg believes
such obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to the Portfolio's borrowing
restrictions. Where swaps are entered into for other than hedging purposes, the
Portfolio will segregate an amount of cash or liquid securities having a value
equal to the accrued excess of its obligations over its entitlements with
respect to each swap on a daily basis.
Hedging Considerations. Each Portfolio may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. Each Portfolio will engage in hedging transactions only when deemed
advisable by Warburg, and successful use of hedging transactions will depend on
Warburg's ability to predict correctly movements in the hedge and the hedged
position and the correlation between them, which could prove to be inaccurate.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or trends.
Additional Considerations. To the extent that a Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
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these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out an option or futures position without
incurring substantial losses, if at all. A Portfolio is also subject to the risk
of a default by a counterparty to an off-exchange transaction.
Asset Coverage. Each Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities, indexes and currencies;
currency, interest rate and stock index futures contracts and options on these
futures contracts; and forward currency contracts and, in the case of the Japan
Growth Portfolio, swaps. The use of these strategies may require that the
Portfolio maintain cash or liquid securities in a segregated account with its
custodian or a designated sub-custodian to the extent the Portfolio's
obligations with respect to these strategies are not otherwise 'covered' through
ownership of the underlying security, financial instrument or currency or by
other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of a Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. A Portfolio may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the 'Securities Act'), but that can be sold to 'qualified institutional
buyers' in accordance with Rule 144A under the Securities Act ('Rule 144A
Securities'). A Rule 144A Security will be considered illiquid and therefore
subject to the Portfolio's limitation on the purchase of illiquid securities
unless the Fund's Board of Directors (the 'Board') determines on an ongoing
basis that an adequate trading market exists for the security. Non-publicly
traded securities (including interests in Private Funds and Rule 144A
Securities) may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolio. In addition, companies whose securities are not publicly traded are
not subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. A Portfolio's
investment in illiquid securities is subject to the risk that should the
Portfolio desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Portfolio's net assets could be adversely affected.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
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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.
SHORT SELLING. The Post-Venture Capital Portfolio may from time to time sell
securities short. A short sale is a transaction in which the Portfolio sells
securities it does not own in anticipation of a decline in the market price of
the securities. The current market value of the securities sold short (excluding
short sales 'against the box') will not exceed 10% of the Portfolio's assets.
To deliver the securities to the buyer, the Portfolio must arrange through a
broker to borrow the securities and, in so doing, the Portfolio becomes
obligated to replace the securities borrowed at their market price at the time
of replacement, whatever that price may be. The Portfolio will make a profit or
incur a loss as a result of a short sale depending on whether the price of the
security decreases or increases between the date of the short sale and the date
on which the Portfolio purchases the security to replace the borrowed securities
that have been sold. The amount of any loss would be increased (and any gain
decreased) by any premium or interest the Portfolio is required to pay in
connection with a short sale.
The Portfolio's obligation to replace the securities borrowed in connection
with a short sale will be secured by cash or liquid securities deposited as
collateral with the broker. In addition, the Portfolio will place in a
segregated account with its custodian or a qualified subcustodian an amount of
cash or liquid securities equal to the difference, if any, between (i) the
market value of the securities sold at the time they were sold short and (ii)
any cash or liquid securities deposited as collateral with the broker in
connection with the short sale (not including the proceeds of the sort sale).
Until it replaces the borrowed securities, the Portfolio will maintain the
segregated account daily at a level so that (a) the amount deposited in the
account plus the amount deposited with the broker (not including the proceeds
from the short sale) will equal the current market value of the securities sold
short and (b) the amount deposited in the account plus the amount deposited with
the broker (not including the proceeds from the short sale) will not be less
than the market value of the securities at the time they were sold short.
Short Sales Against the Box. Each Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an equal
amount of the securities sold short or owns preferred stock 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. A Portfolio will deposit, in a segregated
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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 such sales at
any one time.
NON-DIVERSIFIED STATUS. The Japan Growth Portfolio is classified as 'non-
diversified' under the 1940 Act, which means that the Portfolio is not limited
by the 1940 Act in the proportion of its assets that may be invested in the
securities of a single issuer. The Portfolio, however, intends to comply with
the diversification requirements imposed by the Code, for qualification as a
regulated investment company. As a non-diversified portfolio, the Portfolio may
invest a greater proportion of its assets in the obligations of a smaller number
of issuers and, as a result, may be subject to greater risk with respect to
portfolio securities.
INVESTMENT GUIDELINES
________________________________________________________________________________
The Post-Venture Capital Portfolio may invest up to 15% of its net assets and
each other Portfolio may invest up to 10% of its 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. A Portfolio may borrow from banks for temporary or
emergency purposes in an amount up to 30% of its total assets and may pledge its
assets to the same extent in connection with these 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 a Portfolio has adopted
identifying additional restrictions that cannot be changed without the approval
of the majority of the Portfolio's outstanding shares is contained in the
Statement of Additional Information.
MANAGEMENT OF THE FUND
________________________________________________________________________________
INVESTMENT ADVISERS. The Fund employs Warburg as investment adviser to each
Portfolio and, with respect to the Post-Venture Capital Portfolio, Abbott as its
sub-investment adviser. Warburg, subject to the control of the Fund's officers
and the Board, manages the investment and reinvestment of the assets of the
Portfolios in accordance with each Portfolio's investment objective and stated
investment policies. Warburg makes investment decisions for each Portfolio and
places orders to purchase or sell securities on behalf of the Portfolio and,
with respect to the Post-Venture Capital Portfolio,
20
<PAGE>
supervises the activities of Abbott. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment. Abbott, in accordance with the
investment objective and policies of the Post-Venture Capital Portfolio, makes
investment decisions for the Portfolio regarding investments in Private Funds,
effects transactions in Private Funds on behalf of the Portfolio and assists in
other administrative functions relating to investments in Private Funds.
For the services provided by Warburg, the Japan Growth and the Small Company
Value Portfolios pay Warburg a fee calculated at an annual rate of 1.10% and
.90%, respectively, of the relevant Portfolio's average daily net assets. For
the services provided by Warburg, the Post-Venture Capital Portfolio pays
Warburg a fee calculated at an annual rate of 1.10% of the Portfolio's average
daily net assets, out of which Warburg pays Abbott for sub-advisory services.
Warburg and the Portfolios' co-administrators may voluntarily waive a portion of
their fees from time to time and temporarily limit the expenses to be borne by
the Portfolios.
Warburg. Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of June 30, 1997,
Warburg managed approximately $19.7 billion of assets, including approximately
$11.5 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ('WP&Co.'), which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
Abbott. Abbott is an independent specialized investment firm with assets
under management of approximately $1.9 billion. Abbott is a registered
investment adviser which concentrates on venture capital, buyout and special
situations partnership investments. Abbott's management team provides
full-service private equity programs to clients. The predecessor firm to Abbott
was organized in 1986 as a Delaware limited partnership and converted to a
Delaware limited liability company effective July 1, 1997. Abbott's principal
office is located at 50 Rowes Wharf, Suite 240, Boston, Massachusetts
02110-3328.
PORTFOLIO MANAGERS.
Japan Growth Portfolio. P. Nicholas Edwards is the Portfolio Manager for the
Japan Growth Portfolio. Mr. Edwards is a Managing Director and has been with
Warburg since August 1995, before which time he was a director at Jardine
Fleming Investment Advisers, Tokyo.
Post-Venture Capital Portfolio. Elizabeth B. Dater and Stephen J. Lurito are
the Co-Portfolio Managers for the Post-Venture Capital Portfolio. Ms. Dater is a
Senior Managing Director of Warburg and has been a portfolio manager of
21
<PAGE>
Warburg since 1978. Mr. Lurito is a Managing Director of Warburg and has been
with Warburg since 1987.
Robert S. Janis and Christopher M. Nawn are Associate Portfolio Managers and
Research Analysts for the Portfolio. Mr. Janis is a Senior Vice President of
Warburg and has been with Warburg since October 1994, before which time he was a
vice president and senior research analyst at U.S. Trust Company of New York.
Mr. Nawn is also a Senior Vice President of Warburg and has been with Warburg
since September 1994, before which time he was a senior sector analyst and
portfolio manager at the Dreyfus Corporation.
Raymond L. Held and Gary H. Solomon, Investment Managers and Managing
Directors of Abbott, manage the Portfolio's investments in Private Funds. Both
Mr. Held and Mr. Solomon have been associated with Abbott and its predecessor
firm since 1986.
Small Company Value Portfolio. George U. Wyper is the Portfolio Manager of
the Small Company Value Portfolio. Mr. Wyper is a Managing Director of Warburg,
which he joined in August 1994, before which time he was chief investment
officer of White River Corporation and president of Hanover Advisors, Inc.
(1993-August 1994), chief investment officer of Fund American Enterprises, Inc.
(1990-1993). Kyle F. Frey, a Senior Vice President of Warburg, is Associate
Portfolio Manager and Research Analyst of the Portfolio and Mr. Frey has been
with Warburg since 1989.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Portfolios, including responding to shareholder
inquiries and providing information on shareholder investments. Counsellors
Service also performs a variety of other services, including furnishing certain
executive and administrative services, acting as liaison between each Portfolio
and its various service providers, furnishing corporate secretarial services,
which include preparing materials for meetings of the Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and developing and monitoring 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 Fund 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 Portfolios
and assists in related aspects of the Portfolios' operations. As compensation,
the Japan Growth Portfolio will pay 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 assets, .08% of the next $250 million in assets, and
.05% of assets over $750 million, and the Post-Venture Capital Portfolio and the
Small Company Value Portfolio will each pay PFPC a fee calculated at an annual
rate of .10% of the Portfolio's first $500 million in
22
<PAGE>
average daily net assets, .075% of the next $1 billion in average daily net
assets, and .05% of average daily net assets over $1.5 billion. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of
each Portfolio's U.S. assets. Like PFPC, PNC is an indirect wholly owned
subsidiary of PNC Bank Corp., and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103.
State Street Bank and Trust Company ('State Street') serves as custodian of
the Portfolios' non-U.S assets. State Street's principal business address is 225
Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street serves as shareholder servicing agent, transfer
agent and dividend disbursing agent for the Fund. It has delegated to Boston
Financial Data Services, Inc. ('BFDS'), a 50% owned subsidiary, responsibility
for most shareholder servicing functions. BFDS's principal business address is 2
Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities Inc. ('Counsellors Securities') serves
without compensation as distributor of the shares of each Portfolio. Counsellors
Securities is a wholly owned subsidiary of Warburg and is located at 466
Lexington Avenue, New York, New York 10017-3147. No compensation is payable by
the Fund to Counsellors Securities for distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of the Fund,
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Funds. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. In some instances, these
incentives may be offered only to certain institutions whose representatives
provide services in connection with the sale or expected sale of Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund 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 OPEN AN ACCOUNT IN THE FUND
________________________________________________________________________________
In order to invest in a Portfolio, an investor must first complete and sign
an account application. To obtain an account application, an investor may
telephone the Fund at (800) 369-2728. An investor may also obtain an account
application by writing to:
23
<PAGE>
Warburg Pincus Funds
Attention: Institutional Funds
335 Madison Avenue, 15th Floor
New York, New York 10017
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
THE FUND IS DESIGNED FOR INSTITUTIONAL INVESTORS ALTHOUGH, IN ITS DISCRETION,
THE FUND MAY PERMIT SHARES TO BE PURCHASED BY INDIVIDUALS, AS WELL AS
INSTITUTIONS, WHO MEET THE MINIMUM INVESTMENT REQUIREMENTS.
HOW TO PURCHASE SHARES IN THE PORTFOLIOS
________________________________________________________________________________
Shares of the Portfolios may be purchased either by mail or, with special
advance instructions, by wire. Shares of the Fund are sold without a sales
charge. The minimum initial investment in each Portfolio is as follows:
<TABLE>
<CAPTION>
Minimum Initial Minimum Subsequent
Portfolio Investment* Investment
- --------- ------------ ----------
<S> <C> <C>
Japan Growth $1,000,000 None
Post-Venture Capital 1,000,000 None
Small Company Value 1,000,000 None
</TABLE>
- ------------
* The minimum investment for any group of related persons is an aggregate of
$4,000,000.
The investment minimums may be waived for accounts in which employees of
Warburg or its affiliates have an interest or for investors maintaining advisory
accounts with Warburg or brokerage accounts with Counsellors Securities. The
Fund reserves the right to change the initial investment minimum requirements or
impose a subsequent investment minimum at any time. Existing investors will be
given 15 days' notice by mail of any subsequent investment minimum.
After an investor has made an initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined below. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the Portfolio in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares of a
Portfolio are not normally issued.
BY MAIL. If the investor desires to purchase shares by mail, a check or money
order made payable to Warburg Pincus Institutional Fund, Inc. or Warburg Pincus
Funds (in U.S. currency) should be sent along with the completed account
application to Warburg Pincus Funds through its distributor, Counsellors
Securities Inc., at the address set forth above and should indicate the
Portfolio in which shares are to be purchased. Checks payable to the investor
and indorsed to the order of the Fund or Warburg Pincus Funds will not be
accepted as payment and will be returned to the sender. If payment is received
in proper form before 4:00 p.m. (Eastern time) on a day that the Fund calculates
its net asset value (a 'business day'), the purchase will be made at the
relevant Portfolio's net asset value calculated at the end of that day. If
payment is received after 4:00 p.m., the purchase will
24
<PAGE>
be effected at the relevant Portfolio's net asset value determined for the next
business day after payment has been received. Checks or money orders that are
not in proper form or that are not accompanied or preceded by a complete account
application will be returned to the sender. Shares purchased by check or money
order are entitled to receive dividends and distributions beginning on the day
after payment has been received. Checks or money orders in payment for more than
one Portfolio or Warburg Pincus Fund should be accompanied by a breakdown of
amounts to be invested in each Portfolio or fund. If a check used for the
purchase does not clear, the Fund will cancel the purchase and the investor may
be liable for losses or fees incurred. For a description of the manner of
calculating each Portfolio's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase shares in a Portfolio by wiring funds
from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 369-2728. Federal funds may be wired to
Counsellors Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA #0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Institutional Fund, Inc.:
[Portfolio name]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received by the close of regular trading on the New
York Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment
by wire is received on the same day in proper form in accordance with
instructions set forth above, the shares will be priced according to the net
asset value of the relevant Portfolio on that day and are entitled to dividends
and distributions beginning on that day. If payment by wire is received in
proper form by the close of the NYSE without a prior telephone order, the
purchase will be priced according to the net asset value of the relevant
Portfolio on that day and is entitled to dividends and distributions beginning
on that day. However, if a wire in proper form that is not preceded by a
telephone order is received after the close of regular trading on the NYSE, the
payment will be held uninvested until the order is effected at the close of
business on the next business day. Payment for orders that are not received or
accepted will be returned to the prospective investor after prompt inquiry. If a
telephone order is placed and payment by wire is not received on the same day,
the Fund will cancel the purchase and the investor may be liable for losses or
fees incurred.
25
<PAGE>
GENERAL. Each Portfolio reserves the right to reject any specific purchase
order. 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 shareholders would be permitted to continue to
authorize investment in such Portfolio and to reinvest any dividends or capital
gains distributions.
HOW TO REDEEM AND EXCHANGE SHARES IN THE PORTFOLIOS
________________________________________________________________________________
REDEMPTION OF SHARES. An investor in a Portfolio may redeem (sell) shares on
any day that the Portfolio's net asset value is calculated (see 'Net Asset
Value' below).
Shares of a Portfolio may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, they may be giving up a measure of security that they may have if they
were to redeem or exchange their shares in writing. If an investor desires to
redeem shares by mail, a written request for redemption should be sent to
Warburg Pincus Funds at the address indicated above under 'How to Open an
Account in the Fund.' An investor should be sure that the redemption request
identifies the relevant Portfolio, the number of shares to be redeemed and the
investor's account number. In order to change the bank account designated to
receive the redemption proceeds, the investor must send a written request (with
signature guarantee of all investors listed on the account when such a change is
made in conjunction with a redemption request) to Warburg Pincus Funds. Each
mail redemption request must be signed by the registered owner(s) (or legal
representative(s)) exactly as the shares are registered. If an investor has
applied for the telephone redemption feature on the account application, the
investor may redeem the shares by telephone by calling the Fund at (800)
369-2728. An investor making a telephone withdrawal should state (i) the name of
the relevant Portfolio, (ii) the account number of the Portfolio, (iii) the name
of the investor(s) appearing on the Portfolio's records, (iv) the amount to be
withdrawn and (v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. The Fund
currently does not impose a service charge for effecting wire transfers but it
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account in the Fund.' Although the
Fund will redeem shares purchased by check before the check has cleared, payment
of the redemption proceeds will be delayed for 10 days from the date of
purchase. Investors should consider
26
<PAGE>
purchasing shares using a certified or bank check or money order if they
anticipate an immediate need for redemption proceeds.
If a redemption order is received by a Portfolio or its agent prior to the
close of regular trading on the NYSE, the redemption order will be effected at
the relevant Portfolio's net asset value per share as determined on that day. If
a redemption order is received after the close of trading on the NYSE, the
redemption order will be effected at the relevant Portfolio's net asset value as
next determined. Except as noted above, redemption proceeds will normally be
mailed or wired to an investor on the next business day following the date a
redemption order is effected. If, however, in the judgment of Warburg, immediate
payment would adversely affect a Portfolio, the Portfolio reserves the right to
pay the redemption proceeds within seven days after the redemption order is
effected. Furthermore, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption (as well as suspend or postpone the
recordation of an exchange of shares) for such periods as are permitted under
the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in the account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account in a Portfolio
drops to less than $250,000, the Fund reserves the right to redeem the shares in
that account at net asset value. Prior to any redemption, the Fund will notify
an investor in writing that the account has a value of less than the minimum.
The investor will then have 60 days to make an additional investment before a
redemption will be processed by the Fund.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither
the Fund nor its agents will be liable for following instructions communicated
by telephone that it reasonably believes to be genuine. Reasonable procedures
will be employed on behalf of the Fund to confirm that instructions communicated
by telephone are genuine. Such procedures include providing written confirmation
of telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
EXCHANGE OF SHARES. An investor may exchange shares of one Portfolio for
shares of another Portfolio at their respective net asset values. Exchanges may
be effected by mail or by telephone in the manner described under 'Redemption of
Shares' above. If an exchange request is received by Warburg Pincus Funds or its
agent prior to the close of regular trading on the NYSE, the exchange will be
made at each Portfolio's net asset value determined at the end of that business
day. Exchanges will be effected without a sales
27
<PAGE>
charge but must satisfy the minimum dollar amount necessary for new purchases.
Due to the costs involved in effecting exchanges, the Fund reserves the right to
refuse to honor more than three exchange requests by a shareholder in any 30-day
period. The exchange privilege may be modified or terminated at any time upon 60
days' notice to shareholders.
The exchange privilege is available to investors in any state in which the
shares being acquired may be legally sold. When an investor effects an exchange
of shares, the exchange is treated for federal income tax purposes as a
redemption. Therefore, the investor may realize a taxable gain or loss in
connection with the exchange. For further information regarding the exchange
privilege an investor should contact the Fund at (800) 369-2728.
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS. Each Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued on the
Portfolio's portfolio securities for the applicable period (which includes
amortization of market discounts) less amortization of market premium and
applicable expenses. Each Portfolio declares dividends from its net investment
income and net realized short-term and long-term capital gains annually and pays
them in the calendar year in which they are declared. Net investment income
earned on weekends and when the NYSE is not open will be computed as of the next
business day. Unless an investor instructs the Fund to pay dividends or
distributions in cash, dividends and distributions will automatically be
reinvested in additional shares of the relevant Portfolio at net asset value.
The election to receive dividends in cash may be made on the account application
or, subsequently, by writing to the Fund at the address set forth under 'How to
Open an Account in the Fund' or by calling the Fund at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Portfolio intends to qualify each year as a 'regulated investment
company' within the meaning of the Internal Revenue Code of 1986, as amended
(the 'Code'). A Portfolio, if it qualifies as a regulated investment company,
will be subject to a 4% non-deductible excise tax measured with respect to
certain undistributed amounts of ordinary income and capital gain. Each
Portfolio expects to pay such additional dividends and to make such additional
distributions as are necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions derived from net
realized short-term capital gains are taxable to investors as ordinary income
whether received in cash or reinvested in additional Portfolio shares.
Distributions derived from net realized long-term capital gains will be taxable
to investors as long-term capital gains, regardless of how long investors have
28
<PAGE>
held Portfolio shares or whether such distributions are received in cash or
reinvested in Portfolio shares. As a general rule, an investor's gain or loss on
a sale or redemption of Portfolio shares will be a long-term capital gain or
loss if the investor has held the shares for more than one year and will be a
short-term capital gain or loss if the investor has held the shares for one year
or less. However, any loss realized upon the sale or redemption of shares within
six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period with respect to such shares. Investors
may be proportionately liable for taxes on income and gains of the Portfolios,
but investors not subject to tax on their income will not be required to pay tax
on amounts distributed to them. A Portfolio's investment activities, including
short sales of securities, will not result in unrelated business taxable income
to a tax-exempt investor. A Portfolio's dividends may qualify for the dividends
received deduction for corporations to the extent they are derived from
dividends attributable to certain types of stock issued by U.S. domestic
corporations.
Dividends and interest received by each Portfolio may be subject to
withholding and other taxes imposed by foreign countries. However, tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If a Portfolio qualifies as a regulated investment
company, if certain distribution requirements are satisfied and if more than 50%
of the Portfolio's total assets at the close of its fiscal year consist of stock
or securities of foreign corporations, the Portfolio may elect for U.S. income
tax purposes to treat any foreign income taxes paid by it that can be treated as
income taxes under U.S. income tax principles as paid by its shareholders. A
Portfolio may qualify for and make this election in some, but not necessarily
all, of its taxable years. If a Portfolio were to make an election, shareholders
of the Portfolio would be required to take into account an amount equal to their
pro rata portions of such foreign taxes in computing their taxable income and
then treat an amount equal to those foreign taxes as a U.S. federal income tax
deduction or as a foreign tax credit against their U.S. federal income taxes.
Shortly after any year for which it makes such an election, a Portfolio will
report to its shareholders, in writing, the amount per share of such foreign
income tax that must be included in each shareholder's gross income and the
amount which will be available for the deduction or credit. No deduction for
foreign taxes may be claimed by a shareholder who does not itemize deductions.
Certain limitations will be imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.
JAPAN GROWTH PORTFOLIO. In the opinion of Japanese counsel for the Japan
Growth Portfolio, the operations of the Portfolio will not subject the Portfolio
to any Japanese income, capital gains or other taxes except for withholding
taxes on interest and dividends paid to the Portfolio by Japanese corporations
and securities transaction taxes payable in the event of sales of portfolio
29
<PAGE>
securities in Japan. In the opinion of such counsel, under the tax convention
between the United States and Japan (the 'Convention') as currently in force, a
Japanese withholding tax at a rate of 15% is, with certain exceptions, imposed
upon dividends paid by Japanese corporations to the Portfolio. Pursuant to the
present terms of the Convention, interest received by the Portfolio from sources
within Japan is subject to a Japanese withholding tax at a rate of 10%.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of each Portfolio's prior
taxable year with respect to certain dividends and distributions which were
received from the Portfolio during the Portfolio's prior taxable year. Investors
should consult their tax advisers with specific reference to their own tax
situations, including their state and local tax liabilities.
NET ASSET VALUE
________________________________________________________________________________
Each Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of each Portfolio generally changes each day.
The net asset value per share of each Portfolio is computed by dividing the
value of a Portfolio's net assets by the total number of its shares outstanding.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Debt obligations that mature in 60 days or
less from the valuation date are valued on the basis of amortized cost, unless
the Board determines that using this valuation method would not reflect the
investments' value. Investments in Private Funds will be valued initially at
cost and, thereafter, in accordance with periodic reports received by Abbott
from the Private Funds (generally quarterly). Because the issuers of securities
held by Private Funds are generally not subject to the reporting requirements of
the federal securities laws, interim changes in value of investments in Private
Funds will not generally be reflected in the Post-Venture Capital Portfolio's
net asset value. However, Warburg will report to the Board information about
certain holdings of Private Funds that, in its judgment, could have a material
impact on the valuation of a Private Fund. The Board will take these reports
into account in valuing Private Funds. Securities, options and futures contracts
for which market quotations are not readily available and other assets,
including Private Funds, will be valued at their fair value as determined in
good faith pursuant to consistently applied
30
<PAGE>
procedures established by the Board. Further information regarding valuation
policies is contained in the Statement of Additional Information.
THE PORTFOLIOS' PERFORMANCE
________________________________________________________________________________
From time to time, a Portfolio may advertise its average annual total return
over various periods of time. Total return figures show the average percentage
change in value of an investment in a Portfolio from the beginning of the
measurement period to the end of the measurement 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).
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that such return may not be representative of any
Portfolio's return over a longer market cycle. A Portfolio may also advertise
aggregate total return figures for various periods, representing the cumulative
change in value of an investment in the relevant Portfolio for the specific
period. 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 total 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 each Portfolio's
total return. Current total return figures may be obtained by calling the Fund
at (800) 369-2728.
A Portfolio may compare its performance with (i) that of other mutual funds
with similar investment objectives and policies, which may be based on the
rankings prepared by Lipper Analytical Services, Inc. or similar investment
services that monitor the performance of mutual funds; (ii) in the case of the
Japan Growth Portfolio, the Morgan Stanley Capital International Europe,
Australasia and Far East ('EAFE') Index, the Salomon Russell Global Equity
Index, the FT-Actuaries World Indices (jointly compiled by The Financial Times,
Ltd., Goldman, Sachs & Co. and NatWest Securities Ltd.), the S&P 500 Index, the
Nikkei over-the-counter average, the JASDAQ Index, the Nikkei 225 and 300 Stock
Indexes and the Topix Index, which are unmanaged indexes of common stocks; in
the case of the Post-Venture Capital Portfolio, with the Venture Capital 100
Index (compiled by Venture Capital Journal), the Russell 2000 Growth Index and
the S&P 500 Index, which are unmanaged indexes of common stocks; and, in the
case of the Small Company Value Portfolio, the Russell 2000 Small Stock Index,
the T. Rowe Price New
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Horizons Fund Index and the S&P 500 Index, which are unmanaged indexes; or (iii)
other appropriate indexes of investment securities or with data developed by
Warburg derived from such indexes. A Portfolio may also include evaluations of
the Portfolio published by nationally recognized ranking services and by
financial publications 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.
Morningstar, Inc. rates funds in broad categories based on risk/reward analyses
over various time periods. In addition, each Portfolio may from time to time
compare its expense ratio to that of investment companies with similar
objectives and policies, based on data generated by Lipper Analytical Services,
Inc. or similar investment services that monitor mutual funds.
In reports or other communications to investors or in advertising, each
Portfolio may discuss relevant economic and market conditions affecting the
Portfolio. In addition, the Portfolio and its portfolio managers may render
updates of Portfolio investment activity, which may include, among other things,
discussion or quantitative statistical or comparative analysis of portfolio
composition and significant portfolio holdings, including analyses of holdings
by sector, industry, country or geographic region, credit quality and other
characteristics. Each Portfolio may also describe the general biography, work
experience and/or investment philosophy or style of the portfolio managers of
the Portfolio and may include quotations attributable to the portfolio managers
describing the Portfolio's investment objective, approaches taken in managing
the Portfolio's investments or the research methodology underlying stock
selection. The Post-Venture Capital Portfolio may discuss characteristics of
venture capital financed companies and the benefits expected to be achieved from
investing in these companies. Each Portfolio may also discuss various measures
of risk, including those based on statistical or econometric analyses, the
continuum of risk and return relating to different investments and the potential
impact of foreign stocks on a portfolio otherwise composed of domestic
securities.
GENERAL INFORMATION
________________________________________________________________________________
ORGANIZATION. The Fund was incorporated on May 13, 1992 under the laws of the
State of Maryland under the name 'Warburg, Pincus Institutional Fund, Inc.' The
Fund's charter authorizes the Board to issue thirteen billion full and
fractional shares of capital stock, par value $.001 per share. Shares of nine
series have been classified, three of which constitute the interests in the
Portfolios.
VOTING RIGHTS. Investors in each Portfolio are entitled to one vote for each
full share owned and fractional votes for fractional shares held. Shareholders
of each Portfolio vote in the aggregate on all matters except where otherwise
required by law. There will normally be no meetings of shareholders for the
purpose of electing members of the Board unless and until such time as less than
a majority of the members holding office have been elected by
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shareholders. Any Director may be removed from office upon the vote of
shareholders holding at least a majority of the Fund's outstanding shares at a
meeting called for that purpose. A meeting will be called for any purpose at the
written request of holders of 10% of the Fund's outstanding shares.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of the investor's account, as well as a statement after any transaction that
affects the investor's share balance or share registration (other than
reinvestment of dividends or distributions). The Fund will also send to its
investors a semiannual report and an audited annual report, each of which
includes a list of the investment securities held by each Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by a Portfolio, as well as certain statistical
characteristics of a Portfolio, may be obtained by calling the Fund at (800)
369-2728.
---------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE FUND'S 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 FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF SHARES IN ANY STATE
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
33
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Portfolios' Expenses..................................................... 2
Investment Objectives and Policies........................................... 3
Portfolio Transactions and Turnover Rate..................................... 9
Special Risk Considerations and Certain Investment Strategies................ 10
Investment Guidelines........................................................ 20
Management of the Fund....................................................... 20
How to Open an Account in the Fund........................................... 23
How to Purchase Shares in the Portfolios..................................... 24
How to Redeem and Exchange Shares in the Portfolios.......................... 26
Dividends, Distributions and Taxes........................................... 28
Net Asset Value.............................................................. 30
The Portfolios' Performance.................................................. 31
General Information.......................................................... 32
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
WWW.WARBURG.COM
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPINT-1-1097
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as ........................`D'
<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.
Subject to completion, dated August 12, 1997
STATEMENT OF ADDITIONAL INFORMATION
October __, 1997
WARBURG PINCUS INSTITUTIONAL FUND, INC.
Japan Growth Portfolio
Post-Venture Capital Portfolio
Small Company Value 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 Fund........................................................40
Additional Purchase And Redemption Information................................47
Exchange Privilege............................................................47
Additional Information Concerning Taxes.......................................48
Determination Of Performance..................................................51
Independent Accountants And Counsel...........................................52
Financial Statements..........................................................52
Appendix -- Description of Ratings...........................................A-1
Statements of Assets and Liabilities.........................................A-4
Warburg Pincus Institutional Fund, Inc. (the "Fund") currently
offers nine managed investment funds, three of which, the Japan Growth,
Post-Venture Capital Portfolio and Small Company Value Portfolios (the
"Portfolios"), are described herein. This Statement of Additional Information is
meant to be read in conjunction with the Prospectus of the Portfolios dated
October _____, 1997, as amended or supplemented from time to time, and is
incorporated by reference in its entirety into that Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of the Portfolios
<PAGE>
should be made solely upon the information contained herein. Copies of the
Fund's Prospectus and information regarding each Portfolio's current performance
may be obtained by calling the Fund at (800) 369-2728. Information regarding the
status of shareholder accounts may also be obtained by calling the Fund at the
same number or by writing to the Fund, P.O. Box 9030, Boston, Massachusetts
02205-9030.
INVESTMENT OBJECTIVES
The investment objective of each of the Japan Growth and
Post-Venture Capital Portfolios is long-term growth of capital. The investment
objective of the Small Company Value Portfolio is long-term 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 each Portfolio may purchase such
options that are traded on foreign and U.S. exchanges, as well as
over-the-counter ("OTC").
A 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
2
<PAGE>
directly, however, because the premium received for writing the option should
mitigate the effects of the decline.
In the case of options written by a Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the time required to convert or exchange and
obtain physical delivery of the underlying common stock with respect to which
the Portfolio has written options may exceed the time within which 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 relevant 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.
3
<PAGE>
Prior to their expirations, put and call options may be sold
in closing sale or purchase transactions (sales or purchases by the Portfolio
prior to the exercise of options that it has purchased or written, respectively,
of options of the same series) in which the Portfolio may realize a profit or
loss from the sale. An option position may be closed out only where there exists
a secondary market for an option of the same series on a recognized securities
exchange or in the over-the-counter market. When the Portfolio has purchased an
option and engages in a closing sale transaction, whether the Portfolio realizes
a profit or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium the Portfolio initially paid
for the original option plus the related transaction costs. Similarly, in cases
where the Portfolio has written an option, it will realize a profit if the cost
of the closing purchase transaction is less than the premium received upon
writing the original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the original
option. The Portfolio may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security with respect to which it has written
an option from being called or put or, in the case of a call option, to unfreeze
an underlying security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's expiration). The
obligation of the Portfolio under an option it has written would be terminated
by a closing purchase transaction, but the Portfolio would not be deemed to own
an option as a result of the transaction. So long as the obligation of the
Portfolio as the writer of an option continues, the Portfolio may be assigned an
exercise notice by the broker-dealer through which the option was sold,
requiring the Portfolio to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Portfolio effects a closing purchase transaction. The Portfolio can no longer
effect a closing purchase transaction with respect to an option once it has been
assigned an exercise notice.
