<PAGE>
As filed with the U.S. Securities and Exchange Commission
on June 14, 1995
Securities Act File No. 33-58125
Investment Company Act File No. 811-07261
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. 1 [x]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 1 [x]
(Check appropriate box or boxes)
Warburg, Pincus Trust
......................................................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
........................................... ..................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
.........................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Page 1 of _______ Pages
Exhibit Index at Page _______
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed
Title of Proposed Maximum
Securities Maximum Aggregate Amount of
Being Amount Being Offering Price Offering Registration
Registered Registered per Unit Price Fee
- ------------------- ------------- --------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares of
beneficial
interest,
$.001 par
value per
share Indefinite* Indefinite* Indefinite* $500
</TABLE>
- --------------------
* An indefinite number of shares of beneficial interest of the Registrant
is being registered by this Registration Statement pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended (the "1940
Act").
2
<PAGE>
WARBURG, PINCUS TRUST
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- ------- ------------------
<S> <C> <C>
1. Cover Page...............................Cover Page
2. Synopsis.................................Not applicable
3. Condensed Financial
Information..............................Not applicable
4. General Description of
Registrant...............................Cover Page; Investment
Objectives and Policies;
General Information
5. Management of the
Registrant...............................Management of the Portfolios
6. Capital Stock and Other
Securities...............................General Information
7. Purchase of Securities
Being Offered............................How to Purchase and Redeem
Shares in the Portfolios;
Management of the Portfolios
8. Redemption or Repurchase.................How to Purchase and Redeem
Shares in the Portfolios
9. Pending Legal Proceedings................Not applicable
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Part B Statement of Additional
Item No. Information Heading
- ------- -----------------------
<S> <C> <C>
10. Cover Page...............................Cover Page
11. Table of Contents........................Contents
12. General Information and
History..................................Management of the Portfolios--
Organization of the Trust;
Notes to Financial Statements;
See Prospectus--"General
Information"
13. Investment Objective and
Policies.................................Investment Objectives;
Investment Policies
14. Management of the
Registrant...............................Management of the Portfolios;
See Prospectus--"Management of
the Portfolios"
15. Control Persons and
Principal Holders of
Securities...............................Not applicable
16. Investment Advisory and
Other Services...........................Management of the Portfolios;
See Prospectus--"Management of
the Portfolios"
17. Brokerage Allocation and
Other Practices..........................Investment Policies--Portfolio
Transactions
18. Capital Stock and Other
Securities...............................Management of the Portfolios--
Organization of the Trust; See
Prospectus--"General
Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered............................Additional Purchase and
Redemption Information; See
Prospectus--"How to Purchase
and Redeem Shares in the
Portfolios" and "Net Asset
Value"
20. Tax Status...............................Additional Information
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Part B Statement of Additional
Item No. Information Heading
- ------- -----------------------
<S> <C> <C>
Concerning Taxes; See
Prospectus--"Dividends,
Distributions and Taxes"
21. Underwriters.............................See Prospectus--"Management of
the Portfolios"
22. Calculation of
Performance Data.........................Determination of Performance
23. Financial Statements.....................Report of Coopers & Lybrand
L.L.P., Independent Auditors;
Financial Statement
</TABLE>
Part C
------
Information required to be included in Part C is set
forth after the appropriate item, so numbered, in Part C to this
registration statement amendment.
5
<PAGE>
[Logo]
PROSPECTUS
JUNE 19, 1995
WARBURG PINCUS TRUST
[ ] INTERNATIONAL EQUITY PORTFOLIO
[ ] SMALL COMPANY GROWTH PORTFOLIO
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 14, 1995
WARBURG PINCUS TRUST
P.O. BOX 9036
BOSTON MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 888-6878
June 19, 1995
PROSPECTUS
WARBURG, PINCUS TRUST (the 'Trust') is an open-end management investment company
that currently offers two investment funds (the 'Portfolios'):
INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing in equity securities of non-U.S. issuers.
SMALL COMPANY GROWTH PORTFOLIO seeks capital growth by investing in equity
securities of small-sized domestic companies.
International investment entails special risk considerations, including currency
fluctuations, lower liquidity, economic instability, political uncertainty and
differences in accounting methods. See 'Risk Factors and Special
Considerations.'
Shares of a Portfolio are not available directly to individual investors but may
be offered only to certain life insurance companies ('Participating Insurance
Companies') for allocation to certain of their separate accounts established for
the purpose of funding variable annuity contracts and variable life insurance
policies (together, 'Variable Contracts'). A Portfolio may not be available in
every state due to various insurance regulations.
This Prospectus briefly sets forth certain information about the Portfolios that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. This Prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product that accompanies this Prospectus. Additional information about
each Portfolio, contained in a Statement of Additional Information, has been
filed with the Securities and Exchange Commission and is available to investors
without charge by calling the Trust at (800) 888-6878. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
THE TRUST'S EXPENSES
<TABLE>
<CAPTION>
INTERNATIONAL SMALL COMPANY
EQUITY PORTFOLIO GROWTH PORTFOLIO
---------------- ----------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................. 0 0
Annual Fund Operating Expenses (as a percentage of average net assets) (after
fee waivers)
Management Fees.......................................................... 1.00% 0.90%
12b-1 Fees............................................................... 0 0
Other Expenses*.......................................................... 0.44% 0.35%
----- -----
Total Portfolio Operating Expenses*...................................... 1.44% 1.25%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE
<S> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 year................................................................... $ 15 $ 13
3 years.................................................................. $ 46 $ 40
</TABLE>
- ------------
* The Portfolios' investment adviser, Warburg, Pincus Counsellors, Inc.
('Counsellors'), has undertaken to reduce or otherwise limit each Portfolio's
Total Operating Expenses for its first fiscal period. In the absence of these
undertakings, Other Expenses would be equal to .75% for each Portfolio, and
Total Portfolio Operating Expenses would be equal to 1.75% and 1.65% for the
International Equity and Small Company Growth Portfolios, respectively. There
is no assurance that these undertakings will continue after December 30,
1995.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of a Portfolio. Other Expenses are based
upon estimated amounts for the first fiscal period. THE TABLE DOES NOT REFLECT
ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE VARIABLE
CONTRACTS; SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE PROSPECTUS OF THE
SPONSORING PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT. The Example should
not be considered a representation of past or future expenses; actual Portfolio
expenses may be greater or less than those shown. Moreover, while the Example
assumes a 5% annual return, each Portfolio's actual performance will vary and
may result in a return greater or less than 5%.
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation.
The SMALL COMPANY GROWTH PORTFOLIO seeks capital growth.
Each Portfolio's objective is a fundamental policy and may not be amended
without first obtaining the approval of a majority of the outstanding shares of
that Portfolio. Any investment involves risk and, therefore, there can be no
assurance that any Portfolio will achieve its investment objective. See 'Certain
Investment Strategies' for descriptions of certain types of investments the
Portfolios may make.
INTERNATIONAL EQUITY PORTFOLIO. The International Equity Portfolio is a
diversified portfolio that pursues its investment objective by investing
primarily in a broadly diversified portfolio of equity securities of companies,
wherever organized, that in the judgment of Counsellors have their principal
business activities and interests outside the United States. The Portfolio will
ordinarily invest substantially all of its assets -- but no less than 65% of its
total assets -- in common stocks, warrants and securities convertible into or
exchangeable for common stocks. Generally the Portfolio will hold no less than
65% of its total assets in at least three countries other than the United
States. The Portfolio intends to be widely diversified across securities of many
corporations located in a number of foreign countries. Counsellors anticipates,
however, that the Portfolio may from time to time invest a significant portion
of its assets in a single country such as Japan, which may involve special
risks. See 'Risk Factors and Special Considerations -- Japanese Investments'
below. In appropriate circumstances, such as when a direct investment by the
International Equity Portfolio in the securities of a particular country cannot
be made or when the securities of an investment company are more liquid than the
underlying portfolio securities, the Portfolio may, consistent with the
provisions of the Investment Company Act of 1940, as amended (the '1940 Act'),
invest in the securities of closed-end investment companies that invest in
foreign securities.
The Portfolio intends to invest principally in the securities of
financially strong companies with opportunities for growth within growing
international economies and markets through increased earning power and improved
utilization or recognition of assets. Investment may be made in equity
securities of companies of any size, whether traded on or off a national
securities exchange.
SMALL COMPANY GROWTH PORTFOLIO. The Small Company Growth Portfolio is a
non-diversified portfolio that pursues its investment objective by investing in
a portfolio of equity securities of small-sized domestic companies. The
Portfolio ordinarily will invest at least 65% of its total assets in common
stocks or warrants of small-sized companies (i.e., companies having stock market
capitalizations of between $25 million and $1 billion at the time of purchase)
that represent attractive opportunities for capital growth. It is anticipated
that the Portfolio will invest primarily in companies whose securities are
traded on domestic stock exchanges or in the over-the-counter market. Small
companies may still be in the developmental stage, may be older companies that
appear to be entering a new stage of growth progress owing to factors such as
management changes or development of new technology, products or markets or may
be companies providing products or services with a high unit volume growth rate.
The Portfolio's investments will be made on the basis of their equity
characteristics and securities ratings generally will not be a factor in the
selection process.
The Portfolio may also invest in securities of emerging growth companies,
which can be either small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time. Emerging
growth companies generally stand to benefit from new products or services,
3
<PAGE>
technological developments or changes in management and other factors and
include smaller companies experiencing unusual developments affecting their
market value.
PORTFOLIO INVESTMENTS
INVESTMENT GRADE DEBT. The International Equity Portfolio and the Small Company
Growth Portfolio may invest up to 35% and 20%, respectively, of its total assets
in (i) investment grade debt securities (other than money market instruments)
and (ii) preferred stocks that are not convertible into common stock for the
purpose of seeking capital appreciation. The interest income to be derived may
be considered as one factor in selecting debt securities for investment by
Counsellors. Because the market value of debt obligations can be expected to
vary inversely to changes in prevailing interest rates, investing in debt
obligations may provide an opportunity for capital appreciation when interest
rates are expected to decline. The success of such a strategy is dependent upon
Counsellors' ability to accurately forecast changes in interest rates. The
market value of debt obligations may also be expected to vary depending upon,
among other factors, the ability of the issuer to repay principal and interest,
any change in investment rating and general economic conditions. A security will
be deemed to be investment grade if it is rated within the four highest grades
by Moody's Investors Service, Inc. ('Moody's') or Standard & Poor's Ratings
Group ('S&P') or, if unrated, is determined to be of comparable quality by
Counsellors. 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 purchase by the Portfolio. Neither event
will require sale of such securities. Counsellors will consider such event in
its determination of whether the Portfolio should continue to hold the
securities.
When Counsellors 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, as discussed below. When such a defensive posture is
warranted, the International Equity Portfolio may also invest temporarily
without limit in securities of U.S. companies. In addition, where Counsellors
believes that it would be beneficial to the Portfolio and appropriate
considering the factors of return and liquidity, each Portfolio may invest up to
5% of its assets in securities of money market mutual funds that are
unaffiliated with the Portfolio or Counsellors. As a shareholder in any mutual
fund, a Portfolio will bear its ratable share of the mutual fund's expenses,
including management fees, and assets so invested will remain subject to payment
of the Portfolio's advisory and administration fees.
MONEY MARKET OBLIGATIONS. Each Portfolio is authorized to invest, under normal
market conditions, up to 20% of its total assets in domestic and foreign money
market obligations having a maturity of one year or less at the time of purchase
and, for temporary defensive purposes, may invest in these securities without
limit. These short-term instruments consist of obligations issued or guaranteed
by the United States government, its agencies or instrumentalities ('U.S.
government securities'); bank obligations (including certificates of deposit,
time deposits and bankers' acceptances of domestic or foreign banks, domestic
savings and loans and similar institutions) that are high quality investments;
commercial paper rated no lower than A-2 by S&P or Prime-2 by Moody's or the
equivalent from another major rating service or, if unrated, of an issuer having
an outstanding, unsecured debt issue then rated within the three highest
4
<PAGE>
rating categories; and repurchase agreements with respect to the foregoing.
U.S. Government Securities. The obligations issued or guaranteed by the
United States government in which a Portfolio may invest include: direct
obligations of the U.S. Treasury, and obligations issued by U.S. government
agencies and instrumentalities, 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.
Repurchase Agreements. The Portfolios may enter into repurchase agreement
transactions on portfolio securities with member banks of the Federal Reserve
System and certain non-bank dealers. Repurchase agreements are contracts under
which the buyer of a security simultaneously commits to resell the security to
the seller at an agreed-upon price and date. Under the terms of a typical
repurchase agreement, a Portfolio would acquire any underlying security for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Portfolio to resell, the
obligation at an agreed-upon price and time, thereby determining the yield
during the Portfolio's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Portfolio's
holding period. The value of the underlying securities will at all times be at
least equal to the total amount of the purchase obligation, including interest.
The Portfolio bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations or becomes bankrupt and the
Portfolio is delayed or prevented from exercising its right to dispose of the
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period while the Portfolio seeks to assert
this right. Counsellors, acting under the supervision of the Trust's Board of
Trustees (the 'Board'), monitors the creditworthiness of those bank and non-bank
dealers with which each Portfolio enters into repurchase agreements to evaluate
this risk. A repurchase agreement is considered to be a loan under the 1940 Act.
CONVERTIBLE SECURITIES. Convertible securities in which a Portfolio may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock.
PERFORMANCE OF INVESTMENT FUNDS MANAGED BY COUNSELLORS
Set forth below is certain performance data provided by Counsellors
relating to Warburg, Pincus International Equity Fund (the 'International Equity
Fund') and the International Equity Portfolio of Warburg, Pincus Institutional
Fund, Inc. (the 'Institutional International Equity Fund'; together with the
International Equity Fund, the 'Warburg Pincus Funds'), registered open-end
investment companies managed by Counsellors. The International Equity Portfolio
has substantially the same investment objective and policies and will be managed
using substantially the same investment strategies and techniques as the Warburg
Pincus Funds. Investors should not rely on the following performance data as an
indication of future performance of the Portfolio. As of May 31, 1995, the
International Equity Fund and the Institutional International Equity Fund had
net assets of approximately $2.1 billion and $383.2 million, respectively, and
overall expense ratios of 1.45% and .95%, respectively. The overall expense
ratio
5
<PAGE>
for the International Equity Portfolio for its first fiscal year will not exceed
1.44%. The Portfolio will have the same types of expenses as the Warburg Pincus
Funds, except that Variable Contract owners may also be subject to certain
additional charges and expenses attributable to the particular Variable
Contract. See 'Performance.' The Warburg Pincus Funds have waived fees from time
to time, which has resulted in higher performance figures than would be the case
had such waivers not been in place.
The performance of the Morgan Stanley Europe, Australia and Far East
('EAFE') Index for the same periods as shown for the Warburg Pincus Funds is set
forth below. Unlike the International Equity Portfolio and the Warburg Pincus
Funds, the index, which is unmanaged, does not reflect the payment of any
expenses.
WARBURG PINCUS FUNDS
TOTAL RETURN FOR PERIODS ENDING MAY 31, 1995
<TABLE>
<CAPTION>
INSTITUTIONAL
INTERNATIONAL INTERNATIONAL
EQUITY FUND EQUITY FUND
-------------------- --------------------
EAFE EAFE
PERFORMANCE INDEX* PERFORMANCE INDEX*
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
One year..................................................... - 4.83% 4.93% - 4.50% 4.93%
Five years................................................... 9.67% 4.87% N/A N/A
From inception**
annualized.............................................. 12.45% 3.44% 16.52% 13.20%
aggregate............................................... 104.22% 22.87% 52.22% 40.62%
</TABLE>
- ------------
* The EAFE Index is an unmanaged, market value-weighted index of more than 1000
international equity securities in nineteen countries that has no defined
investment objective and is compiled by Morgan Stanley Capital International.
The index is calculated on a total return basis, which includes the
reinvestment of dividends after withholding taxes for foreigners not
benefiting from any double taxation treaty, and is stated in U.S. dollars.
** The International Equity Fund commenced investment operations on May 2, 1989,
and the Institutional International Equity Fund commenced operations on
September 1, 1992. The EAFE Index shown is measured from April 30, 1989, with
respect to the International Equity Fund, and from August 31, 1992, with
respect to the Institutional International Equity Fund.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to each Portfolios' investments, see
'Portfolio Investments' beginning at page 4 and 'Certain Investment Strategies'
beginning at page 8.
INTERNATIONAL EQUITY PORTFOLIO
JAPANESE INVESTMENTS. The International Equity Portfolio may from time to time
have a large position in Japanese securities and, as a result, would be subject
to general economic and political conditions in Japan. Japan is largely
dependent upon foreign economies for raw materials. International trade is
important to Japan's economy, as exports provide the means to pay for many of
the raw materials it must import. Because of its large trade surpluses Japan has
entered a difficult phase in its relations
6
<PAGE>
with certain trading partners, particularly with respect to the United States
with whom the trade imbalance is the greatest.
The decline in the Japanese securities markets since 1989 has contributed
to a weakness in the Japanese economy, and the impact of a further decline
cannot be ascertained. The common stocks of many Japanese companies continue to
trade at high price-earnings ratios in comparison with those in the United
States.
Japan has a parliamentary form of government. Since mid-1993, there have
been several changes in leadership in Japan. What, if any, effect the current
political situation will have on prospective regulatory reforms on the economy
cannot be predicted. For additional information, see 'Investment
Policies -- Japanese Investments' in the Statement of Additional Information.
SMALL COMPANY GROWTH PORTFOLIO
SMALL CAPITALIZATION AND EMERGING GROWTH COMPANIES. Investing in securities of
small-sized and emerging growth companies may involve greater risks than
investing in larger, more established issuers since these securities may have
limited marketability and, thus, may be more volatile than securities of larger,
more established companies or the market averages in general. Small-sized
companies may have limited product lines, markets or financial resources and may
lack management depth. In addition, small-sized companies are typically subject
to a greater degree of changes in earnings and business prospects than are
larger, more established companies. There is typically less publicly available
information concerning small-sized companies than for larger, more established
ones. Because small-sized companies normally have fewer shares outstanding than
larger companies, it may be more difficult for the Small Company Growth
Portfolio to buy or sell significant amounts of such shares without an
unfavorable impact on prevailing prices.
Securities of issuers in 'special situations' also may be more volatile,
since the market value of these securities may decline in value if the
anticipated benefits do not materialize. Companies in 'special situations'
include, but are not limited to, companies involved in an acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer, a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the companies' securities; or a change in
corporate control. Although investing in securities of emerging growth companies
or 'special situations' offers potential for above-average returns if the
companies are successful, the risk exists that the companies will not succeed
and the prices of the companies' shares could significantly decline in value.
Therefore, an investment in the Small Company Growth Portfolio may involve a
greater degree of risk than an investment in other mutual funds that seek
capital growth by investing in better-known, larger companies.
NON-DIVERSIFIED STATUS. The Small Company Growth Portfolio is classified as
non-diversified under the 1940 Act, which means that the Portfolio is not
limited by the 1940 Act in the proportion of its assets that it may invest in
the obligations of a single issuer. The Portfolio will, however, comply with
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the 'Code'), for qualification as a regulated investment company. Being
non-diversified means that the Portfolio may invest a greater proportion of its
assets in the obligations of a small number of issuers and, as a result, may be
subject to greater risk with respect to portfolio securities. To the extent that
the Portfolio assumes large positions in the securities of a small number of
issuers, its return may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
7
<PAGE>
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
Counsellors believes it to be in the best interests of the relevant Portfolio.
The Portfolios will not consider portfolio turnover rate a limiting factor in
making investment decisions consistent with their investment objectives and
policies. While it is not possible to predict the Portfolios' portfolio turnover
rates, it is anticipated that each Portfolio's annual turnover rate should not
exceed 100%. Higher portfolio turnover rates (100% or more) may result in dealer
mark ups or underwriting commissions as well as other transaction costs,
including correspondingly higher brokerage commissions. In addition, short-term
gains realized from portfolio turnover may be taxable to shareholders as
ordinary income. See 'Dividends, Distributions and Taxes -- Taxes' below and
'Investment Policies -- Portfolio Transactions' in the Statement of Additional
Information.
All orders for transactions in securities or options on behalf of a
Portfolio are placed by Counsellors with broker-dealers that it selects,
including Counsellors Securities Inc., the Portfolios' distributor ('Counsellors
Securities'). A Portfolio may utilize Counsellors Securities in connection with
a purchase or sale of securities when Counsellors believes that the charge for
the transaction does not exceed usual and customary levels and when doing so is
consistent with guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no intention of doing so during the coming year, each
Portfolio is authorized to engage in the following investment strategies: (i)
purchasing securities on a when-issued basis and purchasing or selling
securities for delayed-delivery and (ii) lending portfolio securities. Each
Portfolio may engage in options or futures transactions for the purpose of
hedging against a decline in value of its portfolio holdings or to generate
income to offset expenses or increase return. Such transactions that are not
considered hedging should be considered speculative and may serve to increase
the Portfolio's investment risk. Detailed information concerning these
strategies and their related risks is contained below and in the Statement of
Additional Information.
FOREIGN SECURITIES. The International Equity Portfolio will ordinarily hold no
less than 65% of its total assets in foreign securities, and the Small Company
Growth Portfolio may invest up to 20% of its total assets in the securities of
foreign issuers. There are certain risks involved in investing in securities of
companies and governments of foreign nations which are in addition to the usual
risks inherent in domestic investments. These risks include those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers, the lack of
uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Portfolios,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfa-
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vorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments positions. Investment in foreign securities will also result
in higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher valuation
and communications costs and the expense of maintaining securities with foreign
custodians.
RULE 144A SECURITIES. The Portfolios may purchase securities that are not
registered under the Securities Act of 1933, as amended (the '1933 Act'), but
that can be sold to 'qualified institutional buyers' in accordance with Rule
144A under the 1933 Act ('Rule 144A Securities'). A Rule 144A Security will be
considered illiquid and therefore subject to each Portfolio's 15% limitation on
the purchase of illiquid securities, unless the Board determines on an ongoing
basis that an adequate trading market exists for the security. In addition to an
adequate trading market, the Board will also consider factors such as trading
activity, availability of reliable price information and other relevant
information in determining whether a Rule 144A Security is liquid. This
investment practice could have the effect of increasing the level of illiquidity
in the Portfolios to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A Securities. The Board will
carefully monitor any investments by the Portfolio in Rule 144A Securities. The
Board may adopt guidelines and delegate to Counsellors the daily function of
determining and monitoring the liquidity of Rule 144A Securities, although the
Board will retain ultimate responsibility for any determination regarding
liquidity.
Non-publicly traded securities (including Rule 144A Securities) may 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.
WRITING PUT AND CALL OPTIONS ON SECURITIES. Each Portfolio may write covered 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. 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 in accordance with its
terms. 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 in accordance with its terms. Thus, the purchaser of a put
option written by a Portfolio has the right to compel the purchase by the
Portfolio of the underlying security at an agreed-upon price for a specified
time period or at a specified time, while the purchaser of a call option written
by a Portfolio has the right to purchase from the Portfolio the underlying
security owned by the Portfolio at the agreed-upon price for a specified time
period or at a specified time.
Upon the exercise of a put option written by a Portfolio, the Portfolio may
suffer an economic loss equal to the excess of the exercise price of the option
over the security's market value at the time of the option exercise, less the
premium received for writing the option. Upon the exercise of a call option
written by a Portfolio, the Portfolio may suffer an economic loss equal to
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the excess of the security's market value at the time of the option exercise
over the Portfolio's acquisition cost of the security, less the premium received
for writing the option.
A Portfolio may engage in a closing purchase transaction to realize a
profit, to prevent an underlying security 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). To effect a closing purchase transaction, a Portfolio
would purchase, prior to the holder's exercise of an option that the Portfolio
has written, an option of the same series as that on which the Portfolio desires
to terminate its obligation. The obligation of a Portfolio under an option that
it has written would be terminated by a closing purchase transaction, but the
Portfolio would not be deemed to own an option as the result of the transaction.
The ability of a Portfolio to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While a Portfolio
generally will write options only if there appears to be a liquid secondary
market for the options purchased or sold, for some options, no such secondary
market may exist or the market may cease to exist.
Option writing for each Portfolio may be limited by position and exercise
limits established by securities exchanges and the National Association of
Securities Dealers, Inc. Furthermore, a Portfolio may, at times, have to limit
its option writing in order to qualify as a regulated investment company under
the Code.
In addition to writing covered options to generate income, each Portfolio
may enter into options 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 on a portfolio
position with a gain on the hedge position; at the same time, however, a
properly correlated hedge will result in a gain on the portfolio position being
offset by a loss on the hedge position. Each Portfolio bears the risk that the
prices of the securities being hedged will not move in the same amount as the
hedge. A Portfolio will engage in hedging transactions only when deemed
advisable by Counsellors. Successful use by a Portfolio of options for hedging
purposes will depend on Counsellors' ability to correctly predict movements in
the direction of the security underlying the option or, in the case of stock
index options (described below), the underlying securities market, which could
prove to be inaccurate. Losses incurred in options transactions and the costs of
these transactions will affect each Portfolio's performance. Even if
Counsellors' expectations are correct, where options are used as a hedge there
may be an imperfect correlation between the change in the value of the options
and of the portfolio securities hedged.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The International Equity
Portfolio and the Small Company Growth Portfolio each may utilize up to 10% of
its assets to purchase put and call options on stocks and debt securities that
are traded on foreign as well as U.S. exchanges, as well as options that trade
over-the-counter ('OTC'), and, with respect to put options, may do so at or
about the same time that it purchases the underlying security or at a later
time.
By buying a put, a Portfolio limits its risk of loss from a decline in the
market value of the underlying security until the put expires. Any appreciation
in the value of and yield otherwise available from the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. Call options may be purchased by each
Portfolio in order to acquire the underlying securities for the Portfolio at a
price that avoids any additional cost that would result from a substantial
increase in the market value of a security. Each Portfolio also may purchase put
or call options to increase its return to investors at a time when the option is
expected to increase in value due to anticipated appreciation (in the case
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of a call) or depreciation (in the case of a put) of the underlying security.
Prior to their expirations, put and call options may be sold in closing
sale transactions (sales by a Portfolio, prior to the exercise of options that
it has purchased, of options of the same series), and profit or loss from the
sale will depend on whether the amount received is more or less than the premium
paid for the option plus the related transaction costs.
STOCK INDEX OPTIONS. Each Portfolio may utilize up to 10% of its total assets to
purchase exchange-listed and OTC put and call options on stock indexes, and may
write put and call options on such 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. 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.' The
discussion of options on securities above, and the related risks, is applicable
to options on securities indexes.
FUTURES CONTRACTS AND OPTIONS. Each Portfolio may enter into interest rate,
stock index and currency 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 consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for 'bona fide hedging' as
defined in CFTC regulations and other permissible purposes including (i)
protecting against anticipated changes in the value of portfolio securities the
Portfolio intends to purchase and (ii) increasing return.
An interest rate futures contract is a standardized contract for the future
delivery of a specified interest rate sensitive security (such as a U.S.
Treasury Bond or U.S. Treasury Note or its equivalent) at a future date at a
price set at the time of the contract. Stock indexes are capitalization weighted
indexes which reflect the market value of the companies 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 beginning and at the end of the contract period. 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 foreign
currency at a specified price, date, time and place. 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 at a specified exercise price at any
time prior to the expiration date of the option.
Parties to a futures contract must make 'initial margin' deposits to secure
performance of the contract. There are also requirements to make 'variation
margin' deposits from time to time as the value of the futures contract
fluctuates. The Portfolios are not commodity pools and, in compliance with CFTC
regulations currently in effect, may enter into any futures contracts and
related options for 'bona fide hedging' purposes and, in addition, for other
purposes, provided that 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 each Portfolio's net asset value, after taking
into account unrealized profits and unrealized losses on any such contracts.
Each Portfolio reserves the right to engage in transactions involving futures
and options thereon to the extent allowed by CFTC regulations in effect from
time
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to time and in accordance with the Portfolio's policies. Certain provisions of
the Code may limit the extent to which the Portfolio may enter into futures
contracts or engage in options transactions.
There are several risks in connection with the use of futures contracts.
Successful use of futures contracts is subject to the ability of Counsellors to
predict correctly movements in the direction of the currency, interest rate or
stock index underlying the particular futures contract or related option. These
predictions and, thus, the use of futures contracts involve skills and
techniques that are different from those involved in the management of portfolio
securities. In addition, there can be no assurance that there will be a
correlation between movements in the currencies, interest rate or index
underlying the futures contract and movements in the price of the portfolio
securities which are the subject of hedge. A decision concerning whether, when
and how to utilize futures involves the exercise of skill and judgment, and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends in foreign currencies, interest rates or stock
indexes. Losses incurred in futures transactions and the costs of these
transactions will affect the Portfolio's performance.
A further risk involves the lack of a liquid secondary market for a futures
contract and the resulting inability to close out a futures contract. Futures
and options contracts may only be closed out by entering into offsetting
transactions on the exchange where the position was entered into (or a linked
exchange), and as a result of daily price fluctuation limits there can be no
assurance that an offsetting transaction could be entered into at an
advantageous price at any particular time. Consequently, a Portfolio may realize
a loss on a futures contract or option that is not offset by an increase in the
value of the Portfolio's securities that are being hedged or the portfolio may
not be able to close a futures or options position without incurring a loss in
the event of adverse price movements.
CURRENCY EXCHANGE TRANSACTIONS. Each Portfolio may engage in currency exchange
transactions to protect against uncertainty in the level of future exchange
rates and to increase the Portfolio's income and total return. 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 forward contracts to purchase or sell currency, (iii) by purchasing
currency options or (iv) as described above, through entering into foreign
currency futures contracts or options on such contracts.
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 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 their customers. The use of forward
currency contracts as a hedge 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. In addition, although forward currency contracts 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.
Currency Options. Each Portfolio may purchase exchange-traded put and call
options on currencies. An option on a foreign currency gives the purchaser, in
return for a premium, the right to sell, in the case of a put, and buy, in the
case of a call, the underlying currency at a specified price during the term of
the option. The benefit to the Portfolio derived from purchases of foreign
currency options, like the benefit derived from other types of options, will be
reduced by the amount of the premium and
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related transaction costs. In addition, if currency exchange rates do not move
in the direction or to the extent anticipated, the Portfolio could sustain
losses on transactions in foreign currency options that would require it to
forgo a portion or all of the benefits of advantageous changes in the rates.
ASSET COVERAGE FOR FORWARD CONTRACTS, OPTIONS, FUTURES AND OPTIONS ON FUTURES.
Each Portfolio will comply with guidelines established by the Securities and
Exchange Commission (the 'SEC') designed to eliminate any potential for leverage
with respect to currency forward contracts; options written by the Portfolio on
currencies, securities and indexes; currency, interest rate and index futures
contracts and options on these futures contracts. The use of these strategies
may require that a Portfolio maintain cash or certain liquid high-grade debt
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.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may also enter into reverse
repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Portfolio pursuant to its agreement to repurchase them at
a mutually agreed upon date, price and rate of interest. At the time the
Portfolio enters into a reverse repurchase agreement, it will establish and
maintain a segregated account with an approved custodian containing cash or
liquid high-grade debt 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. Reverse repurchase agreements are considered to be borrowings under
the 1940 Act.
INVESTMENT GUIDELINES
Each Portfolio may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
and (iii) time deposits maturing in more than seven calendar days. In addition,
up to 5% of each Portfolio's total assets may be invested in the securities of
issuers which have been in continuous operation for less than three years, and
up to an additional 5% of its total assets may be invested in warrants. Each
Portfolio may borrow from banks for temporary or
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emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Portfolio may
not exceed 30% of its total assets, and may pledge to the extent necessary to
secure permitted borrowings. Whenever borrowings (including reverse repurchase
agreements) exceed 5% of the value of a Portfolio's total assets, the Portfolio
will not make any investments (including roll-overs). Except for the limitations
on borrowing, the investment guidelines set forth in this paragraph may be
changed at any time without shareholder consent by vote of the Board, subject to
the limitations contained in the 1940 Act. A complete list of investment
restrictions that each Portfolio has adopted identifying additional restrictions
that cannot be changed without the approval of the majority of the Portfolio's
outstanding shares is contained in the Statement of Additional Information.
MANAGEMENT OF THE PORTFOLIOS
INVESTMENT ADVISERS. The Trust employs Counsellors as investment adviser to each
Portfolio. Counsellors, subject to the control of the Trust's officers and the
Board, manages the investment and reinvestment of the assets of each Portfolio
in accordance with the Portfolio's investment objective and stated investment
policies. Counsellors makes investment decisions for each Portfolio and places
orders to purchase or sell securities on behalf of each such Portfolio.
Counsellors also employs a support staff of management personnel to provide
services to the Portfolios and furnishes each Portfolio with office space,
furnishings and equipment.
For the services provided by Counsellors, the International Equity
Portfolio and the Small Company Growth Portfolio will pay Counsellors a fee
calculated at an annual rate of 1.00% and .90%, respectively, of the relevant
Portfolio's average daily net assets. Although these advisory fees are higher
than that paid by most other investment companies, including money market and
fixed income funds, Counsellors believes that they are comparable to fees
charged by other mutual funds with similar policies and strategies. Counsellors
and the Trust's co-administrators may voluntarily waive a portion of their fees
from time to time and temporarily limit the expenses to be borne by a Portfolio.
Counsellors is a professional investment counselling firm which provides
investment services to investment endowment funds, foundations and other
institutions and individuals. As of May 31, 1995, Counsellors managed
approximately $10.5 billion of assets, including approximately $4.9 billion of
assets of nineteen investment companies or portfolios. Incorporated in 1970,
Counsellors is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Counsellors G.P.'), a New York general partnership. E.M. Warburg, Pincus &
Co., Inc. ('EMW') controls Counsellors through its ownership of a class of
voting preferred stock of Counsellors. Counsellors G.P. has no business other
than being a holding company of Counsellors and its subsidiaries. Counsellors'
address is 466 Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. The portfolio manager of the International Equity Portfolio
is Richard H. King. Mr. King is also portfolio manager of Warburg, Pincus
International Equity Fund and the International Equity Portfolio of Warburg,
Pincus Institutional Fund, Inc. and co-portfolio manager of Warburg, Pincus
Japan OTC Fund and Warburg, Pincus Emerging Markets Fund. Mr. King has been a
managing director of EMW since 1989. From 1984 until 1988 he was chief
investment officer and a director at Fiduciary Trust Company International S.A.
in London, with responsibility for all international equity management and
investment strategy. From 1982 to 1984 he was a director in charge of Far East
equity investments at N.M. Rothschild International Asset Management, a London
merchant bank.
Nicholas P.W. Horsley, Harold W. Ehrlich and Vincent McBride are associate
portfolio
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managers and research analysts of the International Equity Portfolio. Mr.
Horsley, Mr. Ehrlich and Mr. McBride are associate portfolio managers and
research analysts of Warburg, Pincus Emerging Markets Fund, Warburg, Pincus
International Equity Fund and the International Equity Portfolio of Warburg,
Pincus Institutional Fund, Inc. Mr. Horsley is also co-portfolio manager of
Warburg, Pincus Japan OTC Fund. Mr. Horsley is a senior vice president of
Counsellors and has been with Counsellors since 1993, before which time he was a
director, portfolio manager and analyst at Barclays deZoete Wedd in New York
City. Mr. Ehrlich is a senior vice president of Counsellors and has been with
Counsellors since February, 1995, before which time he was a senior vice
president, portfolio manager and analyst at Templeton Investment Counsel Inc.
Mr. McBride has been with Counsellors since 1994. Prior to joining Counsellors,
Mr. McBride was an international equity analyst at Smith Barney Inc. from 1993
to 1994 and at General Electric Investment Corporation from 1992 to 1993. From
1989 to 1992 he was a portfolio manager/analyst at United Jersey Bank.
The portfolio managers of the Small Company Growth Portfolio are Elizabeth
B. Dater and Stephen J. Lurito. Ms. Dater and Mr. Lurito are also co-portfolio
managers of Warburg, Pincus Emerging Growth Fund. Ms. Dater is a managing
director of EMW and has been a portfolio manager of Counsellors since 1978. Mr.
Lurito is a managing director of EMW and has been with Counsellors since 1987,
before which time he was a research analyst at Sanford C. Bernstein & Company,
Inc.
CO-ADMINISTRATORS. The Trust employs Counsellors Funds Service, Inc., a wholly
owned subsidiary of Counsellors ('Counsellors Service'), as a co-administrator.
As co-administrator, Counsellors Service provides shareholder liaison services
to the Portfolios, including responding to shareholder inquiries and providing
information on shareholder investments. Counsellors Service also performs a
variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Portfolios and their
various service providers, furnishing corporate secretarial services, which
include preparing materials for meetings of the Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in other
regulatory filings as necessary and monitoring and developing compliance
procedures for the Portfolios. As compensation, each Portfolio pays to
Counsellors Service a fee calculated at an annual rate of .10% of the
Portfolio's average daily net assets.
The Trust employs PFPC Inc., an indirect, wholly owned subsidiary of PNC
Bank Corp. ('PFPC'), as a co-administrator. As a co-administrator, PFPC
calculates each Portfolio's net asset value, provides all accounting services
for the Portfolio and assists in related aspects of the Portfolio's operations.
As compensation the International Equity Portfolio pays to PFPC a fee calculated
at an annual rate of .12% of the Portfolio's first $250 million in average daily
net assets, .10% of the next $250 million in average daily net assets, .08% of
the next $250 million in average daily net assets, and .05% of average daily net
assets over $750 million, with a minimum annual fee of $42,000, and the Small
Company Growth Portfolio pays to PFPC a fee calculated at an annual rate of .10%
of the Portfolio's average daily net assets, with a minimum annual fee of
$75,000, in each case exclusive of out-of-pocket expenses. PFPC has its
principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS AND TRANSFER AGENT. PNC Bank, National Association ('PNC'), serves as
custodian of each Portfolio's U.S. assets. State Street Bank and Trust Company
('State Street') serves as international custodian of each Portfolio's non-U.S.
assets. PNC is a subsidiary of PNC Bank Corp. and its principal business address
is Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101. State Street's
principal business
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address is 225 Franklin Street, Boston, Massachusetts 02110.
State Street also serves as shareholder servicing agent, transfer agent and
dividend disbursing agent for the Trust. It has delegated to Boston Financial
Data Services, Inc., a 50% owned subsidiary ('BFDS'), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as distributor
of the shares of the Trust. Counsellors Securities is a wholly owned subsidiary
of Counsellors and is located at 466 Lexington Avenue, New York, New York 10017-
3147.
OTHER. From time to time Counsellors or its affiliates may compensate
Participating Insurance Companies or their affiliates or entities that provide
services to them for providing a variety of record-keeping, administrative,
marketing and/or shareholder support services with respect to investments made
in the Trust. This compensation will be based on the net asset value of shares
held by the Participating Insurance Companies' Variable Contract owners and will
vary depending on the nature, extent and quality of the services provided. Such
compensation will be paid from Counsellors' or its affiliates' own resources and
will not represent an additional expense to the Portfolios or their
shareholders.
Counsellors may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of a Portfolio. Qualified
recipients are securities dealers who have sold Portfolio shares or others,
including banks and other financial institutions, under special arrangements. In
some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of significant amounts of a Portfolio's shares.
TRUSTEES AND OFFICERS. The officers of the Trust manage each Portfolio's
day-to-day operations and are directly responsible to the Board. The Board sets
broad policies for each Portfolio and chooses the Trust's officers. A list of
the Trustees and officers and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM
SHARES IN THE PORTFOLIOS
Individual investors may not purchase or redeem shares of a Portfolio
directly; shares may be purchased or redeemed only through Variable Contracts
offered by separate accounts of Participating Insurance Companies. Please refer
to the prospectus of the sponsoring Participating Insurance Company separate
account for instructions on purchasing or selling a Variable Contract and on how
to select a Portfolio as an investment option for a Variable Contract.
PURCHASES. All investments in the Portfolios are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by a Portfolio. Each Participating Insurance Company receives orders
from its contract owners to purchase or redeem shares of a Portfolio on any day
that the Portfolio calculates its net asset value (a 'business day'). That
night, all orders received by the Participating Insurance Company prior to the
close of regular trading on the New York Stock Exchange Inc. (the 'NYSE')
(currently 4:00 p.m., Eastern time) on that business day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of one or both Portfolios during the morning of the next business day.
These orders are executed at the net asset value (described below under 'Net
Asset Value') computed at the close of regular trading on the NYSE on the
previous business day in order to provide a match between the
contract owners' orders to the Participating Insurance Company and that
Participating Insurance Company's orders to a Portfolio.
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Each Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Counsellors' opinion, they are of a size
that would disrupt the management of a Portfolio. A Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely effect that Portfolio's ability to achieve its
investment objective. In such event, however, it is anticipated that existing
Variable Contract owners would be permitted to continue to authorize investment
in such Portfolio and to reinvest any dividends or capital gains distributions.
REDEMPTIONS. Shares of a Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company prior
to the close of regular trading on the NYSE on any business day and transmitted
to the Trust or its specified agent during the morning of the next business day
will be processed at the net asset value computed at the close of regular
trading on the NYSE on the previous business day. Redemption proceeds will
normally be wired to the Participating Insurance Company the business day
following receipt of the redemption order, but in no event later than seven days
after receipt of such order.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Portfolio's portfolio securities for the applicable period less
applicable expenses. Each Portfolio declares dividends from its net investment
income annually 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. Distributions of net realized long-term
and short-term capital gains are declared annually and, as a general rule, will
be distributed or paid after the end of the fiscal year in which they are
earned. Dividends and distributions will automatically be reinvested in
additional shares of the relevant Portfolio at net asset value unless a
Participating Insurance Company elects to have dividends or distributions paid
in cash.
TAXES. For a discussion of the tax status of a Variable Contract, refer to the
sponsoring Participating Insurance Company separate account prospectus.
Each Portfolio intends to qualify each year as a 'regulated investment
company' under Subchapter M of the Code. Each Portfolio is treated as a separate
entity for federal income tax purposes and, therefore, the investments and
results of the Portfolios are determined separately for purposes of determining
whether the Portfolio qualifies as a regulated investment company and for
purposes of determining net ordinary income (or loss) and net realized capital
gains (or losses). Each Portfolio intends to distribute all of its net income
and gains to its shareholders (the Variable Contracts).
Because shares of the Portfolios may be purchased only through Variable
Contracts, it is anticipated that any income dividends or capital gain
distributions from a Portfolio are taxable, if at all, to the Participating
Insurance Companies and will be exempt from current taxation of the Variable
Contract owner if left to accumulate within the Variable Contract. Generally,
withdrawals from Variable Contracts may be subject to ordinary income tax and,
if made before age 59 1/2, a 10% penalty tax.
Special Tax Matters Relating to the International Equity Portfolio.
Dividends and interest received by the International Equity Portfolio may be
subject to withholding and other taxes imposed by foreign countries. However,
tax conventions between certain countries and the United States may reduce or
eliminate such taxes. Shareholders will bear the cost of foreign tax withholding
in the form of increased expenses to the Portfolio, but generally will not be
able to claim a foreign tax credit or deduction
17
<PAGE>
for foreign taxes paid by the Portfolio by reason of the tax-deferred status of
Variable Contracts.
INTERNAL REVENUE SERVICE LIMITATIONS. Each Portfolio intends to comply with the
diversification requirements currently imposed by the Internal Revenue Service
on separate accounts of insurance companies as a condition of maintaining the
tax-deferred status of Variable Contracts. See the Statement of Additional
Information for more specific information.
NET ASSET VALUE
Each Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to be closed on
New Year's Day, Washington's Birthday, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when one of the holidays falls on a
Saturday or Sunday, respectively. The net asset value per share of each
Portfolio generally changes every day.
The net asset value per share of each Portfolio is computed by deducting
the Portfolio's liabilities from its assets and then dividing the result by the
total number of outstanding shares. Generally, the Portfolio's investments are
valued at market value or, in the absence of a quoted market value with respect
to any portfolio securities, at fair value as determined by or under the
direction of the Board.
Portfolio securities that are primarily traded on foreign exchanges are
generally valued at the closing values of such securities on their respective
exchanges preceding the calculation of a Portfolio's net asset value, except
that when an occurrence subsequent to the time a value was so established is
likely to have changed such value, then the fair market value of those
securities will be determined by consideration of other factors by or under the
direction of the Board or its delegates.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
will be valued on the basis of the closing value on the date on which the
valuation is made. Other U.S. over-the-counter securities, foreign
over-the-counter securities and securities listed or traded on certain foreign
stock exchanges whose operations are similar to the U.S. over-the-counter market
are valued on the basis of the bid price at the close of business on each day.
Option or futures contracts will be valued at the last sale price at 4:00 p.m.
(Eastern time) on the date on which the valuation is made, as quoted on the
primary exchange or board of trade on which the option or futures contract is
traded or, in the absence of sales, at the mean between the last bid and asked
prices. Unless the Board determines that using this valuation method would not
reflect the investments' value, short-term investments that mature in 60 days or
less are valued on the basis of amortized cost, which involves valuing a
portfolio instrument at its cost initially 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. Any assets and
liabilities initially expressed in non-U.S. dollar currencies are translated
into U.S. dollars at the prevailing rate as quoted by an independent pricing
service on the date of valuation. Further information regarding valuation
policies is contained in the Statement of Additional Information.
PERFORMANCE
Each Portfolio's performance may be quoted in advertising if accompanied by
performance of the Participating Insurance Company's separate account. From time
to time, each Portfolio may advertise its average annual total return over
various periods of time. These total return
18
<PAGE>
figures show the average percentage change in value of an investment in the
Portfolio from the beginning of the measuring period to the end of the measuring
period. The figures reflect changes in the price of the Portfolio's shares
assuming that any income dividends and/or capital gain distributions made by the
Portfolio during the period were reinvested in shares of the Portfolio. Total
return will be shown for recent one-, five-and ten-year periods, and may be
shown for other periods as well (such as from commencement of the Portfolio's
operations or on a year-by-year, quarterly or current year-to-date basis).
Total returns quoted for the Portfolios include the effect of deducting
each Portfolio's expenses, but may not include charges and expenses attributable
to any particular Variable Contract. Accordingly, the prospectus of the
sponsoring Participating Insurance Company separate account should be carefully
reviewed for information on relevant charges and expenses. Excluding these
charges and expenses from quotations of each Portfolio's performance has the
effect of increasing the performance quoted, and the effect of these charges
should be considered when comparing a Portfolio's performance to that of other
mutual funds.
When considering average annual total return figures for periods longer
than one year, it is important to note that the annual total return for one year
in the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that such return may not be representative of a
Portfolio's return over a longer market cycle. Each Portfolio may also advertise
its aggregate total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the specific
period (again reflecting changes in share prices and assuming reinvestment of
dividends and distributions). Aggregate and average total returns may be shown
by means of schedules, charts or graphs and may indicate various components of
total return (i.e., change in value of initial investment, income dividends and
capital gain distributions).
Investors should note that return figures are based on historical earnings
and are not intended to indicate future performance. The Statement of Additional
Information describes the method used to determine the total return. Current
total return figures may be obtained by calling (800) 888-6878.
In reports or other communications to investors or in advertising material,
a Portfolio or a Participating Insurance Company may describe general economic
and market conditions affecting the Portfolio. Performance may be compared with
(i) that of other mutual funds as listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar investment services that monitor the
performance of mutual funds or as set forth in the publications listed below;
(ii) in the case of the International Equity Portfolio, with the Morgan Stanley
Capital International EAFE Index, the Salomon Russell Global Equity Index, the
FT-Actuaries World Indices (jointly compiled by The Financial Times, Ltd.,
Goldman, Sachs & Co. and NatWest Securities Ltds.) and the S&P 500, which are
unmanaged indexes of common stocks and, in the case of the Small Company Growth
Portfolio, with the Russell 2500; or (iii) other appropriate indexes of
investment securities or with data developed by Counsellors derived from such
indexes. A Portfolio or a Participating Insurance Company may also include
evaluations published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as The Wall Street Journal,
Investor's Daily, Money, Inc., Institutional Investor, Barron's, Fortune,
Forbes, Business Week, Morningstar, Inc. and Financial Times.
In reports or other communications to investors or in advertising, each
Portfolio or a Participating Insurance Company may also describe the general
biography or work experience of the portfolio managers of the Portfolio
19
<PAGE>
and may include quotations attributable to the portfolio managers describing
approaches taken in managing the Portfolio's investments, research methodology
underlying stock selection or the Portfolio's investment objective. Each
Portfolio may also discuss 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. In addition, each Portfolio or a
Participating Insurance Company may from time to time compare its expense to
that of investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
GENERAL INFORMATION
TRUST ORGANIZATION. The Trust was organized on March 15, 1995 under the laws of
The Commonwealth of Massachusetts as a business entity commonly known as
'Massachusetts business trust.' The Trust's Declaration of Trust authorizes the
Board to issue an unlimited number of full and fractional shares of beneficial
interest, $.001 par value per share. Shares of two series have been authorized,
which constitute the interests in the Portfolios. The Board may classify or
reclassify any of its shares into one or more additional series without
shareholder approval.
VOTING RIGHTS. When matters are submitted for shareholder vote, shareholders of
each Portfolio will have one vote for each full share held and fractional votes
for fractional shares held. Generally, shares of the Trust will vote by
individual Portfolio on all matters except where otherwise required by law.
Under current law, a Participating Insurance Company is required to request
voting instructions from Variable Contract owners and must vote all Trust shares
held in the separate account in proportion to the voting instructions received.
For a more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company separate account prospectus.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
members holding office have been elected by shareholders. Shareholders of record
of no less than two-thirds of the outstanding shares of the Trust may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. A meeting will be called for the purpose
of voting on the removal of a Trustee at the written request of holders of 10%
of the Trust's outstanding shares.
CONFLICTS OF INTEREST. The Portfolios do not currently foresee any disadvantages
to Variable Contract owners arising out of the fact that each Portfolio offers
its shares to Variable Contracts offered through separate accounts of
Participating Insurance Companies which may or may not be affiliated with each
other. Nevertheless, the Board will monitor events in order to identify any
material irreconcilable conflicts of interest that may arise and to determine
what action, if any, should be taken in response to such conflicts. If a
conflict occurs, the Board may require one or more Participating Insurance
Company separate accounts to withdraw its investments in one or both Portfolios.
As a result, a Portfolio may be forced to sell securities at disadvantageous
prices and orderly portfolio management could be disrupted. In addition, the
Board may refuse to sell shares of a Portfolio to any Variable Contract or may
suspend or terminate the offering of shares of a Portfolio if such action is
required by law or regulatory authority or is in the best interests of the
shareholders of the Portfolio.
SHAREHOLDER COMMUNICATIONS. Variable Contract owners of a Portfolio will receive
a semi-annual report and an audited annual report, each of which includes a list
of the investment securities held by the Portfolio (and their market values)
20
<PAGE>
and a statement of the performance of the Portfolio.
Since the prospectuses of the Portfolios are combined in this single
Prospectus, it is possible that a Portfolio may become liable for a
misstatement, inaccuracy or omission in this Prospectus with regard to the other
Portfolio.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE PORTFOLIOS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIOS, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
SHARES OF THE PORTFOLIOS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
21
<PAGE>
TABLE OF CONTENTS
THE TRUST'S EXPENSES ..................................................... 2
INVESTMENT OBJECTIVES AND POLICIES ....................................... 3
PORTFOLIO INVESTMENTS .................................................... 4
PERFORMANCE OF INVESTMENT FUNDS
MANAGED BY COUNSELLORS ................................................ 5
RISK FACTORS AND SPECIAL
CONSIDERATIONS ........................................................ 6
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................................. 8
CERTAIN INVESTMENT STRATEGIES ............................................ 8
INVESTMENT GUIDELINES ................................................... 13
MANAGEMENT OF THE PORTFOLIOS ............................................ 14
HOW TO PURCHASE AND REDEEM SHARES IN
THE PORTFOLIOS ....................................................... 16
DIVIDENDS, DISTRIBUTIONS AND TAXES ...................................... 17
NET ASSET VALUE ......................................................... 18
PERFORMANCE ............................................................. 18
GENERAL INFORMATION ..................................................... 20
<PAGE>
[LOGO]
WARBURG PINCUS TRUST
[ ] INTERNATIONAL EQUITY PORTFOLIO
[ ] SMALL COMPANY GROWTH PORTFOLIO
PROSPECTUS
JUNE 19, 1995
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>
Subject to Completion, dated June 14, 1995
STATEMENT OF ADDITIONAL INFORMATION
June 19, 1995
WARBURG PINCUS TRUST
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Investment Objectives ..................................................... 3
Investment Policies ....................................................... 3
Management of the Trust ................................................... 30
Additional Purchase and Redemption Information ............................ 37
Additional Information Concerning Taxes ................................... 37
Determination of Performance .............................................. 40
Auditors and Counsel ...................................................... 43
Financial Statement ....................................................... 43
Appendix -- Description of Ratings ........................................ A-1
Report of Coopers & Lybrand L.L.P.,
Independent Auditors .................................................... A-3
</TABLE>
This Statement of Additional Information is meant to be read
in conjunction with the Prospectus of Warburg Pincus Trust (the "Trust"), dated
June 19, 1995, and is incorporated by reference in its entirety into that
Prospectus. The Trust currently offers two managed investment funds, the
International Equity Portfolio and the Small Company Growth Portfolio (together
the "Portfolios" and each a "Portfolio"). Shares of a Portfolio are not
available directly to individual investors but may be offered only to certain
life insurance companies ("Participating Insurance Companies") for allocation to
certain of their separate accounts established for the purpose of funding
variable annuity contracts and variable life insurance policies (together
"Variable Contracts"). Because this Statement of Additional Information is not
itself a prospectus, no investment in shares of a Portfolio should be made
solely upon the information contained herein. Copies of the Trust's Prospectus
and information regarding each of the Portfolios' current performance may be
obtained by calling Warburg Pincus Funds at (800) 886-6878.
<PAGE>
INVESTMENT OBJECTIVES
The investment objective of the International Equity Portfolio
is long-term capital appreciation. The investment objective of the Small Company
Growth Portfolio is capital growth.
INVESTMENT POLICIES
The following policies supplement the descriptions of each
Portfolio's investment objective and policies in the Prospectus.
Additional Information on Investment Practices
Foreign Investments. The International Portfolio will
ordinarily hold no less than 65% of its total assets in foreign securities, and
the Small Company Growth Portfolio may invest up to 20% of its total assets in
the securities of foreign issuers. Investors should recognize that investing in
securities of foreign companies involves certain risks, including those
discussed below, which are not typically associated with investing in securities
of United States issuers. Since the International Equity Portfolio will, and the
Small Company Growth Portfolio 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, if any, to be distributed by a Portfolio with respect to its
foreign investments.
The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Of particular
importance are rates of inflation, interest rate levels, the balance of payments
and the extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of the United States and
other foreign countries important to international trade and finance.
Governmental intervention may also play a significant role. National governments
rarely voluntarily allow their currencies to float freely in response to
economic forces. Sovereign governments use a variety of techniques, such as
intervention by a
2
<PAGE>
country's central bank or imposition of regulatory controls or taxes, to affect
the exchange rates of their currencies.
Many of the foreign securities held by a Portfolio will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the U.S. Securities and Exchange Commission (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. In addition, with respect to some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Portfolio, political
or social instability, or domestic developments which could affect U.S.
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Each of the Portfolios 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.
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.
The interest payable on the Portfolios' foreign securities may
be subject to foreign withholding taxes, and the general effect of these taxes
will be to reduce a Portfolio's income. Additionally, the operating expenses of
the International Equity Portfolio can be expected to be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Portfolio, such as custodial costs, valuation costs and communication
costs, as well as the rate of the investment advisory fees, though similar to
such expenses of some other international funds, are higher than those costs
incurred by other investment companies.
Japanese Investments (International Equity Portfolio). From
time to time depending on current market conditions, the International Equity
Portfolio may invest a significant portion of its assets in Japanese securities.
Like any investor in Japan, the Portfolio will be subject to general economic
and political conditions in the country. 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.
3
<PAGE>
The information set forth in this section has been extracted
from various governmental publications and other sources. The International
Equity Portfolio makes no representation as to the accuracy of the information,
nor has the Portfolio attempted to verify it. In some cases, current information
is not presented and may vary substantially from the historical data shown.
Furthermore, no representation is made that any correlation exists between Japan
or its economy in general and the performance of the Portfolio.
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. On January 17, 1995, the Great Hanshin
Earthquake severely damaged Kobe, Japan's largest container port. The economic
effects of the earthquake cannot be predicted.