There is no assurance that sufficient trading interest will
exist to create a liquid secondary market on a securities exchange for any
particular option or at any particular time, and for some options no such
secondary market may exist. A liquid secondary market in an option may cease to
exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow or other unforeseen events have at
times rendered certain of the facilities of the Clearing Corporation and various
securities exchanges inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. Moreover,
a Portfolio's ability to terminate options positions established in the
over-the-counter market may be more limited than for exchange-traded options and
may also involve the risk that securities dealers participating in
over-the-counter transactions would fail to meet their obligations to the
Portfolio. The Portfolio, however, intends to purchase over-the-counter options
only from dealers whose debt securities, as determined by Warburg, are
considered to be investment grade. If, as a covered call option writer, the
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
4
<PAGE>
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
Fund or a Portfolio and other clients of Warburg and certain of its affiliates
may be considered to be such a group. A securities exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions. These limits may restrict the number of options
a Portfolio will be able to purchase on a particular security.
Stock Index Options. Each Portfolio may purchase and each
portfolio may write exchange-listed and OTC put and call options on stock
indexes. A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index,
fluctuating with changes in the market values of the stocks included in the
index. Some stock index options are based on a broad market index, such as the
NYSE Composite Index, or a narrower market index such as the Standard & Poor's
100. Indexes may also be based on a particular industry or market segment.
Options on stock indexes are similar to options on stock
except that (i) the expiration cycles of stock index options are monthly, while
those of stock options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive a cash "exercise settlement amount" equal to (a) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the stock
index upon which the option is based being greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the index and the
exercise price of the option times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Stock index options may be offset by entering into closing
transactions as described above for securities options.
OTC Options. The Portfolios may purchase OTC or dealer options
or sell covered OTC options. Unlike exchange-listed options where an
intermediary or clearing corporation, such as the Clearing Corporation, assures
that all transactions in such options are properly executed, the responsibility
for performing all transactions with respect to OTC options rests solely with
the writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If a Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were
5
<PAGE>
exercised. If the dealer fails to honor the exercise of the option by the
Portfolio, the Portfolio would lose the premium it paid for the option and the
expected benefit of the transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Portfolio will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Portfolio writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Portfolio originally wrote the option. Although the Portfolios will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Portfolios, there can be no assurance that the Portfolio will be able to
liquidate a dealer option at a favorable price at any time prior to expiration.
The inability to enter into a closing transaction may result in material losses
to a Portfolio. Until the Portfolio, as a covered OTC call option writer, is
able to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair the Portfolio's ability to
sell portfolio securities or, with respect to currency options, currencies at a
time when such sale might be advantageous. In the event of insolvency of the
other party, the Portfolio may be unable to liquidate a dealer option.
Futures Activities. Each Portfolio may enter into foreign
currency, interest rate and stock index futures contracts and purchase and write
(sell) related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return.
A Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolios reserve the right to engage in transactions
involving futures contracts and options on futures contracts to the extent
allowed by CFTC regulations in effect from time to time and in accordance with a
Portfolio's policies. Although each Portfolio is limited in the amount of assets
it may invest in futures transactions (as described above and in the
Prospectus), there is no overall limit on the percentage of Portfolio assets
that may be at risk with respect to futures activities.
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
6
<PAGE>
price, date, time and place. Stock indexes are capitalization weighted indexes
which reflect the market value of the stock listed on the indexes. A stock index
futures contract is an agreement to be settled by delivery of an amount of cash
equal to a specified multiplier times the difference between the value of the
index at the close of the last trading day on the contract and the price at
which the agreement is made.
No consideration is paid or received by a Portfolio upon
entering into a futures contract. Instead, the Portfolio is required to deposit
in a segregated account with its custodian an amount of cash or cash
equivalents, such as U.S. government securities or other liquid high-grade debt
obligations, equal to approximately 1% to 10% of the contract amount (this
amount is subject to change by the exchange on which the contract is traded, and
brokers may charge a higher amount). This amount is known as "initial margin"
and is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Portfolio upon termination of the futures contract,
assuming all contractual obligations have been satisfied. The broker will have
access to amounts in the margin account if the Portfolio fails to meet its
contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the currency, financial instrument or
stock index underlying the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "marking-to-market." The 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 stock index
futures contracts and may enter
7
<PAGE>
into closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be effected;
the ability to establish and close out positions on such options will be subject
to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Portfolio.
Currency Exchange Transactions. The value in U.S. dollars of
the assets of a Portfolio that are invested in foreign securities may be
affected favorably or unfavorably by changes in exchange control regulations,
and the Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any non-U.S. currency
into U.S. dollars or into other appropriate currencies. Each Portfolio will
conduct its currency exchange transactions (i) on a spot (i.e., cash) basis at
the rate prevailing in the currency exchange market, (ii) through entering into
futures contracts or options on such contracts (as described above), (iii)
through entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options.
Forward Currency Contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that 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
8
<PAGE>
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.
Currency Options. The Portfolios may purchase exchange-traded
put and call options on foreign currencies. Put options convey the right to sell
the underlying currency at a price which is anticipated to be higher than the
spot price of the currency at the time the option is exercised. Call options
convey the right to buy the underlying currency at a price which is expected to
be lower than the spot price of the currency at the time the option is
exercised.
Currency Hedging. The Portfolios' currency hedging will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward currency with
respect to specific receivables or payables of a Portfolio generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. A Portfolio may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
A decline in the U.S. dollar value of a foreign currency in
which the Portfolio's securities are denominated will reduce the U.S. dollar
value of the securities, even if their value in the foreign currency remains
constant. The use of currency hedges does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. For example, in order to protect against
diminutions in the U.S. dollar value of securities it holds, a Portfolio may
purchase currency put options. If the value of the currency does decline, the
Portfolio will have the right to sell the currency for a fixed amount in dollars
and will thereby offset, in whole or in part, the adverse effect on the U.S.
dollar value of its securities that otherwise would have resulted. Conversely,
if a rise in the U.S. dollar value of a currency in which securities to be
acquired are denominated is projected, thereby potentially increasing the cost
of the securities, the Portfolio may purchase call options on the particular
currency. The purchase of these options could offset, at least partially, the
effects of the adverse movements in exchange rates. The benefit to the Portfolio
derived from purchases of currency options, like the benefit derived from other
types of options, will be reduced by premiums and other transaction costs.
Because transactions in currency exchange are generally conducted on a principal
basis, no fees or commissions are generally involved. Currency hedging involves
some of the same risks and considerations as other transactions with similar
instruments. 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
9
<PAGE>
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 and futures
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 and futures transactions for hedging purposes could limit any
potential gain from an increase in the value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. With respect to futures contracts, since the
value of portfolio securities will far exceed the value of the futures contracts
sold by the Portfolio, an increase in the value of the futures contracts could
only mitigate, but not totally offset, the decline in the value of the
Portfolio's assets.
In hedging transactions based on an index, whether a Portfolio
will realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Portfolio's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, the
Portfolio's hedge positions may be in a greater or lesser dollar amount than the
dollar amount of the hedged position. Such "over hedging" or "under hedging" may
adversely affect the Portfolio's net investment results if market movements are
not as anticipated when the hedge is established. Stock index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the stock index and futures
markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Because of the
possibility of price distortions in the futures market and the imperfect
correlation between movements in the stock index and movements in the price of
stock index futures, a correct forecast of general market trends by Warburg
still may not result in a successful hedging transaction.
A Portfolio will engage in hedging transactions only when
deemed advisable by Warburg, and successful use by the Portfolio of hedging
transactions will be subject to Warburg's ability to predict trends in currency,
interest rate or securities markets, as the case may be, and to correctly
predict movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual
10
<PAGE>
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 currencies, securities and indexes; and currency, interest
rate and index futures contracts and options on these futures contracts. These
guidelines may, in certain instances, require segregation by the Portfolio of
cash or liquid securities.
For example, a call option written by the Portfolio on
securities may require the Portfolio to hold the securities subject to the call
(or securities convertible into the securities without additional consideration)
or to segregate assets (as described above) sufficient to purchase and deliver
the securities if the call is exercised. A call option written by the Portfolio
on an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Portfolio could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Portfolio. If the Portfolio holds a futures or
forward contract, the Portfolio could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. The Portfolio may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
Additional Information on Other Investment Practices
Foreign Investments. Investors should recognize that investing
in foreign companies involves certain risks, including those discussed below,
which are not typically associated with investing in U.S.
issuers.
Foreign Currency Exchange. Since the Japan Growth Portfolio
will, and the Post-Venture Capital and Small Company Value Portfolios may, be
investing in securities denominated in currencies other than the U.S. dollar,
and since a Portfolio may temporarily hold funds in bank deposits or other money
market investments denominated in foreign currencies, each Portfolio may be
affected favorably or unfavorably by exchange control regulations or changes in
the exchange rate between such currencies and the dollar. A change in the value
of a foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of a Portfolio's assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains,
11
<PAGE>
if any, to be distributed to shareholders by a Portfolio with respect to its
foreign investments. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Of particular
importance are rates of inflation, interest rate levels, the balance of payments
and the extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of the United States and
foreign countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. See "Japanese Investments--
Economic Trends -- Currency Fluctuation" below. 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 Activities" above.
Information. The majority of the foreign securities held by a
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally not subject to uniform financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.
Political Instability. With respect to some foreign countries,
there is the possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets of the Portfolio, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
Delays. Securities of some foreign companies are less liquid
and their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. Due to the increased
exposure of a Portfolio to market and foreign exchange fluctuations brought
about by such delays, and due to the corresponding negative impact on a
Portfolio's liquidity, the Portfolios will avoid investing in countries which
are known to experience settlement delays which may expose the Portfolios to
unreasonable risk of loss.
Increased Expenses. The operating expenses of the Japan Growth
Portfolio and, to the extent they invest in foreign securities, the Post-Venture
Capital and Small Company Value Portfolios, can be expected to be higher than
that of an investment company investing exclusively in U.S. securities, since
the expenses of the Portfolios associated with
12
<PAGE>
foreign investing, such as custodial costs, valuation costs and communication
costs, as well as, in the case of the Japan Growth Portfolio, the rate of the
investment advisory fees, though similar to such expenses of some other funds
investing internationally, are higher than those costs incurred by other
investment companies.
General. In general, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. A Portfolio may invest in
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such investments
as well.
JAPAN AND ITS SECURITIES MARKETS
The Japan Growth Portfolio will be subject to general economic
and political conditions in Japan. In addition to the considerations discussed
above, these include future political and economic developments, the possible
imposition of, or changes in, exchange controls or other Japanese governmental
laws or restrictions applicable to such investments, diplomatic developments,
political or social unrest and natural disasters.
The information set forth in this section has been extracted
from various governmental publications and other sources. The Portfolio makes no
representation as to the accuracy of the information, nor has the Portfolio
attempted to verify it. Furthermore, no representation is made that any
correlation exists between Japan or its economy in general and the performance
of the Portfolio.
Domestic Politics
Japan has a parliamentary form of government. The legislative
power is vested in the Japanese Diet, which consists of a House of
Representatives and a House of Councillors. Members of the House of
Representatives are elected for terms of four years unless the House of
Representatives is dissolved prior to the expiration of their full elected
terms. Members of the House of Councillors are elected for terms of six years
with one-half of the membership being elected every three years. Various
political parties are represented in the Diet, including the conservative
Liberal Democratic Party ("LDP"), which until August 1993, had been in power
nationally since its formation in 1955. The LDP ceased to have a majority of the
House of Representatives in June 1993, when certain members of the House of
Representatives left the LDP and formed two new political parties. After an
election for the House of Representatives was held on July 18, 1993 and the LDP
failed to secure a majority, seven parties formed a coalition to control the
House of Representatives and chose Morihiro Hosokawa, the Representative of the
Japan New Party, to head their coalition. In April 1994, amid accusations of
financial improprieties, Prime Minister Hosokawa announced that he would resign.
Tsutomu Hata succeeded Mr. Hosokawa as prime minister and formed a new cabinet
as a minority coalition government. In June 1994, Mr. Hata yielded to political
13
<PAGE>
pressure from opposition parties and resigned. He was succeeded by Social
Democratic Party leader Tomiichi Murayama, Japan's first Socialist prime
minister since 1948, who was chosen by a new and unstable alliance between
left-wing and conservative parties, including the LDP. On September 18, 1994,
187 opposition politicians founded a new party, the Reform Party, led by Ichiro
Ozawa, to oppose the government of Prime Minister Murayama in the next
elections. Political realignment has continued in 1995, as the Social Democrats
incurred significant losses in the July elections. In August 1995, the LDP
elected Ryutaro Hashimoto, the minister for international trade and industry, as
its new leader, and in January 1996, he became prime minister. Mr. Hashimoto
dissolved the Diet, and called a general election in October 1996, in which the
LDP failed to secure a majority. The LDP formed a new coalition with the Social
Democratic Party, but it will need to attract members from the main opposition
party to attain a working majority. The recently formed Democratic Party, which
calls for serious public sector reforms, is likely to have a strong influence on
the future course of political party developments. This continuing political
instability may hamper Japan's ability to establish and maintain effective
economic and fiscal policies, and recent and future political developments may
lead to changes in policy that might adversely affect the Portfolio's
investments.
Economic Background
Over the past 30 years, Japan has experienced significant
economic development. During the era of high economic growth in the 1960's and
early 1970's the expansion was based on the development of heavy industries such
as steel and shipbuilding. In the 1970's Japan moved into assembly industries
which employ high levels of technology and consume relatively low quantities of
resources, and since then has become a major producer of electrical and
electronic products and automobiles. Moreover, since the mid-1980's, Japan has
become a major creditor nation. With the exception of the periods associated
with the oil crises of the 1970's, Japan has generally experienced very low
levels of inflation.
The accumulation of trade and current account surpluses in the
1980s led to increased investment in financial assets and Japanese real estate,
resulting in a rapid escalation of prices and the infamous "bubble economy" of
the late 1980s. In the early 1990s, however, declining stock and land prices hit
Japanese banks especially hard. Falling land prices caused a rapid accumulation
of bad loans and because Japanese banks count a portion of their equity holdings
of other Japanese companies as part of their capital base, falling stock prices
adversely affected the financial health of these banks. Bank failures in 1995
and losses from unauthorized bond trading by Daiwa Bank, one of Japan's oldest
and most venerable banks, revealed serious flaws in the Japanese financial
system and a government regulatory system that had protected the system from the
consequences of its actions. These serious difficulties continued through the
end of 1996. Extricating financial institutions from bad loans could impede the
pace of any recovery. There can be no assurance that any recovery will continue
and will not, in fact, be reversed.
Japan is largely dependent upon foreign economies for raw
materials. For instance, almost all of its oil is imported, the majority from
the Middle East. Oil prices
14
<PAGE>
therefore have a major impact on the domestic economy, as is evidenced by the
current account deficits triggered by the two oil crises of the 1970's. Oil
prices have declined mainly due to a worldwide easing of demand for crude oil.
The stabilized price of oil contributed to Japan's sizable current account
surplus and stability of wholesale and consumer prices. However, the recent
increase in oil prices has put pressure on both the trade balance and prices.
International trade is important to Japan's economy, as
exports provide the means to pay for many of the raw materials it must import.
Japan's trade surplus has increased dramatically in recent years, exceeding $100
billion per year since 1991 and reaching a record high of $145 billion in 1994.
Because of the concentration of Japanese exports in highly visible products such
as automobiles, machine tools and semiconductors, and the large trade surpluses
resulting therefrom, Japan has entered a difficult phase in its relations with
its trading partners, particularly with respect to the United States, with whom
the trade imbalance is the greatest. In 1995, however, the trade surplus has
decreased due to a drop in exports. The reduced exports are due primarily to the
strength of the yen and the shift in production by major manufacturers to
foreign countries, particularly to other parts of Asia. In 1996, the overall
trade surplus declined by 32% from the previous year, although the monthly pace
of decline slowed in late 1996. The declining trade surplus has been accompanied
by changes in the composition of trade and trade partners. The proportion of
finished products has increased, while that of raw materials has decreased, and
trade with other Asian countries rose to comprise 44% and 37% of Japan's exports
and imports, respectively. The U.S. still constitutes Japan's largest trading
partner, accounting for 27% of Japan's exports and 23% of its imports. The trade
imbalance with the U.S. has caused friction in the past, and could adversely
affect Japan and the performance of the Portfolio.
15
<PAGE>
The following table sets forth the composition of Japan's
trade balance, as well as other components of its current account, for the years
shown.
CURRENT ACCOUNT
<TABLE>
<CAPTION>
Trade
----------------------------------------------------------------------
Percentage Percentage
Change from Change from Trade Current
Year Exports Preceding Year Imports Preceding Year Balance Services Transfers Balance
---- ------- -------------- ------- -------------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(U.S. dollars in millions)
1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) 92,827 (4,932) (2,050) 85,845
1987 224,605 9.2 128,219 13.7 96,386 (5,702) (3,669) 87,015
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 63,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (3,949) (6,117) 131,448
1994 384,176 9.4 238,232 13.6 145,944 (9,296) (7,508) 129,140
1995 429,482 11.8 297,795 25.0 131,689 (13,154) (7,737) 110,798
1996 435,715 1.5 344,563 15.7 91,152 (67,760) (9,755) 71,806
Source: Bank of Japan
</TABLE>
16
<PAGE>
Economic Trends. The following table sets forth Japan's gross domestic product
for the years shown.
GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>
1996* 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ----
(yen in billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumption
Expenditures
Private.........(Y)298,786 (Y)289,045 (Y)277,676.8 (Y)270,919.4 (Y)264,824.1 (Y)255,084.2 (Y)243,628.1 (Y)228,483.2
Government..........49,106 46,824 46,108.0 44,666.4 43,257.9 41,232.0 38,806.6 36,274.8
Capital
Formation
(incl.
inventories)
Private.............. N/A 70,758 93,111.4 99,180.1 108,727.6 116,638.0 110,871.9 100,130.8
Government........... N/A 41,461 42,227.3 40,295.8 35,110.1 30,062.3 28,182.6 25,724.5
Exports of
Goods and
Services..............48,773 45,408 44,449.2 44,243.8 47,409.4 46,809.7 45,919.9 42,351.8
Imports of
Goods and
Services..............46,127 38,227 34,424.0 33,333.1 36,183.8 38,529.3 42,871.8 36,768.1
GDP
(Expenditures).......499,667 480,693 469,148.7 465,972.4 463,145.3 451,296.9 24,537.2 396,197.0
Change in GDP
from Preceding Year
Nominal terms........ 3.9% 0.3% 0.7% 0.6% 2.6% 6.3% 7.2% 6.7%
Real Terms........... N/A 0.9% 0.5% -0.2% 1.1% 4.3% 4.8% 4.7%
</TABLE>
Source: Economic Planning Agency, Japan
------------------
* Average of the first, second and third quarters of 1996.
The following tables set forth certain economic indicators in
Japan for the years shown.
UNEMPLOYMENT
<TABLE>
<CAPTION>
Labor Productivity
Year Number Unemployed Percent Unemployed Index (Manufacturing)
- ---- ----------------- ------------------ ---------------------
(in millions) (Base Year: 1990)
<S> <C> <C> <C>
1985..................... 1.56 2.6 75.6
1986..................... 1.67 2.8 77.0
1987..................... 1.73 2.8 81.4
1988..................... 1.55 2.5 90.8
1989..................... 1.42 2.3 96.2
1990..................... 1.34 2.1 100.0
1991..................... 1.36 2.1 102.5
1992..................... 1.42 2.2 97.0
1993..................... 1.66 2.5 95.4
1994..................... 1.92 2.9 98.3
1995..................... 2.10 3.2 103.0
1996..................... 2.25 3.4 107.4*
</TABLE>
Source: Japan Productivity Center; Bureau of Statistics Management and
Coordination Agency
- ------------------
* Average of the first, second and third quarters of 1996.
17
<PAGE>
WHOLESALE PRICE INDEX
(Base Year: 1990)
All Change from
Year Commodities Preceding Year
- ---- ----------- --------------
1985 110.4 (1.1)%
1986 100.3 (9.1)
1987 96.5 (3.8)
1988 95.6 (0.9)
1989 98.0 2.5
1990 100.0 2.0
1991 99.4 (0.6)
1992 97.8 (1.6)
1993 95.0 (2.9)
1994 93.0 (2.1)
1995 92.2 (0.9)
1996 92.8 0.7
Source: Bank of Japan
CONSUMER PRICE INDEX
Change from
Year General Preceding Year
- ---- ------- --------------
(Base Year: 1990)
1985 93.5 2.0%
1986 94.1 0.6
1987 94.2 0.1
1988 94.9 0.7
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
(Base Year: 1995)
1992 98.2 1.8
1993 99.4 1.2
1994 100.1 0.7
1995 100.0 (0.1)
1996 100.1 0.1
Source: Bureau of Statistics Management and Coordination Agency
18
<PAGE>
Currency Fluctuation. Investments by the Japan Growth
Portfolio in Japanese securities will be denominated in yen and most income
received by the Portfolio from such investments will be in yen. However, the
Portfolio's net asset value will be reported, and distributions will be made, in
U.S. dollars. Therefore, a decline in the value of the yen relative to the U.S.
dollar could have an adverse effect on the value of the Portfolio's Japanese
investments. The following table presents the average exchange rates of Japanese
yen for U.S. dollars for the years shown:
CURRENCY EXCHANGE RATES
Year Yen Per U.S. Dollar
---- -------------------
1985 (Y)238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.62
1993 111.18
1994 102.22
1995 94.07
1996 108.78
Source: Nikkei (Calendar Year, Closing Average, Inter-Bank Rates in Tokyo, Spot)
On July 25, 1997, the rate of exchange was 116.93 Japanese yen
per U.S. dollar.
Geological Factors. The islands of Japan lie in the western
Pacific Ocean, off the eastern coast of the continent of Asia. Japan has in the
past experienced earthquakes and tidal waves of varying degrees of severity. The
risks of such phenomena, and the damage resulting therefrom, continue to exist.
On January 17, 1995, the Great Hanshin Earthquake killed over 5,000 people and
severely damaged the port of Kobe, Japan's largest container port. The
government has announced a $5.9 billion plan to repair the port and estimates
damage to the region at approximately $120 billion. However, the long-term
economic effects of the earthquake on the Japanese economy as a whole, and on
the Portfolio's investments, cannot be predicted.
Securities Markets
There are eight stock exchanges in Japan. Of these, the Tokyo
Stock Exchange is by far the largest, followed by the Osaka Stock Exchange and
the Nagoya Stock Exchange. These exchanges divide the market for domestic stocks
into two sections, with newly listed
19
<PAGE>
companies and smaller companies assigned to the Second Section and larger
companies assigned to the First Section.
As of the end of 1996, there were 1,293 domestic companies
listed on the Tokyo Stock Exchange, first section, and 473 listed on the second
section.
The following table sets forth the trading volume and value of
Japanese stocks on each of the eight Japanese stock exchanges for the years
shown.
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>
All Exchanges Tokyo Osaka Nagoya
------------------- ------------------- ------------------ ------------------
Year Volume Value Volume Value Volume Value Volume Value
---- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1989........ 256,296 (Y)386,395 222,599 (Y)332,617 25,096 (Y)41,679 7,263 (Y)10,395
1990........ 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991........ 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992........ 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993........ 101,172 106,123 86,935 86,889 10,440 14,635 2,780 3,459
1994........ 105,936 114,622 84,514 87,356 14,904 19,349 4,720 5,780
1995........ 120,149 115,840 92,034 83,564 21,094 24,719 5,060 5,462
1996........ 126,496 136,170 100,170 101,893 20,783 27,280 4,104 5,391
</TABLE>
<TABLE>
<CAPTION>
Kyoto Hiroshima Fukuoka Niigata Sapporo
---------------- ---------------- ---------------- ---------------- ----------------
Volume Value Volume Value Volume Value Volume Value Volume Value
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989..... 331 (Y)443 190 (Y)235 268 (Y)330 398 (Y)475 151 (Y)221
1990..... 416 770 169 261 203 405 245 334 195 286
1991..... 220 300 125 149 122 174 181 208 113 123
1992..... 225 322 110 136 139 129 163 178 149 129
1993..... 223 340 185 178 229 225 207 226 174 170
1994..... 447 562 256 312 578 669 250 299 267 296
1995..... 641 873 286 306 404 396 295 212 336 308
1996..... 358 600 257 250 300 297 231 196 290 263
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
20
<PAGE>
The following table sets forth the stock trading value of
Japanese stocks on the Tokyo Stock Exchange for the years shown.
TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
<TABLE>
<CAPTION>
Year Total Daily Average High Low Turnover Ratio
---- ----- ------------- ---- --- --------------
(yen in millions)
<S> <C> <C> <C> <C> <C>
1985....................... (Y) 78,711,048 (Y) 276,179 (Y) 727,316 (Y) 110,512 44.7%
1986....................... 159,836,218 572,890 1,682,060 115,244 67.2
1987....................... 250,736,971 915,098 2,382,114 221,230 80.6
1988....................... 285,521,260 1,045,865 2,768,810 192,704 70.2
1989....................... 332,616,597 1,335,810 2,796,946 392,347 61.1
1990....................... 186,666,820 758,808 1,464,920 218,205 37.7
1991....................... 110,897,491 450,803 1,531,064 151,565 29.3
1992....................... 60,110,391 243,362 686,737 97,616 18.0
1993....................... 86,889,072 353,208 1,422,760 61,747 28.3
1994....................... 87,355,567 353,666 1,114,216 123,904 25.6
1995....................... 83,563,906 335,598 1,337,999 81,884 23.1
1996....................... 101,892,634 412,521 1,362,586 154,643 28.9
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
OTC Market. Trading of securities on the Japanese OTC market
("OTC Market" or "JASDAQ") is regulated primarily by the Japan Securities
Dealers Association (the "JSDA"). The JSDA reports the daily high and low
selling prices, the last selling price on each day, trading volumes, market
capitalization and the number of corporate issues registered with the JSDA as
traded over-the-counter by the member firms of the JSDA.
The following table sets forth the number of issues traded in,
the market capitalization of, and the trading value of stocks in, the Japanese
OTC market for the years shown.
JAPANESE OTC MARKET
NUMBER OF ISSUES, MARKET CAPITALIZATION
AND TRADING VALUE
<TABLE>
<CAPTION>
Stock Trading Value
-------------------------------------------
(yen in thousands)
Year No. of Issues Market Capitalization Total Daily Average
- ---- ------------- --------------------- ----- -------------
(yen in millions)
<S> <C> <C> <C> <C>
1985 150 (Y)1,572,308 (Y)195,711,396 (Y)686,706
1986 161 2,138,063 450,081,898 1,642,634
1987 172 2,489,409 400,065,211 1,460,092
1988 216 4,270,830 721,639,214 2,643,367
1989 279 12,508,712 2,085,482,912 8,375,433
1990 357 11,972,160 6,111,700,820 24,844,312
1991 446 13,001,864 5,043,126,216 20,500,513
1992 451 8,008,572 1,091,101,849 4,417,416
1993 491 11,318,446 2,880,539,952 11,709,512
1994 581 14,628,729 5,384,108,058 21,798,008
1995 698 14,604,314 5,889,972,000 23,654,000
1996 779 16,493,446 5,359,604,000* 25,926,000*
</TABLE>
Source: JSDA, 1993 Annual Statistics for the OTC Market; Japan Securities
Research Institute
------------------
* For the period ended October 31, 1996
21
<PAGE>
Securities Indexes. The Tokyo Stock Price Index ("TOPIX") is a
composite index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. TOPIX reflects the change in the aggregate market value of the
common stocks as compared to the aggregate market value of those stocks as of
the close on January 4, 1968.
The following table sets forth the high, low and year-end
TOPIX for the years shown.
TOPIX (Tokyo Stock Price Index)
(Jan. 4, 1968=100)
Year Year-end High Low
---- -------- ---- ---
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
1994 1,559.09 1,712.73 1,445.97
1995 1,577.70 1,585.87 1,193.16
1996 1,470.94 1,551.76 1,448.45
Source: Tokyo Stock Exchange, Fact Book 1996; Tokyo Stock Exchange New York
The Nikkei OTC Average is a price weighted index of the
quotations of the OTC registered stock traded by members of the JSDA. The
following table sets forth the year-end Nikkei OTC Average for the years shown.
NIKKEI OTC AVERAGE
Nikkei OTC
Year Average
---- ----------
1985 814.2
1986 1,056.4
1987 1,107.0
1988 1,313.1
1989 2,597.5
1990 2,175.5
1991 1,946.1
1992 1,227.9
1993 1,447.6
1994 1,776.1
1995 1,448.4
1996 1,330.6
Sources: The Nihon Keizai Shimbun, Inc.; Bloomberg Financial Markets;
Japan Securities Dealers Association
22
<PAGE>
As these indexes reflect, share prices of companies traded on
Japanese stock exchanges and on the Japanese OTC market reached historical peaks
(which were later referred to as the "bubble") in 1989 and 1990. Afterwards
stock prices in both markets decreased significantly, reaching their lowest
levels in the second half of 1992. There can be no assurance that additional
market corrections will not occur.
U.S. Government Securities. Each Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. Government Securities").
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
Government Securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration, Export-Import
Bank of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board and Student Loan Marketing
Association. Each Portfolio may also invest in instruments that are supported by
the right of the issuer to borrow from the U.S. Treasury and instruments that
are supported by the credit of the instrumentality. Because the U.S. government
is not obligated by law to provide support to an instrumentality it sponsors, a
Portfolio will invest in obligations issued by such an instrumentality only if
Warburg determines that the credit risk with respect to the instrumentality does
not make its securities unsuitable for investment by the Portfolio.
Below Investment Grade Securities. As described in the
Prospectus, each Portfolio, from time to time, may invest in or hold securities
rated below investment grade or which, if unrated, are deemed by Warburg to be
of comparable 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 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.
23
<PAGE>
A Portfolio may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the 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 a Portfolio's ability
to dispose of particular issues when necessary to meet the Portfolio's liquidity
needs or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for a Portfolio to obtain
accurate market quotations for purposes of valuing the Portfolio and calculating
its net asset value.
The market value of securities in medium- and lower-rated
categories is more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact
the Portfolio's net asset value. The Fund 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. A 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 securities may have depressed the
prices for such securities to some extent. Whether investor perceptions will
continue to have a negative effect on the price of such securities is uncertain.
Securities of Other Investment Companies. Each Portfolio may
invest in securities of other investment companies to the extent permitted under
the Investment Company Act of 1940, as amended (the "1940 Act"). Presently,
under the 1940 Act, a Portfolio may hold securities of another investment
company in amounts which (i) do not exceed 3% of the total outstanding voting
stock of such company, (ii) do not exceed 5% of the value of the Portfolio's
total assets and (iii) when added to all other investment company securities
held by the Portfolio, do not exceed 10% of the value of the Portfolio's total
assets.
Lending of Portfolio Securities. A Portfolio may lend
portfolio securities to brokers, dealers and other financial organizations that
meet capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board"). These loans, if and when made, may not
exceed 20% of a Portfolio's net assets taken at value. A Portfolio will not lend
portfolio securities to affiliates of Warburg unless it has applied for and
received specific authority to do so from the SEC. Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S. Government Securities,
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Portfolio involved. From time to
24
<PAGE>
time, a Portfolio may return a part of the interest earned from the investment
of collateral received for securities loaned to the borrower and/or a third
party that is unaffiliated with the Portfolio and that is acting as a "finder."
By lending its securities, the Portfolio can increase its
income by continuing to receive interest and any dividends on the loaned
securities as well as by either investing the collateral received for securities
loaned in short-term instruments or obtaining yield in the form of interest paid
by the borrower when U.S. Government Securities are used as collateral. Income
received could be used to pay a Portfolio's expenses and would increase its
total return. Each Portfolio will adhere to the following conditions whenever
its portfolio securities are loaned: (i) the Portfolio must receive at least
100% cash collateral or equivalent securities of the type discussed in the
preceding paragraph from the borrower; (ii) the borrower must increase such
collateral whenever the market value of the securities rises above the level of
such collateral; (iii) the Portfolio must be able to terminate the loan at any
time; (iv) the Portfolio must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions on the loaned securities and
any increase in market value; (v) the Portfolio may pay only reasonable
custodian fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Portfolio's ability to recover the loaned
securities or dispose of the collateral for the loan.
When-Issued Securities and Delayed-Delivery Transactions. Each
Portfolio may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days. A
Portfolio will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage, but may sell the
securities before the settlement date if Warburg deems it advantageous to do so.
The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the yields obtained on such securities
may be higher or lower than the yields available in the market on the dates when
the investments are actually delivered to the buyers.
When a Portfolio agrees to purchase when-issued or
delayed-delivery securities, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a segregated account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Portfolio may be required
subsequently to place additional assets in the segregated account in order to
ensure that the value of the account remains equal to the amount of the
Portfolio's commitment. It may be expected that the Portfolio's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. When the Portfolio
engages in when-issued or delayed-delivery transactions, it relies on the other
party to consummate the
25
<PAGE>
trade. Failure of the seller to do so may result in the Portfolio's incurring a
loss or missing an opportunity to obtain a price considered to be advantageous.
Short Sales. The Post-Venture Capital Portfolio may engage in
"short sales" that do not meet the definition of short sales "against the box."
In a short sale, the investor 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 the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the
Portfolio's custodian or qualified sub-custodian. While the short sale is open,
the Portfolio will maintain in a segregated account an amount of securities
equal in kind and amount to the securities sold short or securities convertible
into or exchangeable for such equivalent securities.
Short Sales Against the Box. Each Portfolio may enter into
short sales "against the box." 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. No Portfolio, other than the
Small Company Value Portfolio, intends 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). 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.
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") and International Depositary
Receipts ("IDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are receipts issued outside the United States.
EDRs, CDRs, IDRs and GDRs are typically issued by non-U.S. banks and trust
companies and evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in U.S. securities
markets and EDRs (CDRs) and IDRs (GDRs) in bearer form are designed for use in
European securities markets and non-U.S. securities markets, respectively.
Convertible Securities. Convertible securities in which a
Portfolio may invest, including both convertible debt and convertible preferred
stock, may be converted at either a
26
<PAGE>
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.
Like bonds, the value of convertible securities fluctuates in relation to
changes in interest rates and, in addition, also fluctuates in relation to the
underlying common stock.
Warrants. Each 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 authorized at the time the warrant is issued or is issued together
with the warrant.
Investing in warrants can provide a greater potential for
profit or loss than an equivalent investment in the underlying security, and,
thus, can be a speculative investment. The value of a warrant may decline
because of a decline in the value of the underlying security, the passage of
time, changes in interest rates or in the dividend or other policies of the
company whose equity underlies the warrant or a change in the perception as to
the future price of the underlying security, or any combination thereof.
Warrants generally pay no dividends and confer no voting or other rights other
than to purchase the underlying security.
Non-Publicly Traded and Illiquid Securities. Each of the Japan
Growth and Small Company Value Portfolios may not invest more than 10% of its
net assets in illiquid securities, including securities that are illiquid by
virtue of the absence of a readily available market, repurchase agreements which
have a maturity of longer than seven days, certain Rule 144A Securities (as
defined below), time deposits maturing in more than seven days and, with respect
to the Post-Venture Capital Portfolio, Private Funds (as defined in the
Prospectus). The Post-Venture Capital Portfolios may invest up to 15% of its net
assets in such securities. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days without borrowing. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
27
<PAGE>
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A Securities. Rule 144A under the Securities Act
adopted by the SEC allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. Warburg anticipates that the market for certain restricted securities
such as institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered
illiquid and therefore subject to a Portfolio's limit on the purchase of
illiquid securities unless the Board or its delegates determines that the Rule
144A Securities are liquid. Warburg will monitor the liquidity of restricted
securities in a Portfolio under the supervision of the Board. In reaching
liquidity decisions, Warburg may consider, inter alia, the following factors:
(i) the unregistered nature of the security; (ii) the frequency of trades and
quotes for the security; (iii) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (iv) dealer
undertakings to make a market in the security and (v) the nature of the security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
Private Funds (Post-Venture Capital Portfolio). Although
investments in Private Funds offer the opportunity for significant capital
gains, these investments involve a high degree of business and financial risk
that can result in substantial losses in the portion of the Post-Venture Capital
Portfolio's assets invested in these investments. Among these are the risks
associated with investment in companies in an early stage of development or with
little or no operating history, companies operating at a loss or with
substantial variation in operation results from period to period, companies with
the need for substantial additional capital to support expansion or to maintain
a competitive position, or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources or more extensive development, manufacturing,
distribution or other attributes, over which the Portfolio will have no control.
Interests in the Private Funds in which the Post-Venture
Capital Portfolio may invest will be subject to substantial restrictions on
transfer and, in some instances, may be non-transferable for a period of years.
Private Funds may participate in only a limited number of investments and, as a
consequence, the return of a particular Private Fund may be
28
<PAGE>
substantially adversely affected by the unfavorable performance of even a single
investment. Certain of the Private Funds in which the Portfolio may invest may
pay their investment managers a fee based on the performance of the Portfolio,
which may create an incentive for the manager to make investments that are
riskier or more speculative than would be the case if the manager was paid a
fixed fee. Private Funds are not registered under the 1940 Act and,
consequently, are not subject to the restrictions on affiliated transactions and
other protections applicable to regulated investment companies. The valuation of
companies held by Private Funds, the securities of which are generally unlisted
and illiquid, may be very difficult and will often depend on the subjective
valuation of the managers of the Private Funds, which may prove to be
inaccurate. Inaccurate valuations of a Private Fund's portfolio holdings may
affect the Portfolio's net asset value calculations. Private Funds in which the
Portfolio invests will not borrow to increase the amount of assets available for
investment or otherwise engage in leverage.
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.
Reverse Repurchase Agreements and Dollar Rolls. Each of the
Portfolios may enter into reverse repurchase agreements with the same parties
with whom it may enter into repurchase agreements. Reverse repurchase agreements
involve the sale of securities held by the Portfolio pursuant to its agreement
to repurchase them at a mutually agreed upon date, price and rate of interest.
At the time the Portfolio enters into a reverse repurchase agreement, it will
establish and maintain a segregated account with an approved custodian
containing cash or certain liquid securities having a value not less than the
repurchase price (including accrued interest). The assets contained in the
segregated account will be marked-to-market daily and additional assets will be
placed in such account on any day in which the assets fall below the repurchase
price (plus accrued interest). The Portfolio's liquidity and ability to manage
its assets might be affected when it sets aside cash or portfolio securities to
cover such commitments. Reverse repurchase agreements involve the risk that the
market value of the securities retained in lieu of sale may decline below the
price of the securities the Portfolio has sold but is obligated to repurchase.
In the event the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities, and the Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
decision.
The Portfolios also may enter into "dollar rolls," in which
the Portfolio sells fixed-income securities for delivery in the current month
and simultaneously contracts to
29
<PAGE>
repurchase similar but not identical (same type, coupon and maturity) securities
on a specified future date. During the roll period, the Portfolio would forego
principal and interest paid on such securities. The Portfolio would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. At the time the Portfolio enters into a dollar
roll transaction, it will place in a segregated account maintained with an
approved custodian cash or other liquid obligations having a value not less than
the repurchase price (including accrued interest) and will subsequently monitor
the account to ensure that its value is maintained. Reverse repurchase
agreements and dollar rolls that are accounted for as financings are considered
to be borrowings under the 1940 Act.
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 debt securities in which the Portfolio may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign debt 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 debt securities also include debt securities of
"quasi-government agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
Mortgage-Backed Securities. Each Portfolio may invest in
mortgage-backed securities issued by U.S. government entities, such the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). In
addition, the Japan Growth Portfolio may
30
<PAGE>
invest in mortgage-backed securities sponsored by U.S. and foreign issuers as
well as non-governmental issuers. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property. The mortgages backing these securities include, among
other mortgage instruments, conventional 30-year fixed-rate mortgages, 15-year
fixed rate mortgages, graduated payment mortgages and adjustable rate mortgages.
The government or the issuing agency typically guarantees the payment of
interest and principal of these securities. However, the guarantees do not
extend to the securities' yield or value, which are likely to vary inversely
with fluctuations in interest rates, nor do the guarantees extend to the yield
or value of the Portfolio's shares. These securities generally are
"pass-through" instruments, through which the holders receive a share of all
interest and principal payments from the mortgages underlying the securities,
net of certain fees.
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. The average life of
pass-through pools varies with the maturities of the underlying mortgage loans.
A pool's term may be shortened by unscheduled or early payments of principal on
the underlying mortgages. The occurrence of mortgage prepayments is affected by
various factors, including the level of interest rates, general economic
conditions, the location, scheduled maturity and age of the mortgage and other
social and demographic conditions. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the
Portfolio's yield.
The rate of interest on mortgage-backed securities is lower
than the interest rates paid on the mortgages included in the underlying pool
due to the annual fees paid to the servicer of the mortgage pool for passing
through monthly payments to certificate holders and to any guarantor, such as
GNMA, and due to any yield retained by the issuer. Actual yield to the holder
may vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the issuer
receives mortgage payments from the servicer and the time the issuer makes the
payments on the mortgage-backed securities, and this delay reduces the effective
yield to the holder of such securities.
31
<PAGE>
Non-Diversified Status (Japan Growth Portfolio). The Japan
Growth Portfolio is classified as non-diversified within the meaning of the 1940
Act, which means that the Portfolio is not limited by such Act in the proportion
of its assets that it may invest in securities of a single issuer. The
Portfolio's investments will be limited, however, in order to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"). See "Additional Information Concerning Taxes." To
qualify, the Portfolio will comply with certain requirements, including limiting
its investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of its total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities of a single issuer and the Portfolio will not
own more than 10% of the outstanding voting securities of a single issuer.
Zero Coupon Securities (Japan Growth Portfolio). The Japan
Growth Portfolio may invest in "zero coupon" U.S. Treasury, foreign government
and U.S. and foreign corporate convertible and nonconvertible debt securities,
which are bills, notes and bonds that have been stripped of their unmatured
interest coupons and custodial receipts or certificates of participation
representing interests in such stripped debt obligations and coupons. The
Portfolio currently anticipates that during the coming year, zero coupon
securities will not exceed 5% of its net assets. A zero coupon security pays no
interest to its holder prior to maturity. Accordingly, such securities usually
trade at a deep discount from their face or par value and will be subject to
greater fluctuations of market value in response to changing interest rates than
debt obligations of comparable maturities that make current distributions of
interest. The Portfolio anticipates that it will not normally hold zero coupon
securities to maturity. Federal tax law requires that a holder of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year, even though the holder receives no interest payment on the
security during the year. Such accrued discount will be includible in
determining the amount of dividends the Portfolio must pay each year and, in
order to generate cash necessary to pay such dividends, the Portfolio may
liquidate portfolio securities at a time when it would not otherwise have done
so.
Securities of Smaller Companies and Emerging Growth Companies;
Special Situation Companies (Japan Growth and Small Company Value Portfolios).
The Portfolio's investments involve considerations that are not applicable to
investing in securities of established, larger-capitalization issuers, including
reduced and less reliable information about issuers and markets, less stringent
financial disclosure requirements, illiquidity of securities and markets, higher
brokerage commissions and fees and greater market risk in general. In addition,
securities of emerging growth and smaller companies may involve greater risks
since these securities may have limited marketability and, thus, may be more
volatile.
The Portfolio may invest in the securities of "special
situation companies" involved in an actual or prospective acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; or litigation which, if resolved
favorably, would improve the value of the company's stock. If the actual or
prospective
32
<PAGE>
situation does not materialize as anticipated, the market price of the
securities of a "special situation company" may decline significantly. The
Portfolio believes, however, that if Warburg analyzes "special situation
companies" carefully and invests in the securities of these companies at the
appropriate time, the Portfolio may achieve capital growth. There can be no
assurance, however, that a special situation that exists at the time the
Portfolio makes its investment will be consummated under the terms and within
the time period contemplated.
Asset-Backed Securities (Japan Growth Portfolio). The Japan
Growth Portfolio may invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sales, installment loan contracts, leases of various types
of real and personal property and receivables from revolving credit (credit
card) agreements. Such assets are securitized through the use of trusts and
special purpose corporations. Payments or distributions of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not
presented by other securities in which the Portfolio may invest. Automobile
receivables generally are secured by automobiles. Most issuers of automobile
receivables permit the loan servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Because asset-backed securities are relatively
new, the market experience in these securities is limited, and the market's
ability to sustain liquidity through all phases of the market cycle has not been
tested.
Other Investment Limitations
The investment limitations numbered 1 through 10 may not be
changed without the affirmative vote of the holders of a majority of the
Portfolio's outstanding shares. Such majority is defined as the lesser of (i)
67% or more of the shares present at the meeting, if the holders of more than
50% of the outstanding shares of the relevant Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.
Investment limitations 11 through 15 may be changed by a vote of the Board at
any time.
If a percentage restriction (other than the percentage
limitation set forth in Restriction No. 1) is adhered to at the time of an
investment, a later increase or decrease in the
33
<PAGE>
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.
Each Portfolio may not:
1. Borrow money except that the Portfolios may (a) borrow from
banks for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Portfolios may not exceed 30% of the value of the
Portfolios' total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options, futures
contracts, options on futures contracts, forward commitment transactions and
dollar roll transactions that are not accounted for as financings (and the
segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Purchase any securities which would cause 25% or more of
the value of the Portfolios' 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 Portfolios 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 Portfolios' 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, except that the Portfolios may
invest in (a) securities secured by real estate, mortgages or interests therein
and (b) securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
6. With respect to the Japan Growth and Small Company Value
Portfolios only, make short sales of securities or maintain a short position,
except that each 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. Purchase securities on margin, except that the Portfolios
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.
8. Invest in commodities, except that the Portfolios may
purchase and sell futures contracts, including those relating to securities,
currencies and indexes, and options on
34
<PAGE>
futures contracts, securities, currencies or indexes, and purchase and sell
currencies on a forward commitment or delayed-delivery basis.
9. Issue any senior security except as permitted in the
Portfolios' investment limitations.
10. With respect to the Post-Venture Capital and Small Company
Value Portfolios only, purchase the securities of any issuer if as a result more
than 5% of the value of the Portfolio's total assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to U.S.
Government Securities and except that up to 25% of the value of the Portfolio's
total assets may be invested without regard to this 5% limitation.
11. Purchase securities of other investment companies except
in connection with a merger, consolidation, acquisition, reorganization or offer
of exchange, or as otherwise permitted under the 1940 Act.
12. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the purchase of securities on
a forward commitment or delayed-delivery basis and collateral and initial or
variation margin arrangements with respect to currency transactions, options,
futures contracts, and options on futures contracts.
13. Invest more than 15% of each Portfolio's net assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are no readily available market quotations.
For purposes of this limitation, repurchase agreements with maturities greater
than seven days shall be considered illiquid securities.
14. Make additional investments (including roll-overs) if each
Portfolio's borrowings exceed 5% of its net assets.
15. Invest in warrants (other than warrants acquired by the
Portfolio as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market) would
exceed 10% of the value of the Portfolio's net assets.
Portfolio Valuation
The Prospectus discusses the time at which the net asset value
of each Portfolio is determined for purposes of sales and redemptions. The
following is a description of the procedures used by each Portfolio in valuing
its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence of
sales, at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation
35
<PAGE>
on the exchange or market. Options or futures contracts will be valued
similarly. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. Short-term obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Board. Amortized cost involves valuing a portfolio instrument at its initial
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to debt obligations with 60 days or less remaining to maturity. In
determining the market value of portfolio investments, the Portfolio may employ
outside organizations (a "Pricing Service") which may use a matrix formula or
other objective method that takes into consideration market indexes, matrices,
yield curves and other specific adjustments. The procedures of Pricing Services
are reviewed periodically by the officers of the Fund under the general
supervision and responsibility of the Board, which may replace a Pricing Service
at any time. Securities, options and futures contracts for which market
quotations are not available and certain other assets of the Portfolio will be
valued at their fair value as determined in good faith pursuant to consistently
applied procedures established by the Board. In addition, the Board or its
delegates may value a security at fair value if it determines that such
security's value determined by the methodology set forth above does not reflect
its fair value.
Trading in securities in Japan and 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 the Portfolio's net asset value may not
take place contemporaneously with the determination of the prices of certain
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of regular trading on the NYSE will not be reflected in the
Portfolios' calculation of net asset value, in which case an adjustment may be
made by the Board or its delegates. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values
at the prevailing rate as quoted by a Pricing Service. If such quotations are
not available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying each Portfolio's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio securities
are usually principal transactions without brokerage commissions effected
directly with the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
over-the-counter, depending on where it appears that the best price or execution
will be obtained. The purchase price paid by a Portfolio to underwriters of
newly issued securities
36
<PAGE>
usually includes a concession paid by the issuer to the underwriter, and
purchases of securities from dealers, acting as either principals or agents in
the after market, are normally executed at a price between the bid and asked
price, which includes a dealer's mark-up or mark-down. Transactions on U.S.
stock exchanges and some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. On most
foreign exchanges, commissions are generally fixed. Purchases of Private Funds
by the Post-Venture Capital Portfolio through a broker or placement agent may
also involve a commission or other fee. There is generally no stated commission
in the case of securities traded in domestic or foreign over-the-counter
markets, but the price of securities traded in over-the-counter markets includes
an undisclosed commission or mark-up. U.S. Government Securities are generally
purchased from underwriters or dealers, although certain newly issued U.S.
Government Securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality.
Except for Private Funds investments managed by Abbott Capital
Management, LLC, the Post-Venture Capital Portfolio's sub-investment adviser
with respect to Private Funds ("Abbott"), Warburg will select specific portfolio
investments and effect transactions for each Portfolio and in doing so seeks to
obtain the overall best execution of portfolio transactions. In evaluating
prices and executions, Warburg will consider the factors it deems relevant,
which may include the breadth of the market in the security, the price of the
security, the financial condition and execution capability of a broker or dealer
and the reasonableness of the commission, if any, for the specific transaction
and on a continuing basis. Warburg may, in its discretion, effect transactions
in portfolio securities with dealers who provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to a Portfolio and/or other accounts over which Warburg exercises
investment discretion. Warburg may place portfolio transactions with a broker or
dealer with whom it has negotiated a commission that is in excess of the
commission another broker or dealer would have charged for effecting the
transaction if Warburg determines in good faith that such amount of commission
was reasonable in relation to the value of such brokerage and research services
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of Warburg. Research and other
services received may be useful to Warburg in serving both the Portfolios and
its other clients and, conversely, research or other services obtained by the
placement of business of other clients may be useful to Warburg in carrying out
its obligations to the Portfolios. Research may include furnishing advice,
either directly or through publications or writings, as to the value of
securities, the advisability of purchasing or selling specific securities and
the availability of securities or purchasers or sellers of securities;
furnishing seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative developments,
changes in accounting practices, economic factors and trends and portfolio
strategy; access to research analysts, corporate management personnel, industry
experts, economists and government officials; comparative performance evaluation
and technical measurement services and quotation services; and products and
other services (such as third party publications, reports and analyses, and
computer and electronic access, equipment, software, information and accessories
that deliver, process or otherwise utilize information,
37
<PAGE>
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 and Abbott under their
agreements with the Fund are not reduced by reason of its receiving any
brokerage and research services.
Investment decisions for each Portfolio concerning specific
portfolio securities are made independently from those for other clients advised
by Warburg or Abbott, as relevant. Such other investment clients may invest in
the same securities as a Portfolio. When purchases or sales of the same security
are made at substantially the same time on behalf of such other clients,
transactions are averaged as to price and available investments allocated as to
amount, in a manner which Warburg or Abbott, as the case may be, believes to be
equitable to each client, including the Portfolios. In some instances, this
investment procedure may adversely affect the price paid or received by a
Portfolio or the size of the position obtained or sold for a Portfolio. To the
extent permitted by law, securities may be aggregated with those 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.
In no instance will portfolio securities be purchased from or
sold to Warburg, Abbott or Counsellors Securities Inc., the Fund's distributor
("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 Fund 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
The Portfolios do not intend to seek profits through
short-term trading, but the rate of turnover will not be a limiting factor when
a Portfolio deems it desirable to sell or purchase securities. A Portfolio's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.
38
<PAGE>
Certain practices that may be employed by a Portfolio could
result in high portfolio turnover. For example, options on securities may be
sold in anticipation of a decline in the price of the underlying security
(market decline) or purchased in anticipation of a rise in the price of the
underlying security (market rise) and later sold. Investment by the Portfolios
in special situation companies could result in high portfolio turnover. To the
extent that its portfolio is traded for the short-term, the Portfolio will be
engaged essentially in trading activities based on short-term considerations
affecting the value of an issuer's stock instead of long-term investments based
on fundamental valuation of securities. Because of this policy, portfolio
securities may be sold without regard to the length of time for which they have
been held. Consequently, the annual portfolio turnover rate of the Portfolios
may be higher than mutual funds having a similar objective that do not invest in
special situation companies.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors 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 (63) Director
Harvard University Professor at Harvard University; National Intelligence Council
1737 Cambridge Street from June 1995 until January 1997; Director or Trustee of
Cambridge, Massachusetts 02138 CircuitCity Stores, Inc. (retail electronics and appliances)
and Phoenix Home Mutual Life Insurance Company.
Donald J. Donahue (73) Director
27 Signal Road Chairman of Magma Copper Company from December 1987 until
Stamford, Connecticut 06902 December 1995; Chairman and Director of NAC Holdings from
September 1990 - June 1993; Director of Pioneer
Companies, Inc. (chlor-alkali chemicals)
and predecessor companies since 1990 and
Vice Chairman since December 1995.
Jack W. Fritz (70) Director
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz
P.O. Box 483 Broadcasting, Inc. and Fritz Communications (developers and
Wilson, Wyoming 83014 operators of radio stations); Director of Advo, Inc. (direct
mail advertising).
John L. Furth* (66) Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1970; Officer of other investment
companies advised by Warburg.
</TABLE>
- -------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Thomas A. Melfe (65) Director
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure Newton & Irvine;
New York, New York 10112 Chairman of the Board of Municipal Fund for New York Investors,
Inc.
Arnold M. Reichman* (49) Director and Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1984; Senior Vice President,
Secretary and Chief Operating Officer of
Counsellors Securities; Officer of other
investment companies advised by Warburg.
Alexander B. Trowbridge (67) Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc. (business consulting)
Washington, DC 20004 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; Associated with Warburg since
New York, New York 10017-3147 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.
</TABLE>
- -------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director, Controller and Assistant Secretary of
New York, New York 10017-3147 Warburg; Associated with Warburg since 1984; Treasurer of
Counsellors Securities; Vice President of other
investment companies advised by Warburg.
Eugene P. Grace (45) Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April 1994; Attorney-at-law from
New York, New York 10017-3147 September 1989-April 1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General Counsel
and Secretary, Home Unity Savings Bank
from 1991-1992; Vice President, Chief
Compliance Officer and Assistant
Secretary of Counsellors Securities; Vice
President and Secretary of other
investment companies advised by Warburg.
Howard Conroy (43) Vice President and Chief Financial Officer
466 Lexington Avenue Associated with Warburg since 1992; Associated with Martin
New York, New York 10017-3147 Geller, C.P.A. from 1990-1992; Vice President, Finance with
Gabelli/Rosenthal & Partners, L.P. until 1990; Vice
President 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; Associated with BlackRock
New York, New York 10017-3147 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, Esq. (29) Assistant Secretary
466 Lexington Avenue Associated with Warburg since 1996; Associated with the law
New York, New York 10017-3147 firm of Willkie Farr & Gallagher from 1993-1996; Assistant
Secretary of other investment companies advised by Warburg.
</TABLE>
No employee of Warburg or PFPC Inc., the Fund's
co-administrator ("PFPC"), or any of their affiliates receives any compensation
from the Fund for acting as an officer or Director of the Fund. Each Director
who is not a director, trustee, officer or employee of
41
<PAGE>
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 Director and is reimbursed for expenses incurred in connection with
his attendance at Board meetings.
Directors' Compensation
(for the fiscal year ended October 31, 1996)
<TABLE>
<CAPTION>
Total Total Compensation from
Name of Director Compensation from all Investment Companies
Fund Managed by Warburg*
---------------- ----------------- ------------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,750 $42,916
Donald J. Donahue $2,000 $42,916
Jack W. Fritz $1,250 $42,916
Thomas A. Melfe $2,000 $42,916
Alexander B. Trowbridge $2,000 $42,916
</TABLE>
- ------------------------
* Each Director 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 Fund and Warburg, as defined under Section 2(a)(19) of the
1940 Act, and, accordingly, receive no compensation from the Fund or
any other investment company managed by Warburg.
As of August 5, 1997, the Directors and officers of the Fund
as a group owned less than 1% of the outstanding shares of each Portfolio.
Portfolio Managers.
Japan Growth Portfolio. Mr. P. Nicholas Edwards, Portfolio
Manager of the Japan Growth Portfolio, is also Associate Portfolio Manager and
Research Analyst of the International Equity and Managed EAFE(R) Countries
Portfolios of the Fund, Portfolio Manager of Warburg Pincus Japan Growth Fund
and a Co-Portfolio Manager and Research Analyst of Warburg Pincus International
Equity Fund and an Associate Portfolio Manager and Research Analyst of the
International Equity Portfolio of Warburg Pincus Trust. Prior to joining Warburg
in August 1995, Mr. Edwards was a director at Jardine Fleming Investment
Advisers, Tokyo. He was a vice president of Robert Fleming Inc. in New York City
from 1988 to 1991. Mr. Edwards earned M.A. degrees from Oxford University and
Hiroshima University in Japan.
Post-Venture Capital Portfolio. Ms. Elizabeth B. Dater,
Co-Portfolio Manager of the Post-Venture Capital Portfolios, is also
Co-Portfolio Manager of the Small Company Growth Portfolio of the Fund, Warburg
Pincus Emerging Growth Fund, Warburg Pincus Post-Venture Capital Fund and the
Post-Venture Capital Portfolio of Warburg Pincus Trust. She is the former
Director of Research for Warburg's investment management activities. Prior to
joining Warburg in 1978, she was a vice president of Research at Fiduciary Trust
Company of New York and an institutional sales assistant at Lehman Brothers. Ms.
Dater has been a regular panelist on Maryland Public Television's "Wall Street
Week" since 1976. Ms. Dater earned a B.A. degree from Boston University in
Massachusetts.
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Mr. Stephen J. Lurito, Co-Portfolio Manager of the
Post-Venture Capital Portfolios, is also Co-Portfolio Manager of the Small
Company Growth Portfolio of the Fund, Warburg Pincus Emerging Growth Fund,
Warburg Pincus Post-Venture Capital Fund and the Post-Venture Capital Portfolio
of Warburg Pincus Trust and the Portfolio Manager of Warburg Pincus Small
Company Growth Fund. Mr. Lurito, also the Research Coordinator and a Portfolio
Manager for micro-cap equity and post-venture products, has been with Warburg
since 1987. Prior to that he was a research analyst at Sanford C. Bernstein &
Company, Inc. Mr. Lurito earned a B.A. degree from the University of Virginia
and a M.B.A. from the University of Pennsylvania.
Mr. Robert S. Janis and Christopher M. Nawn are Associate
Portfolio Managers and Research Analysts of the Post-Venture Portfolio and of
other Warburg Pincus Funds. Prior to joining Warburg in October 1994, Mr. Janis
was a vice president and senior research analyst at U.S. Trust Company of New
York. He earned B.A. and M.B.A. degrees from the University of Pennsylvania.
Prior to joining Warburg in September 1994, Mr. Nawn was a senior sector analyst
and portfolio manager at the Dreyfus Corporation. He earned a B.A. degree from
the Colorado College and an M.B.A. degree from the University of Texas.
Raymond L. Held and Gary H. Solomon, Investment Managers and
Managing Directors of Abbott, manage the Post-Venture Capital Portfolio's
investments in Private Funds. Abbott also acts as sub-investment adviser for
Warburg Pincus Post-Venture Capital Fund, Warburg Pincus Global Post-Venture
Capital Fund and the Post-Venture Capital Portfolio of Warburg Pincus Trust.
Prior to co-founding a predecessor of Abbott in 1986, Mr. Held had been an
investment analyst and portfolio manager at Manufacturers Hanover Investment
Corporation since 1970, before which time he had been a security analyst with
Weis, Voisin, Cannon, Inc., L.M. Rosenthal & Co., Shearson, Hammill & Co. and
Standard & Poor's Corporation. Mr. Held earned an M.B.A from New York
University, an M.A. from Columbia University and a B.A. from Queens College.
Prior to joining a predecessor of Abbott in 1986, Mr. Solomon
served as vice president of the Venture Capital Group at Manufacturers Hanover
Investment Corporation, before which time he was an investment officer at CIGNA
Corporation and credit account manager at E.I. du Pont de Nemours & Company. Mr.
Solomon earned an M.B.A. from Pennsylvania State University and a B.A from
Franklin & Marshall College.
Small Company Value Portfolio. Mr. George U. Wyper is
Portfolio Manager of the Small Company Value Portfolio. Mr. Wyper is also
Portfolio Manager of Warburg Pincus Capital Appreciation Fund and Warburg Pincus
Small Company Value Fund. From 1987 until 1990 Mr. Wyper was the director of
fixed income investments at Fireman's Fund Insurance Company, and from 1990
until 1993 he was chief investment officer of Fund American Enterprises, Inc.
Mr. Wyper was chief investment officer of White River Corporation and president
of Hanover Advisers, Inc. from 1993 until he joined Warburg in August 1994 as a
managing director of Warburg. Mr. Wyper earned a B.S. degree in economics from
the Wharton School of Business of the University of Pennsylvania and a Masters
of Management from Yale University.
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Mr. Kyle F. Frey is Associate Portfolio Manager and Research
Analyst of the Small Company Value Portfolio. Mr. Frey serves in similar
positions with Warburg Pincus Small Company Value Fund. Mr. Frey, a Senior Vice
President of Warburg, is also a Research Analyst and Assistant Portfolio Manager
for small-cap growth equity and distribution management products. Prior to
joining Warburg in 1989, Mr. Frey was with Goldman, Sachs & Co. in the
institutional sales division. Mr. Frey earned a B.S. degree from the University
of New Hampshire and an M.B.A. from New York University.
Investment Advisers and Co-Administrators
Warburg serves as investment adviser to each Portfolio, Abbott
serves as sub-investment adviser to the Post-Venture Capital Portfolio,
Counsellors Funds Service, Inc. ("Counsellors Service") and PFPC serve as
co-administrators to the Fund pursuant to separate written agreements (the
"Advisory Agreements," the "Counsellors Service Co-Administration Agreements"
and the "PFPC Co-Administration Agreements," respectively). The services
provided by, and the fees payable by the Fund to, Warburg under the Advisory
Agreements, Counsellors Service under the Counsellors Service Co-Administration
Agreements and PFPC under the PFPC Co-Administration Agreements are described in
the Prospectus. See the Prospectus, "Management of the Fund."
Custodians and Transfer Agent
Pursuant to separate custodian agreements (the "Custodian
Agreements"), PNC Bank, National Association ("PNC") and State Street Bank and
Trust Company ("State Street") serve as custodians of each Portfolio's U.S. and
foreign assets, respectively. Under the Custodian Agreements, PNC and State
Street each (i) maintains a separate account or accounts in the name of the
Portfolio, (ii) holds and transfers portfolio securities for the account of the
Portfolio, (iii) makes receipts and disbursements of money on behalf of the
Portfolio, (iv) collects and receives all income and other payments and
distributions on account of the Portfolio's portfolio securities held by it and
(v) makes periodic reports to the Board concerning the Portfolio's custodial
arrangements. PNC may delegate its duties under its Custodian Agreement with the
Fund to a wholly owned direct or indirect subsidiary of PNC or PNC Bank Corp.
upon notice to the Fund and upon the satisfaction of certain other conditions.
With the approval of the Board, State Street is authorized to select one or more
foreign banking institutions and foreign securities depositaries as
sub-custodian on behalf of the Portfolios. PNC is an indirect, wholly owned
subsidiary of PNC Bank Corp., and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103. The principal business address of
State Street is 225 Franklin Street, Boston, Massachusetts 02110.
State Street also serves as the shareholder servicing,
transfer and dividend disbursing agent of the Fund 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 Fund to
record owners of Portfolio shares, including reports to shareholders, dividend
and distribution notices and proxy material for its meetings of
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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 Fund. 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 Fund
The Fund was incorporated on May 13, 1992 under the laws of
the State of Maryland under the name "Warburg, Pincus Institutional Fund, Inc."
Shares of nine series have been authorized, which constitute the interests in
the Portfolios described herein and six other series.
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 Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
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 Fund intends to comply with Rule 18f-1 promulgated
under the 1940 Act with respect to redemptions in kind.
A Portfolio may, in certain circumstances and in its
discretion, accept securities as payment for the purchase of the Portfolio's
shares from an investor who has received such securities as redemption proceeds
from another Warburg Pincus Fund.
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EXCHANGE PRIVILEGE
Shareholders of a Portfolio may exchange all or part of their
shares for shares of another Portfolio or other portfolios of the Fund organized
by Warburg in the future on the basis of their relative net asset values per
share at the time of exchange.
The exchange privilege enables shareholders to acquire shares
in a Portfolio with a different investment objective when they believe that a
shift between Portfolios is an appropriate investment decision. This privilege
is available to shareholders residing in any state in which the Portfolio's
shares being acquired may legally be sold.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are redeemed at the
then-current net asset value of the Portfolio and the proceeds are invested on
the same day, at a price as described above, in shares of the Portfolio being
acquired. Warburg reserves the right to reject more than three exchange requests
by a shareholder in any 30-day period. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund 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 their own tax advisers with
respect to the particular tax consequences to them of an investment in a
Portfolio.