Japan is largely dependent upon foreign economies for raw
materials. For instance, almost all of its oil is imported, the majority from
the Middle East. Oil prices therefore have a major impact on the domestic
economy, as is evidenced by the current account deficits triggered by the two
oil crises of the 1970's. Oil prices have declined mainly due to a worldwide
easing of demand for crude oil. The stabilized price of oil contributed to
Japan's sizeable current account surplus and stability of wholesale and consumer
prices since 1981. While Japan is working to reduce its dependence on foreign
materials, its lack of natural resources poses a significant obstacle to this
effort.
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. The United States and Japan have engaged in
"economic framework" negotiations to help raise United States' share in Japanese
markets and reduce Japan's current account surplus but progress in the
negotiations has been hampered by recent political upheaval in Japan. Any trade
sanctions imposed upon Japan by the United States as a result of the current
friction or otherwise could adversely impact Japan and the Portfolio's
investments there.
4
<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
Trade
<TABLE>
<CAPTION>
Current
Year Exports Imports Trade Balance Balance
(U.S. dollars in millions)
<S> <C> <C> <C> <C>
1989 269,570 192,653 76,917 57,157
1990 280,374 216,846 63,528 35,761
1991 306,557 203,513 103,044 72,901
1992 330,850 198,502 132,348 117,551
1993 351,292 209,778 141,514 131,448
1994 N/A1 N/A N/A N/A
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan
Economic Trends. The following tables set forth Japan's gross
domestic product, wholesale price index and consumer price index for the years
shown.
GROSS DOMESTIC PRODUCT (GDP)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GDP (yen billions)
(Expenditures) 469,240 468,769 463,850 451,297 24,537 396,197
Change in GDP
from Preceding
Year
Nominal terms N/A 1.1% 2.8% 6.3% 7.2% 6.7%
Real Terms N/A 0.1% 1.1% 4.3% 4.8% 4.7%
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan;
International Monetary Fund
- --------
1 N/A = not available.
5
<PAGE>
WHOLESALE PRICE INDEX
<TABLE>
<CAPTION>
Change from
All Preceding
Year Commodities Year
(Base year: 1990)
<S> <C> <C>
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
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan;
International Monetary Fund
CONSUMER PRICE INDEX
<TABLE>
<CAPTION>
Change from
Year General Preceding Year
(Base Year: 1990)
<S> <C> <C>
1989 97.0 2.3
1990 100.0 3.1
1991 103.3 3.3
1992 105.0 1.6
1993 106.4 1.3
1994 107.1 0.7
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan;
International Monetary Fund
Securities markets. There are eight stock exchanges in
Japan. Of these, the Tokyo Stock Exchange is by far the largest, followed by the
Osaka Stock Exchange and the Nagoya Stock Exchange. These exchanges divide the
market for domestic stocks into two sections, with newly listed companies and
smaller companies assigned to the Second Section and larger companies assigned
to the First Section.
6
<PAGE>
The following table sets forth the number of Japanese
companies listed on the three major Japanese stock exchanges as of the end of
1994.
NUMBER OF LISTED DOMESTIC COMPANIES
<TABLE>
<CAPTION>
Tokyo Osaka Nagoya
------- -------- ---------
<S> <C> <C> <C> <C> <C>
1st 2nd 1st 2nd 1st 2nd
Sec. Sec. Sec. Sec. Sec. Sec.
1,235 454 855 344 431 129
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995
The following table sets forth the trading volume and value of
Japanese stocks on 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>
Year Volume Value
- ---- -------- -------
<S> <C> <C>
1989............ 256,296 (Y)386,395
1990............ 145,837 231,837
1991............ 107,844 134,160
1992............ 82,563 80,456
1993............ 101,173 106,123
1994............ 105,937 114,622
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995
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.
7
<PAGE>
TOPIX
<TABLE>
<CAPTION>
(January 4, 1968=100)
Year Year-end High Low
- ---- -------- ---- ---
<S> <C> <C> <C>
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
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1995
Currency Transactions. The value in U.S. dollars of the assets of each
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. Each
Portfolio, therefore, may engage in currency exchange transactions to protect
against uncertainty in the level of future exchange rates and may also engage in
currency transactions to increase income and total return. 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 either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market or through entering into forward contracts to purchase
or sell currency. If a devaluation is generally anticipated, the Portfolio may
not be able to contract to sell the currency at a price above the devaluation
level it anticipates. The cost to a Portfolio of engaging in currency
transactions varies with factors such as the currency involved, the length of
the contract period and the market conditions then prevailing. Because
transactions in currency exchange are usually conducted on a principal basis, no
fees or commissions are generally involved.
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 their customers.
At or before the maturity of a forward contract, the Portfolio may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Portfolio retains the portfolio security and engages
in an offsetting transaction, the Portfolio, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices.
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Currency Options. Each Portfolio may purchase put and call options on
foreign currencies. Foreign currency options generally have three, six, nine and
twelve month expiration cycles. 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.
Foreign Currency Futures. As described below under "Futures
Activities," a Portfolio may enter into foreign currency futures contracts and
related options.
Currency Hedging. While the values of forward currency contracts,
currency options, currency futures and options on futures may be expected to
correlate with exchange rates, they will not reflect other factors that may
affect the value of a Portfolio's investments. A currency hedge, for example,
should protect a Yen-denominated bond against a decline in the Yen, but will not
protect the Portfolio against price decline if the issuer's creditworthiness
deteriorates. Because the value of a Portfolio's investments denominated in
foreign currency will change in response to many factors other than exchange
rates, a currency hedge may not be entirely successful in mitigating changes in
the value of the Portfolio's investments denominated in that currency over time.
A decline in the dollar value of a foreign currency in which the
Portfolio's securities are denominated will reduce the 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. In order to protect against such diminutions in the value of
securities it holds, the Portfolio may purchase put options on the foreign
currency. 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 its securities that otherwise
would have resulted. Conversely, if a rise in the 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. 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.
A Portfolio's currency hedging will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward currency with respect to specific receivables or
payables of the Portfolio generally accruing in connection with the purchase or
sale of its portfolio securities.
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Position hedging is the sale of forward currency with respect to portfolio
security positions. The Portfolio may not position hedge to an extent greater
than the aggregate market value (at the time of making such sale) of the hedged
securities.
Futures Activities. A 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
increasing return and hedging against changes in the value of portfolio
securities due to anticipated changes in interest rates, currency values and/or
market conditions. The ability of a Portfolio to trade in futures contracts may
be limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), applicable to a regulated investment company.
A Portfolio will not enter into futures contracts and related options
for which the aggregate initial margin and premiums 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. There is no overall limit on the percentage of a Portfolio's 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.
Foreign currency futures are similar to forward currency contracts, except that
they are traded on commodities exchanges and are standardized as to contract
size and delivery date. 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 financial instrument (debt security) at a specified price, date,
time and place. Stock indexes are capitalization weighted indexes which reflect
the market value of the companies 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 beginning and at the end of the contract period. In entering into these
contracts, the Portfolio will incur brokerage costs and be required to make and
maintain certain "margin" deposits on a mark-to-market basis, as described
below.
One of the purposes of entering into a futures contract may be to
protect the Portfolio from fluctuations in value of its portfolio securities
without its necessarily buying or selling the securities. 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. No consideration is paid or received by the Portfolio upon entering into
a futures contract. Instead, the Portfolio will be required to deposit in a
segregated account with its custodian
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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." At any time prior to the
expiration of a futures contract, the Portfolio may elect to close the position
by taking an opposite position, which will operate to terminate the Portfolio's
existing position in the contract.
Positions in futures contracts and options on futures contracts 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 each
Portfolio intends to enter into futures contracts only if there is an active
market for such contracts, there is no assurance that an active market will
exist for the contracts 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. 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 and subjecting the Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such circumstances,
an increase in the value of the portion of the Portfolio's securities being
hedged, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities being hedged will, in fact, correlate with the price movements in
a futures contract and thus provide an offset to losses on the futures contract.
If a Portfolio has hedged against the possibility of an event adversely
affecting the value of securities held in its portfolio and that event does not
occur, the Portfolio will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Losses incurred in futures transactions and the costs of
these transactions will affect the Portfolio's performance. In addition, 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. These sales of securities could, but will not
necessarily, be at increased prices which reflect the change in currency values,
interest rates or stock indexes, as the case may be.
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Options on Futures Contracts. Each Portfolio may purchase and write put
and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected.
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 currency,
interest rate or stock index futures contract at a specified exercise price at
any time prior to the expiration date of the option. 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.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated trends in interest
rates and securities markets by Counsellors, which could prove to be incorrect.
Even if Counsellors' expectations are correct, where options on futures are used
for hedging purposes, there may be an imperfect correlation between the change
in the value of the options and of the portfolio securities hedged.
Options on Securities. A Portfolio may purchase and write put and call
options on stocks and debt securities that are traded on foreign and U.S.
exchanges, as well as over-the-counter ("OTC") options, to the extent permitted
by the policies of state securities authorities in states where shares of the
Portfolio are qualified for offer and sale. The Portfolio may utilize up to 10%
of its assets to purchase such options and, with respect to put options, may do
so at or about the same time that it purchases the underlying security or at a
later time. In addition, each Portfolio may write covered call options on up to
25% of the stock and debt securities in its portfolio. Options on securities and
stock indexes (described below) may be purchased and written for hedging
purposes and to increase income and total return.
A Portfolio realizes fees (referred to as "premiums") for granting the
rights evidenced by the call 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 in accordance with its
terms. In contrast, a call option embodies the right of its purchaser to compel
the writer of the option to sell to
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the option holder an underlying security at a specified price in accordance with
its terms.
The principal reason for writing covered call 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 the 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.
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 Portfolio may write (i) in-the-money call
options when Counsellors 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 Counsellors 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 Counsellors expects that the premiums
received from writing the call option plus the appreciation in market price of
the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. To secure its
obligation to deliver the underlying security when it writes a call option, the
Portfolio will be required to deposit in escrow the underlying security or other
assets in accordance with the rules of the Options Clearing Corporation (the
"Clearing Corporation") and of the securities exchange on which the option is
written.
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 stock, but the Portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
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Additional risks exist with respect to certain of the securities for
which the Portfolio may write covered call options. 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.
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 a Portfolio and
other clients of Counsellors 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.
Prior to their expirations, put and call options purchased by a
Portfolio may be sold in closing sale transactions (sales by a Portfolio, prior
to the exercise of options that it has purchased, 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. 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. Similarly, 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. So long as the
obligation of a 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.
Although a Portfolio will generally purchase or write only those
options for which Counsellors believes there is an active secondary market so as
to facilitate closing transactions, 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
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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, as discussed below, 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.
Options as a hedge. In addition to writing covered options for other
purposes, including generating current income, each Portfolio may enter into
options 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 on a portfolio position with a gain on the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain on the portfolio position being offset by a loss on the hedged
position. The Portfolio bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedge. The Portfolio will engage
in hedging transactions only when deemed advisable by Counsellors. Successful
use by the Portfolio of options will be subject to Counsellors' ability to
predict correctly movements in the direction of the stock underlying the option
used as a hedge. Losses incurred in hedging transactions and the costs of these
transactions will affect the Portfolio's performance.
OTC Options. Each Portfolio may purchase OTC or dealer options or sell
covered OTC options on securities. 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 corporation is then
obligated to pay the writer the exercise price of the option. If a Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Portfolio, the Portfolio would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options generally have a continuous liquid market while dealer
options have none. Consequently, a Portfolio will generally be able to realize
the value of a dealer option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when the Portfolio writes a dealer
option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Portfolio originally wrote the option. Although the Portfolio will
seek to
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enter into dealer options only with dealers who will agree to and that are
expected to be capable of entering into closing transactions with the Portfolio,
there can be no assurance that the Portfolio will be able to liquidate a dealer
option at a favorable price at any time prior to expiration. The inability to
enter into a closing transaction may result in material losses to the Portfolio.
Until the Portfolio, as a covered dealer 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.
Stock Index Options. Each Portfolio may utilize up to 10% of its total
assets to purchase exchange-listed and OTC put and call options on stock
indexes, and may write options on such indexes to hedge against the effects of
market-wide price movements or to increase income and total return. The
aggregate value of the securities underlying the calls or puts on stock indexes
written by a Portfolio, determined as of the date the options are sold, when
added to the value of the securities underlying the calls on stock and debt
securities written by the Portfolio, may not exceed 25% of the Portfolio's net
assets. 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
New York Stock Exchange Inc. ("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 expressed in dollars times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. The writer may offset its position in stock index options prior
to expiration by entering into a closing transaction on an exchange or it may
let the option expire unexercised.
Stock Index Options as a Hedge. The effectiveness of purchasing or
writing stock index options as a hedging technique will depend upon the extent
to which price movements in the portion of a securities portfolio being hedged
correlate with price movements of the stock index selected. Because the value of
an index option depends upon
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movements in the level of the index rather than the price of a particular stock,
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.
Accordingly, successful use by each Portfolio of options on stock indexes will
be subject to Counsellors' ability to predict correctly movements in the
direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks, and there can be no assurance that the use of these portfolio
strategies will be successful.
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 SEC designed to eliminate any potential for
leverage with respect to currency forward contracts; options written by the
Portfolio on currencies, securities and indexes; 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 high-grade debt securities.
For example, a call option written by a Portfolio on securities may
require the Portfolio to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate cash or liquid high-grade debt obligations 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 cash or liquid high-grade debt
obligations 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 cash or liquid high-grade debt obligations equal to the exercise
price. Each 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. The Portfolio could purchase a
put option if the strike price of that option is the same or higher than the
strike price of a put option sold by the Portfolio. If a Portfolio holds a
futures or forward contract, the Portfolio could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Asset coverage may be achieved by other means when
consistent with applicable regulatory policies.
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 ("GNMA"), General Services Administration, Central Bank for
Cooperatives,
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Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks,
Federal National Mortgage Association ("FNMA"), 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 Counsellors determines that the credit risk with respect
to the instrumentality does not make its securities unsuitable for investment by
the Portfolio.
Securities of Other Investment Companies. Each Portfolio may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, a Portfolio may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Portfolio's total assets and
(iii) when added to all other investment company securities held by the
Portfolio, do not exceed 10% of the value of the Portfolio's total assets.
Lending of Portfolio Securities. A Portfolio may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Trust's Board of Trustees (the "Board"). These loans, if and when made, may not
exceed 20% of the Portfolio's total assets taken at value. A Portfolio will not
lend portfolio securities to E.M. Warburg, Pincus & Co., Inc. ("EMW") or its
affiliates unless it has applied for and received specific authority to do so
from the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. government securities, which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of the
Portfolio involved. From time to time, a Portfolio may return a part of the
interest earned from the investment of collateral received for securities loaned
to the borrower and/or a third party that is unaffiliated with the Portfolio and
that is acting as a "finder."
By lending its securities, the Portfolio can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Portfolios, income
received could be used to pay a Portfolio's expenses and would increase its
total return. Each Portfolio will adhere to the following conditions whenever
its portfolio securities are loaned: (i) the Portfolio must receive at least
100% cash collateral or equivalent securities of the type discussed in the
preceding paragraph from the borrower; (ii) the borrower must increase such
collateral whenever the market value of the securities rises above the level of
such collateral; (iii) the Portfolio must be able to terminate the loan
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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.
Repurchase Agreements. A Portfolio may enter into repurchase agreements
with member banks of the Federal Reserve System or certain non-bank dealers.
Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under each repurchase agreement, the selling institution will be
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. Repurchase agreements involve
certain risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon a Portfolio's ability to dispose
of the underlying securities.
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 Counsellors 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 the Portfolio engages
in when-issued or delayed-delivery transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
When a Portfolio agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations 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
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<PAGE>
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.
American, European and Continental Depositary Receipts. The assets of a
Portfolio may be invested in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs").
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-U.S. banks and trust companies that evidence ownership of
either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in
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<PAGE>
U.S. securities markets and EDRs and CDRs in bearer form are designed for use in
European securities markets.
Convertible Securities. Convertible securities in which a Portfolio may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. 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.
Short Sales "Against the Box". In a short sale, a Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The Portfolio may engage in short sales if at the time of
the short sale the Portfolio owns or has the right to obtain without additional
cost an equal amount of the security being sold short. This investment technique
is known as a short sale "against the box."
In a short sale, 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. These securities constitute the Portfolio's long
position. Not more than 10% of each Portfolio's net assets (taken at current
value) may be held as collateral for such short sales at any one time.
The Portfolios do not intend to engage in short sales against the box
for investment purposes. The Portfolio may, however, make a short sale as a
hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for U.S. federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in the Portfolio's
long position should be offset by a gain in the short position and, and,
conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales.
Warrants. Each Portfolio may invest up to 5% of net assets in warrants,
provided that not more than 2% of net assets may be invested in warrants not
listed on a recognized
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U.S. or foreign stock exchange. Because a warrant does not carry with it the
right to dividends or voting rights with respect to the securities which it
entitles a holder to purchase, and because it does not represent any rights in
the assets of the issuer, warrants may be considered more speculative than
certain other types of investments. Also, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
Non-Publicly Traded and Illiquid Securities. A Portfolio may not invest
more than 15% of its net assets, in the aggregate, in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
time deposits maturing in more than seven days and securities that are illiquid
by virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A 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. Counsellors 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
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<PAGE>
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
Counsellors will monitor the liquidity of restricted securities in a
Portfolio under the supervision of the Board. In reaching liquidity decisions,
Counsellors may consider, inter alia, the following factors: (i) the
unregistered nature of the security; (ii) the frequency of trades and quotes for
the security; (iii) the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; (iv) dealer undertakings
to make a market in the security and (v) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the transfer).
Borrowing. Each Portfolio may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Portfolio's total
assets. Although the principal of such borrowings will be fixed, the Portfolio's
assets may change in value during the time the borrowing is outstanding. 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.
Special Situation Companies (Small Company Growth Portfolio). The Small
Company Growth Portfolio may invest in the securities of "special situation
companies" involved in an actual or prospective acquisition or consolidation;
reorganization; recapitalization; merger, liquidation or distribution of cash,
securities or other assets; a tender or exchange offer; a breakup or workout of
a holding company; or litigation which, if resolved favorably, would improve the
value of the company's stock. If the actual or prospective situation does not
materialize as anticipated, the market price of the securities of a "special
situation company" may decline significantly. The Portfolio believes, however,
that if Warburg, Pincus Counsellors, Inc., the Portfolios' investment adviser
("Counsellors"), analyzes "special situation companies" carefully and invests in
the securities of these companies at the appropriate time, the Portfolio may
achieve capital growth. There can be no assurance, however, that a special
situation that exists at the time the Portfolio makes its investment will be
consummated under the terms and within the time period contemplated.
Non-Diversified Status (Small Company Growth Portfolio). The Small
Company Growth Portfolio is classified as non-diversified within the meaning of
the 1940 Act, which means that it is not limited by such Act in the proportion
of its assets that it may invest in securities of a single issuer. The
Portfolio's investments will be limited, however, in order to qualify as a
"regulated investment company" for purposes of the Code. See "Additional
Information Concerning Taxes." To qualify, the Portfolio will comply with
certain requirements, including limiting its investments so that at the close of
each quarter of the taxable year (i) not more than 25% of the market value of
its total assets will be invested in
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<PAGE>
the securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer and the Portfolio
will not own more than 10% of the outstanding voting securities of a single
issuer.
Other Investment Limitations
The investment limitations numbered 1 through 10 may not be changed
without the affirmative vote of the holders of a majority of a Portfolio's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations 11 through 17
may be changed by a vote of the Board at any time.
A Portfolio may not:
1. Borrow money except that the Portfolio may (a) borrow from banks for
temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements, dollar roll
transactions that are accounted for as financings and any other transactions
constituting borrowing by the Portfolio may not exceed 30% of the value of the
Portfolio's total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options, futures
contracts, options on futures contracts, forward commitment transactions and
dollar roll transactions that are not accounted for as financings (and the
segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of U.S.
government securities.
3. For the International Equity Portfolio only, purchase the securities
of any issuer, if as a result more than 5% of the value of the Portfolio's total
assets would be invested in the securities of such issuer, except that this 5%
limitation does not apply to U.S. government securities and except that up to
25% of the value of the Portfolio's total assets may be invested without regard
to this 5% limitation.
4. Make loans, except that the Portfolio may purchase or hold
fixed-income securities, including loan participations, assignments and
structured securities, lend portfolio securities and enter into repurchase
agreements.
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<PAGE>
5. Underwrite any securities issued by others except to the extent that
the investment in restricted securities and the sale of securities in accordance
with the Portfolio's investment objective, policies and limitations may be
deemed to be underwriting.
6. Purchase or sell real estate or invest in oil, gas or mineral
exploration or development programs, except that the Portfolio may invest in (a)
securities secured by real estate, mortgages or interests therein and (b)
securities of companies that invest in or sponsor oil, gas or mineral
exploration or development programs.
7. Make short sales of securities or maintain a short position, except
that the Portfolio may maintain short positions in forward currency contracts,
options, futures contracts and options on futures contracts and make short sales
"against the box".
8. Purchase securities on margin, except that the Portfolio may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
9. Invest in commodities, except that the Portfolio may purchase and
sell futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
and purchase and sell currencies on a forward commitment or delayed-delivery
basis.
10. Issue any senior security except as permitted in these investment
limitations.
11. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.
12. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the writing of covered put
and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
13. Invest more than 15% of the Portfolio's net assets in securities
which may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities.
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14. Purchase any security if as a result the Portfolio would then have
more than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
15. Purchase or retain securities of any company if, to the knowledge
of the Trust, any of the Portfolio's officers or Trustees or any officer or
director of Counsellors individually owns more than 1/2 of 1% of the outstanding
securities of such company and together they own beneficially more than 5% of
the securities.
16. Invest in warrants (other than warrants acquired by the Portfolio
as part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 5%
of the value of the Portfolio's net assets.
17. Make additional investments (including roll-overs) if the
Portfolio's borrowings exceed 5% of its net assets.
Each Portfolio may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Portfolio shares in
certain states. Should a Portfolio determine that any such commitment is no
longer in the best interest of the Portfolio and its shareholders, the Portfolio
will revoke the commitment by terminating the sale of Portfolio shares in the
state involved. If a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Portfolio's assets will not constitute a violation of such restriction.
Portfolio Valuation
The Prospectus discusses the time at which the net asset value of each
Portfolio is determined for purposes of sales and redemptions. The following is
a description of the procedures used by each Portfolio in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or on a foreign securities
exchange will be valued on the basis of the closing value on the date on which
the valuation is made or, in the absence of sales, at the mean between the
closing bid and asked prices. Other U.S. over-the-counter securities, foreign
over-the-counter securities and securities listed or traded on certain foreign
stock exchanges whose operations are similar to the U.S. over-the-counter market
will be valued on the basis of the bid price at the close of business on each
day, or, if market quotations for those securities are not readily available, at
fair value, as determined in good faith pursuant to consistently applied
procedures established by the Board. 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. In determining the market value of
portfolio investments, the Portfolio may employ outside organizations (a
"Pricing Service") which may use a matrix or formula method that takes into
consideration market indexes,
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matrices, yield curves and other specific adjustments. The procedures of Pricing
Services are reviewed periodically by the officers of the Trust under the
general supervision and responsibility of the Board, which may replace any such
Pricing Service at any time. Short-term obligations with maturities of 60 days
or less are valued at amortized cost, which constitutes fair value as determined
by the Board. The amortized cost method of valuation may also be used with
respect to debt obligations with 60 days or less remaining to maturity. All
other securities and 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 certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the NYSE is open for trading). In addition, securities
trading in a particular country or countries may not take place on all business
days in New York. Furthermore, trading takes place in various foreign markets on
days which are not business days in New York and days on which the Portfolio's
net asset value is not calculated. Because of the need to obtain prices as of
the close of trading on various exchanges throughout the world, 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. 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. 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 Portfolio's
calculation of net asset value unless the Board or its delegates deems that the
particular event would materially affect net asset value, in which case an
adjustment may be made.
Portfolio Transactions
Counsellors 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 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
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commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. There is
generally no stated commission in the case of securities traded in domestic or
foreign 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.
Counsellors will select specific portfolio investments and effect
transactions for each Portfolio. Counsellors seeks to obtain the best net price
and the most favorable execution of orders. In evaluating prices and executions,
Counsellors 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. In addition, to the extent that the execution and price offered by more
than one broker or dealer are comparable, Counsellors 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, as amended) to a Portfolio and/or other
accounts over which Counsellors exercises investment discretion. Research and
other services received may be useful to Counsellors 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
Counsellors in carrying out its obligations to the Portfolios. The fees to
Counsellors under its advisory agreements with the Trust are not reduced by
reason of its receiving any brokerage and research services.
Investment decisions for each Portfolio concerning specific portfolio
securities are made independently from those for other clients advised by
Counsellors. 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 Counsellors 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 the Trust or the size of the position obtained or
sold for the Portfolio. To the extent permitted by law, Counsellors may
aggregate the securities to be sold or purchased for a Portfolio with those to
be sold or purchased for such other investment clients in order to obtain best
execution.
Any portfolio transaction for a Portfolio may be executed through
Counsellors Securities Inc., the Trust's distributor ("Counsellors Securities"),
if, in Counsellors' judgment, the use of Counsellors Securities is likely to
result in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the
Portfolio a commission rate consistent with those charged by Counsellors
Securities to comparable unaffiliated customers in similar transactions. All
transactions with affiliated brokers will comply with Rule 17e-1 under the 1940
Act. In no
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instance will portfolio securities be purchased from or sold to Counsellors or
Counsellors Securities or any affiliated person of such companies.
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
Counsellors, in its sole discretion, believes such practice to be otherwise in
the Portfolio's interest.
Portfolio Turnover
The Portfolios do not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when a Portfolio
deems it desirable to sell or purchase securities. A Portfolio's portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of its
portfolio securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by each Portfolio could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. The Small Company Growth Portfolio's
investment in special situation companies could result in high portfolio
turnover. To the extent that its portfolio is traded for the short-term, the
Portfolio will be engaged essentially in trading activities based on short-term
considerations affecting the value of an issuer's stock instead of long-term
investments based on fundamental valuation of securities. Because of this
policy, portfolio securities may be sold without regard to the length of time
for which they have been held. Consequently, the annual portfolio turnover rate
of the Small Company Growth Portfolio may be higher than mutual funds having a
similar objective that do not invest in special situation companies.
MANAGEMENT OF THE TRUST
Officers and Board of Trustees
The names (and ages) of the Trust's Trustees and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
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<TABLE>
<S> <C>
Richard N. Cooper*'D' (60)...............................Trustee
Harvard University Professor at Harvard University;
1737 Cambridge Street Director or Trustee of CNA
Cambridge, Massachusetts 02138 Financial Corporation, Circuit City Stores, Inc.
(retail electronics and appliances) and Phoenix
Home Life Insurance Co.
Donald J. Donahue (70)...................................Trustee
99 Indian Field Road Chairman of Magma Copper Company since
Greenwich, Connecticut 06830 January 1987; Director or Trustee of Northeast
Utilities, GEV Corporation and Signet Star
Reinsurance Company; Chairman and Director
of NAC Holdings from September 1990-June
1993.
Jack W. Fritz (68).......................................Trustee
2425 North Fish Creek Road Private investor; Consultant
P.O. Box 483 and Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations); Director of Advo,
Inc. (direct mail advertising).
John L. Furth* (64)......................................Chief Executive Officer and Trustee
466 Lexington Avenue Vice Chairman and Director of EMW;
New York, New York 10017-3147 Associated with EMW since 1970; Chief
Executive Officer of 12 other investment
companies advised by Counsellors.
Thomas A. Melfe (63).....................................Trustee
30 Rockefeller Plaza Partner in the law firm of
New York, New York 10112 Donovan Leisure Newton & Irvine; Director of
Municipal Fund for New York Investors, Inc.
Alexander B. Trowbridge (65).............................Trustee
1155 Connecticut Avenue, N.W. President of Trowbridge Partners, Inc.
Suite 700 (business consulting) from January 1990-
Washington, DC 20036 January 1994; President of the National
Association of Manufacturers from 1980-1990;
</TABLE>
- --------
* Indicates a Trustee who is an "interested person" of the Trust as
defined in the 1940 Act.
'D' Mr. Cooper has consulting arrangements with Counsellors and an
affiliate of Counsellors. Although these relationships do not appear to
require designation of Mr. Cooper as an interested person, the Trust is
currently making such a designation in order to avoid the possibility
that Mr. Cooper's independence would be questioned.
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<TABLE>
<S> <C>
Director or Trustee of New England Mutual
Life Insurance Co., ICOS Corporation
(biopharmaceuticals), P.H.H. Corporation
(fleet auto management; housing and plant
relocation service), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), Sun Resorts International Ltd.
(hotel and real estate management), Harris
Corp. (electronics and communications
equipment), The Gillette Co. (personal care
products) and Sun Company Inc. (petroleum
refining and marketing).
Arnold M. Reichman (47)..................................President
466 Lexington Avenue Managing Director and Assistant
New York, New York 10017-3147 Secretary of EMW; Associated with EMW
since 1984; Senior Vice President, Secretary
and Chief Operating Officer of Counsellors
Securities; Executive Vice President of 14
other investment companies advised by
Counsellors.
Eugene L. Podsiadlo (38).................................Senior Vice President
466 Lexington Avenue Managing Director of EMW; Associated with
New York, New York 10017-3147 EMW since 1991; Vice President of Citibank,
N.A. from 1987-1991; Senior Vice President
of Counsellors Securities and 14 other
investment companies advised by Counsellors.
Stephen Distler (41).....................................Vice President and Chief Financial Officer
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of EMW; Associated with EMW
since 1984; Treasurer of Counsellors
Securities; Vice President and Chief Financial
Officer of 14 other investment companies
advised by Counsellors.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
Eugene P. Grace (43).....................................Vice President and Secretary
466 Lexington Avenue Associated with EMW since April 1994;
New York, New York 10017-3147 Attorney-at-law from September 1989-April
1994; life insurance agent, New York Life
Insurance Company from 1993-1994; General
Counsel and Secretary, Home Unity Savings
Bank from 1991-1992; Vice President and
Chief Compliance Officer of Counsellors
Securities; Vice President and Secretary
of 14 other investment companies advised by
Counsellors.
Howard Conroy (41).......................................Vice President, Treasurer and Chief
466 Lexington Avenue Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992; Associated
with Martin Geller, C.P.A. from 1990-1992;
Vice President, Finance with Gabelli/Rosenthal
& Partners, L.P. until 1990; Vice President,
Treasurer and Chief Accounting Officer of 14
other investment companies advised by
Counsellors.
Karen Amato (31).........................................Assistant Secretary
466 Lexington Avenue Associated with EMW since 1987; Assistant
New York, New York 10017-3147 Secretary of 14 other investment companies
advised by Counsellors.
</TABLE>
No employee of Counsellors or PFPC Inc., the Trust's
co-administrator ("PFPC"), or any of their affiliates receives any compensation
from the Trust for acting as an officer or director of the Trust. Each Trustee
who is not a director, trustee, officer or employee of Counsellors, PFPC or any
of their affiliates receives an annual fee of $500 and $250 for each meeting of
the Board attended by him for his services as Trustee and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
32
<PAGE>
Trustees' Compensation
(estimated for the fiscal year ended December 31, 1995)'D'
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Trust Managed by Counsellors*
---------------------- ---------------------- ---------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $1,500 $39,500
Donald J. Donahue $1,500 $39,500
Jack W. Fritz $1,500 $39,500
Thomas A. Melfe $1,500 $39,500
Alexander B. Trowbridge $1,500 $39,500
</TABLE>
- --------------------------
'D' Estimates of future payments to be made pursuant to existing arrangements.
* Each Trustee also serves as a Director or Trustee of 14 other investment
companies advised by Counsellors.
** Mr. Furth is considered to be an interested person of the Trust and
Counsellors, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receives no compensation from the Trust or any other
investment company managed by Counsellors.
Portfolio Managers
Richard H. King, portfolio manager of the International Equity
Portfolio, earned a B.A. degree from Durham University in England. From 1968 to
1982, he worked at W.I. Carr Sons & Company (Overseas), a leading international
brokerage firm. He resided in the Far East as an Investment Analyst from 1970 to
1977, became director, and later relocated to the U.S. where he became founder
and president of W.I. Carr (America), based in New York. From 1982 to 1984 Mr.
King was a director in charge of the Far East equity investments at N.M.
Rothschild International Asset Management, a London merchant bank. In 1984 Mr.
King became chief investment officer and director for all international
investment strategy with Fiduciary Trust Company International S.A., in London.
He managed an EAFE mutual fund (FTIT) 1985-1986 which grew from $3 million to
over $100 million during this two-year period.
33
<PAGE>
Nicholas P.W. Horsley, associate portfolio manager and
research analyst of the International Equity Portfolio, earned B.A. and M.A.
degrees with honors from University College, Oxford. He joined Counsellors in
1993. From 1981 to 1984 Mr. Horsley was a Securities Analyst at Barclays
Merchant Bank in London, UK and Johannesburg, RSA. From 1984 to 1986 he was a
senior analyst with BZW Investment Management in London. From 1986 to 1993 he
was a director, portfolio manager and analyst at Barclays deZoete Wedd in New
York City.
Harold W. Ehrlich, associate portfolio manager and research
analyst of the International Equity Portfolio, earned a B.S.B.A. degree from
University of Florida and earned his Chartered Financial Analyst designation in
1990. Prior to joining Counsellors in February, 1995, Mr. Ehrlich was a senior
vice president, portfolio manager and analyst at Templeton Investment Counsel
Inc. from 1987 to 1995. He was a research analyst and assistant portfolio
manager at Fundamental Management Corporation from 1985 to 1986 and a research
analyst at First Equity Corporation of Florida from 1983 to 1985.
Vincent McBride, associate portfolio manager and research
analyst of the International Equity Portfolio, earned a B.S. degree from the
University of Delaware and an M.B.A. degree from Rutgers University. Prior to
joining Counsellors in 1994, Mr. McBride was an international equity analyst at
Smith Barney Inc. from 1993 to 1994 and at General Electric Investment
Corporation from 1992 to 1993. He was also a portfolio manager/analyst at United
Jersey Bank from 1989 to 1992 and a portfolio manager at First Fidelity Bank
from 1987 to 1989.
Elizabeth Dater, co-portfolio manager of the Small Company
Growth Portfolio, earned a B.A. degree from Boston University in Massachusetts.
Ms. Dater also manages a post-venture capital fund and is the former director of
research for Counsellors' investment management activities. Prior to joining
Counsellors 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.
Stephen J. Lurito, co-portfolio manager of the Small Company
Growth Portfolio, earned a B.A. degree from the University of Virginia and a
M.B.A. from the University of Pennsylvania. Mr. Lurito, also the research
coordinator and a portfolio manager for micro-cap equity and post-venture
products, has been with EMW since 1987. Prior to that he was a research analyst
at Sanford C. Bernstein & Company, Inc.
Investment Adviser and Co-Administrators
Counsellors serves as investment adviser to each Portfolio,
Counsellors Funds Service, Inc. ("Counsellors Service") serves as a
co-administrator to the Trust and PFPC serves as a co-administrator to the Trust
pursuant to separate written agreements (the
34
<PAGE>
"Advisory Agreements," the "Counsellors Service Co-Administration Agreement" and
the "PFPC Co-Administration Agreement," respectively). The services provided by,
and the fees payable by the Trust to, Counsellors under the Advisory Agreements,
Counsellors Service under the Counsellors Service Co-Administration Agreement
and PFPC under the PFPC Co-Administration Agreement are described in the
Prospectus.
Organization of the Trust
The Trust was organized as an unincorporated business trust
under the laws of The Commonwealth of Massachusetts pursuant to a Declaration of
Trust dated March 15, 1995, as amended from time to time (the "Declaration of
Trust"), and is a business entity commonly known as a "Massachusetts business
trust." Under the Declaration of Trust, the Board is authorized to create
separate series of an unlimited number of full and fractional shares of
beneficial interest, par value $.001 per share. Shareholders of the Trust
generally vote in the aggregate, except with respect to (i) matters affecting
only the shares of a particular Portfolio, in which case only the shares of the
affected Portfolio would be entitled to vote, or (ii) when the 1940 Act requires
that shares of the Portfolios be voted separately. There will normally be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders. Under the Declaration of Trust, the Trustees are
required to call a meeting of shareholders for the purpose of voting upon the
question of removal of any such Trustee when requested in writing to do so by
the shareholders of record of not less than 10% of the Trust's outstanding
shares.
Massachusetts law provides that shareholders could, under
certain circumstances, be held personally liable for the obligations of a
Portfolio. However, the Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from a Portfolio's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the relevant Portfolio would be unable to meet
its obligations, a possibility that Counsellors believes is remote and
immaterial. Upon payment of any liability incurred by the Trust, the shareholder
paying the liability will be entitled to reimbursement from the general assets
of the relevant Portfolio. The Trustees intend to conduct the operations of the
Trust in such a way so as to avoid, as far as possible, ultimate liability of
the shareholders for liabilities of the Trust.
All shareholders of a Portfolio, upon liquidation, participate
ratably in the Portfolio's net assets. Shares do not have cumulative voting
rights, which means that holders
35
<PAGE>
of more than 50% of the shares voting for the election of Trustees can elect all
Trustees. Shares are transferable but have no preemptive, conversion or
subscription rights.
Custodian and Transfer Agent
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, pursuant to separate custodian agreements (the
"Custodian Agreements"). Under the Custodian Agreements, PNC and State Street
each (i) maintains a separate account or accounts in the name of each Portfolio,
(ii) holds and transfers portfolio securities on account of each Portfolio,
(iii) makes receipts and disbursements of money on behalf of each Portfolio,
(iv) collects and receives all income and other payments and distributions on
account of each Portfolio's portfolio securities held by it and (v) makes
periodic reports to the Board concerning the Trust's operations. PNC and State
Street are each authorized to select one or more domestic or foreign banks or
trust companies to serve as sub-custodian on behalf of the Trust, provided that
each remains responsible for the performance of all its duties under the
relevant Custodian Agreement and holds the Trust harmless from the acts and
omissions of any sub-custodian, in accordance with the Custodian Agreement. PNC
is an indirect, wholly owned subsidiary of PNC Bank Corp., and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101. The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110.
State Street has also agreed to serve as the shareholder
servicing, transfer and dividend disbursing agent pursuant to a Transfer Agency
and Service Agreement, under which State Street (i) issues and redeems shares of
each Portfolio, (ii) addresses and mails all communications by the Trust to
record owners of Portfolio shares, including reports to shareholders, dividend
and distribution notices and proxy material for its meetings of shareholders,
(iii) maintains shareholder accounts and, if requested, sub-accounts and (iv)
makes periodic reports to the Board concerning the transfer agent's operations
with respect to the Trust. State Street has delegated to Boston Financial Data
Services, Inc., a 50% owned subsidiary ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As described in the Prospectus, shares of the Portfolios may
not be purchased or redeemed by individual investors directly may be purchased
or redeemed only through Variable Contracts offered by separate accounts of
Participating Insurance Companies. 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."
36
<PAGE>
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.
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 property. If a
redemption is paid wholly or partly in securities or other property, a
shareholder would incur transaction costs in disposing of the redemption
proceeds. The Trust intends to comply with Rule 18f-1 promulgated under the 1940
Act with respect to redemptions in kind.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Trust and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult the sponsoring Participating
Insurance Company separate account prospectus and their own tax advisers with
respect to the particular tax consequences to them of an investment in a
Portfolio.
Each Portfolio of the Trust intends to qualify as a "regulated
investment company" under Subchapter M of the Code. If it qualifies as a
regulated investment company, a Portfolio will pay no federal income taxes on
its taxable net investment income (that is, taxable income other than net
realized capital gains) and its net realized capital gains that are distributed
to shareholders. To qualify under Subchapter M, a Portfolio must, among other
things: (i) distribute to its shareholders at least 90% of its taxable net
investment income (for this purpose consisting of taxable net investment income
and net realized short-term capital gains); (ii) derive at least 90% of its
gross income from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of securities, or other
income (including, but not limited to, gains from options, futures, and forward
contracts) derived with respect to its business of investing in securities;
(iii) derive less than 30% of its annual gross income from the sale or other
disposition of securities, options, futures or forward contracts held for less
than three months; and (iv) diversify its holdings so that, at the end of each
fiscal quarter of the Portfolio (a) at least 50% of the market value of the
Portfolio's assets is represented by cash, U.S. government securities and other
securities, with those other securities limited, with respect to any one issuer,
to an amount no greater in value than 5% of the Portfolio's total assets and to
not more than 10% of the outstanding voting securities of the issuer, and (b)
not more than 25% of the market value of the Portfolio's assets is invested in
the securities of any one issuer (other than U.S. government securities or
securities of other regulated investment companies)
37
<PAGE>
or of two or more issuers that the Portfolio controls and that are determined to
be in the same or similar trades or businesses or related trades or businesses.
In meeting these requirements, a Portfolio may be restricted in the selling of
securities held by the Portfolio for less than three months and in the
utilization of certain of the investment techniques described above and in the
Trust's Prospectus. As a regulated investment company, a Portfolio will be
subject to a 4% non-deductible excise tax measured with respect to certain
undistributed amounts of ordinary income and capital gain required to be but not
distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing 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.
In addition, each Portfolio intends to comply with the
diversification requirements of Section 817(h) of the Code related to the
tax-deferred status of insurance company separate accounts. To comply with
regulations under Section 817(h) of the Code, each Portfolio will be required to
diversify its investments so that on the last day of each calendar quarter no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments and no more than 90% is represented by any
four investments. Generally, all securities of the same issuer are treated as a
single investment. For the purposes of Section 817(h), obligations of the United
States Treasury and each U.S. government instrumentality are treated as
securities of separate issuers. The Treasury Department has indicated that it
may issue future pronouncements addressing the circumstances in which a Variable
Contract owner's control of the investments of a separate account may cause the
Variable Contract owner, rather than the Participating Insurance Company, to be
treated as the owner of the assets held by the separate account. If the Variable
Contract owner is considered the owner of the securities underlying the separate
account, income and gains produced by those securities would be included
currently in the Variable Contract owner's gross income. It is not known what
standards will be set forth in such pronouncements or when, if at all, these
pronouncements may be issued. In the event that rules or regulations are
adopted, there can be no assurance that the Portfolios will be able to operate
as currently described, or that the Trust will not have to change the investment
goal or investment policies of a Portfolio. While a Portfolio's investment goal
is fundamental and may be changed only by a vote of a majority of the
Portfolio's outstanding shares, the Board reserves the right to modify the
investment policies of a Portfolio as necessary to prevent any such prospective
rules and regulations from causing a Variable Contract owner to be considered
the owner of the shares of the Portfolio underlying the separate account.
A Portfolio's transactions, if any, in foreign currencies,
forward contracts, options and futures contracts (including options and forward
contracts on foreign currencies)
38
<PAGE>
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.
As described in the Prospectus, because shares of a Portfolio
may only be purchased through Variable Contracts, it is anticipated that
dividends and distributions will be exempt from current taxation if left to
accumulate within the Variable Contracts.
Investment in Passive Foreign Investment Companies
If a Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed by the Portfolio to its shareholders, the Variable
Contracts. In addition, gain on the disposition of shares in a PFIC generally is
treated as ordinary income even though the shares are capital assets in the
hands of the Portfolio. Certain interest charges may be imposed on the Portfolio
with respect to any taxes arising from excess distributions or gains on the
disposition of shares in a PFIC.
A Portfolio may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Portfolio compared to a
fund that did not make the election. In addition, information required to make
such an election may not be available to the Portfolio.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice indicating
that final regulations will
39
<PAGE>
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 also 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. 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)'pp'n
= ERV. For purposes of this formula, "P" is a hypothetical investment of $1,000;
"T" is average annual total return; "n" is number of years; and "ERV" is the
ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the one-, five- or ten-year periods (or fractional portion thereof). Total
return or "T" is computed by finding the average annual change in the value of
an initial $1,000 investment over the period and assumes that all dividends
and distributions are reinvested during the period.
A Portfolio may advertise, from time to time, comparisons of
its performance with that of one or more other mutual funds with similar
investment objectives. A Portfolio may advertise its 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.
A Portfolio's performance will vary from time to time
depending upon market conditions, the composition of its portfolio and operating
expenses allocable to it. As described above, total return is based on
historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation should not be considered as
representative of performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Portfolio's performance will fluctuate,
unlike certain bank deposits or other investments which pay a fixed yield for a
stated period of time. Performance quotations for the Portfolios include the
effect of deducting each Portfolio's expenses, but may not include charges and
expenses attributable to any particular Variable Contract, which would reduce
the returns described in this section. See the Prospectus, "Performance."
40
<PAGE>
The International Equity Portfolio intends to diversify its
assets among countries, and in doing so, would expect to be able to reduce the
risk arising from economic problems affecting a single country. Counsellors thus
believes that, by spreading risk throughout many diverse markets outside the
United States, the International Equity Portfolio will reduce its exposure to
country-specific economic problems. Counsellors also believes that a diversified
portfolio of international equity securities, when combined with a similarly
diversified portfolio of domestic equity securities, tends to have a lower
volatility than a portfolio composed entirely of domestic securities.
Furthermore, international equities have been shown to reduce volatility in
single asset portfolios regardless of whether the investments are in all
domestic equities or all domestic fixed-income instruments.
To illustrate this point, the performance of international
equity securities, as measured by the Morgan Stanley Capital International
(EAFE) Europe, Australia and Far East Index (the "MS-EAFE Index"), has equalled
or exceeded that of domestic equity securities, as measured by the Standard &
Poor's 500 Composite Stock Index (the "S & P 500 Index") in 14 of the last 23
years. The following table compares annual total returns of the MS-EAFE Index
and the S & P 500 Index for the calendar years 1972 through 1994.
41
<PAGE>
MS-EAFE Index vs. S&P 500 Index
1972 - 1994
Annual Total Return
<TABLE>
<CAPTION>
Year MS-EAFE Index S&P 500 Index
<S> <C> <C>
1972* 36.36 18.61
1973* -14.91 -14.92
1974* -23.61 -26.56
1975 35.39 37.07
1976 2.55 23.54
1977* 18.06 -7.20
1978* 32.62 6.37
1979 4.75 18.61
1980 22.58 32.27
1981* -2.27 -5.24
1982 -1.85 21.42
1983* 23.70 22.50
1984* 7.39 6.27
1985* 56.16 31.73
1986* 69.44 18.62
1987* 24.64 5.28
1988* 28.27 16.49
1989 10.54 31.61
1990 -23.44 -3.11
1991 12.13 30.36
1992 -12.17 7.60
1993* 32.60 10.06
1994* 7.78 1.28
</TABLE>
- -----------------
* The MS-EAFE Index has outperformed the S&P 500 Index 14 out of the last 23
years.
The quoted performance information shown above is not intended
to indicate the future performance of the International Equity Portfolio.
From time to time, a Portfolio may advertise evaluations
published by nationally recognized financial publications, such as Morningstar
Inc. or Lipper Analytical Services, Inc. Morningstar, Inc. rates funds in broad
categories based on risk/reward analyses over various time periods. In addition,
advertising or supplemental sales literature relating to the International
Equity Portfolio may describe the percentage decline from all-
42
<PAGE>
time high levels for certain foreign stock markets. It may also describe how the
International Equity Portfolio differs from the MS-EAFE Index in composition.
AUDITORS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent auditors for the Trust. The financial statements for the Portfolios
that appear in this Statement of Additional Information have been audited by
Coopers & Lybrand, whose report thereon appears elsewhere herein and have been
included herein in reliance upon the report of such firm of independent auditors
given upon their authority as experts in accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Trust as
well as counsel to Counsellors, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENT
The Trust's financial statement follows the Report of
Independent Auditors.
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<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard and Poor's Ratings
Group ("S&P") indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign designation. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1
(or related supporting institutions) are considered to have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
The following summarizes the ratings used by S&P for corporate
bonds:
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - This is the lowest investment grade. Debt rated BBB has
an adequate capacity to pay interest and repay principal. Although they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher-rated
categories.
<PAGE>
To provide more detailed indications of credit quality, the ratings
from "AA" to "BBB" may be modified by the addition of a plus or minus sign to
show relative standing within this major rating category.
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
A-2
STATEMENT OF DIFFERENCES
<TABLE>
<CAPTION>
<S> <C>
The dagger symbol shall be expressed as ....................... 'D'
The superscript character shall be preceded by ................ 'pp'
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees
of Warburg, Pincus Trust
We have audited the accompanying Statement of Assets and Liabilities of Warburg,
Pincus Trust (the "Trust"), comprised of the International Equity Portfolio and
the Small Company Growth Portfolio, as of June 9, 1995. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Warburg, Pincus Trust as of
June 9, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 12, 1995
<PAGE>
WARBURG, PINCUS TRUST
STATEMENT OF ASSETS AND LIABILITIES
as of June 9, 1995
<TABLE>
<CAPTION>
International Equity Small Company
Portfolio Growth Portfolio
-------------------- ----------------
<S> <C> <C>
Assets:
Cash $50,000 $ 50,000
Deferred Organizational Costs 59,498 59,498
------- -------
Total Assets $109,498 $109,498
Liabilities:
Payable to Adviser 59,498 59,498
------ ------
Net Assets $ 50,000 $ 50,000
Net Asset Value, Redemption and Offering Price Per Share
(unlimited shares authorized - $.001 per share)
applicable to 5000 International Equity
Portfolio shares and 5000 Small Company
Growth Portfolio shares. $10.00 $10.00
----- -----
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
WARBURG, PINCUS TRUST
Notes to Financial Statements
June 9, 1995
1. Organization:
Warburg, Pincus Trust (the "Trust") was organized on March 15, 1995 as an
unincorporated business trust under the laws of The Commonwealth of
Massachusetts. The Trust is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company initially
consisting of two portfolios: International Equity Portfolio and Small
Company Growth Portfolio. The assets of each portfolio are segregated, and
a shareholder's interest is limited to the portfolio in which shares are
held. The Trust has not commenced operations except those related to
organizational matters and the sale of 10,000 shares ("Initial Shares") of
beneficial interest to Warburg, Pincus Counsellors, Inc. (the "Adviser") on
June 9, 1995.
2. Organizational Costs and Transactions with Affiliates:
Organizational costs have been capitalized by the Trust and are being
amortized over sixty months commencing with operations. In the event any of
the Initial Shares of the Trust are redeemed by any holder thereof during
the period that the Trust is amortizing its organizational costs, the
redemption proceeds payable to the holder thereof by the Trust will be
reduced by unamortized organizational costs in the same ratio as the number
of Initial Shares outstanding at the time of redemption.
Certain officers and a trustee of the Trust are also officers and a
director of the Adviser. Such officers and the trustee are paid no fees by
the Trust for serving as officers or trustee of the Trust.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B:
(1) Report of Independent Auditors
(2) Statement of Assets and Liabilities
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ---------- ----------------------
<S> <C>
1(a)* Declaration of Trust
1(b) Amendment to Declaration of Trust
2* By-Laws
3 Not applicable
4 Specimen Forms of Share Certificates
5 Forms of Investment Advisory Agreements
6 Form of Distribution Agreement
7 Not applicable
8(a) Form of Custodian Agreement with PNC Bank,
National Association
8(b) Form of Custodian Agreement with State Street Bank
and Trust Company ("State Street")
9(a) Form of Transfer Agency Agreement
</TABLE>
- --------
* Incorporated by reference to Registrant's Registration Statement on Form
N-1A filed on March 17, 1995 (the "Registration Statement").
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ---------- ----------------------
<S> <C>
9(b) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc.
9(c) Form of Co-Administration Agreement with PFPC Inc.
9(d) Form of Participation Agreement
10(a) Opinion and Consent of Willkie Farr &
Gallagher, counsel to the Trust
10(b) Opinion and Consent of Sullivan & Worcester,
Massachusetts counsel to the Trust
11 Consent of Independent Auditors
12 Not applicable
13 Purchase Agreement
14 Not applicable
15 Not applicable
16 Not applicable
17 Not applicable
</TABLE>
Item 25. Persons Controlled by or Under Common Control
with Registrant
---------------------------------------------
All of the outstanding shares of beneficial interest of
Registrant on the date the Registration Statement becomes
effective will be owned by Warburg, Pincus Counsellors, Inc.
("Counsellors"), a corporation formed under Delaware law.
Counsellors Funds Service, Inc. and Counsellors Securities Inc.
("Counsellors Securities"), New York corporations, are wholly
owned subsidiaries of Counsellors. Counsellors is a wholly owned
subsidiary of Warburg, Pincus Counsellors G.P., a New York
general partnership ("Counsellors G.P."). E.M. Warburg, Pincus &
Co., Inc. controls Counsellors through its ownership of a class
of voting preferred stock of Counsellors G.P.
C-2
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
It is anticipated that Counsellors will hold all Registrant's
shares of beneficial interest, par value $.001 per share, on the date the
Registration Statement becomes effective.
Item 27. Indemnification
---------------
Registrant, officers and directors or trustees of Counsellors,
of 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.
Item 28. Business and Other Connections of Investment
Adviser
-------------------------------------------
Counsellors acts as investment adviser to Registrant.
Counsellors renders investment advice to a wide variety of individual and
institutional clients. The list required by this Item 28 of officers and
directors of Counsellors, 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
Counsellors (SEC File No. 801-07321).
Item 29. Principal Underwriter
---------------------
(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for 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 Growth & Income Fund; Warburg, Pincus
Institutional Fund, Inc.; Warburg, Pincus Intermediate Maturity Government Fund;
Warburg, Pincus International Equity Fund; Warburg, Pincus Japan OTC Fund;
Warburg, Pincus New York Intermediate Municipal Fund; Warburg, Pincus New York
Tax Exempt Fund; Warburg, Pincus Short-Term Tax-Advantaged Bond Fund and
Warburg, Pincus Tax-Free Fund.
(b) For information relating to each director and officer of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654) filed
by Counsellors Securities under the Securities Exchange Act of 1934, as amended.
(c) None.
C-3
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
(1) Warburg, Pincus Trust
335 Madison Avenue
New York, New York 10017
(Trust's Declaration of Trust, by-laws and minute
books)
(2) Counsellors Funds Service, Inc.
335 Madison Avenue
New York, New York 10017
(records relating to its functions as
co-administrator)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as
co-administrator)
(4) Counsellors Securities Inc.
335 Madison Avenue
New York, New York 10017
(records relating to its functions as distributor)
(5) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
investment adviser)
(6) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as
transfer agent and custodian)
(7) PNC Bank, National Association
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as custodian)
Item 31. Management Services
-------------------
Not applicable.
C-4
<PAGE>
Item 32. Undertakings
------------
(a) Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be certified, within four
to six months from the effective date of the Registration Statement under the
1940 Act.
(b) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees of Registrant when requested in writing to do so by the holders of
at least 10% of Registrant's outstanding shares. Registrant undertakes further,
in connection with the meeting, to comply with the provisions of Section 16(c)
of the 1940 Act relating to communications with the shareholders of certain
common law trusts.
(c) Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of Registrant's latest annual report
to shareholders, upon request and without charge.
C-5
<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 14th day of June, 1995.
WARBURG, PINCUS TRUST
By:/s/Arnold M. Reichman
---------------------
Arnold M. Reichman
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/John L. Furth
- ---------------- Chief Executive June 14, 1995
John L. Furth Officer and Trustee
/s/Arnold M. Reichman
- --------------------- President June 14, 1995
Arnold M. Reichman
/s/Stephen Distler
- ------------------ Vice President and June 14, 1995
Stephen Distler Chief Financial
Officer
/s/Howard Conroy
- ---------------- Vice President, June 14, 1995
Howard Conroy Treasurer and Chief
Accounting Officer
/s/Richard N. Cooper
- -------------------- Trustee June 14, 1995
Richard N. Cooper
/s/Donald J. Donahue
- -------------------- Trustee June 14, 1995
Donald J. Donahue
/s/Jack W. Fritz
- ---------------- Trustee June 14, 1995
Jack W. Fritz
/s/Thomas A. Melfe
- ------------------ Trustee June 14, 1995
Thomas A. Melfe
/s/Alexander B. Trowbridge
- -------------------------- Trustee June 14, 1995
Alexander B. Trowbridge
</TABLE>
C-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
1(a)* Declaration of Trust
1(b) Amendment to Declaration
of Trust
2* By-Laws
3 Not applicable
4 Specimen Forms of Share
Certificates
5 Forms of Investment Advisory
Agreements
6 Form of Distribution Agreement
7 Not applicable
8(a) Form of Custodian Agreement with PNC
Bank, National Association
8(b) Form of Custodian Agreement with
State Street Bank and
Trust Company
9(a) Form of Transfer Agency Agreement
9(b) Form of Co-Administration Agreement
with Counsellors Funds
Service, Inc.