Each Portfolio intends to continue to qualify each year, as a
"regulated investment company" under Subchapter M of the Code. If it qualifies
as a regulated investment company, a Portfolio will pay no federal income taxes
on its taxable net investment income (that is, taxable income other than net
realized capital gains) and its net realized capital gains that are distributed
to shareholders. To qualify under Subchapter M, a Portfolio must, among other
things: (i) distribute to its shareholders the sum of at least 90% of its
taxable net investment income (for this purpose consisting of taxable net
investment income and net realized short-term capital gains) plus at least 90%
of its net tax exempt interest income; (ii) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of securities,
gains from the sale or other disposition of securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures, and
forward contracts) derived with respect to its business of investing in such
securities or currencies; and (iii) 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. As a regulated investment
company, a
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Portfolio will be subject to a 4% non-deductible excise tax measured with
respect to certain undistributed amounts of ordinary income and capital gain
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Portfolio's taxable ordinary income for the
calendar year and at least 98% of the excess of its capital gains over capital
losses realized during the one-year period ending October 31 during such year,
together with any undistributed, untaxed amounts of ordinary income and capital
gains from the previous calendar year. The Portfolios expect to pay the
dividends and make the distributions necessary to avoid the application of this
excise tax.
A Portfolio's short sales against the box, if any, and
transactions, if any, in foreign currencies, forward contracts, options and
futures contracts (including options, futures contracts and forward contracts on
foreign currencies) will be subject to special provisions of the Code that,
among other things, may affect the character of gains and losses recognized by
the Portfolio (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Portfolio, defer Portfolio
losses and cause the Portfolio to be subject to hyperinflationary currency
rules. These rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (i) will require a
Portfolio to mark-to-market certain types of its positions (i.e., treat them as
if they were closed out) and (ii) may cause the Portfolio to recognize income
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding income
and excise taxes. Each Portfolio will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment so that (a) neither the Portfolio nor its
shareholders will be treated as receiving a materially greater amount of capital
gains or distributions than actually realized or received, (b) the Portfolio
will be able to use substantially all of its losses for the fiscal years in
which the losses actually occur and (c) the Portfolio will continue to qualify
as a regulated investment company.
A shareholder of a Portfolio receiving dividends or
distributions in additional shares should be treated for federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that a shareholder receiving cash dividends or distributions receives, and
should have a cost basis in the shares received equal to that amount. Investors
considering buying shares just prior to a dividend or capital gain distribution
should be aware that, although the price of shares purchased at that time may
reflect the amount of the forthcoming distribution, those who purchase just
prior to a distribution will receive a distribution that will nevertheless be
taxable to them.
A Portfolio's investments in zero coupon securities may create
special tax consequences. Zero coupon securities do not make interest payments,
although a portion of the difference between zero coupon security's face value
and its purchase price is imputed as income to the Portfolio each year even
though the Portfolio receives no cash distribution until maturity. Under the
U.S. federal tax laws, the Portfolio will not be subject to tax on this income
if it pays dividends to its shareholders substantially equal to all the income
received
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from, or imputed with respect to, its investments during the year, including its
zero coupon securities. These dividends ordinarily will constitute taxable
income to the shareholders of the Portfolio.
Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution that
will nevertheless be taxable to them. Upon the sale or exchange of shares, a
shareholder will realize a taxable gain or loss depending on the amount realized
and the basis in the shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands, and, as
described in the Prospectus, will be long-term or short-term depending on the
shareholder's holding period for the shares. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced,
including replacement through the reinvestment of dividends and capital gains
distributions in a Portfolio, within a period of 61 days beginning 30 days
before and ending 30 days after the disposition of the shares. In such a case,
the basis of the shares acquired will be increased to reflect the disallowed
loss.
Each shareholder will receive an annual statement as to the
federal income tax status of his dividends and distributions from the relevant
Portfolio for the prior calendar year. Furthermore, shareholders will also
receive, if appropriate, various written notices after the close of the
Portfolio's taxable year regarding the federal income tax status of certain
dividends and distributions that were paid (or that are treated as having been
paid) by the Portfolio to its shareholders during the preceding year.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he has provided a correct taxpayer identification number
and that he is not subject to "backup withholding," the shareholder may be
subject to a 31% "backup withholding" tax with respect to (i) taxable dividends
and distributions and (ii) the proceeds of any sales or repurchases of shares of
the Portfolio. An individual's taxpayer identification number is his social
security number. Corporate shareholders and other shareholders specified in the
Code are or may be exempt from backup withholding. The backup withholding tax is
not an additional tax and may be credited against a taxpayer's federal income
tax liability. Dividends and distributions also may be subject to state and
local taxes depending on each shareholder's particular situation.
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 as a taxable dividend by the Portfolio to its
shareholders. 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 either the
Portfolio or its shareholders
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with respect to any taxes arising from excess distributions or gains on the
disposition of shares in a PFIC.
A Portfolio may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Portfolio compared to a
fund that did not make the election. In addition, information required to make
such an election may not be available to the Portfolio.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice indicating
that final regulations will provide that regulated investment companies may
elect the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of a Portfolio is unclear. If the Portfolio is not able to make
the foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if it were sold for fair market value). Such an election could result in
acceleration of income to the Portfolio.
DETERMINATION OF PERFORMANCE
From time to time, a Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. A
Portfolio's average annualized 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.
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
- ---------------------
* As used here, "n" is an integer.
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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.
The Japan Growth Portfolio may also discuss in advertising and
sales literature the history of Japanese stock markets, including the Tokyo
Stock Exchange and OTC market. Sales literature and advertising may also discuss
trends in the economy and corporate structure in Japan, including the contrast
between the sales growth, profit growth, price/earnings ratios, and return on
equity (ROE) of companies; it may discuss the cultural changes taking place
among consumers in Japan, including increasing cost-consciousness and
accumulation of purchasing power and wealth among Japanese consumers, and the
ability of new companies to take advantage of these trends. The sales literature
for this Portfolio may also discuss current statistics and projections of the
volume, market capitalization, sector weightings and number of issues traded on
Japanese exchanges and in Japanese OTC markets, and may include graphs of such
statistics in advertising and other sales literature.
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 Fund.
Willkie Farr & Gallagher serves as counsel for the Fund as
well as counsel to Warburg, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENTS
The unaudited statements of assets and liabilities for the
Portfolios dated as of August 11, 1997 accompany this Statement of Additional
Information.
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APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings
Services ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted a plus sign designation. Capacity for timely payment
on commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - This is the lowest investment grade. Debt rated BBB has
an adequate capacity to pay interest and repay principal. Although they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC and C - Debt rated BB and B 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 CCC the highest degree of
speculation. While such bonds will likely have some
A-1
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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, it faces 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 has 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 BBB rating.
CCC - Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on
which no interest is being paid. Such debt is rated between debt rated C and
debt rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest
A-2
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payments are protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the 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 comprise 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.
A-3
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
JAPAN GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of August 11, 1997
(unaudited)
Assets:
Cash 0
Deferred Organizational Costs 0
-
Total Assets 0
Liabilities: 0
Net Assets 0
Net Asset Value, Redemption and Offering Price Per
share (1 billion shares classified for the Japan
Growth Portfolio - $.001 par value) applicable
to 1 share issued. $10.00
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of August 11, 1997
(unaudited)
Assets:
Cash 0
Deferred Organizational Costs 0
-
Total Assets 0
Liabilities: 0
Net Assets 0
Net Asset Value, Redemption and Offering Price Per
share (1 billion shares classified for the
Post-Venture Capital Portfolio - $.001 par
value) applicable to 1 share issued. $10.00
<PAGE>
WARBURG PINCUS INSTITUTIONAL FUND, INC.
SMALL COMPANY VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of August 11, 1997
(unaudited)
Assets:
Cash 0
Deferred Organizational Costs 0
-
Total Assets 0
Liabilities: 0
Net Assets 0
Net Asset Value, Redemption and Offering Price Per
share (1 billion shares classified for the Small
Company Value Portfolio - $.001 par value)
applicable to 1 share issued. $10.00
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- International Equity Portfolio*
(1) Financial Statements included in Part A (a) Financial
Highlights
(2) Financial Statements included in Part B (incorporated by
reference to the Fund's annual report dated October 31,
1996)
(a) Report of Coopers & Lybrand L.L.P., Independent
Accountants
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements
(b) Financial Statements -- Small Company Growth Portfolio*
(1) Financial Statements included in Part A
(a) Financial Highlights
(2) Financial Statements included in Part B (incorporated by
reference to the Fund's annual report dated October 31,
1996)
(a) Report of Coopers & Lybrand L.L.P., Independent
Accountants
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements
(c) Financial Statements included in Part B -- Global Fixed Income
Portfolio*
(1) Report of Coopers & Lybrand L.L.P., Independent Accountants
- ----------
* Previously filed in Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A, filed with the Securities and Exchange
Commission (the "Commission") on April 16, 1997.
C-1
<PAGE>
(2) Statement of Assets and Liabilities
(3) Notes to Financial Statements
(d) Financial Statements included in Part B -- Managed EAFE(R)
Countries Portfolio*
(1) Statement of Assets and Liabilities (Unaudited)
(e) Financial Statements -- Emerging Markets Portfolio*
(1) Financial Statements included in Part A
(a) Financial Highlights
(2) Financial Statements included in Part B (incorporated by
reference to the Fund's annual report dated October 31,
1996)
(a) Report of Coopers & Lybrand L.L.P., Independent
Accountants
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements
(f) Financial Statements included in Part B -- Value Portfolio*
(1) Statement of Assets and Liabilities (Unaudited)
(g) Financial Statements included in Part B -- Japan Growth
Portfolio.
(1) Statement of Assets and Liabilities (Unaudited)
(h) Financial Statements included in Part B -- Small Company Value
Portfolio.
(1) Statement of Assets and Liabilities (Unaudited)
C-2
<PAGE>
(i) Financial Statements included in Part B -- Post-Venture Capital
Portfolio.
(1) Statement of Assets and Liabilities (Unaudited)
(j) Exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Articles of Incorporation.(1)
(b) Articles of Amendment establishing the International Equity
Portfolio.(1)
(c) Articles of Amendment Establishing the Managed EAFE
Portfolio.(2)
(d) Articles Supplementary designating the Small Company Growth
Portfolio.(1)
(e) Articles Supplementary increasing the number of authorized
shares(1)
(f) Articles Supplementary designating Emerging Markets
Portfolio.(2)
(g) Articles of Amendment changing the name of Managed EAFE
Portfolio to Managed EAFE(R) Countries Portfolio.(3)
(h) Articles Supplementary designating Value Portfolio. (4)
- ----------
1 Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A, filed with the Commission on August
18, 1995.
2 Incorporated by reference to Post-Effective Amendment No. 9 to Registrant's
Registration Statement on Form N-1A, filed with the Commission on August
20, 1996.
3 Incorporated by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A, filed with the Commission
on January 28, 1997.
4 Incorporated by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A, filed with the Commission
on January 31, 1997.
C-3
<PAGE>
(i) Articles Supplementary designating Japan Growth Portfolio, the
Small Company Value Portfolio and the Post-Venture Capital
Portfolio.
2(a) By-Laws. (5)
2(b) Amendment to By-Laws. (6)
3 Not applicable.
4 Registrant's Forms of Stock Certificates.(1)
5(a) Investment Advisory Agreement--International Equity
Portfolio.(1)
(b) Investment Advisory Agreement--Small Company Growth
Portfolio.(1)
(c) Investment Advisory Agreement--Global Fixed Income
Portfolio.(1)
(d) Investment Advisory Agreement -- Managed EAFE(R) Countries
Portfolio (formerly known as Foreign Developed Markets
Portfolio). (1)
(e) Investment Advisory Agreement--Emerging Markets Portfolio. (2)
(f) Investment Advisory Agreement -- Value Portfolio. (4)
(g) Investment Advisory Agreement -- Japan Growth Portfolio.
(h) Investment Advisory Agreement -- Small Company Value Portfolio.
(i) Investment Advisory Agreement -- Post-Venture Capital
Portfolio.
- ----------
5 Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A, filed with the Commission on April 19,
1996.
6 Incorporated by reference to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A, filed with the Commission on July 2,
1996.
C-4
<PAGE>
(j) Sub-Investment Advisory Agreement between Abbott Capital
Management, LLC and the Post-Venture Capital Portfolio.
6(a) Form of Distribution Agreement.(1)
6(b) Form of Distribution Agreement pertaining to the Small
Company Growth Portfolio(1)
(c) Form of Distribution Agreement pertaining to the Japan
Growth Portfolio.
(d) Form of Distribution Agreement pertaining to the Small
Company Value Portfolio.
(e) Form of Distribution Agreement pertaining to the
Post-Venture Capital Portfolio.
7 Not applicable.
8(a) Form of Custodian Agreement with PNC Bank, National
Association.(1)
(b) Form of Custody Agreement with Fiduciary Trust Company
International--International Equity Portfolio.(1)
(c) Form of Custody Agreement with Fiduciary Trust Company
International--Global Fixed Income Portfolio.(7)
(d) Form of Custodian Contract with State Street Bank and Trust
Company ("State Street")--Small Company Growth Portfolio
and Emerging Markets Portfolio.(8)
(e) Form of Custody Agreement with Fiduciary Trust Company
International--Managed EAFE(R) Countries Portfolio
(formerly known as Foreign Developed Markets Portfolio).(7)
C-5
<PAGE>
(f) Form of Custody Agreement with Fiduciary Trust Company
International--Value Portfolio.(7)
(g) Form of Custody Agreement with PNC Bank --Japan Growth
Portfolio, Small Company Value Portfolio and Post-Venture
Capital Portfolio.
(h) Form of Custody Agreement with State Street Bank & Trust
Company -- Japan Growth Portfolio, Post-Venture Capital
Portfolio and Small Company Value Portfolio.
9(a) Form of Transfer Agency Agreement.(8)
(b)(1) Form of Letter Agreement between Registrant and State Street
pertaining to inclusion of the Small Company Growth Portfolio
under the Transfer Agency Agreement.(1)
(b)(2) Form of Letter Agreement between Registrant and State Street
pertaining to inclusion of the Japan Growth Portfolio under the
Transfer Agency and Service Agreement.
(b)(3) Form of Letter Agreement between Registrant and State Street
pertaining to inclusion of the Small Company Value Portfolio
under the Transfer Agency and Service Agreement.
(b)(4) Form of Letter Agreement between Registrant and State Street
pertaining to inclusion of the Post-Venture Capital Portfolio
under the Transfer Agency and Service Agreement.
(c)(1) Form of Co-Administration Agreements with Counsellors Funds
Service, Inc.(8)
(c)(2) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc. with respect to Japan Growth Portfolio.
(c)(3) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc. with respect to Small Company Value Portfolio.
- ----------
7 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A
of Warburg, Pincus International Equity Fund, filed on September 25, 1995
(Securities Act File No. 33-27031).
8 Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Warburg, Pincus Japan Growth Fund, Inc. filed on December 18, 1995
(Securities Act File No. 33-63655).
C-6
<PAGE>
(c)(4) Form of Co-Administration Agreement with Counsellors Funds
Service, Inc. with respect to Post-Venture Capital Portfolio.
(d)(1) Form of Co-Administration Agreements with PFPC Inc.(8)
(d)(2) Form of Letter Agreement with PFPC Inc. relating to the Managed
EAFE(R) Countries Portfolio (formerly known as Foreign
Developed Markets Portfolio).(5)
(d)(3) Form of Letter Agreement with PFPC, Inc. relating to the
Emerging Markets Portfolio.(2)
(d)(4) Form of Letter Agreement with PFPC Inc. relating to the Value
Portfolio. (4)
(d)(5) Form of Co-Administration Agreement with PFPC Inc. relating to
the Japan Growth Portfolio.
(d)(6) Form of Co-Administration Agreement with PFPC Inc. relating to
the Small Company Value Portfolio.
(d)(7) Form of Co-Administration Agreement with PFPC Inc. relating to
the Post-Venture Capital Portfolio.
(e) Form of Services Agreement.(1)
10(a) Opinion of Willkie Farr & Gallagher, counsel to the Fund.(9)
(b) Opinion of Willkie Farr & Gallagher relating to the
establishment of the Value Portfolio. (4)
(c) Consent of Willkie Farr & Gallagher, counsel to the Fund and
Opinion of Willkie Farr & Gallagher relating to the
establishment of the Japan Growth Portfolio, Small Company
Value Portfolio and Post-Venture Capital Portfolio.
(d) Opinion and Consent of Hamada & Matsumoto, Japanese counsel
to the Japan Growth Fund.
11 Not applicable.
- ----------
9 Incorporated by reference to Registrant's Form 24F-2 filed on December 27,
1996.
C-7
<PAGE>
12 Not applicable.
13(a) Purchase Agreement pertaining to the International Equity
Portfolio and Global Fixed Income Portfolio.(1)
(b) Form of Purchase Agreement pertaining to the Small Company
Growth Portfolio.(1)
(c) Form of Purchase Agreement pertaining to the Managed EAFE(R)
Countries Portfolio (formerly known as Foreign Developed
Markets Portfolio).(5)
(d) Form of Purchase Agreement pertaining to the Emerging Market
Portfolio.(2)
(e) Purchase Agreement pertaining to the Value Portfolio. (4)
(f) Purchase Agreement pertaining to the Japan Growth Portfolio.
(g) Purchase Agreement pertaining to the Small Company Value
Portfolio.
(h) Purchase Agreement pertaining to the Post-Venture Capital
Portfolio.
14 Retirement Plans.(1)
15 Not applicable.
Item 25. Persons Controlled by or Under Common Control
with Registrant
---------------------------------------------
Not applicable.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of June 30, 1997
--------------- ------------------------
International Equity Portfolio- 432
shares of common stock
par value $.001 per share
Small Company Growth Portfolio- 48
shares of common stock
par value $.001 per share
Global Fixed Income Portfolio- 0
shares of common stock
par value $.001 per share
C-8
<PAGE>
Managed EAFE(R)Countries Portfolio 1
(formerly known as Foreign
Developed Markets) Portfolio
shares of common stock par
value $.001 per share
Emerging Markets Portfolio shares 7
of common stock par value $.001
per share
Value Portfolio shares 1
of common stock par value $.001
per share
Item 27. Indemnification
---------------
Registrant, officers and directors or trustees of Warburg,
Pincus Counsellors, Inc. ("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 Registration Statement of Warburg, Pincus Post-Venture Capital
Fund, Inc., filed on June 21, 1995.
C-9
<PAGE>
Item 28. Business and Other Connections of
Investment Adviser
---------------------------------
Warburg, a wholly owned subsidiary of Warburg, Pincus Asset
Management Holdings, Inc. acts as investment adviser to each Portfolio. Warburg
renders investment advice to a wide variety of individual and institutional
clients. The list required by this Item 28 of officers and directors of Warburg,
together with information as to their other business, profession, vocation or
employment of a substantial nature during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by Warburg (SEC File No.
801-07321).
Abbott Capital Management, LLC ("Abbott") acts as
sub-investment adviser for the Registrant's Post-Venture Capital Portfolio.
Abbott renders investment advice and provides full-service private equity
programs to clients. The list required by this Item 28 of Officers and Directors
of Abbott, together with information as to their other business, profession,
vocation, or employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by Abbott (SEC
File No. 801-27914).
Item 29. Principal Underwriter
---------------------
(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for 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; Warburg Pincus Health Sciences Fund;
Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus Japan
Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus New York Intermediate
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus
Post-Venture Capital Fund; Warburg, Pincus Small Company Growth Fund; Warburg
Pincus Small Company Value Fund; Warburg Pincus Strategic Value Fund; Warburg
Pincus Tax Free Fund; Warburg Pincus Trust; and Warburg Pincus Trust II.
(b) For information relating to each director, officer or
partner of Counsellors Securities, reference is made to Form BD (SEC File No.
8-32482) filed by Counsellors Securities under the Securities Exchange Act of
1934.
(c) None.
C-10
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
(1) Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
10017-3147New York
(Fund's Articles of Incorporation, By-Laws and
minute books)
(2) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment
adviser)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as
co-administrator)
(4) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
co-administrator)
(5) Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048
(records relating to its functions as custodian)
(6) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions 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 Broad Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
(9) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
C-11
<PAGE>
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings.
-------------
(a) Registrant hereby undertakes to file a post-effective amendment,
with financial statements of the Managed EAFE(R) Countries Portfolio, the Global
Fixed Income Portfolio, the Value Portfolio, the Japan Growth Portfolio, the
Small Company Value Portfolio and the Post-Venture Capital Portfolio which need
not be certified, within four to six months from the date the relevant Portfolio
commences operations.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the latest annual report to shareholders
for the relevant Portfolio, upon request and without charge.
(c) Registrant hereby undertakes to call a meeting of its shareholders
for the purpose of voting upon the question of removal of a director or
directors of Registrant when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares. Registrant undertakes further, in
connection with the meeting, to comply with the provisions of Section 16(c) of
the 1940 Act relating to communications with the shareholders of certain
common-law trusts.
C-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant 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 12th day of August, 1997.
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
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 August 12, 1997
- --------------------------- Board of Directors
John L. Furth
/s/Eugene L. Podsiadlo President August 12, 1997
- ---------------------------
Eugene L. Podsiadlo
/s/Howard Conroy Vice President and August 12, 1997
- --------------------------- Chief Financial
Howard Conroy Officer
/s/Daniel S. Madden Treasurer and August 12, 1997
- --------------------------- Chief Accounting
Daniel S. Madden Officer
/s/Richard N. Cooper Director August 12, 1997
- ---------------------------
Richard N. Cooper
/s/Donald J. Donahue Director August 12, 1997
- ---------------------------
Donald J. Donahue
/s/Jack W. Fritz Director August 12, 1997
- ---------------------------
Jack W. Fritz
/s/Thomas A. Melfe Director August 12, 1997
- ---------------------------
Thomas A. Melfe
/s/Arnold M. Reichman Director August 12, 1997
- ---------------------------
Arnold M. Reichman
/s/Alexander B. Trowbridge Director August 12, 1997
- ---------------------------
Alexander B. Trowbridge
C-13
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(i) Articles Supplementary designating the Japan Growth
Portfolio, the Small Company Value Portfolio and the
Post-Venture Capital Portfolio.
5(g) Investment Advisory Agreement -- Japan Growth
Portfolio.
5(h) Investment Advisory Agreement -- Small Company Value
Portfolio.
5(i) Investment Advisory Agreement -- Post-Venture Capital
Portfolio.
5(j) Sub-Investment Advisory Agreement between Abbott
Capital Management, LLC and the Post-Venture Capital
Portfolio.
6(c) Form of Distribution Agreement pertaining to the Japan
Growth Portfolio.
6(d) Form of Distribution Agreement pertaining to the Small
Company Value Portfolio.
6(e) Form of Distribution Agreement pertaining to the
Post-Venture Capital Portfolio.
8(g) Form of Custodian Services Agreement with PNC Bank
--Japan Growth Portfolio, Small Company Value
Portfolio, and Post-Venture Capital Portfolio
8(h) Form of Custody Contract with State Street Bank &
Trust Company -- Japan Growth Portfolio, Post-Venture
Capital Portfolio and Small Company Value Portfolio
9(b)(1) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of the Japan Growth
Portfolio under the Transfer Agency and Service
Agreement.
9(b)(2) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of the Small Company
Value Portfolio under the Transfer Agency and Service
Agreement.
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
9(b)(3) Form of Letter Agreement between Registrant and State
Street pertaining to inclusion of the Post-Venture
Capital Portfolio under the Transfer Agency and
Service Agreement.
9(c)(2) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc. with respect to Japan Growth
Portfolio.
9(c)(3) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc. with respect to Small Company
Value Portfolio.
9(c)(4) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc. with respect to Post-Venture
Capital Portfolio.
9(d)(5) Form of Co-Administration Agreement with PFPC Inc.
relating to the Japan Growth Portfolio.
9(d)(6) Form of Co-Administration Agreement with PFPC Inc.
relating to the Small Company Value Portfolio.
9(d)(7) Form of Co-Administration Agreement with PFPC Inc.
relating to the Post-Venture Capital Portfolio.
10(c) Consent of Willkie Farr & Gallagher, Counsel to the
Fund and opinion of Willkie Farr & Gallagher relating
to the establishment of the Japan Growth Portfolio,
the Small Company Value Portfolio and the Post-Venture
Capital Portfolios.
10(d) Opinion and Consent of Hamada & Matsumoto, Japanese counsel
to the Japan Growth Fund.
13(f) Purchase Agreement pertaining to the Japan Growth
Portfolio.
13(g) Purchase Agreement pertaining to the Small Company
Value Portfolio.
13(h) Purchase Agreement pertaining to the Post-Venture
Capital Portfolio.
<PAGE>
ARTICLES SUPPLEMENTARY
OF
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
WARBURG, PINCUS INSTITUTIONAL FUND, INC. (the "Fund"), a Maryland
corporation with its principal corporate offices in the State of Maryland in
Baltimore, Maryland, DOES HEREBY CERTIFY:
1. There is hereby classified a Series of stock comprised of one
billion (1,000,000,000) Shares (as those terms are defined in the Fund's
Articles of Incorporation, as amended from time to time, the "Articles") of the
authorized but unclassified and unissued Shares of the Fund, to be known as the
"Japan Growth Portfolio."
2. The Shares of the Japan Growth Portfolio classified hereby shall
have the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as set forth in Article V, Section 4 of the Articles and shall be
subject to all provisions of the Articles relating to Shares generally.
3. The Shares of the Japan Growth Portfolio have been classified by the
Fund's Board of Directors under the authority contained in Article V, Sections 2
and 3 of the Articles.
IN WITNESS WHEREOF, the undersigned have executed these Articles
Supplementary on behalf of Warburg, Pincus Institutional Fund, Inc. and
acknowledge that it is the act and deed of the Fund and state, under penalty of
perjury, to the best of the knowledge, information and belief of each of them,
that the matters contained herein with respect to the approval thereof are true
in all material respects.
Dated: July 30, 1997 WARBURG, PINCUS INSTITUTIONAL
FUND, INC.
By: /s/ Eugene P. Grace
----------------------------
Name: Eugene P. Grace
Title: Vice President &
Secretary
ATTEST:
/s/ Janna Manes
- -----------------------------
Name: Janna Manes
Title: Assistant Secretary
<PAGE>
INVESTMENT ADVISORY AGREEMENT
July 30, 1997
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Institutional Fund, Inc., a corporation
organized under the laws of the State of Maryland (the "Fund"), is an open-end,
management investment company that currently offers six portfolios, one of which
is the Japan Growth Portfolio (the "Portfolio"). The Fund on behalf of the
Portfolio herewith confirms its agreement with Warburg, Pincus Counsellors, Inc.
(the "Adviser") as follows:
1. Investment Description; Appointment
The Fund 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 Articles of Incorporation, 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 Directors of
the Fund. Copies of the Fund's Prospectus and Statement of Additional
Information relating to the Portfolio and Articles of Incorporation, as each may
be amended from time to time, have been or will be submitted to the Adviser. The
Fund 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
Directors of the Fund, the Adviser will (a) act in strict conformity with the
Fund's Articles of Incorporation, 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 Fund'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 and (d) place purchase and sale orders
for securities on behalf of the Portfolio. In providing those services, the
Adviser will provide investment research and
<PAGE>
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 Fund with whatever statistical information the Fund 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 Fund
The Adviser will keep the Fund informed of developments
materially affecting the Portfolio, and will, on its own initiative, furnish the
Fund from time to time with whatever information the Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
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 Fund or the Portfolio or to
shareholders of the Fund or the Portfolio to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement.
<PAGE>
6. 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 1.10% of the Portfolio's average daily net assets. The fee for
the period from the date the Fund's registration statement amendment relating to
the Portfolio becomes effective by the Securities and Exchange Commission to the
end of the year during which such registration statement amendment becomes
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 Fund's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
7. 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 Directors of the Fund who are
not officers, directors, or employees of the Adviser or any of its affiliates;
fees of any pricing service employed to value shares of the Portfolio;
Securities and Exchange Commission fees and state blue sky qualification fees;
charges of custodians and transfer and dividend disbursing agents; the
Portfolio's proportionate share of insurance premiums; outside auditing and
legal expenses; costs of maintenance of the Portfolio's 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 Directors of the
Fund; 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 Directors of the Fund with respect to such
litigation and other expenses as determined by the Directors.
<PAGE>
8. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Portfolio
(including fees pursuant to this Agreement and the Portfolio's administration
agreements, but excluding interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Portfolio, the Adviser will reimburse the
Portfolio for such excess expense. The Adviser's expense reimbursement
obligation will be limited to the amount of its fees received pursuant to this
Agreement. Such expense reimbursement, if any, will be estimated, reconciled and
paid on a monthly basis.
9. Services to Other Companies or Accounts
The Fund understands that the Adviser now acts, will continue
to act and may act in the future as investment adviser to fiduciary and other
managed accounts and to one or more other investment companies or series of
investment companies, and the Fund 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 Fund
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Portfolio. In addition, the Fund 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, 1999 and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (a) the Board of
Directors of the Fund or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Portfolio's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Directors 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 Directors of the
Fund or by vote of holders of a majority of the Portfolio's shares, or upon 90
days' written notice, by the Adviser. This
<PAGE>
Agreement will also terminate automatically in the event of its assignment
(as defined in said Act).
11. Representation by the Fund
The Fund represents that a copy of its Articles of
Incorporation filed on May 13, 1992, together with all amendments thereto, is on
file in the Department of Assessments and Taxation of the State of Maryland.
12. Miscellaneous
The Fund recognizes that directors, officers and employees of
the Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Fund agrees that, at the Adviser's request, the Fund's
license to use the words "Warburg, Pincus" will terminate and that the Fund will
take all necessary action to change the name of the Fund and the Portfolio to
names not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
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: Senior Vice President
<PAGE>
INVESTMENT ADVISORY AGREEMENT
July 30, 1997
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Institutional Fund, Inc., a corporation organized under
the laws of the State of Maryland (the "Fund"), is an open-end, management
investment company that currently offers six portfolios, one of which is the
Small Company Value Portfolio (the "Portfolio"). The Fund on behalf of the
Portfolio herewith confirms its agreement with Warburg, Pincus Counsellors, Inc.
(the "Adviser") as follows:
1. Investment Description; Appointment
-----------------------------------
The Fund 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 Articles of Incorporation, 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 Directors of
the Fund. Copies of the Fund's Prospectus and Statement of Additional
Information relating to the Portfolio and Articles of Incorporation, as each may
be amended from time to time, have been or will be submitted to the Adviser. The
Fund 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 Directors of
the Fund, the Adviser will (a) act in strict conformity with the Fund's Articles
of Incorporation, 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 Fund'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 and (d) place purchase and sale orders for
securities on behalf of the Portfolio. 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
<PAGE>
furnish the Fund with whatever statistical information the Fund 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 Fund
--------------------------------
The Adviser will keep the Fund informed of developments materially
affecting the Portfolio, and will, on its own initiative, furnish the Fund from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
----------------
The Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund 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 Fund or the Portfolio or to
shareholders of the Fund 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. Compensation
------------
In consideration of the services rendered pursuant to this Agreement,
the Portfolio will pay the Adviser an annual fee calculated at an annual rate of
.90% of the Portfolio's average daily net assets. The fee for the period from
the date the Fund's registration statement amendment relating to the
2
<PAGE>
Portfolio becomes effective by the Securities and Exchange Commission to the end
of the year during which such registration statement amendment becomes 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 Fund's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
7. 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 Directors of the Fund who are not officers,
directors, or employees of the Adviser or any of its affiliates; fees of any
pricing service employed to value shares of the Portfolio; Securities and
Exchange Commission fees and state blue sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; the Portfolio's
proportionate share of insurance premiums; outside auditing and legal expenses;
costs of maintenance of the Portfolio's 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 Directors of the Fund; 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 Directors of the Fund with respect to such litigation
and other expenses as determined by the Directors.
8. Reimbursement to the Fund
-------------------------
If in any fiscal year the aggregate expenses of the Portfolio
(including fees pursuant to this Agreement and the Portfolio's administration
agreements, but excluding interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Portfolio, the Adviser will reimburse the
Portfolio for such excess expense. The Adviser's expense reimbursement
3
<PAGE>
obligation will be limited to the amount of its fees received pursuant to this
Agreement. Such expense reimbursement, if any, will be estimated, reconciled
and paid on a monthly basis.
9. Services to Other Companies or Accounts
---------------------------------------
The Fund understands that the Adviser now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and to one or more other investment companies or series of investment
companies, and the Fund 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 Fund recognizes that
in some cases this procedure may adversely affect the size of the position
obtainable for the Portfolio. In addition, the Fund 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, 1999 and thereafter shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually by (a) the Board of Directors of the
Fund or (b) a vote of a "majority" (as defined in the Investment Company Act of
1940) of the Portfolio's outstanding voting securities, provided that in either
event the continuance is also approved by a majority of the Board of Directors
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 Directors of the Fund 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 Fund
--------------------------
The Fund represents that a copy of its Articles of Incorporation filed
on May 13, 1992, together with all amendments thereto, is on file in the
Department of Assessments and Taxation of the State of Maryland.
4
<PAGE>
12. Miscellaneous
-------------
The Fund recognizes that directors, officers and employees of the
Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Fund agrees that, at the Adviser's request, the Fund's
license to use the words "Warburg, Pincus" will terminate and that the Fund will
take all necessary action to change the name of the Fund and the Portfolio to
names not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS INSTITUTIONAL
FUND, INC.
By:/s/ Eugene P. Grace
---------------------------
Name: Eugene P. Grace
Title: Vice President & Secretary
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By: Eugene P. Grace
-----------------------------
Name: Eugene P. Grace
Title: Senior Vice President
5
<PAGE>
INVESTMENT ADVISORY AGREEMENT
July 30, 1997
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Institutional Fund, Inc., a corporation organized under
the laws of the State of Maryland (the "Fund"), is an open-end, management
investment company that currently offers six portfolios, one of which is the
Post-Venture Capital Portfolio (the "Portfolio"). The Fund on behalf of the
Portfolio herewith confirms its agreement with Warburg, Pincus Counsellors, Inc.
(the "Adviser") as follows:
1. Investment Description; Appointment
-----------------------------------
The Fund 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 Articles of Incorporation, 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 Directors of
the Fund. Copies of the Fund's Prospectus and Statement of Additional
Information relating to the Portfolio and Articles of Incorporation, as each may
be amended from time to time, have been or will be submitted to the Adviser. The
Fund 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 Directors of
the Fund, the Adviser will (a) act in strict conformity with the Fund's Articles
of Incorporation, 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 Fund'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 and (d) place purchase and sale orders for
securities on behalf of the Portfolio. 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
<PAGE>
furnish the Fund with whatever statistical information the Fund 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 Fund
--------------------------------
The Adviser will keep the Fund informed of developments materially
affecting the Portfolio, and will, on its own initiative, furnish the Fund from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
----------------
The Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund 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 Fund or the Portfolio or to
shareholders of the Fund 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. 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
1.10% of the Portfolio's average daily net assets. The fee for the period from
the date the Fund's registration statement amendment relating to the Portfolio
2
<PAGE>
becomes effective by the Securities and Exchange Commission to the end
of the year during which such registration statement amendment becomes 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 Fund's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
7. 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 Directors of the Fund who are not officers,
directors, or employees of the Adviser or any of its affiliates; fees of any
pricing service employed to value shares of the Portfolio; Securities and
Exchange Commission fees and state blue sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; the Portfolio's
proportionate share of insurance premiums; outside auditing and legal expenses;
costs of maintenance of the Portfolio's 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 Directors of the Fund; 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 Directors of the Fund with respect to such litigation
and other expenses as determined by the Directors.
8. Reimbursement to the Fund
-------------------------
If in any fiscal year the aggregate expenses of the Portfolio
(including fees pursuant to this Agreement and the Portfolio's administration
agreements, but excluding interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Portfolio, the Adviser will reimburse the
Portfolio for such excess expense. The Adviser's expense reimbursement
3
<PAGE>
obligation will be imited to the amount of its fees received pursuant to this
Agreement. Such expense reimbursement, if any, will be estimated, reconciled
and paid on a monthly basis.
9. Services to Other Companies or Accounts
---------------------------------------
The Fund understands that the Adviser now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and to one or more other investment companies or series of investment
companies, and the Fund 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 Fund recognizes that
in some cases this procedure may adversely affect the size of the position
obtainable for the Portfolio. In addition, the Fund 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, 1999 and thereafter shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually by (a) the Board of Directors of the
Fund or (b) a vote of a "majority" (as defined in the Investment Company Act of
1940) of the Portfolio's outstanding voting securities, provided that in either
event the continuance is also approved by a majority of the Board of Directors
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 Directors of the Fund 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 Fund
--------------------------
The Fund represents that a copy of its Articles of Incorporation filed
on May 13, 1992, together with all amendments thereto, is on file in the
Department of Assessments and Taxation of the State of Maryland.
4
<PAGE>
12. Miscellaneous
-------------
The Fund recognizes that directors, officers and employees of the
Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Fund agrees that, at the Adviser's request, the Fund's
license to use the words "Warburg, Pincus" will terminate and that the Fund will
take all necessary action to change the name of the Fund and the Portfolio to
names not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS INSTITUTIONAL
FUND, INC.
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: Senior Vice President
<PAGE>
SUB-INVESTMENT ADVISORY AGREEMENT
July 30, 1997
Abbott Capital Management, L.L.C.
50 Rowes Wharf
Boston, MA 02110
Dear Sirs:
Warburg, Pincus Institutional Fund, Inc. (the "Fund"), a
corporation organized and existing under the laws of the State of Maryland, on
behalf of the Post-Venture Capital Portfolio (the "Portfolio"), and Warburg,
Pincus Counsellors, Inc., as its investment adviser ("Warburg"), herewith
confirms their agreement with Abbott Capital Management, L.L.C. (the
"Sub-Adviser") as follows:
1. Investment Description; Appointment
The Fund desires to employ the capital of the Fund by
investing and reinvesting in securities of the kind and in accordance with the
limitations specified in the Fund's Articles of Incorporation, as may be amended
from time to time (the "Articles of Incorporation"), and in the Prospectus and
Statement of Additional Information, as from time to time in effect (the
"Prospectus" and "SAI," respectively), and in such manner and to such extent as
may from time to time be approved by the Board of Directors of the Fund. Copies
of the Prospectus, SAI and Articles of Incorporation have been or will be
submitted to the Sub-Adviser. The Fund agrees to provide the Sub-Adviser copies
of all amendments to the Prospectus and SAI on an on-going basis. The Fund
employs Warburg as its investment adviser. Warburg desires to employ and hereby
appoints the Sub-Adviser to act as its sub-investment adviser upon the terms set
forth in this Agreement. The Sub-Adviser accepts the appointment and agrees to
furnish the services set forth below for the compensation provided for herein.
2. Services as Sub-Investment Adviser
<PAGE>
(a) Subject to the supervision and direction of Warburg, the
Sub-Adviser will provide investment advisory assistance and portfolio management
advice to the Fund in accordance with (a) the Articles of Incorporation, (b) the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and all applicable Rules
and Regulations of the Securities and Exchange Commission (the "SEC") and all
other applicable laws and regulations and (c) the Fund's investment objective
and policies as stated in the Prospectus and SAI and investment parameters
provided by Warburg from time to time. In connection therewith, the Sub-Adviser
will:
(i) determine whether to purchase, retain or sell
interests in United States or foreign private investment vehicles that
themselves invest in debt and equity securities of companies in the venture
capital and post-venture capital stages of development or companies engaged in
special situations or changes in corporate control, including buyouts
("Investments"). The Sub-Adviser is hereby authorized to execute, or place
orders for the execution of, all Investments on behalf of the Fund;
(ii) assist the custodian and accounting agent for
the Fund in determining or confirming, consistent with the procedures and
policies stated in the Prospectus and SAI, the value of any Investments for
which the custodian and accounting agent seek assistance from or identify for
review by the Sub-Adviser;
(iii) monitor the execution of orders for the
purchase or sale of Investments and the settlement and clearance of those
orders;
(iv) exercise voting rights in respect of
Investments; and
(v) provide reports to the Fund's Board of Directors
for consideration at quarterly meetings of the Board on the Investments and
furnish Warburg and the Fund's Board of Directors with such periodic and special
reports as the Fund or Warburg may reasonably request.
(b) In connection with the performance of the services
of the Sub-Adviser provided for herein, the Sub-Adviser may contract at its
own expense with third parties for the
<PAGE>
acquisition of research, clerical services and other administrative services
that would not require such parties to be required to register as an investment
adviser under the Advisers Act; provided that the Sub-Adviser shall remain
liable for the performance of its duties hereunder.
3. Execution of Transactions
(a) The Sub-Adviser will not effect orders for the purchase or
sale of securities on behalf of the Fund through brokers or dealers as agents.
(b) It is understood that the services of the Sub-Adviser are
not exclusive, and nothing in this Agreement shall prevent the Sub-Adviser from
providing similar services to other investment companies or from engaging in
other activities, provided that those activities do not adversely affect the
ability of the Sub-Adviser to perform its services under this Agreement. The
Fund and Warburg further understand and acknowledge that the persons employed by
the Sub-Adviser to assist in the performance of its duties under this Agreement
will not devote their full time to that service. Nothing contained in this
Agreement will be deemed to limit or restrict the right of the Sub-Adviser or
any affiliate of the Sub-Adviser to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature, provided that
doing so does not adversely affect the ability of the Sub-Adviser to perform its
services under this Agreement.
(c) On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Fund as well as of other
investment advisory clients of the Sub-Adviser, the Sub-Adviser may, to the
extent permitted by applicable laws and regulations, but shall not be obligated
to, aggregate the securities to be so sold or purchased with those of its other
clients. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Sub-Adviser in a manner that is fair and equitable, in the judgment of the
Sub-Adviser, in the exercise of its fiduciary obligations to the Fund and to
such other clients. The Sub-Adviser shall provide to Warburg and the Fund all
information reasonably requested by Warburg and the Fund relating to the
decisions made by the Sub-Adviser regarding allocation of securities purchased
or sold, as well as the
<PAGE>
expenses incurred in a transaction, among the Fund and the Sub-Adviser's other
investment advisory clients.
(d) In connection with the purchase and sale of securities for
the Fund, the Sub-Adviser will provide such information as may be reasonably
necessary to enable the custodian and co-administrators to perform their
administrative and recordkeeping responsibilities with respect to the Fund.
4. Disclosure Regarding the Sub-Adviser
(a) The Sub-Adviser has reviewed the disclosure about the
Sub-Adviser contained in the Fund's registration statement and represents and
warrants that, with respect to such disclosure about the Sub-Adviser or
information related, directly or indirectly, to the Sub-Adviser, such
registration statement contains, as of the date hereof, no untrue statement of
any material fact and does not omit any statement of a material fact which is
required to be stated therein or necessary to make the statements contained
therein not misleading.
(b) The Sub-Adviser agrees to notify Warburg and the Fund
promptly of any (i) statement about the Sub-Adviser contained in the Fund's
registration statement that becomes untrue in any material respect or (ii)
omission of a material fact about the Sub-Adviser in the Fund's registration
statement which is required to be stated therein or necessary to make the
statements contained therein not misleading or (iii) any reorganization or
change in the Sub-Adviser, including any change in its ownership or key
employees.
(c) Prior to the Fund or Warburg or any affiliated person (as
defined in the 1940 Act, an "Affiliate") of either using or distributing sales
literature or other promotional material referring to the Sub-Adviser, the
Sub-Adviser shall have the right to approve the general advertising or
promotional plan pursuant to which such literature or material is being utilized
or distributed; provided that the Sub-Adviser shall be deemed to have approved
such advertising or plan if it has not objected to its use within ten (10)
business days after such material has been sent to it. The Fund or Warburg will
use all reasonable efforts to ensure that all advertising, sales and promotional
material used or distributed by or on behalf of the Fund or Warburg that refers
to the Sub-Adviser will comply with the
<PAGE>
requirements of the Advisers Act, the 1940 Act and the rules and regulations
promulgated thereunder.
(d) The Sub-Adviser has supplied Warburg and the Fund copies
of its Form ADV with all exhibits and attachments thereto and will hereinafter
supply Warburg, promptly upon preparation thereof, copies of all amendments or
restatements of such document.
5. Certain Representations and
Warranties of the Sub-Adviser
(a) The Sub-Adviser represents and warrants that it is a duly
registered investment adviser under the Advisers Act, a duly registered
investment adviser in any and all states of the United States in which the
Sub-Adviser is required to be so registered and has obtained all necessary
licenses and approvals in order to perform the services provided in this
Agreement. The Sub-Adviser covenants to maintain all necessary registrations,
licenses and approvals in effect during the term of this Agreement.
(b) The Sub-Adviser represents that it has read and
understands the Prospectus and SAI and warrants that in investing the Fund's
assets it will use all reasonable efforts to adhere to the Fund's investment
objectives, policies and restrictions contained therein.
6. Compliance
(a) The Sub-Adviser agrees that it shall promptly notify
Warburg and the Fund (i) in the event that the SEC or any other regulatory
authority has censured its activities, functions or operations; suspended or
revoked its registration as an investment adviser; or has commenced proceedings
or an investigation that may result in any of these actions, (ii) in the event
that there is a change in the Sub-Adviser, financial or otherwise, that
adversely affects its ability to perform services under this Agreement or (iii)
upon having a reasonable basis for believing that, as a result of the
Sub-Adviser's investing the Fund's assets, the Fund's investment portfolio has
ceased to adhere to the Fund's investment objectives, policies and restrictions
as stated in the Prospectus or SAI or is otherwise in violation of applicable
law.
<PAGE>
(b) Warburg agrees that it shall promptly notify the
Sub-Adviser in the event that the SEC has censured Warburg or the Fund; placed
limitations upon any of their activities, functions or operations; suspended or
revoked Warburg's registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions.
(c) The Fund and Warburg shall be given access to the records
of the Sub-Adviser at reasonable times solely for the purpose of monitoring
compliance with the terms of this Agreement and the rules and regulations
applicable to the Sub-Adviser relating to its providing investment advisory
services to the Fund, including without limitation records relating to trading
by employees of the Sub-Adviser for their own accounts and on behalf of other
clients. The Sub-Adviser agrees to cooperate with the Fund and Warburg and their
representatives in connection with any such monitoring efforts.
7. Books and Records
(a) In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Sub-Adviser hereby agrees that all records which it maintains
for the Fund are the property of the Fund and further agrees to surrender
promptly to either Warburg or the Fund any of such records upon the request of
either of them. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act and to preserve the records required
by Rule 204-2 under the Advisers Act for the period specified therein.
(b) The Sub-Adviser hereby agrees to furnish to regulatory
authorities having the requisite authority any information or reports in
connection with services that the Sub-Adviser renders pursuant to this Agreement
which may be requested in order to ascertain whether the operations of the Fund
are being conducted in a manner consistent with applicable laws and regulations.
8. Provision of Information;
Proprietary and Confidential Information
(a) Warburg agrees that it will furnish to the Sub-Adviser
information related to or concerning the Fund that the Sub-Adviser may
reasonably request.
<PAGE>
(b) The Sub-Adviser agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the Fund all
records and other information relative to the Fund, Warburg and prior, present
or potential shareholders and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder
except after prior notification to and approval in writing of the Fund, which
approval shall not be unreasonably withheld and may not be withheld where the
Sub-Adviser may be exposed to civil or criminal contempt proceedings for failure
to comply or when requested to divulge such information by duly constituted
authorities.
(c) The Sub-Adviser represents and warrants that neither it
nor any affiliate will use the name of the Fund, Warburg or any of their
affiliates in any prospectus, sales literature or other material in any manner
without the prior written approval of the Fund or Warburg, as applicable.
9. Standard of Care
The Sub-Adviser shall exercise its best judgment in rendering
the services described herein. The Sub-Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund or Warburg in
connection with the matters to which this Agreement relates, except that the
Sub-Adviser shall be liable for a loss resulting from a breach of fiduciary duty
by the Sub-Adviser with respect to the receipt of compensation for services;
provided that nothing herein shall be deemed to protect or purport to protect
the Sub-Adviser against any liability to the Fund or Warburg or to shareholders
of the Fund to which the Sub-Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Adviser's reckless disregard
of its obligations and duties under this Agreement. The Fund and Warburg
understand and agree that the Sub-Adviser may rely upon information furnished to
it reasonably believed by the Sub-Adviser to be accurate and reliable and,
except as herein provided, the Sub-Adviser shall not be accountable for loss
suffered by the Fund by reason of such reliance of the Sub-Adviser.
<PAGE>
10. Indemnification
(a) The Sub-Adviser agrees to indemnify and hold harmless the
Fund, Warburg, any affiliate thereof, and each person, if any, who, within the
meaning of Section 15 of the Securities Act of 1933, as amended (the "1933
Act"), controls ("controlling person") any or all of the Fund and Warburg (all
of such persons being referred to as "Fund Indemnified Persons") against any and
all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which any Fund Indemnified Person may become subject under
the 1933 Act, the 1940 Act, the Advisers Act, the Internal Revenue Code of 1986,
as amended (the "Code"), or under any other statute, at common law or otherwise,
arising out of the Sub-Adviser's responsibilities as Sub-Adviser to the Fund
which (i) may be based upon any misfeasance, malfeasance or nonfeasance by the
Sub-Adviser, or any of its employees or representatives, or any affiliate of or
any person acting on behalf of the Sub-Adviser, (ii) may be based upon a failure
to comply with paragraph 5(b) of this Agreement, or (iii) may be based upon any
untrue statement or alleged untrue statement of a material fact about the
Sub-Adviser contained in the registration statement covering the shares of the
Fund, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact about the Sub-Adviser known or which
should have been known to the Sub-Adviser and was required to be stated therein
or necessary to make the statements therein not misleading, if such a statement
or omission was made in reliance upon information furnished to Warburg, the Fund
or any affiliate thereof by the Sub-Adviser or any affiliate of the Sub-Adviser;
provided that in no case shall the indemnity in favor of any Fund Indemnified
Person be deemed to protect such persons against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
(b) The Fund agrees to indemnify and hold harmless the
Sub-Adviser, any of its affiliates, and each controlling person, if any, of the
Sub-Adviser (all of such persons being referred to as "Sub-Adviser Indemnified
Persons") against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which any Sub-Adviser Indemnified Person
may become subject under the 1933 Act, the 1940 Act, the Advisers Act, the Code
or under any other statute, at common law or
<PAGE>
otherwise, which (i) may be based upon any misfeasance, malfeasance or
nonfeasance by the Fund or Warburg, or any of their respective employees or
representatives, or any affiliate of or any person acting on behalf of the Fund
or Warburg, (ii) may be based upon a failure by the Fund or Warburg to comply
with this Agreement, or (iii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration statement
covering the shares of the Fund, or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact known or which
should have been known to the Fund and was required to be stated therein or
necessary to make the statements therein not misleading, unless such a statement
or omission was made in reliance upon information furnished to Warburg, the Fund
or any affiliate thereof by the Sub-Adviser or any affiliate of the Sub-Adviser;
provided that in no case shall the indemnity in favor of any Sub-Adviser
Indemnified Person be deemed to protect such persons against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties under this
Agreement.
(c) A party (the "Indemnifying Person") shall not be liable
under paragraphs 10(a) or 10(b) herein with respect to any claim made against
any Fund Indemnified Person or Sub-Adviser Indemnified Person, as applicable (a
Fund Indemnified Person and a Sub-Adviser Indemnified Person may be referred to
in this paragraph 10(c) as an "Indemnified Person"), unless such Indemnified
Person shall have notified the Indemnifying Person in writing within a
reasonable time after the summons, notice or other first legal process or notice
giving information of the nature of the claim shall have been served upon such
Indemnified Person (or after such Indemnified Person shall have received notice
of such service on any designated agent), but failure to notify the Indemnifying
Person of any such claim shall not relieve the Indemnifying Person from any
liability which it may have to any Indemnified Person against whom such action
is brought otherwise than on account of this paragraph 10. In case any such
action is brought against any Indemnified Person, the Indemnifying Person will
be entitled to participate, at its own expense, in the defense thereof or, after
notice to the Indemnified Person, to assume the defense thereof, with counsel
satisfactory to the Indemnified Person. If the Indemnifying Person assumes the
defense of any such action and the selection
<PAGE>
of counsel by the Indemnifying Person to represent the
Indemnifying Person and the Indemnified Person would result in a conflict of
interests and therefore would not, in the reasonable judgment of the Indemnified
Person, adequately represent the interests of the Indemnified Person, the
Indemnifying Person will, at its own expense, assume the defense with counsel to
the Indemnifying Person and, also at its own expense, with separate counsel to
the Indemnified Person which counsel shall be satisfactory to the Indemnifying
Person and to the Indemnified Person. The Indemnified Person shall bear the fees
and expenses of any additional counsel retained by it, and the Indemnifying
Person shall not be liable to the Indemnified Person under this Agreement for
any legal or other expenses subsequently incurred by the Indemnified Person
independently in connection with the defense thereof other than reasonable costs
of investigation. The Indemnifying Person shall not have the right to compromise
on or settle the litigation without the prior written consent of the Indemnified
Person if such compromise or settlement results, or may result, in a finding of
wrongdoing on the part of the Indemnified Person.
11. Compensation
In consideration of the services rendered pursuant to this
Agreement, Warburg will pay the Sub-Adviser a quarterly fee calculated at an
annual rate of 1.00% of the net asset value of the Investments as of the last
day of each calendar quarter. The fee for the period from the date of this
Agreement to the end of the quarter during which this Agreement commenced shall
be prorated according to the proportion that such period bears to the full
quarterly period. Such fee shall be paid by Warburg to the Sub-Adviser within
ten (10) business days after the last day of each quarter or, upon termination
of this Agreement before the end of a quarter, within ten (10) business days
after the effective date of such termination. Upon any termination of this
Agreement before the end of a quarter, the fee for such part of that quarter
shall be prorated according to the proportion that such period bears to the full
quarterly period. For the purpose of determining fees payable to the
Sub-Adviser, the value of the Investments shall be computed in the manner
specified in the Prospectus or SAI. The Sub-Adviser shall have no right to
obtain compensation directly from the Fund for services provided hereunder and
agrees to look solely to Warburg for payment of fees due.
<PAGE>
12. Expenses
(a) The Sub-Adviser will bear all expenses in connection with
the performance of its services under this Agreement, which shall not include
the Fund's expenses listed in paragraph 12(b).
(b) The Fund will bear certain other expenses to be incurred
in its operation, including: investment advisory and administration fees; taxes,
interest, brokerage fees and commissions, if any; fees of Directors of the Fund
who are not officers, directors, or employees of the Fund, Warburg or the
Sub-Adviser or affiliates of any of them; fees of any pricing service employed
to value shares of the Fund; SEC fees, state Blue Sky qualification fees and any
foreign qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's proportionate share of insurance premiums; outside
auditing and legal expenses; costs of maintenance of the Fund'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 Fund and of the officers or Board of Directors of the Fund;
and any extraordinary expenses.
13. Term of Agreement
This Agreement shall commence on the date first written above
and shall continue until April 17, 1998, and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by (a) the Board of Directors of the
Fund or (b) a vote of a "majority" (as defined in the 1940 Act) of the Fund's
outstanding voting securities, provided that in either event the continuance is
also approved by a majority of the Board of Directors who are not "interested
persons" (as defined the 1940 Act) of any party to this Agreement, by vote cast
in person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable, without penalty, (i) by Warburg on 60 (sixty) days'
written notice to the Fund and the Sub-Adviser, (ii) by the Board of Directors
of the Fund or by vote of holders of a majority of the Fund's shares on 60
(sixty) days' written notice to Warburg and the Sub-Adviser, or (iii) by the
Sub-
<PAGE>
Adviser upon 60 (sixty) days' written notice to the Fund and
Warburg. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act) by any party hereto. In the event of
termination of this Agreement for any reason, all records relating to the Fund
kept by the Sub-Adviser shall promptly be returned to Warburg or the Fund, free
from any claim or retention of rights in such records by the Sub-Adviser. In the
event this Agreement is terminated or is not approved in the foregoing manner,
the provisions contained in paragraph numbers 4(c), 7, 8, 9 and 10 shall remain
in effect.
14. Amendments
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (a) the holders of a majority of the
outstanding voting securities of the Fund and (b) the Board of Directors of the
Fund, including a majority of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund or of either party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
15. Notices
All communications hereunder shall be given (a) if to the
Sub-Adviser, to Abbott Capital Management, L.L.C., 1330 Avenue of the Americas,
Suite 2800, New York, New York 10019 (Attention: Raymond L. Held), telephone:
(212) 757-2700, telecopy: (212) 757-0835, (b) if to Warburg, to Warburg, Pincus
Counsellors, Inc., 466 Lexington Avenue, New York, New York 10017-3147
(Attention: Eugene P. Grace), telephone: (212) 878-0600, telecopy: (212)
878-9351, and (c) if to the Fund, c/o Warburg Pincus Funds, 466 Lexington
Avenue, New York, New York 10017-3147, telephone: (212) 878-0600, telecopy:
(212) 878-9351 (Attention: President).
16. Choice of Law
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York in the United States,
including choice of law principles; provided that nothing herein shall be
construed in a manner inconsistent with the 1940 Act, the Advisers Act or any
applicable rules, regulations or orders of the SEC.
17. Miscellaneous
(a) The captions of this Agreement are included for
convenience only and in no way define or limit any of the provisions herein or
otherwise affect their construction or effect.
(b) If any provision of this Agreement shall be held or made
invalid by a court decision, by statute or otherwise, the remainder of this
Agreement shall not be affected thereby and, to this extent, the provisions of
this Agreement shall be deemed to be severable.
(c) Nothing herein shall be construed to make the Sub-Adviser
an agent of Warburg or the Fund.
(d) This Agreement may be executed in counterparts, with the
same effect as if the signatures were upon the same instrument.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS COUNSELLORS, INC.
By: _________________________________
Name:
Title:
WARBURG PINCUS INSTITUTIONAL FUND, INC.
By: _________________________________
Name:
Title:
ABBOTT CAPITAL MANAGEMENT, L.L.C.
By: _______________________________
Name:
Title:
<PAGE>
DISTRIBUTION AGREEMENT
, 1997
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that Counsellors Securities Inc. shall be
the distributor of shares of common stock, par value $.001 per share, issued by
the Japan Growth Portfolio of Warburg, Pincus Institutional Fund, Inc. (the
"Fund") under terms of the Distribution Agreement between the Fund and
Counsellors Securities Inc., dated August 26, 1992.
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 INSTITUTIONAL
FUND, INC.
By:
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By:
Name:
Title:
<PAGE>
DISTRIBUTION AGREEMENT
---------------, 1997
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that Counsellors Securities Inc. shall be
the distributor of shares of common stock, par value $.001 per share, issued by
the Small Company Value Portfolio of Warburg, Pincus Institutional Fund, Inc.
(the "Fund") under terms of the Distribution Agreement between the Fund and
Counsellors Securities Inc., dated August 26, 1992.
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 INSTITUTIONAL
FUND, INC.
By:
---------------------------
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By:
------------------------
Name:
Title:
DISTRIBUTION AGREEMENT
, 1997
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that Counsellors Securities Inc. shall be
the distributor of shares of common stock, par value $.001 per share, issued by
the Post-Venture Capital Portfolio of Warburg, Pincus Institutional Fund, Inc.
(the "Fund") under terms of the Distribution Agreement between the Fund and
Counsellors Securities Inc., dated August 26, 1992.
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 INSTITUTIONAL
FUND, INC.
By:
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By:
Name:
Title:
<PAGE>
CUSTODIAN SERVICES AGREEMENT
__, 1997
PNC Bank, National Association
Airport Business Center
200 Stevens Drive
International Court 2
Lester, PA 19113
Dear Sirs:
In accordance with Article 17 of the Custodian Services Agreement Terms
and Conditions, dated August 26, 1992 (the "Agreement"), between Warburg, Pincus
Institutional Fund, Inc. (the "Fund") and PNC Bank, National Association
("PNC"), the Fund hereby notifies PNC of the Fund's desire to amend Exhibit A of
the Agreement to include the Japan Growth Portfolio, the Small Company Value
Portfolio and the Post-Venture Capital Portfolio (together, the "Portfolios"),
and to have PNC render services as custodian under the terms of the Agreement
with respect to the Portfolios.
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 INSTITUTIONAL FUND, INC.
By:
Name:
Title:
Acceptance:
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
<PAGE>
CUSTODIAN CONTRACT
This Contract is between Warburg, Pincus *[name of Fund], a *[business
trust/corporation] organized and existing under the laws of *[The Commonwealth
of Massachusetts/the State of Maryland], having a Board of *[Trustees/Directors]
(the "Board") and its principal place of business at 466 Lexington Avenue, New
York, New York 10017 (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 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund intends to offer shares in one or more series as
listed on Schedule F hereto (such series, together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with Article 20 hereof, being herein referred to as the
"Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby 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 Portfolio(s), including securities which the Fund, on behalf of the
applicable Portfolio, desires to be held in places within the United States of
America ("domestic securities") and securities it desires to be held outside the
United States of America ("foreign securities") pursuant to the provisions of
the Fund's *[declaration of trust on file with the Secretary of The Commonwealth
of Massachusetts /Articles of Incorporation], as amended from time to time (the
"Charter"). The Fund, on behalf of the Portfolio(s), agrees to deliver to the
Custodian all securities and cash of such Portfolios generally described in
Schedule F, 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 *[capital stock/beneficial interest] ("Shares")
of the Fund representing interests in the Portfolios 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 Fund on behalf of a Portfolio and not
delivered to (i) the Custodian to be held by it, (ii) a sub-custodian located in
the United States and employed pursuant to this Article 1 or (iii) a foreign
sub-custodian or a foreign securities system employed pursuant to Article 3.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), 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 of America, including any state or
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political subdivision thereof and any territory over which its political
sovereignty extends (the "United States" or "U.S."), but only in accordance with
an applicable vote by the Board. The Custodian may also employ as sub-custodians
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign sub-custodians and foreign securities depositories designated in
Schedule A hereto but only in accordance with the terms hereof and an applicable
vote of the Board on behalf of the applicable Portfolio(s).
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 in a "U.S.
Securities System" (as such term is defined in Section 2.10 of this
Contract) and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct Paper
System") which is deposited and/or maintained in the Custodian's Direct
Paper Book Entry System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio and (i) held by the Custodian,
(ii) held in an account of the Custodian in a U.S. Securities System
(as defined in Section 2.10 hereof) or (iii) held in the Direct Paper
System Account (as defined in Section 2.11 hereof), 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 cases listed below. Any U.S. Securities
System account shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for its customers
("U.S. Securities System Account"). The Custodian's Direct Paper
Book-Entry System account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account").
1) Upon sale of such securities for the account of the Portfolio
and receipt of full 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; provided
that the Custodian shall have taken reasonable
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steps to ensure timely collection of the payment for, or the
return of, such securities by the depository agent;
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; and
provided further that the Custodian shall have taken
reasonable steps to ensure timely collection of such cash or
other consideration;
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 domestic sub-custodian appointed
pursuant to Article 1; or for exchange 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 the Custodian;
7) In the case of delivery of physical certificates or
instruments representing securities, 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 taken reasonable steps
to ensure prompt collection of the payment for, or the return
of, such securities by the broker or its clearing agent, 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 or
protective plan; provided that, in any such case, the new
securities and/or cash are to be delivered to the Custodian;
9) In the case of warrants, puts, calls, futures contracts,
options, rights or similar securities, the surrender thereof
in the exercise or sale of such warrants, puts, calls, futures
contracts, options, rights or similar securities; provided
that, in any such case, the securities and cash received in
exchange therefor are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio to the borrower thereof in accordance with
the terms of a written securities lending
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agreement to which a Portfolio is a party or is otherwise
approved 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 U.S. Securities System Account,
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 provided that, if Proper
Instructions require such delivery to be made through a U.S.
Securities System, such delivery is made in accordance with
the requirements of such U.S. Securities System;
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;
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 of any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), 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 Fund's currently effective prospectus and statement of
additional information related to the Portfolio (the
"Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption;
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 copy of a resolution of the
Board or of any executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or
Assistant Secretary (a "Certified Resolution") specifying the
securities of the Portfolio to be delivered,
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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; and
16) Upon the termination of this Contract as hereinafter set
forth, in accordance with Article 16 hereof.
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 domestic
sub-custodian appointed pursuant to Article 1. The Portfolios reserve
the right to instruct the Custodian as to the method of registration
and safekeeping of the securities of the Portfolios. 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 at
the time of delivery on behalf of the Portfolio.
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 1940, as amended (the
"1940 Act"). 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 (a "Banking
Institution") as it may in its discretion deem necessary or desirable;
provided, however, that every Banking Institution shall be qualified to
act as a custodian under the 1940 Act, and that each such Banking
Institution and the funds to be deposited with each Banking Institution
on behalf of each applicable Portfolio shall be approved by vote of a
majority of the Board. 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 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.
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2.6 Collection of Income. Subject to the provisions of the last sentence of
the first paragraph of this Section 2.6, the Custodian shall collect on
a timely basis all income and other payments with respect to United
States-registered 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 domestic bearer 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 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. If
payment is not received by the Custodian within a reasonable time after
proper demands have been made, the Custodian shall so notify the Fund
in writing and send copies of all demand letters, any written responses
and memoranda of all oral responses to telephonic demands therefor. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts to timely
collect income due the Fund on such securities.
Collection of income due each Portfolio on domestic 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 in its possession 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 1940 Act
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 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, another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities
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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 (4), (5), (8) or (9) 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, advisory
fees, administration fees, accounting fees, transfer agent
fees, 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 and capital distributions 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 Resolution, 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; and
8) Upon the termination of this Contract as hereinafter set
forth, in accordance with Article 16.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of domestic securities
for the account of a Portfolio is (i) made by the Custodian in advance
of receipt of the securities purchased and (ii) such payment in advance
of receipt is not made with respect to a transaction settling via the
Depository Trust Company, in the absence of Proper Instructions from
the Fund on behalf of such Portfolio to so pay in advance the Custodian
shall be absolutely liable to the Fund for the non-receipt of such
securities purchased except as specifically stated
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otherwise in Sections 2.7(1)(e), 2.7(2) and 2.10(3) of this Contract,
in which case the Custodian will be subject to the standard of care set
forth in Article 13 hereof.