9(c) Form of Co-Administration Agreement
with PFPC Inc.
9(d) Form of Participation Agreement
10(a) Opinion and Consent of
Willkie Farr & Gallagher,
counsel to the Trust
10(b) Opinion and Consent of
Sullivan & Worcester,
Massachusetts counsel to
the Trust
11 Consent of Independent
Auditors
12 Not applicable
</TABLE>
- --------
* Incorporated by reference to Registrant's Registration
Statement on Form N-1A filed on March 17, 1995.
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
13 Purchase Agreement
14 Not applicable
15 Not applicable
16 Not applicable
17 Not applicable
</TABLE>
<PAGE>
WARBURG, PINCUS TRUST
Certificate of Amendment
The undersigned, being the President of Warburg, Pincus Trust, a trust
with transferable shares of the type commonly called a Massachusetts business
trust (hereinafter referred to as the "Trust"), DOES HEREBY CERTIFY that,
pursuant to the authority conferred upon the Trustees of the Trust by Section
9.3 of the Agreement and Declaration of Trust, dated March 15, 1995 (the
"Declaration of Trust"), and by the action by written consent of the sole
Trustee of the Trust dated March 31, 1995, the Declaration of Trust is hereby
amended as follows:
Section 6.2 of the Declaration of Trust is hereby amended to
change the name of the Small Company Portfolio of the Trust to
be the "Small Company Growth Portfolio."
IN WITNESS WHEREOF, the undersigned has set his/her hand and seal this
31st day of March, 1995.
/s/Arnold M. Reichman
----------------------
Arnold M. Reichman
ACKNOWLEDGMENT
STATE OF NEW YORK )
) ss. March 31, 1995
COUNTY OF NEW YORK )
Then personally appeared the above-named Arnold M. Reichman and
acknowledged the foregoing instrument to be his/her free act and deed.
Before me
/s/Stephanie Errico
----------------------
Notary Public
My commission expires: 6/30/95
STEPHANIE ERRICO
Notary Public, State of New
York, No. 24-4753742
Qualified in Kings County
<PAGE>
[FRONT OF SHARE CERTIFICATE]
The Commonwealth of Massachusetts
NUMBER SHARES
- -0- -0-
WARBURG, PINCUS TRUST
International Equity Portfolio
par value $.001
This Certifies that -Specimen- of _____________ is the owner of -0- Shares in
the International Equity Portfolio of Warburg, Pincus Trust created by a
Declaration of Trust dated March 15, 1995 and recorded with the Secretary of The
Commonwealth of Massachusetts which shares are fully paid and non-assessable,
and subject to the provisions of this Trust, are transferable by assignment
endorsed thereon, and, the surrender of this certificate.
IN WITNESS WHEREOF, the Trustees hereunto set their hands and have caused their
seal to be affixed hereto this ___ day of _______ A.D. 19__
- ----------------------------- ---------------------------
President Treasurer
<PAGE>
[BACK OF SHARE CERTIFICATE]
WARBURG, PINCUS TRUST
International Equity
Portfolio
par value $.001
Certificate
FOR
-0- shares
ISSUED TO
--Specimen--
DATED
_______________
For Value Received, _________________________ hereby sell, assign and
transfer unto __________________________________________________________________
_____________________________________________________ Shares of the Capital
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ___________________________ Attorney to transfer the said Shares on the
books of the within named Organization with full power of substitution in the
premises.
Dated _____________________________ 19___
in presence of
_____________________________
_____________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
[FRONT OF SHARE CERTIFICATE]
The Commonwealth of Massachusetts
NUMBER SHARES
- -0- -0-
WARBURG, PINCUS TRUST
Small Company Growth Portfolio
par value $.001
This Certifies that -Specimen- of ________________ is the owner of -0- Shares in
the Small Company Growth Portfolio of Warburg, Pincus Trust created by a
Declaration of Trust dated March 15, 1995 and recorded with the Secretary of The
Commonwealth of Massachusetts which shares are fully paid and non-assessable,
and subject to the provisions of this Trust, are transferable by assignment
endorsed thereon, and, the surrender of this certificate.
IN WITNESS WHEREOF, the Trustees hereunto set their hands and have caused their
seal to be affixed hereto this ___________ day of ______________ A.D. 19___
- ----------------------------- ---------------------------
President Treasurer
<PAGE>
[BACK OF SHARE CERTIFICATE]
WARBURG, PINCUS TRUST
Small Company Growth Portfolio
par value $.001
Certificate
FOR
-0- shares
ISSUED TO
--Specimen--
DATED
_______________
For Value Received, _________________________________ hereby sell, assign
and transfer unto ______________________________________________________________
________________________________ Shares of the Capital represented by the within
Certificate, and do hereby irrevocably constitute and appoint _____________
_______________ Attorney to transfer the said Shares on the books of the within
named Organization with full power of substitution in the premises.
Dated _____________________________ 19___
in presence of
_____________________________
_____________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
, 1995
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust (the "Trust"), a business trust organized under the
laws of The Commonwealth of Massachusetts, is an open-end, management investment
company that currently offers two portfolios, one of which is the International
Equity Portfolio (the "Portfolio"). The Trust on behalf of the Portfolio
herewith confirms its agreement with Warburg, Pincus Counsellors, Inc. (the
"Adviser") as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Portfolio by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Declaration of Trust, as may be amended from time to time, and
in its Prospectus and Statement of Additional Information relating to the
Portfolio as from time to time in effect, and in such manner and to such extent
as may from time to time be approved by the Board of Trustees of the Trust.
Copies of the Trust's Prospectus and Statement of Additional Information
relating to the Portfolio and Declaration of Trust, as each may be amended from
time to time, have been or will be submitted to the Adviser. The Trust desires
to employ and hereby appoints the Adviser to act as investment adviser to the
Portfolio. The Adviser accepts the appointment and agrees to furnish the
services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of Trustees of the
Trust, the Adviser will (a) act in strict conformity with the Trust's
Declaration of Trust, the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, as the same may from time to time be amended, (b) manage
the Portfolio in accordance with the Portfolio's investment objective and
policies as stated in the Trust's Prospectus and Statement of Additional
Information relating to the Portfolio as from time to time in effect, (c) make
investment decisions for the Portfolio, (d) place purchase and sale orders for
securities on behalf of the Portfolio and (e) calculate and monitor the
Portfolio's asset diversification each calendar quarter so that on the last day
of each calendar quarter the Portfolio will be in compliance with
<PAGE>
diversification requirements of Section 817(h) of the Internal Revenue Code of
1986, as the same may be amended from time to time, and regulations thereunder.
In providing those services, the Adviser will provide investment research and
supervision of the Portfolio's investments and conduct a continual program of
investment, evaluation and, if appropriate, sale and reinvestment of the
Portfolio's assets. In addition, the Adviser will furnish the Trust with
whatever statistical information the Trust may reasonably request with respect
to the securities that the Portfolio may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Portfolio and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any portfolio
transaction, the Adviser will consider all factors it deems relevant including,
but not limited to, breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
for transactions executed through the broker or dealer in the aggregate. In
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as the same may from time to time be
amended) provided to the Portfolio and/or other accounts over which the Adviser
or an affiliate exercises investment discretion.
4. Information Provided to the Trust
The Adviser will keep the Trust informed of developments materially
affecting the Portfolio, and will, on its own initiative, furnish the Trust from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust or the
Portfolio in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to protect
the Adviser against any liability to the Trust or the Portfolio or to
shareholders of the Trust or the Portfolio to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the
2
<PAGE>
Adviser's reckless disregard of its obligations and duties under this Agreement.
6. Limitation of Liability
The Trust and the Adviser agree that the obligations of the Trust under
this Agreement will not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Trust, individually, but are binding only upon the assets and property of the
Portfolio, as provided in the Declaration of Trust. The execution and delivery
of this Agreement have been authorized by the Trustees of the Trust, and signed
by an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer will
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Portfolio as provided in the Declaration of Trust. No series of the Trust,
including the Portfolio, will be liable for any claims against any other series.
7. Compensation
In consideration of the services rendered pursuant to this Agreement, the
Portfolio will pay the Adviser an annual fee calculated at an annual rate of
1.00% of the Portfolio's average daily net assets. The fee for the period from
the date the Trust's initial registration statement relating to the Portfolio is
declared effective by the Securities and Exchange Commission to the end of the
year during which the initial registration statement is declared effective shall
be prorated according to the proportion that such period bears to the full
yearly period. Upon any termination of this Agreement before the end of a year,
the fee for such part of that year shall be prorated according to the proportion
that such period bears to the full yearly period and shall be payable upon the
date of termination of this Agreement. For the purpose of determining fees
payable to the Adviser, the value of the Portfolio's net assets shall be
computed at the times and in the manner specified in the Trust's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
8. Expenses
The Adviser will bear all expenses in connection with the performance of
its services under this Agreement. The Portfolio will bear its proportionate
share of certain other expenses to be incurred in its operation, including:
investment advisory and administration fees; taxes, interest, brokerage fees and
commissions, if any; fees of Trustees of the Trust who are not officers,
directors, or employees of the Adviser or any of its affiliates; fees of any
pricing service employed to value shares of the Portfolio; Securities and
Exchange Commission fees
3
<PAGE>
and state Blue Sky qualification fees; charges of custodians and transfer and
dividend disbursing agents; the Portfolio's proportionate share of insurance
premiums; outside auditing and legal expenses; costs of maintenance of the
Portfolio's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Portfolio and of the officers or
Board of Trustees of the Trust; and any extraordinary expenses.
The Portfolio will be responsible for nonrecurring expenses which may
arise, including costs of litigation to which the Portfolio is a party and of
indemnifying officers and Trustees of the Trust with respect to such litigation
and other expenses as determined by the Trustees.
9. Services to Other Companies or Accounts
The Trust understands that the Adviser now acts, will continue to act and
may act in the future as investment adviser to fiduciary and other managed
accounts and to one or more other investment companies or series of investment
companies, and the Trust has no objection to the Adviser so acting, provided
that whenever the Portfolio and one or more other accounts or investment
companies or portfolios advised by the Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each entity. The Trust
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Portfolio. In addition, the Trust understands
that the persons employed by the Adviser to assist in the performance of the
Adviser's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the 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, 1996 and thereafter shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually by (a) the Board of Trustees of the
Trust or (b) a vote of a "majority" (as defined in the Investment Company Act of
1940) of the Portfolio's outstanding voting securities, provided that in either
event the continuance is also approved by a majority of the Board of Trustees
who are not "interested persons" (as defined in said Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of
4
<PAGE>
voting on such approval. This Agreement is terminable, without penalty, on 60
days' written notice, by the Board of Trustees of the Trust or by vote of
holders of a majority of the Portfolio's shares, or upon 90 days' written
notice, by the Adviser. This Agreement will also terminate automatically in the
event of its assignment (as defined in said Act).
11. Representation by the Trust
The Trust represents that a copy of its Declaration of Trust, dated March
15, 1995, together with all amendments thereto, is on file in the office of the
Secretary of State of The Commonwealth of Massachusetts.
12. Miscellaneous
The Trust recognizes that directors, officers and employees of the Adviser
may from time to time serve as directors, trustees, officers and employees of
corporations and business trusts (including other investment companies) and that
such other corporations and trusts may include the name "Warburg, Pincus" as
part of their names, and that the Adviser or its affiliates may enter into
advisory or other agreements with such other corporations and trusts. If the
Adviser ceases to act as the investment adviser of the Portfolio's shares, the
Trust agrees that, at the Adviser's request, the Trust's license to use the
words "Warburg, Pincus" will terminate and that the Trust will take all
necessary action to change the name of the Trust and the Portfolio to names not
including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your understanding
by indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By: ---------------------------
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By: ---------------------------
Name:
Title:
5
<PAGE>
INVESTMENT ADVISORY AGREEMENT
, 1995
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, is an open-end,
management investment company that currently offers two portfolios, one of which
is the Small Company Growth Portfolio (the "Portfolio"). The Trust on behalf of
the Portfolio herewith confirms its agreement with Warburg, Pincus Counsellors,
Inc. (the "Adviser") as follows:
1. Investment Description; Appointment
The Trust desires to employ the capital of the Portfolio by
investing and reinvesting in investments of the kind and in accordance with the
limitations specified in its Declaration of Trust, as may be amended from time
to time, and in its Prospectus and Statement of Additional Information relating
to the Portfolio as from time to time in effect, and in such manner and to such
extent as may from time to time be approved by the Board of Trustees of the
Trust. Copies of the Trust's Prospectus and Statement of Additional Information
relating to the Portfolio and Declaration of Trust, as each may be amended from
time to time, have been or will be submitted to the Adviser. The Trust desires
to employ and hereby appoints the Adviser to act as investment adviser to the
Portfolio. The Adviser accepts the appointment and agrees to furnish the
services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of
Trustees of the Trust, the Adviser will (a) act in strict conformity with the
Trust's Declaration of Trust, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, as the same may from time to time be amended,
(b) manage the Portfolio in accordance with the Portfolio's investment objective
and policies as stated in the Trust's Prospectus and Statement of Additional
Information relating to the Portfolio as from time to time in effect, (c) make
investment decisions for the Portfolio, (d) place purchase and sale orders for
securities on behalf of the Portfolio and (e) calculate and monitor the
Portfolio's asset diversification each calendar quarter so that on the last day
of each calendar quarter the Portfolio will be in compliance with
<PAGE>
diversification requirements of Section 817(h) of the Internal Revenue Code of
1986, as the same may be amended from time to time, and regulations thereunder.
In providing those services, the Adviser will provide investment research and
supervision of the Portfolio's investments and conduct a continual program of
investment, evaluation and, if appropriate, sale and reinvestment of the
Portfolio's assets. In addition, the Adviser will furnish the Trust with
whatever statistical information the Trust may reasonably request with respect
to the securities that the Portfolio may hold or contemplate purchasing.
3. Brokerage
In executing transactions for the Portfolio and selecting
brokers or dealers, the Adviser will use its best efforts to seek the best
overall terms available. In assessing the best overall terms available for any
portfolio transaction, the Adviser will consider all factors it deems relevant
including, but not limited to, breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of any commission for the specific transaction
and for transactions executed through the broker or dealer in the aggregate. In
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as the same may from time to time be
amended) provided to the Portfolio and/or other accounts over which the Adviser
or an affiliate exercises investment discretion.
4. Information Provided to the Trust
The Adviser will keep the Trust informed of developments
materially affecting the Portfolio, and will, on its own initiative, furnish the
Trust from time to time with whatever information the Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the
services listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Portfolio in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport to
protect the Adviser against any liability to the Trust or the Portfolio or to
shareholders of the Trust or the Portfolio to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under
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this Agreement.
6. Limitation of Liability
The Trust and the Adviser agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Portfolio, as provided in the Declaration of Trust. The
execution and delivery of this Agreement have been authorized by the Trustees of
the Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Portfolio as provided in the Declaration of Trust. No series of
the Trust, including the Portfolio, will be liable for any claims against any
other series.
7. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Portfolio will pay the Adviser an annual fee calculated at an
annual rate of .90% of the Portfolio's average daily net assets. The fee for the
period from the date the Trust's initial registration statement relating to the
Portfolio is declared effective by the Securities and Exchange Commission to the
end of the year during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period bears
to the full yearly period. Upon any termination of this Agreement before the end
of a year, the fee for such part of that year shall be prorated according to the
proportion that such period bears to the full yearly period and shall be payable
upon the date of termination of this Agreement. For the purpose of determining
fees payable to the Adviser, the value of the Portfolio's net assets shall be
computed at the times and in the manner specified in the Trust's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
8. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Portfolio will bear its
proportionate share of certain other expenses to be incurred in its operation,
including: investment advisory and administration fees; taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Trust who are
not officers, directors, or employees of the Adviser or any of its affiliates;
fees of any pricing service employed to value shares of the Portfolio;
Securities and Exchange Commission fees and state Blue Sky qualification fees;
charges of custodians and
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transfer and dividend disbursing agents; the Portfolio's proportionate share of
insurance premiums; outside auditing and legal expenses; costs of maintenance of
the Portfolio's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of the shareholders of the Portfolio and of the officers or
Board of Trustees of the Trust; and any extraordinary expenses.
The Portfolio will be responsible for nonrecurring expenses
which may arise, including costs of litigation to which the Portfolio is a party
and of indemnifying officers and Trustees of the Trust with respect to such
litigation and other expenses as determined by the Trustees.
9. Services to Other Companies or Accounts
The Trust understands that the Adviser now acts, will continue
to act and may act in the future as investment adviser to fiduciary and other
managed accounts and to one or more other investment companies or series of
investment companies, and the Trust has no objection to the Adviser so acting,
provided that whenever the Portfolio and one or more other accounts or
investment companies or portfolios advised by the Adviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed to be equitable to each entity. The Trust
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Portfolio. In addition, the Trust understands
that the persons employed by the Adviser to assist in the performance of the
Adviser's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the 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, 1996 and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by (a) the Board of
Trustees of the Trust or (b) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Portfolio's outstanding voting
securities, provided that in either event the continuance is also approved by a
majority of the Board of Trustees who are not "interested persons" (as defined
in said Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without
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<PAGE>
penalty, on 60 days' written notice, by the Board of Trustees of the Trust or by
vote of holders of a majority of the Portfolio's shares, or upon 90 days'
written notice, by the Adviser. This Agreement will also terminate automatically
in the event of its assignment (as defined in said Act).
11. Representation by the Trust
The Trust represents that a copy of its Declaration of Trust,
dated March 15, 1995, together with all amendments thereto, is on file in the
office of the Secretary of State of The Commonwealth of Massachusetts.
12. Miscellaneous
The Trust recognizes that directors, officers and employees of
the Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Trust agrees that, at the Adviser's request, the Trust's
license to use the words "Warburg, Pincus" will terminate and that the Trust
will take all necessary action to change the name of the Trust and the Portfolio
to names not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By:______________________________
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:______________________________
Name:
Title:
5
<PAGE>
DISTRIBUTION AGREEMENT
___________, 1995
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Warburg, Pincus Trust (the "Trust"), an
open-end, management investment company organized as a business trust under the
laws of The Commonwealth of Massachusetts, has agreed that Counsellors
Securities Inc. ("Counsellors Securities") shall be, for the period of this
Agreement, the distributor of shares of beneficial interest, par value $.001 per
share, of various series of the Trust that may be offered from time to time (the
"Shares").
1. Services as Distributor
1.1 Counsellors Securities will act as agent for the
distribution of the Shares covered by the Trust's registration statement on Form
N-1A, under the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act") (the registration
statement, together with the prospectus (the "Prospectus") and statement of
additional information (the "Statement of Additional Information") included as
part of the registration statement, any amendments to the registration
statement, and any supplements to, or material incorporated by reference into
the Prospectus or Statement of Additional Information, being referred to
collectively in this Agreement as the "Registration Statement").
1.2 Counsellors Securities agrees to use appropriate efforts
to solicit orders for the sale of the Shares at a price and on the terms and
conditions set forth in the Registration Statement, and will undertake such
advertising and promotion as it believes is reasonable in connection with such
solicitation.
1.3 All activities by Counsellors Securities as distributor of
the Shares shall comply with all applicable laws, rules and regulations,
including, without limitation, all rules and regulations made or adopted by the
Securities and Exchange Commission (the "SEC") or by any securities association
registered under the Securities Exchange Act of 1934, as amended.
<PAGE>
1.4 Counsellors Securities agrees to (a) provide one or more
persons during normal business hours to respond to telephone questions
concerning the Trust and its performance and (b) perform such other services as
are described in the Registration Statement to be performed by Counsellors
Securities, including, without limitation, distributing and receiving
subscription order forms and receiving written redemption requests.
1.5 Counsellors Securities acknowledges that, whenever in the
judgment of the Trust's officers such action is warranted for any reason,
including, without limitation, market, economic or political conditions, those
officers may decline to accept any orders for, or make any sales of, the Shares
until such time as those officers deem it advisable to accept such orders and to
make such sales.
1.6 Counsellors Securities will act only on its own behalf as
principal should it choose to enter into selling agreements with selected
dealers or others.
1.7 Counsellors Securities will transmit any orders received
by it for purchase or redemption of the Shares to State Street Bank and Trust
Company ("State Street"), the Trust's transfer and dividend disbursing agent, or
its successor of which Counsellors Securities is notified in writing. The Trust
will promptly advise Counsellors Securities of the determination to cease
accepting orders or selling Shares or to recommence accepting orders or selling
Shares. The Trust (or its agent) will confirm orders for Shares placed through
Counsellors Securities upon their receipt, or in accordance with any exemptive
order of the SEC, and will make appropriate book entries pursuant to the
instructions of Counsellors Securities. Counsellors Securities agrees to cause
payment for Shares and instructions as to book entries to be delivered promptly
to the Trust (or its agent).
1.8 The outstanding Shares are subject to redemption as set
forth in the Registration Statement. The price to be paid to redeem the Shares
will be determined as set forth in the Registration Statement.
2. Duties of the Trust
2.1 The Trust agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions that
may be reasonably necessary in connection with the qualification of the Shares
for sale in those states that Counsellors Securities may designate.
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<PAGE>
2.2 The Trust shall furnish from time to time, for use in
connection with the sale of the Shares, such informational reports with respect
to the Trust and the Shares as Counsellors Securities may reasonably request,
all of which shall be signed by one or more of the Trust's duly authorized
officers; and the Trust warrants that the statements contained in any such
reports, when so signed by one or more of the Trust's officers, shall be true
and correct. The Trust shall also furnish Counsellors Securities upon request
with: (a) annual audits of the Trust's books and accounts made by independent
public accountants regularly retained by the Trust, (b) semiannual unaudited
financial statements pertaining to the Trust, (c) quarterly earnings statements
prepared by the Trust, (d) a monthly itemized list of the securities held by the
Trust, (e) monthly balance sheets as soon as practicable after the end of each
month and (f) from time to time such additional information regarding the
Trust's financial condition as Counsellors Securities may reasonably request.
3. Representations and Warranties
The Trust represents to Counsellors Securities that all
registration statements, prospectuses and statements of additional information
filed by the Trust with respect to the Trust with the SEC under the 1933 Act and
the 1940 Act with respect to the Shares have been carefully prepared in
conformity with the requirements of the 1933 Act, the 1940 Act and the rules and
regulations of the SEC thereunder. As used in Sections 3 and 4 of this Agreement
the terms "registration statement," "prospectus" and "statement of additional
information" shall mean any registration statement, prospectus and statement of
additional information filed by the Trust with respect to the Trust with the SEC
and any amendments and supplements thereto which at any time shall have been
filed with the SEC. The Trust represents and warrants to Counsellors Securities
that any registration statement with respect to the Trust, or prospectus and
statement of additional information contained therein, when such registration
statement becomes effective, will include all statements required to be
contained therein in conformity with the 1933 Act, the 1940 Act and the rules
and regulations of the SEC; that all statements of fact contained in any
registration statement, prospectus or statement of additional information with
respect to the Trust will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information with respect to the Trust when
such registration statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Shares. Counsellors Securities may, but shall not be obligated
to, propose from time
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<PAGE>
to time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion of
Counsellors Securities' counsel, be necessary or advisable. If the Trust shall
not propose such amendment or amendments and/or supplement or supplements within
fifteen days after receipt by the Trust of a written request from Counsellors
Securities to do so, Counsellors Securities may, at its option, terminate this
Agreement. The Trust shall not file any amendment to any registration statement
or supplement to any prospectus or statement of additional information with
respect to the Trust without giving Counsellors Securities reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
shall in any way limit the Trust's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus or statement of
additional information, of whatever character, as the Trust may deem advisable,
such right being in all respects absolute and unconditional.
4. Indemnification
4.1 The Trust agrees to indemnify, defend and hold Counsellors
Securities, its several officers and directors, and any person who controls
Counsellors Securities within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which
Counsellors Securities, its officers and directors, or any such controlling
person, may incur under the 1933 Act, the 1940 Act or common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement, any prospectus or any
statement of additional information with respect to the Trust, or arising out of
or based upon any omission or alleged omission to state a material fact required
to be stated in any registration statement, any prospectus or any statement of
additional information with respect to the Trust, or necessary to make the
statements in any of them not misleading; provided, however, that the Trust's
agreement to indemnify Counsellors Securities, its officers or directors, and
any such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of or based upon any statements or
representations made by Counsellors Securities or its representatives or agents
other than such statements and representations as are contained in any
registration statement, prospectus or statement of additional information with
respect to the Trust and in such financial and other statements as are furnished
to Counsellors Securities pursuant to paragraph 2.2 hereof; and further provided
that the Trust's agreement to
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<PAGE>
indemnify Counsellors Securities and the Trust's representations and warranties
hereinbefore set forth in paragraph 3 shall not be deemed to cover any liability
to the Trust or its shareholders to which Counsellors Securities would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of Counsellors Securities' reckless
disregard of its obligations and duties under this Agreement. The Trust's
agreement to indemnify Counsellors Securities, its officers and directors, and
any such controlling person, as aforesaid, is expressly conditioned upon the
Trust's being notified of any action brought against Counsellors Securities, its
officers or directors, or any such controlling person, such notification to be
given by letter or by telegram addressed to the Trust at its principal office in
New York, New York and sent to the Trust by the person against whom such action
is brought, within ten days after the summons or other first legal process shall
have been served. The failure so to notify the Trust of any such action shall
not relieve the Trust from any liability that the Trust may have to the person
against whom such action is brought by reason of any such untrue or alleged
untrue statement or omission or alleged omission otherwise than on account of
the Trust's indemnity agreement contained in this paragraph 4.1. The Trust's
indemnification agreement contained in this paragraph 4.1 and the Trust's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
Counsellors Securities, its officers and directors, or any controlling person,
and shall survive the delivery of any of the Trust's shares. This agreement of
indemnity will inure exclusively to Counsellors Securities' benefit, to the
benefit of its several officers and directors, and their respective estates, and
to the benefit of the controlling persons and their successors. The Trust agrees
to notify Counsellors Securities promptly of the commencement of any litigation
or proceedings against the Trust or any of its officers or directors in
connection with the issuance and sale of any of the Shares.
4.2 Counsellors Securities agrees to indemnify, defend and
hold the Trust, its several officers and directors, and any person who controls
the Trust within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) that the
Trust, its officers or directors or any such controlling person may incur under
the 1933 Act, the 1940 Act or common law or otherwise, but only to the extent
that such liability or expense incurred by the Trust, its officers or directors
or such controlling person resulting from such claims or demands shall arise out
of or be based upon (a) any unauthorized sales
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<PAGE>
literature, advertisements, information, statements or representations or (b)
any untrue or alleged untrue statement of a material fact contained in
information furnished in writing by Counsellors Securities to the Trust
specifically for use in the Registration Statement and used in the answers to
any of the items of the registration statement or in the corresponding
statements made in the prospectus or statement of additional information, or
shall arise out of or be based upon any omission or alleged omission to state a
material fact in connection with such information furnished in writing by
Counsellors Securities to the Trust and required to be stated in such answers or
necessary to make such information not misleading. Counsellors Securities'
agreement to indemnify the Trust, its officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned upon Counsellors
Securities' being notified of any action brought against the Trust, its officers
or directors, or any such controlling person, such notification to be given by
letter or telegram addressed to Counsellors Securities at its principal office
in New York, New York and sent to Counsellors Securities by the person against
whom such action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify Counsellors
Securities of any such action shall not relieve Counsellors Securities from any
liability that Counsellors Securities may have to the Trust, its officers or
directors, or to such controlling person by reason of any such untrue or alleged
untrue statement or omission or alleged omission otherwise than on account of
Counsellors Securities' indemnity agreement contained in this paragraph 4.2.
Counsellors Securities agrees to notify the Trust promptly of the commencement
of any litigation or proceedings against Counsellors Securities or any of its
officers or directors in connection with the issuance and sale of any of the
Shares.
4.3 In case any action shall be brought against any
indemnified party under paragraph 4.1 or 4.2, and it shall timely notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish to do so, to
assume the defense thereof with counsel satisfactory to such indemnified party.
If the indemnifying party opts to assume the defense of such action, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel
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<PAGE>
would be inappropriate due to actual or potential differing interests between
them in the conduct of the defense of such action.
5. Limitation on Liability
The Trust and Counsellors Securities agree that the
obligations of the Trust under this Agreement will not be binding upon any of
the Trustees, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Trust, individually, but are binding only upon
the assets and property of the Trust, as provided in the Trust's Declaration of
Trust, as amended from time to time (the "Declaration of Trust"). The execution
and delivery of this Agreement have been authorized by the Trustees of the
Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust as provided in the Declaration of Trust. No series of the
Trust will be liable for any claims against any other series.
6. Effectiveness of Registration
None of the Shares shall be offered by either Counsellors
Securities or the Trust under any of the provisions of this Agreement and no
orders for the purchase or sale of the Shares shall be accepted by the Trust if
and so long as the effectiveness of the Registration Statement shall be
suspended under any of the provisions of the 1933 Act or if and so long as the
Prospectus is not on file with the SEC; provided, however, that nothing
contained in this paragraph 6 shall in any way restrict or have an application
to or bearing upon the Trust's obligation to repurchase its shares from any
shareholder in accordance with the provisions of the Prospectus or Statement of
Additional Information.
7. Notice to Counsellors Securities
The Trust agrees to advise Counsellors Securities immediately
in writing:
(a) of any request by the SEC for amendments to the
Registration Statement, Prospectus or Statement of
Additional Information then in effect with respect to the
Trust or for additional information;
(b) in the event of the issuance by the SEC of any
stop order suspending the effectiveness of the Registration
Statement, Prospectus or Statement of Additional Information
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then in effect with respect to the Trust or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the Registration Statement,
Prospectus or Statement of Additional Information then in effect with
respect to the Trust or that requires the making of a change in such
Registration Statement, Prospectus or Statement of Additional
Information in order to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to
any Registration Statement, Prospectus or Statement of Additional
Information with respect to the Trust which may from time to time be
filed with the SEC.
8. Term of Agreement
This Agreement shall continue until April 17, 1996, and
thereafter shall continue automatically for successive annual periods ending on
April 17th of each year, provided such continuance is specifically approved at
least annually by (a) the Trust's Board of Trustees or (b) a vote of a majority
(as defined in the 1940 Act) of the outstanding Shares, provided that in either
event the continuance is also approved by a vote of a majority of the Trust's
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust or any party to this Agreement ("Independent Trustees"), by vote cast in
person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable without penalty (a) on 60 days' written notice, by vote
of the Trust's Board of Trustees or by vote of a majority (as defined in the
1940 Act) of the outstanding Shares, or (b) on 90 days' written notice by
Counsellors Securities. This Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
9. Amendments
This Agreement may be amended by the parties only if the
amendment is specifically approved by (a) the Trust's Board of Trustees or by
the vote of a majority of outstanding Shares and (b) a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on the approval.
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<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By:
______________________________
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By:
______________________________
Name:
Title:
9
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CUSTODIAN SERVICES AGREEMENT TERMS AND CONDITIONS
This Agreement is made as of , 1995 by and between PNC BANK,
NATIONAL ASSOCIATION, a national banking association, and WARBURG, PINCUS TRUST,
a Massachusetts business trust (the "Fund").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund wishes to
retain PNC Bank to provide custodian services to its investment portfolios
listed on Exhibit A attached hereto and made a part hereof, as such Exhibit A
may be amended from time to time (each, a "Portfolio"), and PNC Bank wishes to
furnish custodian services, either directly or through an affiliate or
affiliates, as more fully described herein.
In consideration of the premises and mutual covenants herein contained, the
parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall mean any
officer of the Fund and any other person, who is duly authorized by the Fund's
Governing Board, to give Oral and Written Instructions on behalf of the Fund.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix as such appendix may be amended in writing by the Fund's
Governing Board from time to time.
(b) "Book-Entry System". The term "Book-Entry System" means Federal
Reserve Treasury book-entry system for United States and federal agency
securities, its successor or successors, and its
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nominee or nominees and any book-entry system maintained by an exchange
registered with the SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities
Futures Trading Commission.
(d) "Governing Board". The term "Governing Board" shall mean the
Fund's Board of Directors if the Fund is a corporation or the Fund's Board of
Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall mean oral
instructions received by PNC Bank from an Authorized Person or from a person
reasonably believed by PNC Bank to be an Authorized Person.
(f) "PNC Bank". The term "PNC Bank" shall mean PNC Bank, National
Association or a subsidiary or affiliate of PNC Bank, National Association.
(g) "SEC". The term "SEC" shall mean the Securities and
Exchange Commission.
(h) "Securities and Commodities Laws". The term shall mean the "1933
Act", the Securities Act of 1933, as amended, the "1934 Act", the Securities
Exchange Act of 1934, as amended, the "1940 Act", and the "CEA", the Commodities
Exchange Act, as amended.
(i) "Shares". The term "Shares" shall mean the shares of stock of any
series or class of the Fund, or, where appropriate, units of beneficial interest
in a trust where the Fund is organized as a Trust.
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(j) "Property". The term "Property" shall mean:
(i) any and all securities and other investment
items which the Fund may from time to time deposit, or cause
to be deposited, with PNC Bank or which PNC Bank may from
time to time hold for the Fund;
(ii) All income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of such
securities or investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PNC Bank from time to time, from or on
behalf of the Fund.
(k) "Written Instructions". The term "Written Instructions" shall mean
written instructions signed by two Authorized Persons and received by PNC Bank.
The instructions may be delivered by hand, mail, tested telegram, cable, telex
or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to
provide custodian services, and PNC Bank accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Governing Board, approving the appointment of PNC Bank or
its affiliates to provide services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement or
agreements;
3
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(e) a copy of the Fund's administration agreements if
PFPC is not providing the Fund with such services;
(f) copies of any shareholder servicing agreements
made in respect of the Fund; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
PNC Bank undertakes to comply with all applicable requirements
of the Securities and Commodities Laws, and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to all duties to be
performed by PNC Bank hereunder. Except as specifically set forth herein, PNC
Bank assumes no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, PNC Bank
shall act only upon Oral and Written Instructions. PNC Bank shall be entitled to
rely upon any Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to be an Authorized
Person) pursuant to this Agreement. PNC Bank may assume that any Oral or Written
Instructions received hereunder are not in any way inconsistent with the
provisions of organizational documents of the Fund or of any vote, resolution or
proceeding of the Fund's Governing Board or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written Instructions confirming Oral
Instructions so that PNC Bank receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by PNC Bank shall in no
way
4
<PAGE>
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no liability to the Fund
in acting upon Oral or Written Instructions provided such instructions
reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request directions or advice, including
Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any
questions of law pertaining to any action it should or should not take, PNC Bank
may request advice at its own cost from such counsel of its own choosing (who
may be counsel for the Fund, the Fund's advisor or PNC Bank, at the option of
PNC Bank).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PNC Bank receives from the Fund, and the
advice it receives from counsel, PNC Bank shall be entitled to rely upon and
follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which PNC Bank
believes, in good faith, to be consistent with those directions, advice or Oral
or
5
<PAGE>
Written Instructions.
Nothing in this paragraph shall be construed so as to impose an obligation
upon PNC Bank (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PNC Bank's properly taking or not taking
such action.
7. Records. The books and records pertaining to the Fund, which are in the
possession of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during PNC Bank's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by PNC Bank to
the Fund or to an authorized representative of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep confidential all records of the
Fund and information relative to the Fund and its Shareholders (past, present
and potential), unless the release of such records or information is otherwise
consented to, in writing, by the Fund. The Fund further agrees that, should PNC
Bank be required to provide such information or records to duly constituted
authorities (who may institute civil or criminal contempt proceedings for
failure to comply), PNC Bank shall not be
6
<PAGE>
required to seek the Fund's consent prior to disclosing such information;
provided that PNC Bank gives the Fund prior written notice of the provision of
such information and records.
9. Cooperation with Accountants. PNC Bank shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions but shall have no liability with respect thereto.
11. Compensation. As compensation for custody services
rendered by PNC Bank during the term of this Agreement, the Fund
will pay to PNC Bank a fee or fees as may be agreed to in writing
from time to time by the Fund and PNC Bank.
12. Indemnification. The Fund agrees to indemnify and hold harmless PNC
Bank and its nominees from all taxes, charges, expenses, assessment, claims and
liabilities (including, without limitation, liabilities arising under the
Securities and Commodities Laws, and any state and foreign securities and blue
sky
7
<PAGE>
laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PNC Bank takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its nominees, shall be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of PNC Bank's or its nominees'
own willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under this Agreement or PNC Bank's own grossly
negligent failure to perform its duties under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be under no duty to
take any action on behalf of the Fund except as specifically set forth herein or
as may be specifically agreed to by PNC Bank, in writing. PNC Bank shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within reasonable
limits, in performing Services provided for under this Agreement. PNC Bank shall
be responsible for its own or its nominees' own willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties and obligations under this
Agreement or PNC Bank's own grossly negligent failure to perform its duties
under this Agreement.
Without limiting the generality of the foregoing or of any other provision
of this Agreement, PNC Bank, in connection with its
8
<PAGE>
duties under this Agreement, shall not be under any duty or obligation to
inquire into and shall not be liable for (a) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which PNC Bank reasonably believes to be genuine; or (b) delays or errors or
loss of data occurring by reason of circumstances beyond PNC Bank's control,
including acts of civil or military authority, national emergencies, fire, flood
or catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank shall
have no liability to the Fund for any consequential, special or indirect losses
or damages which the Fund may incur or suffer by or as a consequence of PNC
Bank's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will deliver or arrange for
delivery to PNC Bank, all the property it owns, including cash received as a
result of the distribution of its Shares, during the period that is set forth in
this Agreement. PNC Bank will not be responsible for such property until actual
receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon Written
Instructions, shall open and maintain separate
9
<PAGE>
account(s) in the Fund's name using all cash received from or for the account of
the Fund, subject to the terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial accounts for each separate
series, portfolio or class of the Fund and shall hold in such account(s) all
cash received from or for the accounts of the Fund specifically designated to
each separate series, portfolio or class.
PNC Bank shall make cash payments from or for the account of the Fund only
for:
(i) purchases of securities in the name of the Fund or PNC Bank
or PNC Bank's nominee as provided in sub-paragraph j and for
which PNC Bank has received a copy of the broker's or
dealer's confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to
PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne by
the Fund;
(iv) payment to, subject to receipt of Written Instructions, the
Fund's transfer agent, as agent for the shareholders, an
amount equal to the amount of dividends and distributions
stated in the Written Instructions to be distributed in cash
by the transfer agent to shareholders, or, in lieu of paying
the Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and distributions to
shareholders in accordance with procedures mutually agreed
upon from time to time by and among the Fund, PNC Bank and
the Fund's transfer agent.
10
<PAGE>
(v) payments, upon receipt Written Instructions, in connection
with the conversion, exchange or surrender of securities
owned or subscribed to by the Fund and held by or delivered
to PNC Bank;
(vi) payments of the amounts of dividends received with respect
to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-paragraph c of this Paragraph 14; and
(viii) payments, upon Written Instructions made for other proper
Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian for the account of
the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities received by it for the
account of the Fund in a separate account that physically
segregates such securities from those of any other persons,
firms or corporations. All such securities shall be held or
disposed of only upon Written Instructions of the Fund
pursuant to the terms of this Agreement. PNC Bank shall have
no power or authority to assign, hypothecate, pledge or
otherwise dispose of any such securities or investment,
except upon the express terms of this Agreement and upon
Written Instructions, accompanied by a certified resolution
of the Fund's Governing Board, authorizing the transaction.
In no case may any member of the Fund's Governing Board, or
any officer, employee or agent of the Fund withdraw any
securities.
At PNC Bank's own expense and for its own convenience, PNC
Bank may enter into sub-custodian agreements with other
United States
11
<PAGE>
banks or trust companies to perform duties described in this
sub-paragraph c. Such bank or trust company shall have an
aggregate capital, surplus and undivided profits, according
to its last published report, of at least one million
dollars ($1,000,000), if it is a subsidiary or affiliate of
PNC Bank, or at least twenty million dollars ($20,000,000)
if such bank or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such bank or trust
company must be qualified to act as custodian and agree to
comply with the relevant provisions of the 1940 Act and
other applicable rules and regulations. Any such arrangement
will not be entered into without prior written notice to the
Fund.
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund and the Money Market Series harmless from its own
acts or omissions, under the standards of care provided for
herein, or the acts and omissions of any sub-custodian
chosen by PNC Bank under the terms of this sub-paragraph c.
(d) Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions and not otherwise, PNC Bank, directly or through the use of
the Book-Entry System, shall:
(i) deliver any securities held for the Fund against the receipt
of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in
such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the
authority of the Fund as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its agent,
when such securities are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to PNC
Bank;
12
<PAGE>
(iv) deliver any securities held for the Fund against receipt of
other securities or cash issued or paid in connection with
the liquidation, reorganization, refinancing, tender offer,
merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the Fund
and take such other steps as shall be stated in said Oral or
Written Instructions to be for the purpose of effectuating a
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(vii) release securities belonging to the Fund to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Fund; provided, however,
that securities shall be released only upon payment to PNC
Bank of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made subject to proper prior authorization, further
securities may be released for that purpose; and repay such
loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment therefor;
and pay out moneys of the Fund in connection with such
13
<PAGE>
repurchase agreements, but only upon the delivery of the
securities;
(ix) release and deliver or exchange securities owned by the Fund
in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by the fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the Fund
for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d.
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Governing Board approving, authorizing and
instructing PNC Bank on a continuous and on-going basis, to deposit in the
Book-Entry System all securities belonging to the Fund eligible for deposit
therein and to utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and sales of securities by the Fund,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. PNC Bank shall
continue to perform such duties until it receives Written or Oral Instructions
authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions
shall apply:
(i) With respect to securities of the Fund
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<PAGE>
which are maintained in the Book-Entry system, established
pursuant to this sub-paragraph e hereof, the records of PNC
Bank shall identify by Book-Entry or otherwise those
securities belonging to the Fund. PNC Bank shall furnish the
Fund a detailed statement of the Property held for the Fund
under this Agreement at least monthly and from time to time
and upon written request.
(ii) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated from any
assets and cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank and its
sub-custodian, if any, will pay out money only upon receipt
of securities and will deliver securities only upon the
receipt of money.
(iii) All books and records maintained by PNC Bank which relate to
the Fund's participation in the Book-Entry System will at
all times during PNC Bank's regular business hours be open
to the inspection of the Fund's duly authorized employees or
agents, and the Fund will be furnished with all information
in respect of the services rendered to it as it may require.
(iv) PNC Bank will provide the Fund with copies of any report
obtained by PNC Bank on the system of internal accounting
control of the Book-Entry System promptly after receipt of
such a report by PNC Bank.
PNC Bank will also provide the Fund with such reports on its own system of
internal control as the Fund may reasonably request from time to time.
(f) Registration of Securities. All Securities held for the Fund which
are issued or issuable only in bearer form, except such securities held in the
Book-Entry System, shall be held by PNC
15
<PAGE>
Bank in bearer form; all other securities held for the Fund may be registered in
the name of the Fund; PNC Bank; the Book-Entry System; a sub-custodian; or any
duly appointed nominee(s) of the Fund, PNC Bank, Book-Entry system or
sub-custodian. The Fund reserves the right to instruct PNC Bank as to the method
of registration and safekeeping of the securities of the Fund. The Fund agrees
to furnish to PNC Bank appropriate instruments to enable PNC Bank to hold or
deliver in proper form for transfer, or to register its registered nominee or in
the name of the Book-Entry System, any securities which it may hold for the
account of the Fund and which may from time to time be registered in the name of
the Fund. PNC Bank shall hold all such securities which are not held in the
Book-Entry System in a separate account for the Fund in the name of the Fund
physically segregated at all times from those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank nor its nominee shall vote
any of the securities held pursuant to this Agreement by or for the account of
the Fund, except in accordance with Written Instructions. PNC Bank, directly or
through the use of the Book-Entry System, shall execute in blank and promptly
deliver all notice, proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not the Fund then Written
or Oral Instructions must designate the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of contrary
Written Instructions, PNC Bank is authorized to
16
<PAGE>
take the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund, all
income, dividends, distributions, coupons, option
premiums, other payments and similar items, included or
to be included in the Property, and, in addition,
promptly advise the Fund of such receipt and credit
such income, as collected, to the Fund's custodian
account;
(B) endorse and deposit for collection, in the name of the
Fund, checks, drafts, or other orders for the payment
of money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the Fund's
portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
portfolio securities belonging to the Fund held by PNC
Bank hereunder;
(D) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed,
or retired, or otherwise become payable on the date
such securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of
17
<PAGE>
such income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver or cause to be
delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for
the account of the Fund in accordance with street
delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Fund or PNC Bank or nominee of either, or for
exchange of securities for a different number of
bonds, certificates, or other evidence,
representing the same aggregate face amount or
number of units bearing the same interest rate,
maturity date and call provisions, if any;
provided that, in any such case, the new
securities are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral or Written
Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of the Fund;
(2) collect interest and cash dividends received, with
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<PAGE>
notice to the Fund, to the account of the Fund;
(3) hold for the account of the Fund all stock
dividends, rights and similar securities issued
with respect to any securities held by us; and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by the
Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or under the laws of any State now or
hereafter in effect, inserting the Fund's name on
such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do
so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or Oral Instructions
establish and maintain a segregated accounts(s) on its
records for and on behalf of the Fund. Such account(s) may
be used to transfer cash and securities, including
securities in the Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and
any releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies;
and
(B) Upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such shareholders holding shares
through IRA accounts, in accordance with the Prospectus, the
Internal Revenue Code (including
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<PAGE>
regulations), and with such other procedures as are mutually
agreed upon from time to time by and among the Fund, PNC
Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle purchased
securities upon receipt of Oral or Written Instructions from the fund or its
investment advisor(s) that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through whom
the purchase was made. PNC Bank shall upon receipt of
securities purchased by or for the Fund pay out of the
moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through whom
the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Oral or
Written Instructions.
(k) Sales of Securities. PNC Bank shall sell securities upon receipt of
Oral Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
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<PAGE>
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom
the sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total amount payable is
the same as was set forth in the Oral or Written Instructions. Subject to the
foregoing, PNC Bank may accept payment in such form as shall be satisfactory to
it, and may deliver securities and arrange for payment in accordance with the
customs prevailing among dealers in securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the following reports:
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of the Fund, listing the
portfolio securities belonging to the fund with the
adjusted average cost of each issue and the market
value at the end of such month, and stating the cash
account of the Fund including disbursement;
(C) the reports to be furnished to the Fund pursuant to
Rule 17f-4; and
(D) such other information as may be agreed upon from time
to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy
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<PAGE>
material, notice of a call or conversion or similar
communication received by it as custodian of the Property.
PNC Bank shall be under no other obligation to inform the
Fund as to such actions or events.
(m) Collections. All collections of monies or other property in
respect, or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time after proper
demands have been made, PNC Bank shall notify the Fund in writing, including
copies of all demand letters, any written responses, memoranda of all oral
responses and to telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action for collection unless
and until reasonably indemnified to its satisfaction. PNC Bank shall also notify
the Fund as soon as reasonably practicable whenever income due on securities is
not collected in due course.
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days' prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or other
property), PNC Bank shall not deliver cash, securities or other property of the
Fund to the Fund. It may deliver them to a bank or trust company of PNC Bank's,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report, of
22
<PAGE>
not less than twenty million dollars ($20,000,000), as a custodian for the Fund
to be held under terms similar to those of this Agreement. PNC Bank shall not be
required to make any such delivery or payment until full payment shall have been
made to PNC Bank of all of its fees, compensation, costs and expenses. PNC Bank
shall have a security interest in and shall have a right of setoff against
Property in the Fund's possession as security for the payment of such fees,
compensation, costs and expenses.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address, Airport Business Center, International Court 2, 200 Stevens
Drive, Philadelphia, Pennsylvania 19113, marked for the attention of the
Custodian Services Department (or its successor) (b) if to the Fund, at the
address of the Fund; or (c) if to neither of the foregoing, at such other
address as shall have been notified to the sender of any such Notice or other
communication. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have been given five
days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered.
17. Amendments. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party
23
<PAGE>
against whom enforcement of such change or waiver is sought.
18. Delegation. PNC Bank may assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PNC Bank gives the
Fund thirty (30) days prior written notice; (ii) the delegate agrees with PNC
Bank to comply with all relevant provisions of the 1940 Act; and (iii) PNC Bank
and such delegate promptly provide such information as the Fund may request, and
respond to such questions as the Fund may ask, relative to the delegation,
including (without limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one more separate documents their agreement, if any, with respect
to delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
24
<PAGE>
This Agreement shall be deemed to be a contract made in Pennsylvania and
governed by Pennsylvania 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.
PNC BANK, NATIONAL ASSOCIATION
By:___________________________
Title:________________________
WARBURG, PINCUS TRUST
By:___________________________
Title:________________________
25
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of , 1995, is Exhibit A to that certain
Custodian Services Agreement dated as of , 1995 between PNC Bank,
National Association and Warburg, Pincus Trust.
PORTFOLIOS
International Equity Portfolio
Small Company Growth Portfolio
PNC BANK, NATIONAL ASSOCIATION
By:___________________________
Title:________________________
WARBURG, PINCUS TRUST
By:___________________________
Title:________________________
26
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
________________________ ________________________
27
<PAGE>
CUSTODIAN CONTRACT
Between
WARBURG, PINCUS TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held by It.............................................. 1
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States..................................................................... 2
2.1 Holding Securities........................................................................ 2
2.2 Delivery of Securities.................................................................... 2
2.3 Registration of Securities................................................................ 4
2.4 Bank Accounts............................................................................. 5
2.5 Availability of Federal Funds............................................................. 5
2.6 Collection of Income...................................................................... 5
2.7 Payment of Fund Monies.................................................................... 6
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased................................................................................. 7
2.9 Appointment of Agents..................................................................... 7
2.10 Deposit of Securities in U.S. Securities Systems.......................................... 7
2.11 Fund Assets Held in the Custodian's Direct Paper System................................... 9
2.12 Segregated Account........................................................................ 9
2.13 Ownership Certificates for Tax Purposes................................................... 10
2.14 Proxies................................................................................... 10
2.15 Communications Relating to Portfolio Securities........................................... 10
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States............................................................................... 11
3.1 Appointment of Foreign Sub-Custodians..................................................... 11
3.2 Assets to be Held......................................................................... 11
3.3 Foreign Securities Systems................................................................ 11
3.4 Holdings Securities....................................................................... 11
3.5 Agreements with Foreign Banking Institutions.............................................. 12
3.6 Access of Independent Accountants of the Fund............................................. 12
3.7 Reports by Custodian...................................................................... 12
3.8 Transactions in Foreign Custody Account................................................... 12
3.9 Liability of Foreign Sub-Custodians....................................................... 13
3.10 Liability of Custodian.................................................................... 13
3.11 Reimbursement for Advances................................................................ 13
3.12 Monitoring Responsibilities............................................................... 14
3.13 Branches of U.S. Banks.................................................................... 14
3.14 Tax Law................................................................................... 14
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4. Payments for Sales or Repurchases or Redemptions of Share.......................................... 15
5. Proper Instructions................................................................................ 15
6. Actions Permitted without Express Authority........................................................ 15
7. Evidence of Authority.............................................................................. 16
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income.................................................................. 16
9. Records............................................................................................ 17
10. Opinion of Fund's Independent Accountants.......................................................... 17
11. Reports to Fund by Independent Public Accountants.................................................. 17
12. Compensation of Custodian.......................................................................... 17
13. Responsibility of Custodian........................................................................ 17
14. Effective Period, Termination and Amendment........................................................ 19
15. Successor Custodian................................................................................ 20
16. Interpretive and Additional Provisions............................................................. 21
17. Additional Funds................................................................................... 21
18. Massachusetts Law to Apply......................................................................... 21
19. Prior Contracts.................................................................................... 21
20. Shareholder Communications Election................................................................ 21
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
This Contract between Warburg, Pincus Trust, business trust organized
and existing under the laws of The Commonwealth of Massachusetts and having its
principal place of business at 466 Lexington Avenue, New York, New York
10017-3147 (the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, the
International Equity Portfolio and the Small Company Growth Portfolio (such
series together with all other series subsequently established by the Fund and
made subject to this Contract in accordance with Article 17, 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 Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
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 (the "Declaration of Trust"). The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and
cash of the Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Fund on behalf of the Portfolio and not delivered to the
Custodian.
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 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
of
<PAGE>
trustees of the Fund (the "Board of Trustees") on behalf of the applicable
Portfolio(s) and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian. The Custodian may employ as sub-custodians for the Fund's foreign
securities on behalf of the applicable Portfolio(s) the foreign banking
institutions and foreign securities depositories designated in Schedule A hereto
but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property to be held by
it in the United States including all domestic securities owned by such
Portfolio other than (a) securities which are maintained 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") which is deposited and/or maintained in the Custodian's Direct
Paper System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio and held by the Custodian or
in a U.S. Securities System account of the Custodian, which 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") or in the Custodian's Direct Paper book-entry system
account, which 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") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
2
<PAGE>
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that, in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's 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;
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;
3
<PAGE>
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent 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; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the executive committee thereof
signed by an officer of the Fund and certified by the Fund's
Secretary or Assistant Secretary specifying the securities of
the Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to
4
<PAGE>
maintain securities in "street name", the Custodian shall utilize
reasonable efforts only to (i) timely collect income due the Fund on
such securities and (ii) notify the Fund of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940, as amended. Funds
held by the Custodian for a Portfolio may be deposited by it to its
credit as Custodian in the banking department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the Investment
Company Act of 1940, as amended (the "Investment Company Act") and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Portfolio
be approved by vote of a majority of the Board of Trustees. 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.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to 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. 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
5
<PAGE>
as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Portfolio is
properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act 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, or another
bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form
or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management
fees, accounting fees, transfer agent fees, legal fees and
6
<PAGE>
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or
an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act to
act as a custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of 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 (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:
7
<PAGE>
1) The Custodian may keep domestic securities of the Portfolio in
a U.S. Securities System provided that such securities are
represented 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 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 upon (i) 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 (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio in the form of a written advice or notice and
shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transactions in
the U.S. Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund 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 or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities
8
<PAGE>
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 System 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 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) Upon the reasonable request of the Fund, the Custodian shall
provide the Fund with any report on the Direct Paper System's
system of internal accounting controls 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
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the provisions of any agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures
Trading Commission or any registered Contract Market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio, (ii) for
purposes of segregating cash or government securities in connection
with options purchased, sold or written by the Portfolio or commodity
futures contracts or options thereon purchased or sold by the
Portfolio, (iii) for the purposes of compliance by the Portfolio with
the procedures required by Investment Company Act Release No. 10666, or
any subsequent release or releases of the 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 copy
of a resolution of the Board of Trustees or of the executive committee
thereof signed by an officer of the Fund and certified by the Fund's
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund on behalf of the Portfolio such
proxies, all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take
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action with respect to any tender offer, exchange offer or any other
similar transaction, the Portfolio shall notify the Custodian at least
three (3) business days prior to the date on which the Custodian is to
take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto (the "foreign sub-custodians"). Upon
receipt of Proper Instructions, together with a certified resolution of
the Board of Trustees, 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 foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such 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
under the Investment Company Act and (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.
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 which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are referred to herein collectively as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holdings Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers; provided,
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the
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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.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership of the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the Custodian
on behalf of its customers; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of Portfolio securities and other assets and
advices or notifications of any transfers of securities to or from each
custodial account maintained by a foreign banking institution for the
Custodian on behalf of its customers indicating, as to securities
acquired for a Portfolio, the identity of the entity having physical
possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Portfolio(s) held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
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practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund on behalf of the Portfolio, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the
Portfolio has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this Section 3.10, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments,
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claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the applicable Portfolio
shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund (during the month of June) information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the local currency
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
Portfolio assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by Article 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States. It shall
be the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
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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 Declaration of Trust and any applicable votes of the Board of
Trustees pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares, the
Custodian shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by two or more persons as the Board of Trustees shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. Upon receipt of a certificate of the Secretary or an Assistant
Secretary of the Fund as to the authorization by the Board of Trustees
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for Portfolio assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
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1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to the
Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Portfolio except as otherwise
directed by the Board of Trustees.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees 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. If so directed, 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.
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9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the SEC. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountants
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-lA and N-SAR or other annual reports to the SEC and with respect to any
other SEC requirements.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title
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thereto received by it or delivered by it pursuant to this Contract and shall be
held harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities markets, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or 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; (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; and (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.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Section 3.10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by Section 3.13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country
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including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
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, or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
In no event shall the Custodian be liable hereunder for indirect,
special or consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of the date of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than (30) days after the date of such delivery or mailing; provided,
however, that the Custodian shall not with respect to a Portfolio act under
Section 2. 10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the Investment Company 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 of Trustees has approved the initial use of the Direct Paper
System by such Portfolio; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of the Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above
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to the Custodian or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees,
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 of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System. If no such successor custodian shall
be appointed, the Custodian shall, in like manner, upon receipt of a certified
copy of a vote of the Board of Trustees, deliver at the offices of the Custodian
and transfer such securities, funds and other properties in accordance with such
vote. In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as deemed in the Investment Company 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 copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
20
<PAGE>
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the International Equity Portfolio and the Small Company Growth
Portfolio with respect to which it desires to have the Custodian render services
as custodian under the terms hereof, it shall so notify the Custodian in
writing, and if the Custodian agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
20. Shareholder Communications Election
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address
21
<PAGE>
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.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
22
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of .
WARBURG, PINCUS TRUST
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
STATE STREET BANK AND TRUST
COMPANY
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
23
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Warburg, Pincus
Trust (the "Fund") for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
- --------------------------
Fund's Authorized Officer
Date: * [date]
24
<PAGE>
WARBURG, PINCUS COUNSELLORS, INC.
______________________________ By:______________________________________
Date Name:
Title:
12
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
WARBURG, PINCUS TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment; Duties of the Bank...........1
2. Fees and Expenses..................................4
3. Representations and Warranties of the Bank.........4
4. Representations and Warranties of the Fund.........5
5. Data Access and Proprietary Information............5
6. Indemnification....................................6
7. Standard of Care...................................8
8. Covenants of the Fund and the Bank.................8
9. Termination of Agreement...........................9
10. Additional Funds...................................9
11. Assignment.........................................9
12. Amendment.........................................10
13. Massachusetts Law to Apply........................10
14. Force Majeure.....................................10
15. Consequential Damages.............................10
16. Merger of Agreement...............................10
17. Limitations of Liability of the Trustees
or Shareholders...................................10
18. Counterparts......................................10
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of , 1995, by and between WARBURG, PINCUS
TRUST, a Massachusetts business trust, having its principal office and place of
business at 466 Lexington Avenue, New York, New York 10017-3417 (the "Fund"),
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having
its principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, the
International Equity Portfolio and the Small Company Growth Portfolio (each such
series, together with all other series subsequently established by the Fund and
made subject to this Agreement in accordance with Article 10, being herein
referred to as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the
Bank to act as, and the Bank agrees to act as its transfer agent for
the Fund's authorized and issued shares of its common stock, $ par
value, ("Shares"), dividend disbursing agent, custodian of certain
retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of
the respective Portfolios of the Fund ("Shareholders") and set out in
the currently effective prospectus and statement of additional
information ("prospectus") of the Fund on behalf of the applicable
Portfolio, including without limitation any periodic investment plan
or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund on behalf of each of the
Portfolios, as applicable and the Bank, the Bank shall:
1
<PAGE>
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and
appropriate documentation thereof to the Custodian
of the Fund authorized pursuant to the Declaration
of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii)
and (iii) above, the Bank shall execute
transactions directly with broker-dealers
authorized by the Fund who shall thereby be deemed
to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed
by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
applicable Portfolio;
(viii) Issue replacement certificates for those
certificates alleged to have been lost, stolen or
destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at
its option, may issue replacement certificates in
place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record
of the total number of shares of the Fund which are
authorized, based upon data provided to it by the
Fund, and issued and outstanding. The Bank shall
also provide the Fund on a regular basis with the
total number of shares which are authorized and
2
<PAGE>
issued and outstanding and shall have no
obligation, when recording the issuance of shares,
to monitor the issuance of such shares or to take
cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the
sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank
shall: (i) perform the customary services of a transfer
agent, dividend disbursing agent, custodian of certain
retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, mailing Shareholder reports
and prospectuses to current Shareholders, withholding taxes
on U.S. resident and non-resident alien accounts, preparing
and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information
and (ii) provide a system which will enable the Fund to
monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as
exempt from blue sky reporting for each State and (ii)
verify the establishment of transactions for each State on
the system prior to activation and thereafter monitor the
daily activity for each State. The responsibility of the
Bank for the Fund's blue sky State registration status is
solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting
of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services
in Section 1 may be established from time to time by
agreement between the Fund on behalf of each Portfolio and
the Bank per the attached service responsibility schedule.
The Bank may at times perform only a portion of these
services and the Fund or its agent may perform these
services on the Fund's behalf.
3
<PAGE>
(e) The Bank shall provide additional services on behalf of the
Fund (i.e., escheatment services) which may be agreed upon
in writing between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the
initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between
the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees
on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation
production, postage, forms, telephone, microfilm, microfiche,
tabulating proxies, records storage, or advances incurred by the Bank
for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or
with the consent of the Fund, will be reimbursed by the Fund on
behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of
the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all shareholder accounts
shall be advanced to the Bank by the Fund at least seven (7) days
prior to the mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4
<PAGE>
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good
standing under the laws of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended
on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all Shares of
the Fund being offered for sale.
5. Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of
the Fund's ability to access certain Fund-related data ("Customer
Data") maintained by the Bank on data bases under the control and
ownership of the Bank or other third party ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary
information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all
Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person
or organization except as may be provided hereunder. Without limiting
the foregoing, the Fund agrees for itself and its employees and
agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
5
<PAGE>
portion of the Proprietary Information, and if such access
is inadvertently obtained, to inform in a timely manner of
such fact and dispose of such information in accordance with
the Bank's instructions;
(d) to refrain from causing or allowing third-party data
acquired hereunder from being retransmitted to any other
computer facility or other location, except with the prior
written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal
copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make
no claim against the Bank arising out of the contents of such
third-party data, including, but not limited to, the accuracy
thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES
EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash or Shares or (ii) transmit
Shareholder information or other information, then in such event the
Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as
such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall on behalf
of the applicable Portfolio indemnify and hold the Bank
6
<PAGE>
harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out
of or attributable to:
(a) All actions of the Bank or its agents or subcontractors
required to be taken pursuant to this Agreement, provided
that such actions are taken in good faith and without
negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or
services which (i) are received by the Bank or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous
transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of
the Fund on behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop
order or other determination or ruling by any federal agency
or any state with respect to the offer or sale of such
Shares in such state.
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the
Fund on behalf of the applicable Portfolio for any action taken or
omitted by it in reliance upon such instructions or upon the opinion
of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document
furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or
upon any instruction, information, data, records or documents
provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the
Fund, and shall not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from the Fund.
The Bank, its agents and subcontractors shall also be protected and
indemnified in
7
<PAGE>
recognizing stock certificates which are reasonably believed to bear
the proper manual or facsimile signatures of the officers of the
Fund, and the proper countersignature of any former transfer agent or
former registrar, or of a co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which the
Fund may be required to indemnify the Bank, the Bank shall promptly
notify the Fund of such assertion, and shall keep the Fund advised
with respect to all developments concerning such claim. The Fund
shall have the option to participate with the Bank in the defense of
such claim or to defend against said claim in its own name or in the
name of the Bank. The Bank shall in no case confess any claim or make
any compromise in any case in which the Fund may be required to
indemnify the Bank except with the Fund's prior written consent.
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish
to the Bank the following:
(a) A certified copy of the resolution of the Board of Trustees
of the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund
and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services
to be performed
8
<PAGE>
by the Bank hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Fund on
and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required
by law.
8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. The Bank reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised
by its counsel that it may be held liable for the failure to exhibit
the Shareholder records to such person.
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
10. Additional Funds
In the event that the Fund establishes one or more series of Shares
in addition to the International Equity Portfolio and the Small
Company Growth Portfolio with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it
shall so notify the Bank in writing, and if the Bank agrees in
writing to provide such services, such series of Shares shall become
a Portfolio hereunder.
11. Assignment
11.1 Except as provided in Section 10.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
9
<PAGE>
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(1)"),
(ii) a BFDS subsidiary duly registered as a transfer agent pursuant
to Section 17A(c)(1) or (iii) a BFDS affiliate; provided, however,
that the Bank shall be as fully responsible to the Fund for the acts
and omissions of any subcontractor as it is for its own acts and
omissions.
12. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution
of the Board of Trustees of the Fund.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
14. Force Majeure
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
15. Consequential Damages
Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to
act hereunder.
16. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
10
<PAGE>
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of
the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or
Shareholders individually but are binding only upon the assets and
property of the Fund.
18. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
WARBURG, PINCUS TRUST
BY:______________________________________
ATTEST:
______________________________
STATE STREET BANK AND TRUST COMPANY
BY:______________________________________
Executive Vice President
ATTEST:
______________________________
12
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase X X
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts. X
3. Receive redemption requests. X X
4. Effect transactions 1-3 above
directly with broker-dealers. X
5. Pay over monies to redeeming
Shareholders. X
6. Effect transfers of Shares. X
7. Prepare and transmit dividends
and distributions. X
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and
accurate control book for each
issue of securities. X
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current
Shareholders. X X
15. Withhold taxes on U.S. resident
and non-resident alien accounts. X
16. Prepare and file U.S. Treasury
Department forms. X
17. Prepare and mail account and
confirmation statements for
Shareholders. X X
13
<PAGE>
Service Performed Responsibility
Bank Fund
18. Provide Shareholder account
information. X
19. Blue sky reporting. X X
* Such services are more fully described in Section 1.2 (a), (b)
and (c) of the Agreement.
WARBURG, PINCUS TRUST
BY:______________________________________
ATTEST:
______________________________
STATE STREET BANK AND TRUST COMPANY
BY:______________________________________
Executive Vice President
ATTEST:
______________________________
14
<PAGE>
CO-ADMINISTRATION AGREEMENT
____________, 1995
Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, confirms its
agreement with Counsellors Funds Service, Inc. ("Counsellors Service") with
respect to series of the Trust that may be offered from time to time (each a
"Portfolio" and collectively the "Portfolios"), as follows:
1. Investment Description; Appointment
The Trust desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Declaration of Trust, as amended from time to time (the
"Declaration of Trust"), in its By-laws, as amended from time to time (the
"By-laws"), in the Trust's prospectus (the "Prospectus") and Statement of
Additional Information (the "Statement of Additional Information") relating to
the Portfolios as in effect from time to time, and in such manner and to the
extent as may from time to time be approved by the Board of Trustees of the
Trust. Copies of the Prospectus, Statement of Additional Information and the
Declaration of Trust and By-laws have been submitted to Counsellors Service. The
Trust employs Warburg, Pincus Counsellors, Inc. (the "Adviser") as its
investment adviser with respect to the Portfolios and desires to employ and
hereby appoints Counsellors Service as its co-administrator with respect to the
Portfolios. Counsellors Service accepts this appointment and agrees to furnish
the services for the compensation set forth below.
2. Services as Co-Administrator
Subject to the supervision and direction of the Board of
Trustees of the Trust, Counsellors Service will:
(a) assist in supervising all aspects of the
Portfolios' operations, except those performed by other parties
pursuant to written agreements with the Trust;
<PAGE>
(b) provide various shareholder liaison services including,
but not limited to, responding to inquiries of shareholders regarding the
Portfolios, providing information on shareholder investments, assisting
shareholders of the Portfolios in changing dividend options, account
designations and addresses, and other similar services;
(c) provide certain administrative services including, but not
limited to, providing periodic statements showing the account balance of a
Portfolio shareholder and integrating the statements with those of other
transactions and balances in the shareholder's other accounts serviced by the
Portfolios' custodian or transfer agent;
(d) supply the Portfolios with office facilities (which may be
Counsellors Service's own offices), data processing services, clerical, internal
executive and administrative services, and stationery and office supplies;
(e) furnish corporate secretarial services, including
assisting in the preparation of materials for Board of Trustees meetings and
distributing those materials and preparing minutes of meetings of the Trust's
Board of Trustees and any Committees thereof and of the Trust's shareholders;
(f) coordinate the preparation of reports to the Portfolios'
shareholders of record and filings with the Securities and Exchange Commission
(the "SEC") including, but not limited to, proxy statements; annual, semi-annual
and quarterly reports to shareholders; and post-effective amendments to the
Trust's Registration Statement on Form N-1A with respect to the Portfolios (the
"Registration Statement");
(g) assist in the preparation of the Trust's tax
returns with respect to the Portfolios and assist in other
regulatory filings as necessary;
(h) assist the Adviser, at the Adviser's request, in
monitoring and developing compliance procedures for the Portfolios which will
include, among other matters, procedures to assist the Adviser in monitoring
compliance with the Portfolios' investment objectives, policies, restrictions,
tax matters and applicable laws and regulations; and
(i) acting as liaison between the Trust and the Trust's
independent public accountants, counsel, custodian or custodians, transfer agent
and co-administrator and taking all reasonable action in the performance of its
obligations under this Agreement to assure that all necessary information is
made available to each of them.
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<PAGE>
In performing all services under this Agreement, Counsellors
Service shall act in conformity with applicable law, the Trust's Declaration of
Trust and By-laws, and all amendments thereto, and the investment objectives,
investment policies and other practices and policies set forth in the
Registration Statement, as such Registration Statement and practices and
policies may be amended from time to time.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Trust will pay Counsellors Service on the first business day of
each month a fee for the previous month at an annual rate of .10% of each
Portfolio's average daily net assets. The fee for the period from the date a
Portfolio commences its investment operations to the end of the month during
which the Portfolio commences its investment operations shall be prorated
according to the proportion that such period bears to the full monthly period.
Upon any termination of this Agreement before the end of any month, the fee for
such part of a month shall be prorated according to the proportion which such
period bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
Counsellors Service, fees shall be calculated monthly and the value of each
Portfolio's net assets shall be computed at the times and in the manner
specified in the Prospectus and Statement of Additional Information as from time
to time in effect.
4. Expenses
Counsellors Service will bear all expenses in connection with
the performance of its services under this Agreement; provided, however, that
the Trust will reimburse Counsellors Service for the out-of-pocket expenses
incurred by it on behalf of the Portfolios. Such reimbursable expenses shall
include, but not be limited to, postage, telephone, telex and FedEx charges.
Counsellors Service will bill the Portfolios as soon as practicable after the
end of each calendar month for the expenses it is entitled to have reimbursed.
Each Portfolio will bear its proportionate share of certain
other expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Trust who are
not officers, directors, or employees of the Adviser or Counsellors Service; SEC
fees and state Blue Sky qualification fees; charges of custodians and transfer
and dividend disbursing agents; certain insurance premiums; outside auditing and
legal expenses; costs of maintenance of corporate existence; except as otherwise
provided
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<PAGE>
herein, costs attributable to investor services, including without limitation,
telephone and personnel expenses; costs of preparing and printing prospectuses
and statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings, and meetings of the officers of Board of Trustees of the Trust; costs
of any pricing services; and any extraordinary expenses.
5. Standard of Care
Counsellors Service shall exercise its best judgment in
rendering the services listed in paragraph 2 above. Counsellors Service shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust or the Portfolios in connection with the matters to which
this Agreement relates provided that nothing in this Agreement shall be deemed
to protect or purport to protect Counsellors Service against liability to the
Trust or the Portfolios to their shareholders to which Counsellors Service would
otherwise be subject by reason of willful misfeasance, bad faith or negligence
on its part in the performance of its duties or by reason of Counsellors
Service's reckless disregard of its obligations and duties under this Agreement.
6. Limitation of Liability
The Trust and Counsellors Service agree that the obligations
of the Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust or the Portfolios, individually, but are binding only upon
the assets and property of the Trust, as provided in the Declaration of Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust, and signed by an authorized officer of the Trust, acting
as such, and neither the authorization by the Trustees nor the execution and
delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the trust property of the Portfolios as provided in the Declaration of
Trust. No series of the Trust including the Portfolios will be liable for any
claims against any other series.
7. Term of Agreement
This Agreement shall become effective with respect to a
Portfolio as of the date the Portfolio commences its investment operations and
shall continue until April 17, 1996 and shall continue automatically (unless
terminated as provided herein) for
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<PAGE>
successive annual periods ending on April 17th of each year, provided that such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust, including a majority of the Board of Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940, as
amended) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable,
without penalty, on sixty (60) days' written notice, by the Board of Trustees of
the Trust or, with respect to a Portfolio, by vote of holders of a majority of
the Portfolio's shares, or upon sixty (60) days' written notice, by Counsellors
Service.
8. Service to Other Companies or Accounts
The Trust understands that Counsellors Service now acts, will
continue to act and may act in the future as administrator, co-administrator or
administrative services agent to one or more other investment companies, and the
Trust has no objection to Counsellors Service's so acting. The Trust understands
that the persons employed by Counsellors Service to assist in the performance of
Counsellors Service's duties hereunder will not devote their full time to such
service and nothing contained in this Agreement shall be deemed to limit or
restrict the right of Counsellors Service or any affiliate of Counsellors
Service to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
WARBURG, PINCUS TRUST
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 ________ __, 1995 by and between
Warburg, Pincus Trust (the "Trust"), a Massachusetts business trust, and PFPC
Inc. ("PFPC"), a Delaware corporation, which is an indirect, wholly owned
subsidiary of PNC Bank Corp.
The Trust is registered as an open-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
wishes to retain PFPC to provide certain administration and accounting services
with respect to series of the Trust that may be offered from time to time (each
a "Portfolio" and collectively the "Portfolios"), and PFPC wishes to furnish
such services.
In consideration of the promises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person." The term "Authorized Person" shall
mean any officer of the Trust and any other person, who is duly authorized by
the Trust's Governing Board, to give Oral and Written Instructions on behalf of
the Trust. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix to each Services Attachment to this Agreement. If
PFPC provides more than one service hereunder, the Trust's designation of
Authorized Persons may vary by service.
(b) "CFTC." The term "CFTC" shall mean the
Commodities Futures Trading Commission.
(c) "Governing Board." The Term "Governing Board" shall mean
the Trust's Board of Directors if the Trust is a corporation or the Trust's
Board of Trustees if the Trust is a trust, or, where duly authorized, a
competent committee thereof.
(d) "Oral Instructions." The term "Oral Instructions" shall
mean oral instructions received by PFPC from an Authorized Person or from a
person reasonably believed by PFPC to be an Authorized Person.
(e) "PNC." The term "PNC" shall mean PNC Bank or a
subsidiary or affiliate of PNC Bank.
(f) "SEC." The term "SEC" shall mean the Securities
and Exchange Commission.
<PAGE>
(g) "Securities and Commodities Laws." The terms the "1933
Act" shall mean the Securities Act of 1933, as amended, the "1934 Act" shall
mean the Securities Exchange Act of 1934, as amended, the "1940 Act" shall mean
the Investment Company Act 1940, as amended, and the "CEA" shall mean the
Commodities Exchange Act, as amended.
(h) "Services." The term "Services" shall mean the
service provided to the Trust by PFPC.
(i) "Shares." The terms "Shares" shall mean the
shares of beneficial interest of any series or class of the
Trust.
(j) "Property." The term "Property" shall mean:
(i) any and all securities and other
investment items which the Trust may
from time to time deposit, or cause
to be deposited, with PNC or which
PNC may from time to time hold for
the Trust;
(ii) all income in respect of any of
such securities or other investment
items;
(iii) all proceeds of the sale of any of
such securities or investment items;
and
(iv) all proceeds of the sale of
securities issued by the Trust,
which are received by PNC from time
to time, from or on behalf of the
Trust.
(k) "Written Instructions." The term "Written Instructions"
shall mean written instructions signed by one Authorized Person and received by
PFPC. The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Appointment.
The Trust hereby appoints PFPC to provide administration and
accounting services with respect to the Portfolios, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to furnish
such services.
3. Delivery of Documents.
The Trust has provided or, where applicable, will provide PFPC
with the following:
2
<PAGE>
(a) certified or authenticated copies of the resolutions
of the Trust's Governing Board, approving the
appointment of PNC or its affiliates to provide
services with respect to the Portfolios;
(b) a copy of the Trust's most recent effective
registration statement with respect to the
Portfolios;
(c) a copy of the Trust's advisory agreement or
agreements with respect to the Portfolios;
(d) a copy of the Trust's distribution agreement or
agreements with respect to the Portfolios;
(e) a copy of the Trust's administration or
co-administration agreement with respect to the
Portfolios if PFPC is not providing the Trust with
such services;
(f) copies of any shareholder servicing agreements made
in respect of the Trust with respect to the
Portfolios; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PFPC undertakes to
comply with all applicable requirements of the 1933 Act, the 1934 Act, the 1940
Act, and the CEA, and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to all duties to be performed by
PFPC hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Trust.
5. Instructions.
Unless otherwise provided in this Agreement, PFPC shall act
only upon Oral and Written Instructions.
PFPC shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person reasonably
believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC
may assume that any Oral or Written Instruction received hereunder is not in any
way inconsistent with the provisions of organizational documents or this
Agreement or of any vote, resolution or proceeding of the Trust's Governing
Board or of the Trust's shareholders.
The Trust agrees to forward to PFPC Written Instructions
confirming Oral Instructions so that PFPC receives
3
<PAGE>
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
Trust further agrees that PFPC shall incur no liability to the Trust in acting
upon Oral or Written Instructions provided such instructions reasonably appear
to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Trust. If PFPC is in doubt as to any action
it should or should not take, PFPC may request directions or advice, including
Oral or Written Instructions, from the Trust.
(b) Advice of Counsel. If PFPC shall be in doubt as to any
questions of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing (who may be
counsel for the Trust, the Portfolios' adviser (the "Adviser") or PFPC, at the
option of PFPC).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PNC receives from the Trust,
and the advice it receives from counsel, PFPC shall be entitled to rely upon and
follow the advice of counsel.
(d) Protection of PFPC. PFPC shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Trust or from counsel and which PFPC believes,
in good faith, to be consistent with those directions, advice and Oral or
Written Instructions.
Nothing in this paragraph shall be construed so as to impose
an obligation upon PFPC (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PFPC's properly taking or not taking such
action.
7. Records.
The book and records pertaining to the Portfolios, which are
in the possession of PFPC, shall be the property of the Trust. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Trust, or the Trust's
Authorized
4
<PAGE>
Persons, shall have access to such books and records at all times during PFPC's
normal business hours. Upon the reasonable request of the Trust, copies of any
such books and records shall be provided by PFPC to the Trust or to an
Authorized Person of the Trust, at the Trust's expense.
PFPC shall keep the following records:
(a) all books and records with respect to the Portfolios'
books of account;
(b) records of the Portfolios' securities transactions;
and
(c) all other books and records as PFPC is required to
maintain pursuant to Rule 31a-1 of the 1940 Act and
as specifically set forth in Appendix A hereto.
8. Confidentiality.
PPFC agrees to keep confidential all records of the Portfolios
and information relative to the Portfolios and its shareholders (past, present
and potential), unless the release of such records or information is otherwise
consented to, in writing, by the Trust. The Trust agrees that such consent shall
not be unreasonably withheld. The Trust further agrees that, should PFPC be
required to provide such information or records to duly constituted authorities
(who may institute civil or criminal contempt proceedings for failure to
comply), PFPC shall not be required to seek the Trust's consent prior to
disclosing such information.
9. Liaison with Accountants.
PFPC shall act as liaison with the Portfolios' independent
public accountants and shall provide account analyses, fiscal year summaries,
and other audit-related schedules. PFPC shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such accountants for the expression of their
opinion, as such may be required by the Trust from time to time.
10. Disaster Recovery.
PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provision of
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Portfolios, take reasonable steps to minimize
5
<PAGE>
service interruptions but shall have no liability with respect thereto.
11. Compensation.
As compensation for services rendered by PFPC during the term
of this Agreement, the Portfolios will pay to PFPC a fee or fees as may be
agreed to in writing by the Trust and PFPC.
12. Indemnification.
The Portfolios agree to indemnify and hold harmless PFPC and
its nominees from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the 1933
Act, the 1934 Act, the 1940 Act, the CEA, and any state and foreign securities
and blue sky laws, and amendments thereto, and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action which PFPC takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Trust or (ii) upon Oral or
Written Instructions. Neither PFPC, nor any of its nominees, shall be
indemnified against any liability to the Portfolios or to its shareholders (or
any expenses incident to such liability) arising out of PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
13. Responsibility of PFPC.
PFPC shall be under no duty to take any action on behalf of
the Trust except as specifically set forth herein or as may be specifically
agreed to by PFPC, in writing. PFPC shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in good faith and
to use its best efforts, within reasonable limits, in performing services
provided for under this Agreement. PFPC shall be responsible for its own
negligent failure to perform its duties under this Agreement. Notwithstanding
the foregoing, PFPC shall not be responsible for losses beyond its control,
provided that PFPC has acted in accordance with the standard of care set forth
above; and provided further that PFPC shall only be responsible for that portion
of losses or damages suffered by the Portfolios that are attributable to the
negligence of PFPC.
Without limiting the generality of the foregoing or of any
other provision of this Agreement, PFPC, in connection with its duties under
this Agreement, shall not be liable for (a) the validity or invalidity or
authority or lack thereof of any Oral or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which PFPC reasonably believes to be genuine; or (b) delays or errors or
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<PAGE>
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 Trust for any consequential, special or
indirect losses or damages which the Trust may incur or suffer by or as a
consequence of PFPC's performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC.
14. Description of Accounting Services.
(a) Services on a Continuing Basis. PFPC will perform the
following accounting functions if required:
(i) Journalize the Portfolios' investment,
capital share and income and expense
activities;
(ii) Verify investment buy/sell trade tickets
when received from the Adviser and
transmit trades to the Portfolios'
custodian for proper settlement;
(iii) Maintain individual ledgers for
investment securities;
(iv) Maintain historical tax lots for each
security;
(v) Reconcile cash and investment balances of
the Portfolios with the custodian, and
provide the Adviser with the beginning
cash balance available for investment
purposes;
(vi) Update the cash availability throughout
the day as required by the Adviser;
(vii) Post to and prepare the Portfolios'
Statement of Assets and Liabilities and
the Statement of Operations;
(viii) Calculate various contractual expenses
(e.q., advisory and custody fees);
(ix) Monitor the expense accruals and notify
Portfolios' management of any proposed
adjustments;
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<PAGE>
(x) Control all disbursements from the Trust
and authorize such disbursements upon
Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine the Portfolios' net income;
(xiii) Obtain security market quotes from
independent pricing services approved by
the Adviser, or if such quotes are
unavailable, then obtain such prices from
the Adviser, and in either case calculate
the market value of the Portfolios'
investments;
(xiv) Transmit or mail a copy of the daily
portfolio valuation to the Adviser;
(xv) Compute the net asset value of the
Portfolios;
(xvi) As appropriate, compute the Portfolios'
yields, total return, expense ratios,
portfolio turnover rate, and, if
required, portfolio average
dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement,
which will include the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. Description of Administration Services.
(a) Services on a Continuing Basis.
(i) Prepare quarterly broker security
transactions summaries;
(ii) Prepare monthly security transaction
listings;
(iii) Prepare for execution and file the
Trust's federal and state tax returns;
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<PAGE>
(iv) Prepare and file the Portfolios' semi-
annual reports with the SEC on Form N-
SAR;
(v) Prepare and file with the SEC the
Portfolios' annual and semi-annual
shareholder reports;
(vi) Assist with the preparation of
registration statements and other filings
relating to the registration of Shares;
and
(vii) Monitor the Trust's status as a regulated
investment company under Sub-Chapter M of
the Internal Revenue Code of 1986, as
amended.
16. Duration and Termination.
This Agreement shall continue until terminated by the Trust or
by PFPC on sixty (60) days' prior written notice to the other party.
17. Notices.
All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC at PFPC's address, 400 Bellevue Parkway, Wilmington, Delaware
19809; (b) if to the Trust, at the address of the Trust; or (c) if to neither of
the foregoing, at such other address as shall have been notified to the sender
of any such notice or other communication.
18. Amendments.
This Agreement, or any term thereof, may be changed or waived
only by written amendment, signed by the party against whom enforcement of such
change or waiver is sought.
19. Delegation.
PFPC may assign its rights and delegate its duties hereunder
to any wholly owned direct or indirect subsidiary of PNC Bank or PNC Bank Corp.,
provided that (i) PFPC gives the Trust thirty (30) days' prior written notice;
(ii) the delegate
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<PAGE>
agrees with PFPC to comply with all relevant provisions of the 1940 Act; and
(iii) PFPC and such delegate promptly provide such information as the Trust may
request, and respond to such questions as the Trust may ask, relative to the
delegation, including (without limitation) the capabilities of the delegate.
20. Counterparts.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
21. Further Actions.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
22. Limitation of Liability.
The Trust and PFPC agree that the obligations of the Trust and
the Portfolios under this Agreement will not be binding upon any of the
Trustees, shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Trust or the Portfolios, individually, but are binding
only upon the assets and property of the Portfolios, as provided in the Trust's
Declaration of Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust, and signed by an authorized officer of
the Trust, acting as such, and neither the authorization by the Trustees nor the
execution and delivery by the officer will be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but will
bind only the trust property of the Trust as provided in the Declaration of
Trust. No series of the Trust, including the Portfolios, will be liable for any
claims against any other series.
23. Miscellaneous.
This Agreement embodies the entire agreement and understanding
between the parties and supersedes all prior agreements and understandings
relating to the subject matter hereof, provided that the parties may embody in
one or more separate documents their agreement, if any, with respect to
delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE>
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 TRUST
By:
______________________________
Name:
Title:
11
<PAGE>
APPENDIX A
None.
<PAGE>
________ __, 1995
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to PFPC Inc. ("PFPC") under the terms of a
Co-Administration Agreement dated , 1995 between you (the "Trust"), on behalf
of the International Equity Portfolio and the Small Company Growth Portfolio
(the "Portfolios" and each a "Portfolio"), and PFPC. Pursuant to Paragraph 11 of
that Agreement, and in consideration of the services to be provided to you, you
will pay PFPC an annual co-administration fee, to be calculated daily and paid
monthly. You will also reimburse PFPC for its out-of-pocket expenses incurred on
behalf of the Portfolios, including, but not limited to: postage and handling,
telephone, telex, Federal Express and outside pricing service charges.
The annual administration and accounting fee with respect to
the International Equity Portfolio shall be .12% of the Portfolio's first $250
million in average daily net assets, .10% of the next $250 million in average
daily net assets, .08% of the next $250 million in average daily net assets and
.05% of average daily net assets over $750 million, with a minimum annual fee of
$42,000.
The annual administration and accounting fee with respect to
the Small Company Growth Portfolio shall be .10% of the Portfolios' average
daily net assets, with a minimum annual fee of $75,000.
In each month each Portfolio shall pay to PFPC the greater of
the asset based fee as calculated above or the minimum fee. The fee for the
period from the day of the year this agreement is entered into until the end of
that year shall be pro-rated according to the proportion which such period bears
to the full annual period.
<PAGE>
If the foregoing accurately sets forth our agreement, and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
PFPC INC.
By:
______________________________
Name:
Title:
Accepted: WARBURG, PINCUS TRUST
By:
______________________________
Name:
Title:
2
<PAGE>
FORM OF
PARTICIPATION AGREEMENT
This Agreement, made and entered into as of the ____ day of __________,
1995, by and among ___________________ (the "Insurance Company"), Warburg,
Pincus Trust (the "Trust") and Warburg, Pincus Counsellors, Inc., the Trust's
investment adviser (the "Adviser"), each of which hereby agrees that shares of
the International Equity Portfolio and the Small Company Growth Portfolio
(together the "Portfolios" and each a "Portfolio") of the Trust shall be made
available to serve as an underlying investment medium for Individual Deferred
Variable Annuity and Variable Life Contracts (collectively, "Contracts") to be
offered by the Insurance Company commencing on or about _________, 1995, subject
to the following provisions:
1. The Insurance Company represents that it has established the Insurance
Company Variable Account-II and the Insurance Company VLI Separate
Account-2 (collectively and individually, the "Variable Account"), as
separate accounts under [insert state] law, and has registered them as unit
investment trusts under the Investment Company Act of 1940, as amended (the
"1940 Act"), to serve as investment vehicles for the Contracts. The
Contracts provide for the allocation of net amounts received by the
Insurance Company to separate series of the Variable Account for investment
in the shares of specified investment companies selected among those
companies available through the Variable Account to act as underlying
investment media. Selection of a particular investment company is made by
the Contract owner who may change such selection from time to time in
accordance with the terms of the applicable Contract.
2. The Insurance Company agrees to make every reasonable effort to market its
Contracts. It will use its best efforts to give equal emphasis and
promotion to shares of each Portfolio as is given to other underlying
investments of the Variable Account. In marketing its Contracts, and in
fulfilling its obligations under this Agreement, the Insurance Company will
comply with all applicable state and federal laws including, without
limitation, Section 17A of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder. It will also maintain
all records required by law with respect to the Trust.
<PAGE>
3. On each Business Day, Insurance Company shall aggregate and calculate the
net purchase and redemption orders for each Variable Account. For purposes
of this paragraph 3, "Business Day" shall mean any day on which the New
York Stock Exchange, Inc. (the "NYSE") is open for trading and on which the
Portfolios calculate their net asset values as set forth in the Trust's
prospectus and statement of additional information, as amended from time to
time (the "Prospectus" and "Statement," respectively). Net orders shall
only reflect orders that Insurance Company has received prior to the close
of regular trading on the NYSE (currently 4:00 p.m., Eastern time) on that
Business Day. Orders that Insurance Company has received after the close of
regular trading on the NYSE shall be treated as though received on the next
Business Day. Each communication of orders by Insurance Company shall
constitute a representation that such orders were received by Insurance
Company prior to the close of regular trading on the NYSE on the Business
Day on which the purchase or redemption order is priced in accordance with
Rule 22c-1 under the 1940 Act. Other procedures relating to the handling of
orders shall be in accordance with the Prospectus and Statement of the
Trust or with oral or written instructions that the Trust or the Adviser
shall forward to you from time to time.
The Trust or the Adviser will provide closing net asset value, dividend and
capital gain information immediately following the close of regular trading
each Business Day to the Insurance Company. The Insurance Company will use
this data to calculate unit values, which will in turn be used to process
that same Business Day's Variable Account unit value. The Variable Account
processing will be done the same evening, and orders will be placed by
10:00 a.m. the morning of the following business day. Orders will be sent
directly to the Trust or its specified agent, and payment for purchases
will be wired to an account designated by the Trust or the Adviser, so as
to coincide with the order for Portfolio shares. Dividends and capital
gains distributions shall be reinvested in additional shares of the
relevant portfolio at net asset value.
Subject to the terms and conditions of this Agreement and the procedures
referred to above, Insurance Company shall be appointed to act, and
Insurance Company has agreed to act, as agent of the Trust for the sole
purpose of receiving instructions for the purchase and redemption of
Portfolio shares prior to the close of regular trading each Business Day
and communicating orders based on such instructions to the Trust or its
specified agent, all as specified herein, and the
2
<PAGE>
Business Day on which Insurance Company receives such instructions prior to
the close of regular trading on the NYSE shall be the Business Day on which
such orders will be deemed to be received by the Trust or the Trust's
transfer agent as a result of such instructions.
4. In the event adjustments are required to correct any error in the
computation of the net asset value of a Portfolio's Shares, the Trust or
the Adviser shall notify the Insurance Company as soon as practicable after
discovering the need for those adjustments that result in an aggregate
reimbursement of $150 or more to a Variable Account. Any such notice shall
state for each day for which an error occurred the incorrect price, the
correct price and, to the extent communicated to the Trust's shareholders,
the reason for the price change. Insurance Company may send this notice or
a derivation thereof (so long as such derivation is approved in advance by
the Adviser) to Contract owners whose accounts are affected by the price
change.
If any Variable Account received amounts in excess of the amounts to which
it otherwise would have entitled prior to an adjustment for an error,
Insurance Company will make a good faith attempt to collect such excess
amounts from Contract owners. In no event, however, shall Insurance Company
be liable to the Trust or the Adviser for any such amounts.
If an adjustment is to be made in accordance with this paragraph 4, the
relevant Portfolio shall make all necessary adjustments (within the
parameters specified herein) to the number of shares owned in the Variable
Accounts and distribute to Insurance Company the amount of such
underpayment for credit to Contract owners' accounts.
5. All expenses incident to the performance by each party of its respective
duties under this Agreement shall be paid by that party. The Trust shall
pay the cost of registration of its shares with the Securities and Exchange
Commission ("SEC"). The Trust shall provide, either directly or through its
authorized agent, the Insurance Company with a reasonable quantity of its
proxy material, periodic reports to shareholders and other material a
Portfolio may require to be sent to beneficial owners of its shares. The
Insurance Company will pay the costs of distribution of such material to
its Contract owners. The Portfolio shall pay the cost of qualifying its
shares in states where required by state securities laws. The Trust shall
provide the Insurance Company with both a reasonable quantity of the
Trust's
3
<PAGE>
Prospectuses and a copy of the Statement suitable for duplication by the
Insurance Company.
6. The Insurance Company and its agents shall make no representations
concerning the Adviser or its affiliates, the Trust, a Portfolio or
Portfolio shares except those contained in the then current Prospectus of
the Trust and in current printed sales literature of a Portfolio.
7. Upon Insurance Company's written request, the Trust or the Adviser will
inform it as to the states and jurisdictions in which they believe the
Portfolio shares have been qualified for sale under, or are exempt from the
requirements of, the respective securities laws of such states and
jurisdictions. However, neither the Trust nor the Adviser assumes any
responsibility or obligation as to the Insurance Company's right to sell
Portfolio shares in any state or jurisdiction. Insurance Company agrees
that it will not offer or sell any Portfolio shares to persons in any
jurisdiction in which it is not properly licensed and authorized to make
such offers or sales. The Trust has full authority to take such action as
it may deem advisable in respect of all matters pertaining to the
continuous offering of Portfolio shares. The Trust reserves the right in
its sole discretion and without notice to Insurance Company to suspend
sales or withdraw the offering of Portfolio shares.
8. Each Portfolio shall comply with Section 817(h) and 851 of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder, and the
provisions of Section 5(b)(1) of the 1940 Act, to the extent applicable.
9. The Insurance Company agrees to promptly notify the Board of Trustees of
the Trust, in writing, of any potential or existing material irreconcilable
conflict of interest between the interests of the Contract owners of the
Variable Account investing in a Portfolio, including such conflict with any
other separate account of any other insurance company investing in a
Portfolio.
Any material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private
4
<PAGE>
letter ruling, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of a Portfolio are being managed;
(e) a difference in voting instructions given by annuity Contract owners
and life insurance Contract owners or by contract owners of different life
insurance companies utilizing a Portfolio; or
(f) a decision by the Insurance Company to disregard the voting
instructions of Contract owners.
The Insurance Company will be responsible for assisting the Board of
Trustees of the Trust in carrying out its responsibilities by providing the
Board in a timely manner with all information reasonably necessary for the
Board to consider any issue raised, including information as to a decision
by the Insurance Company to disregard voting instructions of Contract
owners. The Insurance Company shall at least annually submit to the Board
of Trustees of the Trust such reports, materials or data as the Board may
reasonably request, and such reports, materials and data shall be submitted
more frequently if the Board deems it appropriate.
It is agreed that if it is determined by a majority of the members of the
Board of Trustees of the Trust or a majority of its disinterested Trustees
that a material irreconcilable conflict exists affecting the Insurance
Company, the Insurance Company shall, at its own expense, take whatever
steps are necessary to remedy or eliminate the irreconcilable material
conflict, which steps may include, but are not limited to,
(a) withdrawing the assets allocable to some or all of the separate
accounts from the Portfolio and reinvesting such assets in a different
investment medium, including another fund managed by the Adviser or
submitting the question of whether such segregation should be implemented
to a vote of all affected Contract owners and, as appropriate, segregating
the assets of any particular group (i.e., annuity Contract owners, life
insurance Contract owners or qualified Contract owners) that votes in favor
of such segregation, or offering to the affected Contract owners the option
of making such a change; or
5
<PAGE>
(b) establishing a new registered management investment company or managed
separate account.
If a material irreconcilable conflict arises because of the Insurance
Company's decision to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Insurance Company may be required, at the relevant Portfolio's
election, to withdraw the Variable Account's investment in the Portfolio.
No charge or penalty will be imposed against the Variable Account as a
result of such withdrawal. The Insurance Company agrees that its
responsibilities and obligations under this paragraph 9 will be carried out
with a view only to the interests of Contract owners.
For purposes hereof, a majority of the disinterested members of the Board
of Trustees of the Trust shall determine whether any proposed action
adequately remedies any material irreconcilable conflict. In no event will
a Portfolio or the Adviser be required to establish a new funding medium
for any Contract. The Insurance Company shall not be required by the terms
hereof to establish a new funding medium for any Contract if an offer to do
so has been declined by vote of a majority of affected Contract owners.
The Trust will undertake to promptly notify the Insurance Company, in
writing, of the Board of Trustees' determination of the existence of a
material irreconcilable conflict and its implications.
10. The Insurance Company will distribute all proxy material furnished by the
Trust and will vote Portfolio shares in accordance with instructions
received from the Contract owners of such Portfolio shares. The Insurance
Company and its agents will in no way recommend action in connection with
or oppose or interfere with the solicitation of proxies for the Portfolio
shares held for such Contract owners.
The Insurance Company shall provide pass-through voting privileges to its
Contract owners as long as the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable account owners. The
Insurance Company shall calculate voting privileges in a manner consistent
with the method of calculation of voting privileges for all other separate
accounts investing in a Portfolio. The Insurance Company will vote shares
in a Portfolio for which it has not received timely voting instructions as
well as shares attributable to it, in the same proportion as it votes
shares
6
<PAGE>
for which it has received instructions from its Contract owners.
11. This Agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of the Insurance Company, the Adviser or the Trust upon
30 days' advance written notice to the other;
(b) at the option of the Insurance Company if Trust shares are not
available for any reason to meet the requirements of Contracts as
determined by the Insurance Company. Reasonable advance notice of election
to terminate shall be furnished by the Insurance Company;
(c) at the option of the Insurance Company, the Adviser or the Trust, upon
institution of formal proceedings against the Variable Account, the
Insurance Company, the Trust, a Portfolio or the Adviser by the National
Association of Securities Dealers, Inc. ("NASD"), the SEC or any other
regulatory body;
(d) upon a decision by the Insurance Company, in accordance with
regulations of the SEC, to substitute such Portfolio shares with the shares
of another investment company for Contracts for which the Portfolio shares
have been selected to serve as the underlying investment medium. The
Insurance Company will give six month's written notice to the Trust and the
Adviser of any proposed vote to replace Portfolio shares;
(e) upon assignment of this Agreement unless made with the written consent
of each other party;
(f) in the event Portfolio shares are not registered, issued or sold in
conformance with federal law or such law precludes the use of Portfolio
shares as an underlying investment medium of Contracts issued or to be
issued by the Insurance Company. Prompt notice shall be given by either
party to the other in the event the conditions of this provision occur.
12. Termination as the result of any cause listed in the preceding paragraph
shall not affect the Trust's obligation to furnish Portfolio shares for
Contracts then in force for which the shares of a Portfolio serve or may
serve as an underlying medium, unless such further sale of Portfolio shares
is proscribed by law or the SEC or other regulatory body.
7
<PAGE>
13. Each notice required by this Agreement shall be given by wire and confirmed
in writing to:
[Insurance Company]
[Address]
Attention:
Trust:
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017
Attention: Mr. Eugene P. Grace
Adviser:
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017
Attention: Mr. Eugene P. Grace
14. Advertising and sales literature with respect to the Trust, a Portfolio or
the Adviser prepared by the Insurance Company or its agents will be
submitted to the Adviser for review, and prior written consent on behalf of
the Trust and the Adviser shall be obtained before such material is
submitted to the SEC or NASD for review and before such material is placed
in use.
15. (a) Each party agrees to act in good faith and without negligence in
carrying out its respective obligations under the Agreement.
(b) The Insurance Company agrees to indemnify and hold harmless the Trust,
each Portfolio, the Adviser, Counsellors Securities Inc. and each of their
respective directors, trustees, officers, employees, agents and each
person, if any, who controls the Trust, a Portfolio or the Adviser within
the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
against any losses, claims, damages, expenses or liabilities to which the
Trust, a Portfolio, the Adviser, Counsellors Securities Inc. or any such
trustee, director, officer, employee, agent or controlling person may
become subject, under the 1933 Act or otherwise, resulting from requests,
directions, actions or inactions of or by the Insurance Company or its
officers, employees or agents regarding its responsibilities hereunder.
Without limiting the generality of the foregoing, the Insurance Company
agrees that this provision will apply to claims, liabilities, damages,
expenses or losses (i) arising out of or based upon any untrue statement or
alleged untrue statement of any
8
<PAGE>
material fact contained in information furnished by the Insurance Company
for use in the registration statement of the Trust, including the
Prospectus or Statement (the "Registration Statement"), or in the
registration statement, prospectus or sales literature for the Variable
Account, or the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) that arise out of or that are a
result of conduct, statements or representations (other than statements or
representations made in reliance upon and in conformity with information
furnished to the Insurance Company by or on behalf of the Trust for use in
the prospectus and sales literature of the Contracts) of the Insurance
Company or its officers, directors, controlling persons, employees or
agents, with respect to the sale and distribution of Portfolio shares or
Contracts for which Portfolio shares are an underlying investment
including, without limitation, any statement or representation concerning
the Trust that is not contained in the relevant Prospectus or Statement or
in such printed material issued by the Trust as advertising or information
supplemental to the Prospectus and Statement; and (iii) a sale of shares of
the Trust in any state or jurisdiction in which such shares are not
qualified for sale or exempt from the requirements of the relevant
securities laws or in which the Insurance Company is not properly licensed
or authorized to make offers or sales. The Insurance Company will reimburse
any legal or other expenses incurred by the Trust, each Portfolio, the
Adviser, Counsellors Securities Inc. or any such director, officer,
employee, agent or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability which the Insurance Company
may otherwise have.
(c) The Adviser, on behalf of the Trust, agrees to indemnify and hold
harmless the Insurance Company and each of its directors, officers,
employees, agents and each person, if any, who controls the Insurance
Company within the meaning of the 1933 Act against any losses, claims,
damages, expenses or liabilities to which the Insurance Company or any such
director, officer, employee, agent or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement or sales
literature of the Trust or a Portfolio prepared by or approved
9
<PAGE>
in writing by the Trust, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Adviser will reimburse any legal or other expenses incurred by the
Insurance Company or any such director, officer, employee, agent or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
Adviser will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged omission made in such Registration
Statement or sales literature in conformity with written information
furnished to the Trust or the Adviser by or on behalf of the Insurance
Company. This indemnity agreement will be in addition to any liability
which the Adviser may otherwise have.
(d) Promptly after receipt by an indemnified party under this paragraph of
notice of the commencement of action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this paragraph, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party except, in
each case, to the extent the indemnifying party is prejudiced thereby. For
purposes of this Agreement, the indemnifying party shall be deemed to have
been prejudiced by a failure to receive notice only if such failure results
in a loss or a substantial impairment of a right that the indemnifying
party could, with the use of reasonable diligence, have exercised had the
indemnified party given notice to the indemnifying party within a
reasonable time after receipt of notice of the action. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. After notice from the indemnifying party of its
intention to assume the defense of an action, the indemnified party shall
bear the expenses of any additional counsel obtained by it, and the
indemnifying party shall not be liable to such indemnified party under this
paragraph for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. If the indemnifying party assumed the
defense of any such action, the indemnifying party shall not, without the
prior written consent of the
10
<PAGE>
indemnified party, settle or compromise the liability of any indemnified
party in such action, or permit a default or consent to the entry of any
judgment in respect thereof, unless in connection with such settlement,
compromise or consent the indemnified party receives from such claimant an
unconditional release from all liability in respect of such claim.
(e) The provisions of this paragraph 16 shall survive termination of this
Agreement.
16. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
This Agreement shall be construed in accordance with the laws of the State
of New York without regard to the conflict of laws provisions thereof. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby. Each party hereto shall cooperate with each other
party and all appropriate governmental authorities (including without
limitation the SEC, the NASD and state insurance regulators) and shall
permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or
the transactions contemplated hereby. The rights, remedies and obligation
contained in this Agreement are cumulative and are in addition to any and
all rights, remedies and obligations, at law or in equity, which the
parties hereto are entitled to under state and federal laws. It is
understood by the parties that this Agreement is not an exclusive
arrangement in any respect. The foregoing constitutes the entire Agreement
between the parties hereto and shall not be modified, amended or assigned
except by an agreement in writing signed by an authorized representative of
each party.
[Insurance Company]
______________________________ By:______________________________________
Date Name:
Title:
WARBURG, PINCUS TRUST
______________________________ By:______________________________________
Date Name:
Title:
11
<PAGE>
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
June 14, 1995
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Trust (the "Trust"), a business
trust organized under the laws of The Commonwealth of Massachusetts, in
connection with the preparation of a Registration Statement on Form N-1A as
filed with the Securities and Exchange Commission (the "Commission") on March
17, 1995, as amended by Amendment No. 1 filed with the Commission on June 14,
1995 (the "Registration Statement"). The Registration Statement covers the offer
and sale of an indefinite number of shares of beneficial interest of each of two
new series of the Trust, the International Equity Portfolio and the Small
Company Growth Portfolio (the "Portfolios"), in each case par value $.001 per
share (collectively, the "Shares").
We have examined copies of the Trust's Declaration of Trust, as amended (the
"Declaration"), the Trust's By-Laws, the Registration Statement, consents of the
Board and all resolutions adopted by the Trust's Board of Trustees (the "Board")
at its organizational meeting held on April 5, 1995. We have also examined such
other records, documents, papers, statutes and authorities as we have deemed
necessary to form a basis for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Trust and
others.
Based upon the foregoing, we are of the opinion that the Shares, when duly sold,
issued and paid for in accordance with the terms of the Declaration, the Trust's
By-Laws and the Registration Statement, will be validly issued and will
<PAGE>
Warburg, Pincus Trust
June 14, 1995
Page 2
be fully paid and non-assessable shares of beneficial interest of the Trust,
except that, as set forth in the Registration Statement, shareholders of the
Trust may under certain circumstances be held personally liable for its
obligations.
We are admitted to practice only in the State of New York and are not admitted
to practice under, nor are we experts with respect to, the laws of The
Commonwealth of Massachusetts. Accordingly, in rendering the opinions set forth
above we have relied with your consent on the opinion of Sullivan & Worcester,
special Massachusetts counsel to the Trust, as to all matters of Massachusetts
law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Statement of Additional
Information included as part of the Registration Statement and to the filing of
this opinion as an exhibit to any application made by or on behalf of the Trust
or any distributor or dealer in connection with the registration or
qualification of the Trust or the Shares under the securities laws of any state
or other jurisdiction.
Very truly yours,
/s/Willkie Farr & Gallagher
__________________________________
Willkie Farr & Gallagher
<PAGE>
[SULLIVAN & WORCESTER LETTERHEAD]
Boston
June 14, 1995
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Re: Warburg, Pincus Trust
---------------------
Ladies and Gentlemen:
You have requested our opinion as to certain matters of Massachusetts law
relating to Warburg, Pincus Trust, a trust with transferable shares (the
"Trust"), established under Massachusetts law pursuant to a Declaration of Trust
dated March 15, 1995, as amended by a Certificate of Amendment filed April 4,
1995 (as so amended, the "Declaration").
We have acted as Massachusetts counsel to the Trust in connection with the
execution and delivery of the Declaration, and the actions taken by the Trustees
of the Trust to organize the Trust and to authorize the issuance and sale of
shares of beneficial interest, one mil ($.001) par value, of the several series
authorized by the Declaration (the "Shares"). In this connection, we have
participated in the drafting of, and are familiar with, the Declaration and the
Bylaws of the Trust, and we have examined the Prospectus (the "Prospectus") and
the Statement of Additional Information included in the Trust's Registration
Statement on Form N-1A filed with the Securities and Exchange Commission (the
"SEC") on March 17, 1995, as amended by Amendment No. 1 (the "Registration
Statement"), the records of the actions of the Trustees of the Trust to organize
the Trust and to authorize the issuance of its Shares, certificates of public
officials and of Trustees and officers of the Trust as to matters of fact, and
such other documents and instruments, certified or otherwise identified to our
satisfaction, and such questions of law and fact, as we have considered
necessary or appropriate for purposes of the opinions expressed herein. We have
assumed the genuineness of the signatures on, and the authenticity of, all
documents furnished to us, and the conformity to the originals of documents
submitted to us as copies, which facts we have not independently verified.
Based upon and subject to the foregoing, we hereby advise you that, in our
opinion, under the laws of Massachusetts, the Shares, when duly sold, issued and
paid for in accordance with the terms of the Declaration, the Trust's Bylaws and
the Registration Statement, will be validly issued, fully paid and nonassessable
shares of beneficial interest of the Trust, except that, as set forth in the
Registration Statement, the shareholders of a Massachusetts business trust may
under some circumstances be held personally liable for its obligations.
<PAGE>
June 14, 1995
This letter expresses our opinions as to the provisions of the Declaration
and the laws of Massachusetts applying to business trusts generally, but does
not extend to the Massachusetts Securities Act, or to federal securities or
other laws.
You may rely upon the foregoing opinions in rendering your opinion letter
on the same matters which is to be filed as an exhibit to the Registration
Statement, and we hereby consent to the reference to us in the Prospectus, and
to the filing of this letter with the SEC as an exhibit to the Registration
Statement. In giving such consent, we do not thereby concede that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
Sullivan & Worcester
SULLIVAN & WORCESTER
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated June 12, 1995 on our audit of
the Statement of Assets and Liabilities of Warburg, Pincus Trust (International
Equity Portfolio and Small Company Growth Portfolio) as of June 9, 1995 with
respect to this Pre-Effective Amendment No. 1 to the Registration Statement (No.
33-58125) under the Securities Act of 1933 on Form N-1A of Warburg, Pincus
Trust. We also consent to the reference to our Firm under the heading "Auditors
and Counsel" in the filing.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 13, 1995
<PAGE>
PURCHASE AGREEMENT
Warburg, Pincus Trust (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, and Warburg,
Pincus Counsellors, Inc. ("Counsellors") hereby
agree as follows:
1. The Trust offers Counsellors and Counsellors hereby
purchases shares of beneficial interest of the Trust, par value $.001 per share
(the "Shares"), consisting of (a) 5,000 shares in the Trust's International
Equity Portfolio at a price of $10.00 per share and (b) 5,000 shares in the
Trust's Small Company Growth Portfolio (each of the International Equity
Portfolio and the Small Company Growth Portfolio a "Portfolio") at a price of
$10.00 per share (collectively, the "Initial Shares"). Counsellors hereby
acknowledges receipt of certificates representing the Initial Shares and the
Trust hereby acknowledges receipt from Counsellors of an aggregate amount of
$100,000.00 in full payment for the Initial Shares.
2. Counsellors represents and warrants to the Trust that the
Initial Shares are being acquired for investment purposes and not for the
purpose of distributing them.
3. Counsellors agrees that if any holder of the Initial Shares
redeems any Initial Share in a Portfolio before five years after the date upon
which the Portfolio commences its investment activities, the redemption proceeds
will be reduced by the amount of unamortized organizational expenses, in the
same
<PAGE>
proportion as the number of Initial Shares being redeemed bears to the number of
Initial Shares outstanding at the time of redemption. The parties hereby
acknowledge that any Shares acquired by Counsellors other than the Initial
Shares have not been acquired to fulfill the requirements of Section 14 of the
Investment Company Act of 1940, as amended, and, if redeemed, their redemption
proceeds will not be subject to reduction based on the unamortized
organizational expenses of the Portfolio.
4. The Trust and Counsellors agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Trust, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Trust, and signed by an authorized officer of the Trust, acting as such, and
neither the authorization by the Trustees nor the execution and delivery by the
officer will be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but will bind only the trust
property of the Trust as provided in the Declaration of Trust. No series of the
Trust, including the Fund, will be liable for any claims against any other
series.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 9th day of June, 1995.
WARBURG, PINCUS TRUST
By: /s/ EUGENE P. GRACE
_____________________________________
ATTEST:
/s/ CHERYL HOROWITZ
____________________
WARBURG, PINCUS COUNSELLORS, INC.
By: /s/ EUGENE P. GRACE
_____________________________________
ATTEST:
/s/ CHERYL HOROWITZ
____________________
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