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 1940 Act, 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 Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, 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 or its
successor or successors (each a "U.S. Securities System") in accordance
with applicable Federal Reserve Board and SEC rules and regulations, if
any, and subject to the following provisions:
1) The Custodian may keep eligible domestic securities of the
Portfolio in a U.S. Securities System provided that such
securities are held in a U.S. Securities System Account;
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 domestic securities purchased for
the account of the Portfolio only upon (i) receipt of advice
from the U.S. Securities System that such securities have been
transferred to the U.S. Securities System 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 only upon (x) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the U.S. Securities System Account and (y) 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 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;
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4) The Custodian shall provide the Fund on behalf of the
Portfolio(s) 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 certificate required by Article 14
hereof; and
6) The Custodian, at the Fund's expense in the absence of
negligence or willful misconduct on the Custodian's part or on
the part of sub-custodians or agents appointed pursuant to
this Contract, shall enforce on behalf of the Fund such rights
as it may have against the U.S. Securities System. 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, bad faith 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
the Direct Paper Account;
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
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entry 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 Direct Paper System for the account
of the Portfolio; and
6) The Custodian shall provide the Fund with any report on its
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Direct Paper
System which had been prepared as of the time of such request.
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
a U.S. Securities System 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 or of any registered national securities exchange
(or the Commodity Futures Trading Commission and/or any 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 and/or securities in
connection with (a) options purchased, sold or written by the
Portfolio, (b) commodity futures contracts or options thereon
purchased, sold or written by the Portfolio or (c) other transactions
requiring segregation as described in the Fund's registration statement
as in effect from time to time, (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 SEC
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of this clause (iv), upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the applicable
Portfolio, a Certified Resolution setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper
corporate purposes.
2.13 Proxies. The Custodian or its sub-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
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voted, and shall promptly deliver to the Fund on behalf of the
Portfolio all proxies, including those for bearer securities, all proxy
soliciting materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund for each Portfolio all written notices,
announcements or information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of
rights in connection therewith, notices of exercise of call and put
options written by the Fund on behalf of the Portfolio and the maturity
of futures contracts and options thereon 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
or other similar transactions, the Custodian shall transmit promptly to
the Portfolio all written notices, announcements or information
received by the Custodian from issuers of the securities whose tender
or exchange is sought and from the party (or its agents) making the
tender or exchange offer. If the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts to notify the Fund of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or exchange
offers. 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 two (2) business days
prior to the date on which the Custodian is to take such action; with
respect to notice given by the Portfolio to the Custodian subsequent
thereto, the Custodian shall use its best efforts under the
circumstances to take the requested action.
2.15 Reports to Fund by Independent Public Accountant. The Custodian shall
provide the Fund with reports by independent public accountants on
accounting system, internal accounting control and procedures for
safeguarding cash, securities, futures contracts and options on futures
contracts and other assets, including cash, securities and other assets
deposited and/or maintained in a U.S. Securities System (as defined in
Section 2.10) or with a sub-custodian, 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.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside 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
eligible foreign custodians as defined in Rule 17f-5 under the 1940 Act
("Rule 17f-5") designated on Schedule A hereto (the "foreign
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sub-custodians"). Upon receipt of Proper Instructions, together with a
Certified Resolution, the Custodian and the Fund on behalf of the
Portfolio(s) may agree to amend Schedule A hereto from time to time to
designate additional or different foreign sub-custodians. Upon receipt
of Proper Instructions, the Fund may instruct the Custodian to cease
the employment of any one or more such foreign 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, (b)
cash and cash equivalents in such amounts as the Custodian may
determine to be reasonably necessary to effect the Portfolio's foreign
securities transactions and (c) such cash and securities as the Fund
shall give Proper Instructions to be held in segregated accounts
pursuant to Section 3.21 hereof. The Custodian shall identify on its
books as belonging to the Fund the foreign securities of the Fund held
by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolio(s) shall
be maintained in a clearing agency or a securities depository within
the meaning of Rule 17f-5(c)(2)(iii) and (iv) listed on Schedule A
(each a "foreign securities system") only through arrangements
implemented by the foreign banking institutions (as defined in Section
3.5 below) serving as sub-custodians pursuant to the terms hereof
(foreign securities systems and U.S. Securities Systems are referred to
herein collectively as the "Securities Systems"). Where possible after
reasonable efforts, 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, (ii) the Custodian shall
require that the securities and other non-cash property so held by the
foreign sub-custodian be held separately from the assets of the foreign
sub-custodian or of others, (iii) the Custodian shall reconcile the
holdings of each customer in the single account daily, and (iv) such
holding shall be consistent with the terms of the SEC staff no-action
letter to the Custodian (NO. 95-35-CC) or subsequent SEC position or
Rule.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign sub-custodian as defined in Rule 17f-5(c)(2)(i) or (ii) (each a
"foreign banking institution") shall provide that (a) the Fund's assets
will be indemnified or its assets insured in the event of loss; (b) 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
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creditors or agent, except a claim of payment for their safe custody or
administration; (c) beneficial ownership of the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (d) adequate records
will be maintained identifying the assets as held by the Custodian on
behalf of its customers; (e) 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; (f) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents; and (g) such foreign banking institution shall notify
the Custodian in the event that it ceases to qualify as either a branch
of a "qualified U.S. bank" or an "eligible foreign custodian", as such
terms are defined in Rule 17f-5(c), as amended.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of the 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 Delivery of Securities. The Custodian (or its foreign sub-custodian)
shall release and deliver foreign securities of a Portfolio held by the
foreign sub-custodian, or in a foreign securities system account of the
Custodian (or its foreign sub-custodian), 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:
(a) Upon sale of such securities for the Portfolio in accordance
with reasonable market practice in the jurisdiction where such
securities are held or traded, including, without limitation:
(i) delivery against expectation of receiving later payment
where such delivery is the customarily established securities
trading practice generally accepted by Institutional Clients
(as hereinafter defined) in the jurisdiction or market where
the transaction occurs; or (ii) in the case of a sale effected
through a foreign securities system, in accordance with the
rules governing the operation of the foreign securities
system;
(b) In connection with any repurchase agreement related to such
securities;
(c) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio; provided that
the Custodian (or its foreign sub-custodian) shall have taken
reasonable steps in accordance with procedures generally
accepted by Institutional Clients in the particular market to
ensure
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timely collection of the payment for, or the return of, such
securities by the depository agent;
(d) 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 (or its
foreign sub-custodian); and provided further that the
Custodian (or its foreign sub-custodian) shall have taken
reasonable steps in accordance with procedures generally
accepted by Institutional Clients in the particular market to
ensure timely collection of such cash or other consideration;
(e) To the issuer thereof, or its agent, for transfer into the
name of the Custodian (or its foreign sub-custodian) or of any
nominee of the Custodian (or its foreign sub-custodian) or for
exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian (or its
foreign sub-custodian);
(f) To brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market
custom; provided that, in any such case, the Custodian (or its
foreign sub-custodian) shall have taken reasonable steps in
accordance with procedures generally accepted by Institutional
Clients in the particular market to ensure prompt collection
of the payment for, or the return of, such securities by the
broker, clearing bank or clearing agent, the Custodian (or its
foreign sub-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 negligence or willful misconduct
of the Custodian (or of its foreign sub-custodian);
(g) 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/or
cash are to be delivered to the Custodian (or its foreign
sub-custodian) in accordance with procedures generally
accepted by Institutional Clients in the particular market;
(h) In the case of warrants, puts, calls, futures contracts,
options, rights or similar securities, the surrender thereof
in the exercise or sale of such warrants, puts, calls, futures
contracts, options, rights or similar securities; provided
that, in any such case, the securities and cash received in
exchange therefor are to be delivered to the Custodian (or its
foreign sub-custodian) in accordance with procedures generally
accepted by Institutional Clients in the particular market;
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(i) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets of the Portfolio by the
Fund, but only against receipt of amounts borrowed;
(j) In connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(k) In connection with the loan of securities made by the
Portfolio to the borrower thereof in accordance with (i) the
terms of a written securities lending agreement to which a
Portfolio and State Street Bank and Trust Company, as lending
agent, are parties or (ii) in accordance with the terms of
Proper Instructions;
(l) For any other purpose, but only upon receipt of a Certified
Resolution and Proper Instructions specifying the securities
to be delivered, setting forth the purpose for which 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; and
(m) Upon termination of this Contract as hereinafter set forth, in
accordance with Article 16 hereof.
3.8 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, or direct its foreign sub-custodians to pay out, monies
of a Portfolio in the following cases only:
(a) Upon the purchase of foreign securities, options, futures or
options on futures contracts for the Portfolio, unless
otherwise directed by Proper Instructions, by (i) delivering
money to the seller thereof or to a dealer therefor (or an
agent for such seller or dealer), against delivery of such
securities to the foreign sub-custodian; or (ii) in accordance
with the customarily established securities trading practices
generally accepted by Institutional Clients in the
jurisdiction or market in which the transaction occurs,
against expectation of receiving later delivery of such
securities; or (iii) in the case of a purchase effected
through a foreign securities system, in accordance with the
rules governing the operation of such foreign securities
system;
(b) In connection with the conversion, exchange or surrender of
securities of the Portfolio as set forth in Section 3.7
hereof;
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(c) For the payment of any expense or liability including but not
limited to the following payments for the account of the
Portfolio: interest, taxes, advisory, administration,
accounting, transfer agent and legal fees, and operating
expenses;
(d) For the purchase or sale of foreign exchange or foreign
exchange contracts for the Portfolio, including transactions
executed with or through the Custodian or its foreign
sub-custodians;
(e) In connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(f) In connection with the borrowing of securities;
(g) For any purpose, but only upon receipt of a Certified
Resolution and Proper Instructions specifying the amount of
such payment and naming the person or persons to whom such
payment is to be made; and
(h) Upon termination of this Contract as hereinafter set forth, in
accordance with Article 16 hereof.
3.9 Market Conditions. 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 securities trading or securities
processing practices and procedures generally accepted by Institutional
Clients 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. For purposes
of this Contract, "Institutional Clients" means U.S. registered
investment companies, or major, U.S.-based commercial banks, insurance
companies, pension funds or substantially similar financial
institutions which as a part of their ordinary business operations,
purchase or sell securities and make use of non-U.S. custodial
services. For the purposes of this section, the "DVP/RVP Model" is a
settlement system which offers a simultaneous and irrevocable exchange
of securities (on the delivery side) and cash value (on the payment
side) to settle a transaction. The Custodian will provide the Fund (i)
with a copy of The Guide to Custody in World Markets, which at the time
of its printing shall contain the Custodian's best information with
respect to customary securities trading or securities processing
practices and procedures generally accepted by Institutional Clients in
the jurisdictions and markets set forth therein, (ii) a summary
extracted therefrom and dated the date hereof which shall set forth the
Custodian's best information with respect to the markets in which some
or all securities transactions do not settle in accordance with the
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DVP/RVP Model, and (iii) updates to The Guide to Custody in World
Markets as published and to the aforementioned summary as appropriate.
3.10 Registration of Securities. Securities maintained in the custody of a
foreign banking institution (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 in the name of any nominee of
the Custodian or of such foreign banking institution, and the Fund
agrees to hold any such nominee harmless from any liability arising
solely as a result of its status as a holder of record of such
securities unless liability results from the negligence, bad faith or
willful misconduct on the part of such nominee, the Custodian or such
foreign banking institution. The Custodian and its foreign
sub-custodian shall not be obligated to accept securities on behalf of
a Portfolio under the terms of this Contract unless the form of such
securities and the manner in which they are delivered are in accordance
with reasonable market practice in the particular jurisdiction and
generally accepted by Institutional Clients.
3.11 Bank Accounts. The Custodian (or its foreign sub-custodian) may open
and maintain outside the United States a bank account or bank accounts
on behalf of the Fund or its applicable Portfolios in foreign banking
institutions designated on Schedule A, subject only to draft or order
by the Custodian or its foreign sub-custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the
account of the Fund on behalf of its applicable Portfolios.
3.12 Collection of Income. The Custodian (or its foreign sub-custodian)
shall use reasonable efforts in accordance with market practice
generally accepted by Institutional Clients to collect all income and
other payments in due course with respect to the securities held
hereunder to which the applicable Portfolio shall be entitled and shall
credit such income, as collected, to the applicable Portfolio. With
respect to Portfolio securities held in an account with a foreign
banking institution as described in Section 3.4 hereof, income
collected with respect to such securities will be allocated to the
Portfolio pro-rata based on the Portfolio's settled and registered
position in such securities. In the event that extraordinary measures
are required to collect such income, the Fund and the Custodian shall
consult as to such measures and as to the compensation and expenses of
the Custodian attendant thereto.
Collection of income due each Portfolio on securities loaned 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 in its possession as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian
or its foreign sub-custodians of the income to which the Portfolio is
properly entitled.
3.13 Appointment of Agents. The Custodian (or its foreign sub-custodian) may
at any time or times in its discretion appoint (and may at any time
remove) agents to carry out such of
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the provisions of this Article 3 as the Custodian (or its foreign
sub-custodian) may from time to time direct; provided, however, that
any such agent shall be an "eligible foreign custodian" within the
meaning of Rule 17f-5 under the 1940 Act and that the appointment of
any agent shall not relieve the Custodian (or such foreign
sub-custodian) of its responsibilities or liabilities hereunder.
3.14 Proxies. The Custodian will generally, with respect to the foreign
securities held under this Article 3, use best efforts accepted by
Institutional Clients to facilitate the exercise of voting and other
shareholder proxy rights, subject always to the laws, regulations and
practical constraints that may obtain in the jurisdiction where such
securities are issued. The Fund acknowledges that local conditions may
have the effect of severely limiting the ability of the Fund to
exercise shareholder rights.
3.15 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of securities and
expirations of rights in connection therewith) received by the
Custodian via its sub-custodians from issuers of the securities being
held for the account of the applicable Portfolio. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Fund written information so received by the Custodian from issuers of
the securities whose tender or exchange is sought or from the party (or
his or its agents) making the tender or exchange offer. Provided the
Custodian has complied with the requirements in the previous sentence,
the Custodian shall not be liable for any untimely exercise of any
tender, exchange or other right or power in connection with securities
or other property of a Portfolio at any time held by it or its foreign
subcustodians unless (i) it or its foreign subcustodians are in actual
possession of such securities or property and (ii) it receives Proper
Instructions with regard to the exercise of any such right or power,
and both (i) and (ii) occur at least three business days prior to the
date on which such right or power is to be exercised. With respect to
Proper Instructions received by the Custodian thereafter, the Custodian
shall use its best efforts in the light of local conditions to take the
requested action.
3.16 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 (i) to exercise reasonable
care in the performance of its duties and (ii) 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. The Custodian shall
take reasonable steps, which, in the absence of negligence or willful
misconduct on the Custodian's part or on the part of the relevant
foreign banking institution, shall be at the relevant Portfolio's
expense, to enforce effectively (i) the rights of the Custodian and the
Fund under such agreements and (ii), in the event of any loss, damage,
cost, expense, liability or claim arising out of or in connection with
the performance of a foreign securities system, the
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rights of the Custodian, the applicable foreign banking institution or
the Fund against such system.
3.17 Subrogation. If the Custodian shall be unsuccessful in enforcing its
and the Fund's rights as set forth in Section 3.16 hereof, it shall so
inform the Fund, noting the steps it has taken. Thereafter, at the
election of the Fund on behalf of the Portfolio, (a) the Fund 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 Portfolio has not been made whole for any such loss,
damage, cost, expense, liability or claim, (b) the Fund shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claims against a foreign securities system which the Custodian
may have as a consequence of any loss, damage, cost, expense, liability
or claim arising out of or in connection with the performance by a
foreign securities system if and to the extent that the relevant
Portfolio(s) has not been made whole for any such loss, damage, cost,
expense, liability or claim, and (c) the Custodian shall to the extent
allowable under applicable law, take commercially reasonable steps to
procure the subrogation to the Fund of the foreign banking
institution's rights against the foreign securities system as a
consequence of any loss, damage, cost, expense, liability or claim
arising out of or in connection with the performance by a foreign
securities system if and to the extent that the relevant Portfolio(s)
has not been made whole for any such loss, damage, cost, expense,
liability or claim.
3.18 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning each foreign
sub-custodian listed from time to time on Schedule A. Such information
shall be similar in kind and scope to that furnished to the Fund in
connection with the initial approval of this Contract, but shall also
include a report concerning any recommendations to consider change of a
foreign subcustodian (including the reason for said change). In
addition, the Custodian will provide the Portfolios with such
information as a Portfolio shall reasonably request in order to enable
the Fund to comply with Rule 17f-5. In addition, the Custodian will
promptly inform the Fund in writing in accordance with Article 17 in
the event that the Custodian learns of (i) a material adverse change in
the condition, financial or otherwise, of a foreign sub-custodian, (ii)
any loss of the assets of the Fund or (iii), in the case of any foreign
sub-custodian not the subject of an exemptive order from the SEC
modifying the shareholder equity requirement under Rule 17f-5, is
notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below
$200 million or that its shareholders' equity has declined below $200
million (in each case in terms of U.S. dollars or the local currency
equivalent thereof and computed in accordance with generally accepted
U.S. accounting principles).
3.19 State Street London. 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
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Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.20 Tax Law. It shall be the responsibility of the Custodian and the
foreign banking institutions to use reasonable efforts and due care to
perform such steps typical for persons acting as global custodian for
Institutional Clients as are required to collect any tax refund, to
ascertain the appropriate rate of tax withholding and to provide such
documents as may be required to enable the Fund to receive appropriate
tax treatment under applicable tax laws and any applicable treaty
provisions. Except to the extent that imposition of such item arises
from the Custodian's or the foreign banking institutions' failure to
perform in accordance with the terms of this Section, the Custodian
shall have no responsibility or liability for any obligations now or
hereafter imposed on the Fund, the Fund's custody account in the
relevant jurisdiction or the Custodian as custodian of the Fund by the
tax law of the domicile of the Fund's custody account in the
jurisdiction or of any jurisdiction in which the Fund is invested or
any political subdivision thereof. Unless otherwise informed by the
Fund in writing, the Custodian, in performance of its duties under this
Section, shall be entitled to apply treatment of the Fund according to
the nationality of the Fund, the particulars of its organization and
other relevant details that shall be supplied by the Fund. The
Custodian shall be entitled to rely on any information supplied in
writing by an authorized representative of the Fund. The Custodian may
engage reasonable professional advisors knowledgeable about the subject
matter, which may include attorneys, accountants or financial
institutions in the regular business of investment administration, and
may rely upon advice received therefrom. It shall be the duty of the
Fund to inform the Custodian of any change in the organization,
domicile or other relevant fact concerning tax treatment of the Fund,
and further to inform the Custodian if the Fund is or becomes the
beneficiary of any special ruling or treatment not applicable to the
general nationality and category of entity of which the Fund is a part
under general laws and treaty provisions.
3.21 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain, or cause the applicable foreign banking
institution to 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 (i) in accordance
with the provisions of any agreement among the Fund on behalf of the
Portfolio, the Custodian (or such foreign banking institution) 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 or of any registered national securities exchange
(or the Commodity Futures Trading Commission and/or any 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 and/or securities in
connection with (a) options purchased, sold or written by the
Portfolio, (b) commodity futures contracts or options thereon
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purchased, sold or written by the Portfolio or (c) other transactions
requiring segregation as described in the Fund's registration statement
as in effect from time to time, (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 SEC
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of this clause (iv), upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the applicable
Portfolio, a Certified Resolution , setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
4. Payments for Sales or Repurchases or Redemptions of Shares
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent 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 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 Charter and any applicable votes of the Board 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.
5. Proper Instruction
Proper Instructions as used throughout this Contract means a writing
signed or initialed by two persons as the Board 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,
provided that the fact that such confirming written instructions are not
received by the Custodian shall in no way invalidate the enforceability of
transactions authorized by oral instructions. 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 Sections 2.12, 3.7(j), 3.8(e) and 3.20.
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5A. Contractual Settlement
The Custodian shall credit or debit the appropriate cash account of the
applicable Portfolio in connection with the purchase, sale, maturity, redemption
or other disposition of securities and other assets held for the time being in
the Portfolio on an actual settlement basis. Notwithstanding the foregoing, with
respect to the markets set forth on Schedule E hereto the Custodian may, in its
sole discretion, from time to time agree to provide a Portfolio with an
arrangement whereby the Portfolio will be given the opportunity of settling the
purchase, sale, maturity, redemption or other disposition of securities to be
held in the Portfolio in the manner and subject to the terms and limitations
described in this Article 5A. A transaction to which these contractual
settlement provisions applies shall be called a "Covered Transaction."
(a) With respect to a Covered Transaction that represents a
purchase of securities, the Custodian shall debit the
applicable Portfolio's cash account in accordance with Proper
Instructions as of the time and date that monies would
ordinarily be required to settle such a transaction in the
applicable markets as set forth on Schedule E hereto. Such
amounts shall be re-credited to the appropriate cash account
on settlement date upon Proper Instructions to the Custodian
that the Portfolio has canceled the Covered Transaction.
(b) With respect to the settlement of a Covered Transaction which
is a sale, maturity, redemption or other disposition,
provisional credit of an amount equal to the net sale,
maturity, redemption or other disposition proceeds of the
transaction (the "Settlement Amount") shall be made to the
account of the applicable Portfolio as if the Settlement
Amount had been received as of the close of business on the
date that monies would ordinarily be required to settle such
transaction in the applicable markets as set forth on Schedule
E. Such provisional credit will be made if the Custodian has
received Proper Instructions with respect to, or reasonable
notice of, the Covered Transaction, as applicable, and if the
Custodian or its agents are in possession of the asset(s)
associated with the Covered Transaction in good deliverable
form and are not aware of any facts which would lead them to
reasonably believe that the Covered Transaction will not
settle in the time period ordinarily applicable to
transactions in the applicable market. In the event that the
Custodian determines not to provide a provisional credit with
respect to a particular transaction, the Custodian will
promptly notify the Fund of this determination.
(c) For each Covered Transaction with respect to which the
Custodian shall provide provisional credit in an amount up to
the Settlement Amount (the "Credited Amount"), simultaneously
with the making of such provisional credit, the Fund agrees
that the Custodian shall have, and hereby grants to the
Custodian, a firstpriority security interest in any property
at any time held for the account of the applicable Portfolio
to the full extent of the Credited Amount.
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(d) The Custodian shall have the right, upon sending notice to the
Fund, to reverse any provisional credit given in accordance
with subsection (b) hereof in the event that the actual
proceeds of the subject Covered Transaction have not been
received by the Custodian, its agents or its sub-custodians
within thirty (30) days of having made such provisional credit
or at any time when the Custodian believes for reasonable
cause that such Covered Transaction will not settle in
accordance with its terms or amounts due pursuant thereto will
not be collectable, as applicable (in which case the notice
required herein will contain a description of such cause),
whereupon (i) the Custodian shall promptly notify the Fund
with respect thereto and (ii) a sum equal to the Credited
Amount shall become immediately payable by the Fund to the
Custodian and may be debited from any cash account held for
benefit of the applicable Portfolio in accordance with the
terms of any notice given hereunder; the Custodian's right to
debit the account as set forth above shall not be contingent
on the giving of notice to the Fund. The amount of any accrued
dividends, interest and other distributions with respect to
assets associated with such Covered Transaction may be set off
against the Credited Amount.
(e) In the event that the Custodian is unable to debit an account
of the Fund, with respect to the applicable Portfolio, and the
Portfolio fails to pay any sums due to the Custodian at the
time the same becomes payable in accordance with subsection
(d), and such failure is not cured within one (1) business day
after notice of such failure to the Fund, or if any of the
following conditions occurs, the Custodian may charge the Fund
for reasonable costs and expenses associated with the
provisional credit, including without limitation the cost of
funds associated therewith at the then-prevailing Federal
Funds rate (or local market equivalent thereof where the
Credited Amount was advanced), and the provisions of
subsection (f) will apply:
(1) If a final judgment for the payment of money shall be
rendered against a Portfolio and such judgment shall
not have been discharged or its execution stayed
pending appeal within sixty (60) days of entry or
such judgment shall not have been discharged within
sixty (60) days of expiration of any such stay;
(2) the Fund passing a resolution for its voluntary
winding-up (otherwise than for the purpose of
corporate reconstruction or amalgamation);
(3) the presentation of a petition for the winding-up
of or the making of an administration order in
relation to the Fund;
23
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(4) the appointment of a receiver or administrator over
any of the assets of the Fund; or
(5) the Fund ceasing or threatening to cease to carry
on its business.
(f) If an event outlined in subsection (e) occurs, including to
the extent permitted by applicable law the events described in
(1) through (5) thereof, the Custodian shall have the right to
immediately execute and foreclose upon its security interest
in any of the assets of the applicable Portfolio.
(g) The Custodian shall not be obliged to transfer any sums
credited to a Portfolio in accordance with subsection (b) to
or to the order or benefit of the Portfolio while any amount
which is payable to the Custodian under this Article 5A
remains unpaid.
(h) The operation of the provisions of this Article 5A shall be
without prejudice to any other remedies provided the Custodian
in this Contract, including without limitation the remedies
set forth in Article 13 hereof, or under any applicable law.
The Fund agrees that the Custodian shall have a right of
set-off against cash held for the applicable Portfolio in any
currency for any amount provided to such Portfolio by the
Custodian hereunder or from time to time arising out of or in
connection with this Contract, as amended, and/or the
operation of any account hereunder and the Custodian shall
have the right to debit such Portfolio with all or part of
such sums and apply or appropriate the cash in or towards the
discharge of such amounts in such manner and order as is
commercially reasonable under the circumstances. For the
purposes of this right of set-off, the Custodian may make such
currency conversions or effect any transactions in such
currencies at the Custodian's then-prevailing rates at such
times as are commercially reasonable under the circumstances
and may effect any transfers between, or entries on, any
account of the applicable Portfolio as is commercially
reasonable under the circumstances.
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 the
Custodian's duties under this Contract as set forth in
Schedule B, provided that all such payments shall be accounted
for to the Fund on behalf of the Portfolio;
24
<PAGE>
2) surrender securities to the issuer or its agent 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.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
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 as conclusive evidence (a) of the authority of any person to act in
accordance with such resolution or (b) of any determination or of any action by
the Board pursuant to the Charter as described in such resolution, and such
resolution 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 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(s), shall itself keep such books of account and/or
compute such net asset value per share for a fee to be agreed to by the
Custodian and the Fund. If so directed, for a fee to be agreed upon by the
parties at the time of such direction, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Prospectus and shall advise
the Fund and the Transfer Agent daily of the total amount of such net income
and, if instructed in writing by an officer of the Fund to do so, 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 Prospectus.
9. Records and Reports
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
25
<PAGE>
the Fund under the 1940 Act, 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, together with any insurance policies and fidelity or similar bonds
maintained by the Custodian, 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 (including counsel and independent accountants)
and employees and agents of the SEC and other governmental regulatory
authorities having jurisdiction. 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. When requested to do so by the Fund and for such compensation
as shall be agreed upon between the Fund and the Custodian, the Custodian shall
include certificate numbers in such tabulations.
None of the parties hereto shall, unless compelled to do so by any
court or entity of competent jurisdiction either before or after the termination
of this Contract, disclose to any person not authorized by the relevant party to
receive the same any confidential information relating to such party and to the
affairs of such party of which the party disclosing the same shall have become
possessed during the period of this Contract and each party shall use its best
endeavors to prevent any such disclosure as aforesaid.
The Custodian shall send to the Fund an advice or notification of any
transfers of securities to or from the custody accounts indicating, as to
securities acquired for the Fund, the identity of the entity having physical
possession of such securities.
In addition to reports required to be provided elsewhere herein, the
Custodian agrees to provide to the Fund (i) the reports set forth on Schedule D
hereto, as amended from time to time, at such times as set forth on such
Schedule and in substantially the forms provided to the Fund, and (ii) any other
special and periodic reports related to the services to be provided hereunder as
the Fund may reasonably request and as may be mutually agreed upon by the
parties.
The Custodian agrees to attend periodic meetings of the Board to
discuss the operations to be performed under this Contract at such times and at
such places as the Fund may reasonably request.
The Custodian shall provide GlobalQuest(R) software to the parties and
at the locations specified on attached Schedule C pursuant to the terms of the
Data Services Addendum to Custodian Contract at no additional charge other than
as provided therein.
10. Opinion by 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 the Custodian's activities hereunder in
26
<PAGE>
connection with the preparation of the Fund's Form N-1A, Form N-SAR and any
other special or periodic reports to the SEC and with respect to any other SEC
requirements.
11. Disaster Recovery; Banker's Blanket Bond
In the event of equipment failures beyond the Custodian's control, the
Custodian shall, at no additional expense to a Portfolio, take reasonable steps
to minimize service interruptions. The Custodian shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision for (i) periodic back-up of the computer files and data
with respect to a Portfolio and (ii) emergency use of electronic data processing
equipment to provide services under this Contract and the Data Access Services
Addendum hereto.
The Custodian hereby warrants to the Fund that the Custodian is
maintaining a Bankers' Blanket Bond in a commercially reasonable amount, and the
Custodian hereby agrees to notify the Fund in the event its Bankers' Blanket
Bond is canceled or otherwise lapses.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as set forth on Schedule B hereto, as such
Schedule B may be amended in writing from time to time by the Fund, on behalf of
each applicable Portfolio, and the Custodian.
13. Responsibility of Custodian
The Custodian shall exercise reasonable care in carrying out the
provisions of this Contract and Proper Instructions.
The Custodian shall be responsible for the acts and omissions of (i)
sub-custodians located in the United States of America appointed pursuant to
Article 1 hereof, (ii) foreign banking institutions appointed pursuant to the
terms of Article 3 hereof as if such acts and omissions were those of the
Custodian, and (iii) Japan Securities Depository Center ("JASDEC"), Euroclear
and Cedel Bank S.A.
So long as and to the extent that it exercises 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 kept indemnified by (to the extent of
the assets in the applicable Portfolio(s))
27
<PAGE>
and shall be without liability to the Fund for any action taken or omitted by it
in good faith without negligence or willful misconduct on its part or on the
part of its sub-custodians or agents. The Custodian shall be entitled reasonably
to rely on and may act upon advice of counsel experienced in the pertinent area
of law (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, agent or
nominee, 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, (a) the interruption, suspension or
restriction of trading on or the closure of any securities markets, and (b)
power or other mechanical or technological failures or interruptions, computer
viruses or communications disruptions, recognizing in each such case the
obligation of the Custodian, its subcustodians, agents and nominees to take
reasonable steps as circumstances require to minimize the effect of such
failures, interruptions, viruses and disruptions; (ii) errors by the Fund or its
investment advisor in their instructions to the Custodian provided such
instructions have been given in accordance with this Contract; (iii) the
insolvency of or acts or omissions by a Securities System except to the extent
set forth in subparagraph (iii) in the second paragraph of this Section 13; (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 of 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; (vii) any provision of any present or future law
or regulation or order of the United States, or any other country, or political
subdivision thereof or of any court of competent jurisdiction; and (viii) any
loss where the Custodian, its sub-custodian, its agent or its nominee has
otherwise exercised reasonable care. Regardless of whether assets are maintained
in the custody of a foreign banking institution or a foreign securities system,
the Custodian shall not be liable for "country risk", i.e., any loss, damage,
cost, expense, liability or claim resulting from, or caused by, the direction of
or authorization by the Fund to maintain custody of any securities or cash of
the Fund or of a Portfolio in a foreign country including, but not limited to,
losses resulting from nationalization, expropriation, imposition of currency
controls or restrictions, acts of war or terrorism, riots, revolutions, work
stoppages, natural disasters or other similar events or acts. Notwithstanding
the foregoing, 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, 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, provided that the Custodian and State Street London Ltd. have exercised
reasonable care.
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<PAGE>
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 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
the Custodian.
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, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement) for the benefit of a
Portfolio, 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 (a) promptly notify the Fund with
respect thereto and (b) be entitled to utilize available cash and to dispose of
such Portfolio's assets to the extent necessary to obtain reimbursement,
provided that such utilization shall not be contingent on the giving of notice
to the Fund.
In the event that the Custodian or its nominee shall incur or be
assessed any taxes (except as are directly attributable to income, franchise or
similar taxes which may be imposed on or assessed against the Custodian, its
affiliates, subsidiaries, agents, or nominees) accruing to the Custodian, its
affiliates, subsidiaries or agents in the course of its or their performance of
this Contract, including without limitation taxes on dividends, interest and
capital gain earned with respect to Portfolio assets, 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 the Custodian shall (a)
provide the Fund with three (3) New York business days' notice with respect
thereto and (b), in the event such matter has not been resolved within such
time, be entitled to utilize available cash and to dispose of such Portfolio's
assets to the extent necessary to obtain reimbursement.
In the event that the Custodian or its nominee shall be subject to any
claims or liabilities accruing to the Custodian, its affiliates, subsidiaries or
agents in the course of its or their performance of this Contract, which claims
or liabilities either (i) are described on Schedule B hereto or (ii) could not
reasonably have been anticipated by the Custodian on the date hereof, 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 the Custodian
shall (a) provide the Fund with three (3) New York business days' notice with
respect thereto and (b), in the event such matter has not been resolved within
such time, be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
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<PAGE>
Upon the Custodian becoming aware in the course of the performance of
its duties hereunder of the occurrence of any event with respect to the assets
of a Portfolio held by the Custodian or its sub-custodian or agent hereunder
which causes or may cause any loss, damage, cost, expense or other liability to
a Portfolio, the Custodian shall promptly notify an authorized person of the
Fund and, at the Fund's request, assist the Fund in using all commercially
reasonable key steps under the circumstances to mitigate the effects of such
event and to avoid continuing harm to the Portfolio. If the steps referred to in
the previous sentence would be, in the reasonable determination of the
Custodian, beyond the normal scope of the Custodian's services as a global
custodian of mutual fund assets, the taking of those steps shall be at the
Fund's expense.
In no event shall the Custodian be liable hereunder for indirect,
special or consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of the date set forth below,
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
in writing 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 (i) in the case of termination by a Portfolio not sooner than one
hundred eighty (180) days after the date of such delivery or mailing or (ii) in
the case of termination by the Custodian not sooner than one hundred twenty
(120) days after the date of such delivery or mailing, except that, in the event
of a breach of this Contract on the part of the Fund, such termination shall not
take effect sooner than sixty (60) days thereafter; 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 has approved the initial use of a particular
Securities System by such Portfolio, as required by Rule 17f-4 under the 1940
Act 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 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 Charter, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of the Board (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 relevant Federal or State
agency or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
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Upon termination of this 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 the Custodian's reasonable out-of-pocket
costs, expenses and disbursements in connection therewith, such termination to
be conducted in a professional and businesslike manner.
15. Ownership Certificates for Tax Purposes
The Custodian shall, in its capacity as the Fund's agent, execute
ownership and other certificates and affidavits for all governmental purposes in
connection with receipt of income or other payments with respect to securities
or other assets of each Portfolio held by it and in connection with transfers of
such securities or assets.
16. Successor Custodian
If a successor Custodian shall be appointed by the Board, the Custodian
shall, upon termination, deliver to such successor Custodian at the offices of
the Custodian, duly endorsed and in the form for transfer, all securities, funds
and other properties 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 Resolution, deliver at the offices of the Custodian and transfer such
securities, funds and other properties in accordance with such resolution. In
the event that no written order designating a successor Custodian or Certified
Resolution 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 1940
Act, doing business in Boston, Massachusetts, or New York, New York, of its own
selection, having an aggregate capital, surplus, and undivided profits, as shown
by its last published report, of not less than $200,000,000, 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 Resolution referred to or of the
Board 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.
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17. Notices.
Any notice, instruction or other instrument required to be given
hereunder may be delivered in person to the offices of the parties as set forth
herein during normal business hours or delivered prepaid registered mail or by
telex, cable or telecopy to the parties at the following addresses or such other
addresses as may be notified in writing by any party from time to time. If
notice is sent by confirming telegram, cable, telex, or facsimile sending
device, it shall be deemed to have been given immediately if confirmed in
writing by overnight delivery. 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.
To the Company: *[NAME OF FUND]
466 Lexington Avenue
New York, NY 10017-3147, USA
Attention: Eugene P. Grace
Telephone: 212-878-0812
Telecopy: 212-878-9351
To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive
North Quincy, Massachusetts 02171, USA
Attention: Neal J. Chansky
Telephone: 617-985-5127
Telecopy: 617-537-2626
18. Headings
The section headings in this Contract are for the convenience of
reference only and do not form a part of this Contract.
19. Counterparts
This Contract 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. Additional Funds
In the event that the Fund establishes additional series of Shares with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so
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notify the Custodian in writing and, if the Custodian agrees in writing to
provide such services, the parties hereto will amend Schedule F to so reflect
and such series of Shares shall become a Portfolio hereunder.
21. 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.
22. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
23. Recourse Against Shareholders, Officers and Trustees*
This Contract is executed by the officers of the Fund in their capacity
as such and not individually. Any responsibility or liability of the Fund (or a
particular Portfolio) under any provision of this Contract shall be satisfied
solely from the assets of the Fund or the particular Portfolio, tangible or
intangible, realized or unrealized, and in no event shall the Custodian, a
sub-custodian or agent have any recourse against the shareholders, officers or
Trustees of the Fund under this Contract or against any one Portfolio for the
obligations of any other Portfolio.
24. 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
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.
- -------------------
* To be included in contracts with business trusts only.
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25. Shareholder Communications Election
SEC Rule 14b-2 under the Securities Exchange Act of 1934, as amended,
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.
YES [ ] The Custodian is authorized to release the Fund's
name, address and share positions.
NO [X] The Custodian is not authorized to release the
Fund's name, address and share positions.
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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 *[Date].
WARBURG, PINCUS *[complete name of Fund]
By:__________________________
Name:________________________
Title:_______________________
STATE STREET BANK AND TRUST COMPANY
By:_________________________
Name: Ronald E. Logue
Title: Executive Vice President
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SCHEDULE C
Pursuant to the terms of (i) the Custodian Contract dated *[date] between the
registered investment companies listed on Schedule F thereto, as such Schedule F
may be amended from time to time, and State Street Bank and Trust Company and
(ii) the Data Access Services Addendum thereto of even date therewith (the "Data
Access Services Addendum"), the following persons and/or entities may use the
Data Access Services (as such term is defined in the Data Access Services
Addendum):
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SCHEDULE D
Reports
Description of Report Period of Report
--------------------- ----------------
Open Trades* Daily
Cash Availability Daily (by 10:00 a.m.)
Cash Transaction Statement* Daily
Portfolio Holdings Report* Daily
Failed Trades Report Daily
Corporate Action Report - (Pre-Notification) Daily
Global Cash Statement* Daily
Currency Balance Report Daily
Cash Transaction Statement* Weekly
Corporate Action Report (Summary) Weekly
Out-for-Transfer Report Weekly
Sedol Holdings Report Weekly
Purchase/Sales Report* Monthly
Broker Top Ten Report* Monthly
Capital Stock Activity Report Monthly
Cash Transaction Statement* Monthly
Corporate Action Report Monthly
Global Cash Statement* Monthly
Failed Trades Monthly
Outstanding Receivables* Monthly
FX Activity Report Monthly
Base Equivalent Cash Statement* Monthly
Corporate Action Final Notification When Applicable
* Also Available Via GlobalQuest(R)
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SCHEDULE E
Countries/Settlement Systems with Respect to which
Contractual Settlement May be Provided
Australia
Austria
Belgium
Canada
Denmark
Euroclear
Finland
France
Germany
Hong Kong
Indonesia
Ireland
Italy
Japan
Luxembourg
Malaysia
Mexico
Netherlands
New Zealand
Norway
Philippines
Portugal
Singapore
South Africa
Spain
Sweden
Switzerland
Thailand
United States
United Kingdom
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SCHEDULE F
39
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DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
AGREEMENT between Warburg, Pincus *[Name of Fund] (the "Customer") and
State Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets
of the Customer pursuant to a certain Custodian Contract (the "Custodian
Contract") dated as of *[Date];
WHEREAS, State Street has developed and utilizes proprietary accounting
and other systems, including State Street's proprietary Multicurrency HORIZON(R)
Accounting System, in its role as custodian of the Customer, and maintains
certain Customer-related data ("Customer Data") in databases which databases are
under the control and ownership of State Street (the "Data Access Services");
and
WHEREAS, State Street makes available to the Customer certain Data
Access Services solely for the benefit of the Customer, and intends to provide
additional services, consistent with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Agreement, State
Street hereby agrees to provide the Customer with access to State Street's
Multicurrency HORIZON(R) Accounting System and the other information systems
(collectively, the "System") as described in Attachment A, on a remote basis for
the purpose of obtaining reports, solely on computer hardware, system software
and telecommunication links of the Customer, or certain third parties approved
by State Street that provide services to the Customer (the "Service Provider")
as listed in Attachment B and solely with respect to the Customer (the
"Designated Configuration") or on any designated substitute or back-up equipment
configuration with State Street's written consent, such consent not to be
unreasonably withheld.
b. Data Access Services. State Street agrees to make available to the
Customer the Data Access Services subject to the terms and conditions of this
Agreement and data access operating standards and procedures as may be issued by
State Street from time to time. The
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ability of the Customer to originate electronic instructions to State Street on
behalf of the Customer in order to (i) effect the transfer or movement of cash
or securities held under custody by State Street, (ii) transmit accounting or
other information (such transactions are referred to herein as "Client
Originated Electronic Financial Instructions"), and (iii) access data for the
purpose of reporting and analysis, shall be deemed to be Data Access Services
for purposes of this Agreement.
c. Additional Services. State Street shall make available to the
Customer, on terms generally available to State Street's other custody clients
which are investment companies registered under the Investment Company Act of
1940, as amended, additional Systems that are not described in the attachments
to this Agreement that are made available to other U.S.-registered investment
company custody clients of State Street. In the absence of any other written
agreement concerning such additional systems, the term "System" shall include,
and this Agreement shall govern, the Customer's access to and use of any
additional System made available by State Street and/or accessed by the
Customer.
2. NO USE OF THIRD PARTY SOFTWARE
State Street and the Customer acknowledge that in connection with the
Data Access Services provided under this Agreement, the Customer will have
access, through the Data Access Services, to Customer Data and to functions of
State Street's proprietary systems; provided, however that in no event will the
Customer have direct access to any third party systems-level software that
retrieves data for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Locations. The System and the Data
Access Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Customer or certain agents of the Customer
(the "Designated Agents") located in Delaware and New York ("Designated
Locations").
b. Designated Configuration; Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the
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Designated Locations. State Street and the Customer agree that each will engage
or retain the services of trained personnel to enable both parties to perform
their respective obligations under this Agreement. State Street agrees to use
commercially reasonable efforts to maintain the System so that it remains
serviceable, provided, however, that State Street does not guarantee or assure
uninterrupted remote access use of the System.
c. Scope of Use. The Customer will use the System and the Data Access
Services only for (x) the processing of securities transactions and (y)
accessing data for informational purposes related to services provided pursuant
to the Custodian Contract or such other services as the Custodian may from time
to time agree in writing to provide. The Customer shall not, and shall cause its
employees and agents not to (i) permit any third party (other than a Service
Provider) to use the System or the Data Access Services, (ii) sell, rent,
license or otherwise use the System or the Data Access Services for any purpose
other than as expressly authorized under this Agreement, (iii) allow access to
the System or the Data Access Services through terminals or any other computer
or telecommunications facilities located outside the Designated Locations, (iv)
allow or cause any information (other than portfolio holdings, valuations of
portfolio holdings, and other information reasonably necessary for the
management or distribution of the assets of the Customer) transmitted from State
Street's databases, including data from third party sources, available through
use of the System or the Data Access Services to be redistributed or
retransmitted to another computer, terminal or other device for other than use
for or on behalf of the Customer or (v) modify the System in any way, including
without limitation, developing any software for or attaching any devices or
computer programs to any equipment, system, software or database which forms a
part of or is resident on the Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned
System shutdown, the Customer's access to services performed by the System or to
Data Access Services at a Designated Location may be transferred to a different
location only upon the prior written consent of State Street. In the event of an
emergency or System shutdown, the Customer may use any back-up site included in
the Designated Configuration or any other back-up site agreed to by State
Street, which agreement will not be unreasonably withheld. The Customer may
secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street,
the Customer shall not modify, enhance or otherwise create derivative works
based upon the System, nor shall the Customer reverse engineer, decompile or
otherwise attempt to secure the source code for all or any part of the System.
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g. Security Procedures. The Customer shall comply with data access
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and to
access the Data Access Services. The Customer shall have access only to the
Customer Data and authorized transactions agreed upon from time to time by State
Street and, upon notice from State Street, the Customer shall discontinue remote
use of the System and access to Data Access Services for any security reasons
cited by State Street.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State Street
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information (other than Customer Data) made available to the Customer by State
Street as part of the Data Access Services and through the use of the System
constitute copyrighted, trade secret, or other proprietary information of
substantial value to State Street. Any and all such proprietary information
provided by State Street to the Customer shall be deemed proprietary and
confidential information of State Street (hereinafter "Proprietary
Information"). The Customer agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder. The Customer further acknowledges that State Street shall not be
required to provide the Service Provider with access to the System unless it has
first received from the Service Provider an undertaking with respect to State
Street's Proprietary Information in the form of Attachment C to this Agreement.
The Customer shall use all commercially reasonable efforts to assist State
Street in identifying and preventing any unauthorized use, copying or disclosure
of the Proprietary Information or any portions thereof or any of the logic,
formats or designs contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer shall
advise State Street immediately in the event the Customer learns or has reason
to believe
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that any person to whom the Customer has given access to the Proprietary
Information, or any portion thereof, has violated or intends to violate the
terms of this Agreement, and the Customer will, at its expense, cooperate with
State Street in seeking injunctive or other equitable relief in the name of the
Customer or State Street against any such person.
c. Injunctive Relief. The Customer acknowledges that the disclosure of
any Proprietary Information, or of any information which at law or equity ought
to remain confidential, will immediately give rise to continuing irreparable
injury to State Street inadequately compensable in damages at law. In addition,
State Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the
termination of this Agreement.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer
agrees that State Street's liability to the Customer arising out of contract,
strict liability in tort, or any other cause of action under this Agreement for
its provision of Data Access Services or the System shall be limited to (i)
U.S.$750,000.00 per such cause of action and (ii) a total of U.S.$2,000,000.00
during the term of this Agreement. The parties agree that in the event the
Customer purchases Data Access Services in addition to GlobalQuest(R), they will
negotiate in good faith with respect to the foregoing damages limitation. No
action, regardless of form, arising out of this Agreement may be brought by the
Customer more than two years after the Customer has knowledge that the cause of
action has arisen.
b. Warranty. State Street represents and warrants that it has the right
to provide the Customer with access to the System and, to the best of State
Street's knowledge, the System does not infringe upon the intellectual property
rights of third parties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET. IN NO EVENT WILL
STATE STREET BE LIABLE TO THE CUSTOMER OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL
OR INCIDENTAL DAMAGES WHICH MAY ARISE FROM THE CUSTOMER'S ACCESS TO THE SYSTEM
OR USE OF INFORMATION OBTAINED THEREBY.
c. Third-Party Data. Organizations from which State Street may obtain
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the Customer,
the Customer shall be solely responsible for the accuracy of any accounting
statements or reports produced using the Data Access Services and the System and
the conformity thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable for any costs or
damages due to delay or nonperformance under this Agreement arising out of any
cause or event beyond such party's control, including without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party, or the Customer as a result of work stoppage, power or other mechanical
failure, computer virus, natural disaster, governmental action, or communication
disruption; provided that State Street shall take reasonable steps under the
facts and circumstances then prevailing to mitigate continuing harm to the
Customer resulting from State Street's nonperformance under this Agreement
arising out of such causes and events.
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from
any loss, damage or expense including reasonable attorney's fees, (a "loss")
suffered by State Street arising from the negligence or willful misconduct in
the use by the Customer of the Data Access Services or the System, including any
loss incurred by State Street resulting from a security breach at a Designated
Location or committed by the Customer, the Service Provider(s), or either of
their employees or agents.
State Street agrees to defend, indemnify and hold Customer harmless
from and against any claims, suits or damages sustained (including reasonable
attorney's fees) if Customer is called upon to defend any claim that Customer's
use of the System directly infringes any United States patent, trade secret or
copyright, provided (a) Customer promptly notifies State Street in writing of
such claim, and (b) Customer agrees that State Street shall have sole control
over the defense or settlement of such claim.
7. FEES
Fees and charges for the use of the System and the Data Access Services
and related payment terms shall be as set forth in Schedule B of the Custodian
Contract, as such Schedule B may be revised from time to time by the parties
(the "Fee Schedule").
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8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated
State Street training facility or at a Designated Location, to the Customer's
personnel in connection with the use of the System on the Designated
Configuration. The Customer agrees that it will set aside, during regular
business hours or at other times agreed upon by both parties, sufficient time to
enable all operators of the System and the Data Access Services, designated by
the Customer, to receive the training offered by State Street pursuant to this
Agreement.
b. Installation and Conversion. State Street shall be responsible for
the technical installation and conversion ("Installation and Conversion") of the
Designated Configuration. The Customer shall have the following responsibilities
in connection with Installation and Conversion of the System:
(i) The Customer shall be solely responsible for the timely
acquisition and maintenance of the hardware and software that
attach to the Designated Configuration in order to use the
Data Access Services at the Designated Locations.
(ii) State Street and the Customer each agree that they will assign
qualified personnel to actively participate during the
Installation and Conversion phase of the System implementation
to enable both parties to perform their respective obligations
under this Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
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10. TERM OF AGREEMENT
a. Term of Agreement. This Agreement shall become effective on the date
of its execution by State Street and shall remain in full force and effect until
terminated as herein provided.
b. Termination of Agreement. Either party may terminate this Agreement
(i) for any reason by giving the other party at least one-hundred and eighty
days' prior written notice in the case of notice of termination by State Street
to the Customer or thirty days' notice in the case of notice from the Customer
to State Street of termination; or (ii) immediately for failure of the other
party to comply with any material term and condition of the Agreement by giving
the other party written notice of termination. In the event the Customer shall
cease doing business, shall become subject to proceedings under the bankruptcy
laws (other than a petition for reorganization or similar proceeding) or shall
be adjudicated bankrupt, this Agreement and the rights granted hereunder shall,
at the option of State Street, immediately terminate with notice to the
Customer. This Agreement shall in any event terminate as to the Customer within
90 days after the termination of the Custodian Contract applicable to such
Customer.
c. Termination of the Right to Use. Upon termination of this Agreement
for any reason, any right to use the System and access to the Data Access
Services shall terminate and the Customer shall immediately cease use of the
System and the Data Access Services. Immediately upon termination of this
Agreement for any reason, the Customer shall return to State Street all copies
of documentation and other Proprietary Information in its possession and State
Street shall return to Customer all Customer Data in its possession; provided,
however, that in the event that either party terminates this Agreement or the
Custodian Contract for any reason other than the Customer's breach, State Street
shall provide the Data Access Services for a period of time and at a price to be
agreed upon by the parties. Should State Street be in possession of information
requested by regulatory agencies having jurisdiction over the
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Customer, State Street will cooperate with the Customer to make such information
available to such regulatory agencies for a commercially reasonable time
following termination of this Agreement.
11. MISCELLANEOUS
a. Assignment; Successors. This Agreement and the rights and
obligations of the Customer and State Street hereunder shall not be assigned by
either party without the prior written consent of the other party, except that
State Street may assign this Agreement to a successor of all or a substantial
portion of its business, or to a party controlling, controlled by, or under
common control with State Street.
b. Survival. All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
c. Entire Agreement. This Agreement and the attachments hereto
constitute the entire understanding of the parties hereto with respect to the
Data Access Services and the use of the System and supersedes any and all prior
or contemporaneous representations or agreements, whether oral or written,
between the parties as such may relate to the Data Access Services or the
System, and cannot be modified or altered except in a writing duly executed by
the parties. This Agreement is not intended to supersede or modify the duties
and liabilities of the parties hereto under the Custodian Contract or any other
agreement between the parties hereto except to the extent that any such
agreement specifically refers to the Data Access Services or the System. No
single waiver or any right hereunder shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Agreement shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of *[Date].
WARBURG, PINCUS *[Name of Fund]
By: __________________________________
Name: __________________________________
Title: __________________________________
STATE STREET BANK AND TRUST COMPANY
By: __________________________________
Name: Ronald E. Logue
Title: Executive Vice President
9
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ATTACHMENT A
System Product Description
I. Multicurrency HORIZON(R) Accounting System. The Multicurrency
HORIZON(R) Accounting System is designed to provide lot level portfolio and
general ledger accounting for SEC and ERISA type requirements and includes the
following services: 1) recording of general ledger entries; 2) calculation of
daily income and expense; 3) reconciliation of daily activity with the trial
balance, and 4) appropriate automated feeding mechanisms to (i) domestic and
international settlement systems, (ii) daily, weekly and monthly evaluation
services, (iii) portfolio performance and analytic services, (iv) customer's
internal computing systems and (v) various State Street provided information
services products.
II. GlobalQuest(R). GlobalQuest(R) is designed to provide customer
access to the following information maintained on The Multicurrency HORIZON(R)
Accounting System: 1) cash transactions and balances; 2) purchases and sales; 3)
income receivables; 4) tax refund; 5) daily-priced positions; 6) open trades; 7)
settlement status; 8) foreign exchange transactions; 9) trade history; and 10)
daily, weekly and monthly evaluation services.
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ATTACHMENT B
Designated Configuration
<PAGE>
ATTACHMENT C
Undertaking
The undersigned understands that in the course of its employment as an
agent of Warburg, Pincus *[Name of Fund] (the "Customer") it will have access to
State Street Bank and Trust Company's ("State Street") Multicurrency HORIZON(R)
Accounting System and other information systems (collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs screen formats, report formats, interactive design techniques,
documentation and other information made available to the Undersigned by State
Street as part of the Data Access Services provided to the Customer and through
the use of the System constitute copyrighted, trade secret, or other proprietary
information of substantial value to State Street. Any and all such information
provided by State Street to the Undersigned shall be deemed proprietary and
confidential information of State Street ( hereinafter "Proprietary
Information"). The Undersigned agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession. With respect to any dispute arising in connection with this
Undertaking, the Undersigned (i) understands that this Undertaking shall be
construed in accordance with the laws of The Commonwealth of Massachusetts and
(ii) consents to the jurisdiction of the courts of The Commonwealth of
Massachusetts.
*[Name of Designated Agent]
By: ______________________________
Name: ______________________________
Title: ______________________________
Date: ______________________________
<PAGE>
ATTACHMENT D
Support
During the term of this Agreement, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Customer Designated Persons may contact State
Street's HORIZON(R) Help Desk and Customer Assistance Center between the hours
of 8 a.m. and 6 p.m. (Eastern time) on all business days for the purpose of
obtaining answers to questions about the use of the System, or to report
apparent problems with the System. From time to time, the Customer shall provide
to State Street a list of persons, not to exceed five in number, who shall be
permitted to contact State Street for assistance (such persons being referred to
as the "Customer Designated Persons").
b. Technical Support. State Street will provide technical support to
assist the Customer in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Customer and shall offer the Customer reasonable
training on the enhancement. Charges for system enhancements shall be as
provided in the Fee Schedule. State Street retains the right to charge for
related systems or products that may be developed and separately made available
for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall make
a written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
support the Customer's use of the System: (1) for use on any computer equipment
or telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Customer has modified the System in
breach of this Agreement.
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TRANSFER AGENCY AND SERVICE AGREEMENT
, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Dear Sirs:
In accordance with Article 10, ss. 10.01 of the Transfer
Agency and Service Agreement, dated October 8, 1993 (the "Agreement"), between
Warburg, Pincus Institutional Fund, Inc. (the "Fund") and State Street Bank and
Trust Company (the "Bank"), the Fund hereby notifies the Bank of the Fund's
desire to have the Bank render services as transfer agent under the terms of the
Agreement with respect to the Japan Growth Portfolio, a series of Shares
of the Fund.
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 INSTITUTIONAL
FUND, INC.
By:
Name:
Title:
Accepted:
STATE STREET BANK AND TRUST COMPANY
By:
Name:
Title:
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TRANSFER AGENCY AND SERVICE AGREEMENT
, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Dear Sirs:
In accordance with Article 10, ss. 10.01 of the Transfer
Agency and Service Agreement, dated October 8, 1993 (the "Agreement"), between
Warburg, Pincus Institutional Fund, Inc. (the "Fund") and State Street Bank and
Trust Company (the "Bank"), the Fund hereby notifies the Bank of the Fund's
desire to have the Bank render services as transfer agent under the terms of the
Agreement with respect to the Small Company Value Portfolio, a series of Shares
of the Fund.
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 INSTITUTIONAL
FUND, INC.
By:
Name:
Title:
Accepted:
STATE STREET BANK AND TRUST COMPANY
By:
Name:
Title:
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Dear Sirs:
In accordance with Article 10, ss. 10.01 of the Transfer
Agency and Service Agreement, dated October 8, 1993 (the "Agreement"), between
Warburg, Pincus Institutional Fund, Inc. (the "Fund") and State Street Bank and
Trust Company (the "Bank"), the Fund hereby notifies the Bank of the Fund's
desire to have the Bank render services as transfer agent under the terms of the
Agreement with respect to the Post-Venture Capital Portfolio, a series of Shares
of the Fund.
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 INSTITUTIONAL
FUND, INC.
By:
Name:
Title:
Accepted:
STATE STREET BANK AND TRUST COMPANY
By:
Name:
Title:
<PAGE>
CO-ADMINISTRATION AGREEMENT
__________ _, 1997
Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Institutional Fund, Inc., a corporation organized under
the laws of the State of Maryland (the "Fund"), confirms its agreement with
Counsellors Funds Service, Inc. ("Counsellors Service") with respect to the
Japan Growth Portfolio (the "Portfolio") of the Fund, as follows:
1. Investment Description; Appointment
-----------------------------------
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in its
Articles of Incorporation, as amended from time to time (the "Articles"), in its
By-Laws, as amended from time to time (the "By-Laws"), in the Fund's prospectus
(the "Prospectus") and Statement of Additional Information (the "Statement of
Additional Information") relating to the Portfolio 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 Directors of the Fund. Copies of the Prospectus, Statement of
Additional Information and the Articles and By-Laws have been submitted to
Counsellors Service. The Fund employs Warburg, Pincus Counsellors, Inc. (the
"Adviser") as its investment adviser with respect to the Portfolio and desires
to employ and hereby appoints Counsellors Service as its co-administrator with
respect to the Portfolio. 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 Directors of
the Fund, Counsellors Service will:
(a) assist in supervising all aspects of the Portfolio's operations,
except those performed by other parties pursuant to written agreements with the
Fund;
(b) provide various shareholder liaison services including, but not
limited to, responding to inquiries of shareholders regarding the Portfolio,
providing information on
<PAGE>
shareholder investments, assisting shareholders of the Portfolio 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 Portfolio's
custodian or transfer agent;
(d) supply the Portfolio 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 Directors meetings and distributing those
materials and preparing minutes of meetings of the Fund's Board of Directors and
any committees thereof and of the Fund's shareholders;
(f) coordinate the preparation of reports to the Portfolio's
shareholders of record and filings with the Securities and Exchange Commission
(the "SEC") including, but not limited to, proxy statements; annual, semiannual
and quarterly reports to shareholders; and post-effective amendments to the
Fund's Registration Statement on Form N-1A with respect to the Portfolio (the
"Registration Statement");
(g) assist in the preparation of the Fund's tax returns with respect to
the Portfolio 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 Portfolio which will include, among
other matters, procedures to assist the Adviser in monitoring compliance with
the Portfolio's investment objectives, policies, restrictions, tax matters and
applicable laws and regulations; and
(i) acting as liaison between the Fund and the Fund'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 Articles and By-Laws, and all
amendments thereto, and the investment objectives, investment policies and other
practices and policies set forth in the Registration Statement, as such
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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
Fund 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 the Portfolio's average
daily net assets. The fee for the period from the date the 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 the 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
Fund will reimburse Counsellors Service for the out-of-pocket expenses incurred
by it on behalf of the Portfolio. Such reimbursable expenses shall include, but
not be limited to, postage, telephone, telex and FedEx charges. Counsellors
Service will bill the Portfolio as soon as practicable after the end of each
calendar month for the expenses it is entitled to have reimbursed.
The 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 Directors of the Fund 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 Directors of the Fund;
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 Fund
or the Portfolio 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 Fund or the Portfolio 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. Term of Agreement
-----------------
This Agreement shall become effective with respect to the 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, provided that such continuance
is specifically approved at least annually by the Board of Directors of the
Fund, including a majority of the Board of Directors 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 Directors of the
Fund or by vote of holders of a majority of the Portfolio's shares, or upon
sixty (60) days' written notice, by Counsellors Service.
7. Service to Other Companies or Accounts
--------------------------------------
The Fund 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
Fund has no objection to Counsellors Service's so acting. The Fund understands
that the persons employed by Counsellors Service to assist in the performance of
4
<PAGE>
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 INSTITUTIONAL
FUND, INC.
By:
-------------------------------
Name:
Title:
Accepted:
COUNSELLORS FUNDS SERVICE, INC.
By:
----------------------------
Name:
Title:
5
<PAGE>
CO-ADMINISTRATION AGREEMENT
__________ _, 1997
Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Institutional Fund, Inc., a corporation organized under
the laws of the State of Maryland (the "Fund"), confirms its agreement with
Counsellors Funds Service, Inc. ("Counsellors Service") with respect to the
Small Company Value Portfolio (the "Portfolio") of the Fund, as follows:
1. Investment Description; Appointment
-----------------------------------
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in its
Articles of Incorporation, as amended from time to time (the "Articles"), in its
By-Laws, as amended from time to time (the "By-Laws"), in the Fund's prospectus
(the "Prospectus") and Statement of Additional Information (the "Statement of
Additional Information") relating to the Portfolio 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 Directors of the Fund. Copies of the Prospectus, Statement of
Additional Information and the Articles and By-Laws have been submitted to
Counsellors Service. The Fund employs Warburg, Pincus Counsellors, Inc. (the
"Adviser") as its investment adviser with respect to the Portfolio and desires
to employ and hereby appoints Counsellors Service as its co-administrator with
respect to the Portfolio. 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 Directors of
the Fund, Counsellors Service will:
(a) assist in supervising all aspects of the Portfolio's operations,
except those performed by other parties pursuant to written agreements with the
Fund;
(b) provide various shareholder liaison services including, but not
limited to, responding to inquiries of shareholders regarding the Portfolio,
providing information on
<PAGE>
shareholder investments, assisting shareholders of the Portfolio 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 Portfolio's
custodian or transfer agent;
(d) supply the Portfolio 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 Directors meetings and distributing those
materials and preparing minutes of meetings of the Fund's Board of Directors and
any committees thereof and of the Fund's shareholders;
(f) coordinate the preparation of reports to the Portfolio's
shareholders of record and filings with the Securities and Exchange Commission
(the "SEC") including, but not limited to, proxy statements; annual, semiannual
and quarterly reports to shareholders; and post-effective amendments to the
Fund's Registration Statement on Form N-1A with respect to the Portfolio (the
"Registration Statement");
(g) assist in the preparation of the Fund's tax returns with respect to
the Portfolio 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 Portfolio which will include, among
other matters, procedures to assist the Adviser in monitoring compliance with
the Portfolio's investment objectives, policies, restrictions, tax matters and
applicable laws and regulations; and
(i) acting as liaison between the Fund and the Fund'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 Articles and By-Laws, and all
amendments thereto, and the investment objectives, investment policies and other
practices and policies set forth in the Registration Statement, as such
2
<PAGE>
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
Fund 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 the Portfolio's average
daily net assets. The fee for the period from the date the 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 the 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
Fund will reimburse Counsellors Service for the out-of-pocket expenses incurred
by it on behalf of the Portfolio. Such reimbursable expenses shall include, but
not be limited to, postage, telephone, telex and FedEx charges. Counsellors
Service will bill the Portfolio as soon as practicable after the end of each
calendar month for the expenses it is entitled to have reimbursed.
The 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 Directors of the Fund 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 Directors of the Fund;
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 Fund
or the Portfolio 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 Fund or the Portfolio 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. Term of Agreement
-----------------
This Agreement shall become effective with respect to the 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, provided that such continuance
is specifically approved at least annually by the Board of Directors of the
Fund, including a majority of the Board of Directors 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 Directors of the
Fund or by vote of holders of a majority of the Portfolio's shares, or upon
sixty (60) days' written notice, by Counsellors Service.
7. Service to Other Companies or Accounts
--------------------------------------
The Fund 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
Fund has no objection to Counsellors Service's so acting. The Fund understands
that the persons employed by Counsellors Service to assist in the performance of
4
<PAGE>
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 INSTITUTIONAL
FUND, INC.
By:
-------------------------------
Name:
Title:
Accepted:
COUNSELLORS FUNDS SERVICE, INC.
By:
----------------------------
Name:
Title:
5
<PAGE>
CO-ADMINISTRATION AGREEMENT
__________ _, 1997
Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Institutional Fund, Inc., a corporation organized under
the laws of the State of Maryland (the "Fund"), confirms its agreement with
Counsellors Funds Service, Inc. ("Counsellors Service") with respect to the
Post-Venture Capital Portfolio (the "Portfolio") of the Fund, as follows:
1. Investment Description; Appointment
-----------------------------------
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in its
Articles of Incorporation, as amended from time to time (the "Articles"), in its
By-Laws, as amended from time to time (the "By-Laws"), in the Fund's prospectus
(the "Prospectus") and Statement of Additional Information (the "Statement of
Additional Information") relating to the Portfolio 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 Directors of the Fund. Copies of the Prospectus, Statement of
Additional Information and the Articles and By-Laws have been submitted to
Counsellors Service. The Fund employs Warburg, Pincus Counsellors, Inc. (the
"Adviser") as its investment adviser with respect to the Portfolio and desires
to employ and hereby appoints Counsellors Service as its co-administrator with
respect to the Portfolio. 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 Directors of
the Fund, Counsellors Service will:
(a) assist in supervising all aspects of the Portfolio's operations,
except those performed by other parties pursuant to written agreements with the
Fund;
(b) provide various shareholder liaison services including, but not
limited to, responding to inquiries of shareholders regarding the Portfolio,
providing information on
<PAGE>
shareholder investments, assisting shareholders of the Portfolio 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 Portfolio's
custodian or transfer agent;
(d) supply the Portfolio 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 Directors meetings and distributing those
materials and preparing minutes of meetings of the Fund's Board of Directors and
any committees thereof and of the Fund's shareholders;
(f) coordinate the preparation of reports to the Portfolio's
shareholders of record and filings with the Securities and Exchange Commission
(the "SEC") including, but not limited to, proxy statements; annual, semiannual
and quarterly reports to shareholders; and post-effective amendments to the
Fund's Registration Statement on Form N-1A with respect to the Portfolio (the
"Registration Statement");
(g) assist in the preparation of the Fund's tax returns with respect to
the Portfolio 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 Portfolio which will include, among
other matters, procedures to assist the Adviser in monitoring compliance with
the Portfolio's investment objectives, policies, restrictions, tax matters and
applicable laws and regulations; and
(i) acting as liaison between the Fund and the Fund'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 Articles and By-Laws, and all
amendments thereto, and the investment objectives, investment policies and other
practices and policies set forth in the Registration Statement, as such
2
<PAGE>
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
Fund 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 the Portfolio's average
daily net assets. The fee for the period from the date the 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 the 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
Fund will reimburse Counsellors Service for the out-of-pocket expenses incurred
by it on behalf of the Portfolio. Such reimbursable expenses shall include, but
not be limited to, postage, telephone, telex and FedEx charges. Counsellors
Service will bill the Portfolio as soon as practicable after the end of each
calendar month for the expenses it is entitled to have reimbursed.
The 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 Directors of the Fund 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 Directors of the Fund;
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 Fund
or the Portfolio 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 Fund or the Portfolio 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. Term of Agreement
-----------------
This Agreement shall become effective with respect to the 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, provided that such continuance
is specifically approved at least annually by the Board of Directors of the
Fund, including a majority of the Board of Directors 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 Directors of the
Fund or by vote of holders of a majority of the Portfolio's shares, or upon
sixty (60) days' written notice, by Counsellors Service.
7. Service to Other Companies or Accounts
--------------------------------------
The Fund 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
Fund has no objection to Counsellors Service's so acting. The Fund understands
that the persons employed by Counsellors Service to assist in the performance of
4
<PAGE>
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 INSTITUTIONAL
FUND, INC.
By:
-------------------------------
Name:
Title:
Accepted:
COUNSELLORS FUNDS SERVICE, INC.
By:
----------------------------
Name:
Title:
5
<PAGE>
CO-ADMINISTRATION AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of ________ __, 1997 by and between Warburg,
Pincus Institutional Fund, Inc., a Maryland corporation (the "Fund"), and PFPC
Inc. ("PFPC"), a Delaware corporation, which is an indirect, wholly owned
subsidiary of PNC Bank Corp.
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 PFPC to provide certain administration and accounting services with
respect to the Japan Growth Portfolio and any subsequent series of the Fund that
may be offered from time to time (each, the "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:
Definitions.
"Authorized Person." The term "Authorized Person" shall mean any officer of
the Fund and any other person, who is duly authorized by the Board of
Directors, 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 to each Services Attachment to this Agreement.
If PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
"Board of Directors." The Term "Board of Directors" shall mean the Fund's
Board of Directors or, where duly authorized, a competent committee
thereof.
"CFTC." The term "CFTC" shall mean the Commodities Futures Trading
Commission.
"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.
"PNC." The term "PNC" shall mean PNC Bank or a subsidiary or affiliate of
PNC Bank.
<PAGE>
"SEC." The term "SEC" shall mean the Securities and Exchange Commission.
"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.
"Services." The term "Services" shall mean the service provided to the Fund
by PFPC.
"Shares." The terms "Shares" shall mean the shares of common stock, par
value $.001 per share, of the Portfolio.
"Property." The term "Property" shall mean:
any and all securities and other investment items which the Fund may from time
to time deposit, or cause to be deposited, with PNC or which PNC may from time
to time hold for the Fund;
all income in respect of any of such securities or other investment items;
all proceeds of the sale of any of such securities or investment items; and
all proceeds of the sale of securities issued by the Fund, which are received by
PNC from time to time, from or on behalf of the Fund.
"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.
Appointment.
- -----------
The Fund hereby appoints PFPC to provide administration and accounting
services with respect to the Portfolio, in accordance with the terms set forth
in this Agreement. PFPC accepts such appointment and agrees to furnish such
services.
2
<PAGE>
Delivery of Documents.
- ---------------------
The Fund has provided or, where applicable, will provide PFPC with the
following:
certified or authenticated copies of the resolutions of the Board of
Directors, approving the appointment of PNC or its affiliates to provide
services with respect to the Portfolio;
a copy of the Fund's most recent effective registration statement with
respect to the Portfolio;
a copy of the Fund's advisory agreement or agreements with respect to
the Portfolio;
a copy of the Fund's distribution agreement or agreements with respect to
the Portfolio;
a copy of the Fund's co-administration agreement with respect to the
Portfolio if PFPC is not providing the Fund with such services;
copies of any shareholder servicing agreements made in respect of the
Fund with respect to the Portfolio; and
certified or authenticated copies of any and all amendments or supplements
to the foregoing.
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 Fund.
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
3
<PAGE>
this Agreement or of any vote, resolution or proceeding of the Fund's Board of
Directors or of the Fund's shareholders.
The Fund 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 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 Fund further agrees that PFPC 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.
Right to Receive Advice.
- -----------------------
Advice of the Fund. 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 Fund.
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 Fund, the Portfolio's investment adviser (the "Adviser") or
PFPC, at the option of PFPC).
Conflicting Advice. In the event of a conflict between directions, advice
or Oral or Written Instructions PNC receives from the Fund, and the advice
it receives from counsel, PFPC shall be entitled to rely upon and follow
the advice of counsel.
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 Fund 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.
4
<PAGE>
Records.
- -------
The book and records pertaining to the Portfolio, which are in the
possession of PFPC, 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 Persons, shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by PFPC to the Fund or to
an Authorized Person of the Fund, at the Fund's expense.
PFPC shall keep the following records:
all books and records with respect to the Portfolio's books of account;
records of the Portfolio's securities transactions; and
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.
Confidentiality.
- ---------------
PPFC agrees to keep confidential all records of the Portfolio and
information relative to the Portfolio and its shareholders (past, present and
potential), unless the release of such records or information is otherwise
consented to, in writing, by the Fund. The Fund agrees that such consent shall
not be unreasonably withheld. The Fund 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 Fund's consent prior to
disclosing such information.
Liaison with Accountants.
- ------------------------
PFPC shall act as liaison with the Portfolio's 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 Fund from time to time.
5
<PAGE>
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 Portfolio, take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
Compensation.
- ------------
As compensation for services rendered by PFPC during the term of this
Agreement, the Portfolio will pay to PFPC a fee or fees as may be agreed to in
writing by the Fund and PFPC.
Indemnification.
- ---------------
The Portfolio agrees 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 (a) at the request or on the direction
of or in reliance on the advice of the Fund or (b) upon Oral or Written
Instructions. Neither PFPC, nor any of its nominees, shall be indemnified
against any liability to the Portfolio 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.
Responsibility of PFPC.
- ----------------------
PFPC 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
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 Portfolio that are attributable to the negligence of
PFPC.
6
<PAGE>
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.
Notwithstanding anything in this Agreement to the contrary, PFPC 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 PFPC's
performance of the services provided hereunder, whether or not the likelihood of
such losses or damages was known by PFPC.
Description of Accounting Services.
- ----------------------------------
Services on a Continuing Basis. PFPC will perform the
following accounting functions if required:
Journalize the Portfolio's investment, capital share and income and expense
activities;
Verify investment buy/sell trade tickets when received from the Adviser and
transmit trades to the Portfolio's custodian for proper settlement;
Maintain individual ledgers for investment securities;
Maintain historical tax lots for each security;
Reconcile cash and investment balances of the Portfolio with the custodian, and
provide the Adviser with the beginning cash balance available for investment
purposes;
Update the cash availability throughout the day as required by the Adviser;
Post to and prepare the Portfolio's Statement of Assets and Liabilities and
the Statement of Operations;
Calculate various contractual expenses (e.g., advisory and custody fees);
Monitor the expense accruals and notify Portfolio's management of any proposed
adjustments;
7
<PAGE>
Control all disbursements from the Fund and authorize such disbursements
upon Written Instructions;
Calculate capital gains and losses;
Determine the Portfolio's net income;
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 Portfolio's
investments;
Transmit or mail a copy of the daily portfolio valuation to the Adviser;
Compute the net asset value of the Portfolio;
As appropriate, compute the Portfolio's yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average dollar-weighted
maturity; and
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.
Description of Administration Services.
- --------------------------------------
Services on a Continuing Basis.
Prepare quarterly broker security transactions summaries;
Prepare monthly security transaction listings;
Prepare for execution and file the Fund's federal and state tax returns;
Prepare and file the Portfolio's semi-annual reports with the SEC on Form N-SAR;
Prepare and file with the SEC the Portfolio's annual and semiannual shareholder
reports;
Assist with the preparation of registration statements and other filings
relating to the registration of Shares; and
Monitor the Fund's status as a regulated investment company under Sub-Chapter M
of the Internal Revenue Code of 1986, as amended.
8
<PAGE>
Duration and Termination.
- ------------------------
This Agreement shall continue until terminated by the Fund or by PFPC
on sixty (60) days' prior written notice to the other party.
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 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.
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.
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 (a) PFPC gives the Fund thirty (30) days' prior written notice;
(b) the delegate agrees with PFPC to comply with all relevant provisions of the
1940 Act; and (c) PFPC 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.
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.
Further Actions.
- ---------------
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
9
<PAGE>
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.
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 INSTITUTIONAL
FUND, INC.
By:
------------------------------
Name:
Title:
10
<PAGE>
APPENDIX A
None.
<PAGE>
<PAGE>
________ __, 1997
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
Ladies and 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 "Fund"), on behalf of the Japan Growth
Portfolio (the "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 Portfolio, including, but not limited to: postage and handling,
telephone, telex, FedEx and outside pricing service charges.
The annual administration and accounting fee with respect to the Japan
Growth Portfolio shall be .10% of the Portfolio's first $500 million in average
daily net assets, .075% of the next $1 billion in average daily net assets and
.05% of average daily net assets over $1.5 billion.
In each month the Portfolio shall pay to PFPC the asset based fee as
calculated above. The fee for the period from the day of the year this agreement
is entered into until the end of that year shall be pro-rated according to the
proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement, and you intend to
be legally bound thereby, please execute a copy of this letter and return it to
us.
Very truly yours,
PFPC INC.
By:
--------------------------
Name:
Title:
Accepted:
WARBURG, PINCUS INSTITUTIONAL
FUND, INC.
By:
--------------------------
Name:
Title:
<PAGE>
CO-ADMINISTRATION AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of _______ _, 1997 by and between
Warburg, Pincus Institutional Fund, Inc., a Maryland corporation (the "Fund"),
and PFPC Inc. ("PFPC"), a Delaware corporation, which is an indirect, wholly
owned subsidiary of PNC Bank Corp.
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 PFPC to provide certain administration and accounting services with
respect to the Small Company Value Portfolio and any subsequent series of the
Fund that may be offered from time to time (each, the "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:
Definitions.
"Authorized Person." The term "Authorized Person" shall mean any officer of
the Fund and any other person, who is duly authorized by the Board of
Directors, 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 to each Services Attachment to this Agreement.
If PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
"Board of Directors." The Term "Board of Directors" shall mean the Fund's
Board of Directors or, where duly authorized, a competent committee
thereof.
"CFTC." The term "CFTC" shall mean the Commodities Futures Trading
Commission.
"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.
<PAGE>
"PNC." The term "PNC" shall mean PNC Bank or a subsidiary or affiliate of
PNC Bank.
"SEC." The term "SEC" shall mean the Securities and Exchange Commission.
"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.
"Services." The term "Services" shall mean the service provided to the Fund
by PFPC.
"Shares." The terms "Shares" shall mean the shares of common stock, par
value $.001 per share, of the Portfolio.
"Property." The term "Property" shall mean:
any and all securities and other investment items which the Fund may from time
to time deposit, or cause to be deposited, with PNC or which PNC may from time
to time hold for the Fund;
all income in respect of any of such securities or other investment items;
all proceeds of the sale of any of such securities or investment items; and
all proceeds of the sale of securities issued by the Fund, which are received by
PNC from time to time, from or on behalf of the Fund.
"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.
<PAGE>
Appointment.
The Fund hereby appoints PFPC to provide administration and
accounting services with respect to the Portfolio, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to furnish
such services.
Delivery of Documents.
The Fund has provided or, where applicable, will provide PFPC
with the following:
certified or authenticated copies of the resolutions of the Board of
Directors, approving the appointment of PNC or its affiliates to provide
services with respect to the Portfolio;
a copy of the Fund's most recent effective registration statement with
respect to the Portfolio;
a copy of the Fund's advisory agreement or agreements with respect to
the Portfolio;
a copy of the Fund's distribution agreement or agreements with respect
to the Portfolio;
a copy of the Fund's co-administration agreement with respect to the
Portfolio if PFPC is not providing the Fund with such services;
copies of any shareholder servicing agreements made in respect of the
Fund with respect to the Portfolio; and
certified or authenticated copies of any and all amendments or supplements
to the foregoing.
<PAGE>
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 Fund.
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 Fund's Board of
Directors or of the Fund's shareholders.
The Fund 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 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 Fund further agrees that
PFPC 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.
Right to Receive Advice.
Advice of the Fund. 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 Fund.
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 Fund, the Portfolio's investment adviser (the "Adviser") or
PFPC, at the option of PFPC).
<PAGE>
Conflicting Advice. In the event of a conflict between directions, advice
or Oral or Written Instructions PNC receives from the Fund, and the advice
it receives from counsel, PFPC shall be entitled to rely upon and follow
the advice of counsel.
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 Fund 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.
Records.
The book and records pertaining to the Portfolio, which are in
the possession of PFPC, 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 Persons, shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by PFPC to the Fund or to
an Authorized Person of the Fund, at the Fund's expense.
PFPC shall keep the following records:
all books and records with respect to the Portfolio's books of account;
records of the Portfolio's securities transactions; and
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.
<PAGE>
Confidentiality.
PPFC agrees to keep confidential all records of the Portfolio
and information relative to the Portfolio and its shareholders (past, present
and potential), unless the release of such records or information is otherwise
consented to, in writing, by the Fund. The Fund agrees that such consent shall
not be unreasonably withheld. The Fund 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 Fund's consent prior to
disclosing such information.
Liaison with Accountants.
PFPC shall act as liaison with the Portfolio's 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 Fund from time to time.
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 Portfolio, take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
Compensation.
As compensation for services rendered by PFPC during the term
of this Agreement, the Portfolio will pay to PFPC a fee or fees as may be agreed
to in writing by the Fund and PFPC.
Indemnification.
The Portfolio agrees 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
<PAGE>
directly or indirectly from any action which PFPC takes or
does not take (a) at the request or on the direction of or in reliance on the
advice of the Fund or (b) upon Oral or Written Instructions. Neither PFPC, nor
any of its nominees, shall be indemnified against any liability to the Portfolio
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.
Responsibility of PFPC.
PFPC 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 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 Portfolio 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.
Notwithstanding anything in this Agreement to the contrary,
PFPC 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 PFPC's performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC.
<PAGE>
Description of Accounting Services.
Services on a Continuing Basis. PFPC will perform the following
accounting functions if required:
Journalize the Portfolio's investment, capital share and income and expense
activities;
Verify investment buy/sell trade tickets when received from the Adviser and
transmit trades to the Portfolio's custodian for proper settlement;
Maintain individual ledgers for investment securities;
Maintain historical tax lots for each security;
Reconcile cash and investment balances of the Portfolio with the custodian, and
provide the Adviser with the beginning cash balance available for investment
purposes;
Update the cash availability throughout the day as required by the Adviser;
Post to and prepare the Portfolio's Statement of Assets and Liabilities and the
Statement of Operations;
Calculate various contractual expenses (e.g., advisory and custody fees);
Monitor the expense accruals and notify Portfolio's management of any proposed
adjustments;
Control all disbursements from the Fund and authorize such disbursements upon
Written Instructions;
Calculate capital gains and losses;
Determine the Portfolio's net income;
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 Portfolio's
investments;
Transmit or mail a copy of the daily portfolio valuation to the Adviser;
Compute the net asset value of the Portfolio;
<PAGE>
As appropriate, compute the Portfolio's yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average dollar-weighted
maturity; and
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.
Description of Administration Services.
Services on a Continuing Basis.
Prepare quarterly broker security transactions summaries;
Prepare monthly security transaction listings;
Prepare for execution and file the Fund's federal and state tax returns;
Prepare and file the Portfolio's semi-annual reports with the SEC on Form N-SAR;
Prepare and file with the SEC the Portfolio's annual and semiannual shareholder
reports;
Assist with the preparation of registration statements and other filings
relating to the registration of Shares;
and
Monitor the Fund's status as a regulated investment company under Sub-Chapter M
of the Internal Revenue Code of 1986, as amended.
Duration and Termination.
This Agreement shall continue until terminated by the Fund or
by PFPC on sixty (60) days' prior written notice to the other party.
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
<PAGE>
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 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.
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.
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 (a) PFPC gives the Fund thirty (30) days' prior written notice;
(b) the delegate agrees with PFPC to comply with all relevant provisions of the
1940 Act; and (c) PFPC 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.
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.
Further Actions.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
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
<PAGE>
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.
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 INSTITUTIONAL
FUND, INC.
By:__________________________
Name:
Title:
<PAGE>
APPENDIX A
None.
<PAGE>
_______ _, 1997
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
Ladies and 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 "Fund"), on
behalf of the Small Company Value Portfolio (the "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 Portfolio, including, but not
limited to: postage and handling, telephone, telex, FedEx and outside pricing
service charges.
The annual administration and accounting fee with respect to
the Small Company Value Portfolio shall be .10% of the Portfolio's first $500
million in average daily net assets, .075% of the next $1 billion in average
daily net assets and .05% of average daily net assets over $1.5 billion.
In each month the Portfolio shall pay to PFPC the asset based
fee as calculated above. The fee for the period from the day of the year this
agreement is entered into until the end of that year shall be pro-rated
according to the proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement, and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
PFPC INC.
By:________________________
Name:
Title:
Accepted:
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
By:___________________________
Name:
Title:
<PAGE>
CO-ADMINISTRATION AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of ________ _, 1997 by and between
Warburg, Pincus Institutional Fund, Inc., a Maryland corporation (the "Fund"),
and PFPC Inc. ("PFPC"), a Delaware corporation, which is an indirect, wholly
owned subsidiary of PNC Bank Corp.
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 PFPC to provide certain administration and accounting services with
respect to the Post-Venture Capital Portfolio and any subsequent series of the
Fund that may be offered from time to time (each, the "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:
Definitions.
"Authorized Person." The term "Authorized Person" shall mean any officer of
the Fund and any other person, who is duly authorized by the Board of
Directors, 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 to each Services Attachment to this Agreement.
If PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
"Board of Directors." The Term "Board of Directors" shall mean the Fund's
Board of Directors or, where duly authorized, a competent committee
thereof.
"CFTC." The term "CFTC" shall mean the Commodities Futures Trading
Commission.
"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.
<PAGE>
"PNC." The term "PNC" shall mean PNC Bank or a subsidiary or affiliate of
PNC Bank.
"SEC." The term "SEC" shall mean the Securities and Exchange Commission.
"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.
"Services." The term "Services" shall mean the service provided to the Fund
by PFPC.
"Shares." The terms "Shares" shall mean the shares of common stock, par
value $.001 per share, of the Portfolio.
"Property." The term "Property" shall mean:
any and all securities and other investment items which the Fund may from time
to time deposit, or cause to be deposited, with PNC or which PNC may from time
to time hold for the Fund;
all income in respect of any of such securities or other investment items;
all proceeds of the sale of any of such securities or investment items; and
all proceeds of the sale of securities issued by the Fund, which are received by
PNC from time to time, from or on behalf of the Fund.
"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.
<PAGE>
Appointment.
The Fund hereby appoints PFPC to provide administration and
accounting services with respect to the Portfolio, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to furnish
such services.
Delivery of Documents.
The Fund has provided or, where applicable, will provide PFPC
with the following:
certified or authenticated copies of the resolutions of the Board of
Directors, approving the appointment of PNC or its affiliates to provide
services with respect to the Portfolio;
a copy of the Fund's most recent effective registration statement with
respect to the Portfolio;
a copy of the Fund's advisory agreement or agreements with respect to the
Portfolio;
a copy of the Fund's distribution agreement or agreements with respect to
the Portfolio;
a copy of the Fund's co-administration agreement with respect to the
Portfolio if PFPC is not providing the Fund with such services;
copies of any shareholder servicing agreements made in respect of the Fund
with respect to the Portfolio; and
certified or authenticated copies of any and all amendments or supplements
to the foregoing.
<PAGE>
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 Fund.
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 Fund's Board of
Directors or of the Fund's shareholders.
The Fund 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 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 Fund further agrees that
PFPC 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.
Right to Receive Advice.
Advice of the Fund. 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 Fund.
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 Fund, the Portfolio's investment adviser (the "Adviser") or
PFPC, at the option of PFPC).
<PAGE>
Conflicting Advice. In the event of a conflict between directions, advice
or Oral or Written Instructions PNC receives from the Fund, and the advice
it receives from counsel, PFPC shall be entitled to rely upon and follow
the advice of counsel.
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 Fund 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.
Records.
The book and records pertaining to the Portfolio, which are in
the possession of PFPC, 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 Persons, shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by PFPC to the Fund or to
an Authorized Person of the Fund, at the Fund's expense.
PFPC shall keep the following records:
all books and records with respect to the Portfolio's books of account;
records of the Portfolio's securities transactions; and
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.
<PAGE>
Confidentiality.
PPFC agrees to keep confidential all records of the Portfolio
and information relative to the Portfolio and its shareholders (past, present
and potential), unless the release of such records or information is otherwise
consented to, in writing, by the Fund. The Fund agrees that such consent shall
not be unreasonably withheld. The Fund 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 Fund's consent prior to
disclosing such information.
Liaison with Accountants.
PFPC shall act as liaison with the Portfolio's 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 Fund from time to time.
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 Portfolio, take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
Compensation.
As compensation for services rendered by PFPC during the term
of this Agreement, the Portfolio will pay to PFPC a fee or fees as may be agreed
to in writing by the Fund and PFPC.
Indemnification.
The Portfolio agrees 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
<PAGE>
directly or indirectly from any action which PFPC takes or
does not take (a) at the request or on the direction of or in reliance on the
advice of the Fund or (b) upon Oral or Written Instructions. Neither PFPC, nor
any of its nominees, shall be indemnified against any liability to the Portfolio
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.
Responsibility of PFPC.
PFPC 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 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 Portfolio 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.
Notwithstanding anything in this Agreement to the contrary,
PFPC 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 PFPC's performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC.
<PAGE>
Description of Accounting Services.
Services on a Continuing Basis. PFPC will perform the following accounting
functions if required:
Journalize the Portfolio's investment, capital share and income and expense
activities;
Verify investment buy/sell trade tickets when received from the Adviser and
transmit trades to the Portfolio's custodian for proper settlement;
Maintain individual ledgers for investment securities;
Maintain historical tax lots for each security;
Reconcile cash and investment balances of the Portfolio with the custodian, and
provide the Adviser with the beginning cash balance available for investment
purposes;
Update the cash availability throughout the day as required by the Adviser;
Post to and prepare the Portfolio's Statement of Assets and Liabilities and
the Statement of Operations;
Calculate various contractual expenses (e.g., advisory and custody fees);
Monitor the expense accruals and notify Portfolio's management of any
proposed adjustments;
Control all disbursements from the Fund and authorize such disbursements
upon Written Instructions;
Calculate capital gains and losses;
Determine the Portfolio's net income;
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 Portfolio's
investments;
Transmit or mail a copy of the daily portfolio valuation to the Adviser;
Compute the net asset value of the Portfolio;
<PAGE>
As appropriate, compute the Portfolio's yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average dollar-weighted
maturity; and
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.
Description of Administration Services.
Services on a Continuing Basis.
Prepare quarterly broker security transactions summaries;
Prepare monthly security transaction listings;
Prepare for execution and file the Fund's federal and state tax returns;
Prepare and file the Portfolio's semi-annual reports with the SEC on Form N-SAR;
Prepare and file with the SEC the Portfolio's annual and semiannual
shareholder reports;
Assist with the preparation of registration statements and other filings
relating to the registration of Shares; and
Monitor the Fund's status as a regulated investment company under Sub-Chapter M
of the Internal Revenue Code of 1986, as amended.
Duration and Termination.
This Agreement shall continue until terminated by the Fund or
by PFPC on sixty (60) days' prior written notice to the other party.
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
<PAGE>
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 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.
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.
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 (a) PFPC gives the Fund thirty (30) days' prior written notice;
(b) the delegate agrees with PFPC to comply with all relevant provisions of the
1940 Act; and (c) PFPC 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.
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.
Further Actions.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
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
<PAGE>
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.
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 INSTITUTIONAL
FUND, INC.
By:__________________________
Name:
Title:
<PAGE>
APPENDIX A
None.
<PAGE>
________ _, 1997
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
Ladies and 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 "Fund"), on
behalf of the Post-Venture Capital Portfolio (the "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 Portfolio, including, but not
limited to: postage and handling, telephone, telex, FedEx and outside pricing
service charges.
The annual administration and accounting fee with respect to
the Post-Venture Capital Portfolio shall be .10% of the Portfolio's first $500
million in average daily net assets, .075% of the next $1 billion in average
daily net assets and .05% of average daily net assets over $1.5 billion.
In each month the Portfolio shall pay to PFPC the asset based
fee as calculated above. The fee for the period from the day of the year this
agreement is entered into until the end of that year shall be pro-rated
according to the proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement, and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
PFPC INC.
By:________________________
Name:
Title:
Accepted:
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
By:___________________________
Name:
Title:
<PAGE>
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
August 12, 1997
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Institutional Fund, Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland, in
connection with the Fund's establishment of three new series, the Japan Growth
Portfolio, the Small Company Value Portfolio and the Post-Venture Capital
Portfolio (the "Portfolios").
We have examined copies of the Fund's Articles of Incorporation, as amended or
supplemented (the "Articles"), the Fund's By-Laws, as amended (the "By-Laws"),
the Fund's Registration Statement, as amended, on Form N-1A, Securities Act File
No. 33-47880 and Investment Company Act File No. 811-6670 (the "Registration
Statement"), and all resolutions adopted by the Fund's Board of Directors at the
Portfolios' organizational meeting on July 30, 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 Fund and
others.
Based upon the foregoing, we are of the opinion that the shares of common stock
of each Portfolio, par value $.001 per share (the "Shares"), when duly sold,
issued and paid for in accordance with the terms of the Articles, the By-Laws
and the Registration Statement, will be validly issued and will be fully paid
and non-assessable shares of common stock of the Fund.
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 Fund
or any distributor or dealer in connection with the registration or
qualification of the Fund or the Shares under the securities laws of any state
or other jurisdiction.
<PAGE>
Warburg, Pincus Institutional Fund, Inc.
August 12, 1997
Page 2
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.
Very truly yours,
/S/ Willkie Farr & Gallagher
<PAGE>
THE LAW FIRM OF
HAMADA & MATSUMOTO
July 17, 1997
Warburg, Pincus Institutional Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Japan Growth Portfolio of Warburg, Pincus
Institutional Fund, Inc. (the "Fund"), a corporation organized under the laws of
the State of Maryland, as to matters of Japanese law.
We hereby confirm that the information set forth under the caption "Japan Growth
Portfolio" (page 30) in the section entitled "Dividends, Distributions and
Taxes" in the Prospectuses contained in the Fund's Registration Statement on
Form N-1A, as amended (the "Registration Statement"), has been reviewed by us
and in our opinion is correct. In addition, we hereby consent to the reference
to us in the Prospectuses and to the filing of this opinion with the U.S.
Securities and Exchange Commission as an exhibit to the Registration Statement.
Very truly yours,
HAMADA & MATSUMOTO
By: /s/Yogo Kimura
Yogo Kimura
YK:kyo
<PAGE>
PURCHASE AGREEMENT
Warburg, Pincus Institutional Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, with respect to
the Japan Growth Portfolio (the "Portfolio") and Warburg, Pincus
Counsellors, Inc. ("Warburg") hereby agree as follows:
1. The Fund offers Warburg and Warburg hereby purchases one
share of common stock of the Portfolio, having a par value of $.001 per share,
at a price of $10.00 per Share (the "Initial Share"). Warburg hereby
acknowledges receipt of a certificate representing the Initial Share, and the
Fund hereby acknowledges receipt from Warburg of $10.00 in full payment for the
Initial Share.
2. Warburg represents and warrants to the Fund that the Initial
Share is being acquired for investment purposes and not for the purpose of
distribution.
3. Warburg agrees that if the holder of the Initial Share
redeems the Initial Share in the 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. The
parties hereby acknowledge that any shares acquired by Warburg other than the
Initial Share have not been acquired to fulfill the requirements of Section 14
of the Investment Company Act of 1940, as amended, and, if redeemed, their
redemption proceeds will not be subject to reduction based on the unamortized
organizational expenses of the Portfolio.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1997.
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
By: _______________________
ATTEST: Name:
Title:
- --------------
WARBURG, PINCUS COUNSELLORS, INC.
ATTEST:
By: _______________________
______________ Name:
Title:
<PAGE>
PURCHASE AGREEMENT
Warburg, Pincus Institutional Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, with respect to
the Small Company Value Portfolio (the "Portfolio") and Warburg, Pincus
Counsellors, Inc. ("Warburg") hereby agree as follows:
1. The Fund offers Warburg and Warburg hereby purchases one
share of common stock of the Portfolio, having a par value of $.001 per share,
at a price of $10.00 per Share (the "Initial Share"). Warburg hereby
acknowledges receipt of a certificate representing the Initial Share, and the
Fund hereby acknowledges receipt from Warburg of $10.00 in full payment for the
Initial Share.
2. Warburg represents and warrants to the Fund that the Initial
Share is being acquired for investment purposes and not for the purpose of
distribution.
3. Warburg agrees that if the holder of the Initial Share
redeems the Initial Share in the 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. The
parties hereby acknowledge that any shares acquired by Warburg other than the
Initial Share have not been acquired to fulfill the requirements of Section 14
of the Investment Company Act of 1940, as amended, and, if redeemed, their
redemption proceeds will not be subject to reduction based on the unamortized
organizational expenses of the Portfolio.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1997.
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
By: _______________________
ATTEST: Name:
Title:
- --------------
WARBURG, PINCUS COUNSELLORS, INC.
ATTEST:
By: _______________________
______________ Name:
Title:
<PAGE>
PURCHASE AGREEMENT
Warburg, Pincus Institutional Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, with respect to
the Post-Venture Capital Portfolio (the "Portfolio") and Warburg, Pincus
Counsellors, Inc. ("Warburg") hereby agree as follows:
1. The Fund offers Warburg and Warburg hereby purchases one
share of common stock of the Portfolio, having a par value of $.001 per share,
at a price of $10.00 per Share (the "Initial Share"). Warburg hereby
acknowledges receipt of a certificate representing the Initial Share, and the
Fund hereby acknowledges receipt from Warburg of $10.00 in full payment for the
Initial Share.
2. Warburg represents and warrants to the Fund that the Initial
Share is being acquired for investment purposes and not for the purpose of
distribution.
3. Warburg agrees that if the holder of the Initial Share
redeems the Initial Share in the 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. The
parties hereby acknowledge that any shares acquired by Warburg other than the
Initial Share have not been acquired to fulfill the requirements of Section 14
of the Investment Company Act of 1940, as amended, and, if redeemed, their
redemption proceeds will not be subject to reduction based on the unamortized
organizational expenses of the Portfolio.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1997.
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
By: _______________________
ATTEST: Name:
Title:
- --------------
WARBURG, PINCUS COUNSELLORS, INC.
ATTEST:
By: _______________________
______________ Name:
Title:
