<PAGE>1
As filed with the U.S. Securities and Exchange Commission
on March 17, 1995
Securities Act File No.
Investment Company Act File No.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. / /
(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>2
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed
Title of Securities Amount Being Proposed Maximum Offering Maximum Aggregate Offering Amount of Registration
Being Registered Registered Price per Unit Price Fee
------------------- ------------ ------------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C>
Shares of
beneficial
interest, $.001 par
value per share 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.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>3
WARBURG, PINCUS TRUST
FORM N-1A
CROSS REFERENCE SHEET
Part A
Item No. Prospectus Heading
-------- ------------------
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;
Net Asset Value
8. Redemption or Repurchase How to Purchase and Redeem
Shares in the Portfolios
9. Pending Legal Proceedings Not applicable
<PAGE>4
Part A
Item No. Prospectus Heading
-------- ------------------
10. Cover Page . . . . . . . Cover Page
11. Table of Contents . . . Contents
12. General Information and
History . . . . . . . . Management of the Portfolios--
Organization of the Trust
13. Investment Objective and
Policies . . . . . . . . Investment Objectives;
Investment Policies
14. Management of the
Registrant . . . . . . . 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--"Net Asset Value"
20. Tax Status . . . . . . . Additional Information
Concerning Taxes; See
Prospectus--"Dividends,
Distributions and Taxes"
<PAGE>5
Part A
Item No. Prospectus Heading
-------- ------------------
21. Underwriters . . . . . . See Prospectus--"Management of
the Portfolios"
22. Calculation of
Performance Data . . . . Determination of Performance
23. Financial Statements . . Report of Independent
Accountants; Financial
Statement
Part C
Information required to be included in Part C is set forth
after the appropriate item, so numbered, in Part C to this
Registration Statement.
<PAGE>1
PROSPECTUS
, 1995
WARBURG PINCUS TRUST
<PAGE>2
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>3
Subject to Completion, dated March 17, 1995
WARBURG PINCUS TRUST
P.O. Box 9036
Boston Massachusetts 02205-9030
Telephone Number: (800) 888-6878
Prospectus , 1995
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 Portfolio seeks capital appreciation 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 (i) 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") and (ii) to certain qualified pension and retirement plans
("Qualified Plans"). A Portfolio may not be available in every state due to
various insurance regulations.
This Prospectus briefly sets forth certain information about the
Portfolios that investors should know before investing. Investors are advised
to read this Prospectus and retain it for future reference. This Prospectus
should be read in conjunction with the prospectus of the separate account of
the specific insurance product that accompanies this Prospectus or in
conjunction with Qualified Plan documents. 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.
<PAGE>4
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>5
INVESTMENT OBJECTIVES AND POLICIES
The International Equity Portfolio seeks long-term capital
appreciation. The Small Company Portfolio seeks capital appreciation.
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 Warburg, Pincus Counsellors, Inc., the Portfolios'
investment adviser ("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 Portfolio
The Small Company 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)
<PAGE>6
that represent attractive opportunities for capital appreciation. It is
anticipated that the Portfolio will invest primarily in companies whose
securities are traded on domestic stock exchanges or in the over-the-counter
market. Small companies may still be in the developmental stage, may be older
companies that appear to be entering a new stage of growth progress owing to
factors such as management changes or development of new technology, products
or markets or may be companies providing products or services with a high unit
volume growth rate. The Portfolio's investments will be made on the basis of
their equity characteristics and securities ratings generally will not be a
factor in the selection process.
The Portfolio may also invest in securities of emerging growth
companies, which can be either small- or medium-sized companies that have
passed their start-up phase and that show positive earnings and prospects of
achieving significant profit and gain in a relatively short period of time.
Emerging growth companies generally stand to benefit from new products or
services, technological developments or changes in management and other
factors and include smaller companies experiencing unusual developments
affecting their market value.
PORTFOLIO INVESTMENTS
Investment Grade Debt. The International Equity Portfolio and the
Small Company Portfolio may invest up to 35% and 20%, respectively, of its
total assets in investment grade debt securities (other than money market
instruments) and preferred stocks that are not convertible into common stock
for the purpose of seeking capital appreciation. The interest income to be
derived may be considered as one factor in selecting debt securities for
investment by 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
<PAGE>7
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 rating categories; and repurchase agreements with
respect to the foregoing.
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.
U.S. Government Securities. The obligations issued or guaranteed by
the United States government in which a Portfolio may invest include: direct
obligations of
<PAGE>8
the U.S. Treasury, and obligations issued by U.S. government agencies and
instru-mentalities, including instruments that are supported by the full faith
and credit of the United States, instruments that are supported by the right
of the issuer to borrow from the U.S. Treasury and instruments that are
supported by the credit of the instrumentality.
Convertible Securities. Convertible securities in which a Portfolio
may invest, including both convertible debt and convertible preferred stock,
may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this feature, convertible securities
enable an investor to benefit from increases in the market price of the
underlying common stock. Convertible securities provide higher yields than
the underlying equity securities, but generally offer lower yields than non-
convertible securities of similar quality. The value of convertible
securities fluctuates in relation to changes in interest rates like bonds and,
in addition, fluctuates in relation to the underlying common stock.
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 "Retail Fund") and
the International Equity Portfolio of Warburg, Pincus Institutional Fund, Inc.
(the "Institutional Fund"; together with the Retail 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 , 1995, the Retail Fund and the Institutional
Portfolio had net assets of approximately $___ million and $___ million,
respectively, and overall expense ratios of % and %, respectively. [The
overall expense ratio for the International Equity Portfolio for its first
[three] fiscal years will not exceed %.] The Portfolio will have the same
types of expenses as the Warburg Pincus Funds, except that Variable Contract
owners and Qualified Plan participants may be subject to certain additional
charges and expenses attributable to the particular Variable Contract or
Qualified Plan. 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.
<PAGE>9
Warburg, Pincus Funds
Total Return for periods ending , 1995
<TABLE>
<CAPTION>
Retail Fund Institutional Fund
-------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Performance EAFE Index* Performance EAFE Index*
One year % % % %
Five years % % % %
From inception** % % % %
annualized % % % %
aggregate % % % %
</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 Retail Fund commenced investment operations on May 2, 1989, and the
Institutional Fund commenced operations on September 1, 1992.
<PAGE>10
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 __ and "Certain
Investment Strategies" beginning at page __.
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 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 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 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,
<PAGE>11
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
Portfolio may involve a greater degree of risk than an investment in other
mutual funds that seek capital appreciation by investing in better-known,
larger companies.
Non-Diversified Status. The Small Company Portfolio is classified
as non-diversified under the 1940 Act, which means that the Portfolio is not
limited by the 1940 Act in the proportion of its assets that it may invest in
the obligations of a single issuer. The Portfolio will, however, comply with
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
Being non-diversified means that the Portfolio may invest a greater proportion
of its assets in the obligations of a small number of issuers and, as a
result, may be subject to greater risk with respect to portfolio securities.
To the extent that the Portfolio assumes large positions in the securities of
a small number of issuers, its return may fluctuate to a greater extent than
that of a diversified company as a result of changes in the financial
condition or in the market's assessment of the issuers.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
A Portfolio will attempt to purchase securities with the intent of
holding them for investment but may purchase and sell portfolio securities
whenever 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
<PAGE>12
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 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 unfavorably
from the U.S. economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments positions. Investment in foreign securities will also result in
higher operating expenses due to the cost of converting foreign currency into
U.S. dollars, the payment of fixed brokerage commissions on foreign exchanges,
which generally are higher than commissions on U.S. exchanges, higher
valuation and communications costs and the expense of maintaining securities
with foreign custodians.
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
<PAGE>13
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 at
any time during the option period. 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 at any time during
the option period. 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, 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.
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 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.
<PAGE>14
The Portfolios will write only covered put and call options.
Accordingly, whenever a Portfolio writes a call option it will continue to own
or have the present right to acquire the underlying security for as long as it
remains obligated as the writer of the option. To support its obligation to
purchase the underlying security if a put option is exercised, the Portfolio
will either (i) deposit with its custodian in a segregated account cash, U.S.
government securities or other high-grade liquid debt obligations having a
value at least equal to the exercise price of the underlying security or (ii)
continue to own an equivalent number of puts on the same underlying security
having the same or greater exercise prices (or, if the exercise prices of the
puts it holds are less than the exercise prices of those it has written, it
will deposit the difference with its custodian in a segregated account).
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.
<PAGE>15
Purchasing Put and Call Options on Securities. The International
Equity Portfolio and the Small Company 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 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 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. In addition to purchasing and writing options
on securities, 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 protecting against anticipated changes in the value of
portfolio securities the Portfolio intends to purchase and increasing return.
<PAGE>16
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. A stock index futures contract is
an agreement between seller and buyer to deliver and take delivery,
respectively, 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. The delivery is a cash settlement of the difference
between the original transaction price and the final price of the index at the
termination of the contract. Stock indexes are capitalization weighted
indexes which reflect the market value of the firms listed on the indexes. 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 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.
The current view of the staff of the Securities and Exchange
Commission (the "SEC") is that a Portfolio's long and short positions in
futures contracts as well as put and call options on futures written by it
must be collateralized with cash or certain liquid assets held in a segregated
account or "covered" in a manner similar to that for covered options on
securities (see "Writing Put and Call Options on Securities" above) and
designed to eliminate any potential leveraging.
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
<PAGE>17
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 either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange
market, through entering into forward contracts to purchase or sell currency,
by purchasing currency options or, as described above, through entering into
foreign currency futures 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 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 the hedged currency,
at the same time they also limit any potential gain that might result should
the value of the currency increase. Each Portfolio will segregate cash, U.S.
government securities or other high-grade liquid debt obligations with its
custodian in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these contracts.
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 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.
<PAGE>18
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.
Dollar Roll Transactions. Each Portfolio also may enter into
"dollar rolls," in which the Portfolio sells fixed income securities for
delivery in the current month and simultaneously contracts to repurchase
similar but not identical (same type, coupon and maturity) securities on a
specified future date. During the roll period, the Portfolio would forgo
principal and interest paid on such securities. The Portfolio would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. At the time that the Portfolio enters into a
dollar roll transaction, it will place in a segregated account maintained with
an approved custodian cash or other liquid high-grade debt obligations having
a value not less than the repurchase price (including accrued interest) and
will subsequently monitor the account to ensure that its value is maintained.
For financial reporting and tax purposes, the Portfolios propose to treat
dollar rolls as two separate transactions, one involving the sale of a
security and a separate transaction involving the purchase of a security. The
Portfolios do not currently intend to enter into dollar rolls that are
accounted for as a financing.
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
<PAGE>19
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
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 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 _________, 1995, Counsellors
managed approximately $____ billion of assets, including approximately $____
billion of assets of [eighteen] 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.
<PAGE>20
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 managers and research analysts of the International Equity
Portfolio. Mr. Horsley is also co-portfolio manager and Mr. McBride is an
associate portfolio manager and research analyst of Warburg, Pincus Japan OTC
Fund and Warburg, Pincus Emerging Markets Fund, and together with Mr. Ehrlich
they are associate portfolio managers and research analysts of Warburg, Pincus
International Equity Fund and the International Equity Portfolio of Warburg,
Pincus Institutional Fund, Inc. 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 , 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 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 Counsellors 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.
<PAGE>21
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 .___% of the Portfolio's average daily net
assets, with a minimum annual fee of $____, and the Small Company Portfolio
pays to PFPC a fee calculated at an annual rate of .___% of the Portfolio's
average daily net assets, with a minimum annual fee of $______, in each case
exclusive of out-of-pocket expenses. PFPC has its principal offices at 400
Bellevue Parkway, Wilmington, Delaware 19809.
Transfer Agent and Custodian. [Transfer agent] acts as shareholder
servicing agent, transfer agent and dividend disbursing agent for the Trust
and [custodian/also] serves as custodian of each Portfolio's assets.
[Transfer agent]'s principal business address is [ ] [and 's
principal business address is ].
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.
Shares of a Portfolio may be sold to or through institutions that
will not be paid by the Portfolio a distribution fee pursuant to Rule 12b-1
under the 1940 Act for services to their clients or customers who are
beneficial owners of the Portfolio's shares. These institutions may be paid a
fee by the Portfolio for transfer agency, administrative or other services
provided to their customers that invest in the Portfolio's shares. These
services include maintaining account records, processing orders to purchase
and redeem shares and responding to certain customer inquiries. Counsellors
and Counsellors Securities may, from time to time, at their own expense, also
provide compensation to these institutions. To the extent they do so, such
compensation will not represent an additional expense to the Portfolio or its
shareholders, since it will be paid from the assets of Counsellors,
Counsellors Service or their affiliates.
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.
<PAGE>22
HOW TO PURCHASE AND REDEEM SHARES IN THE PORTFOLIOS
Individual investors may not purchase or redeem shares of a
Portfolio directly; shares may be purchased or redeemed only through Variable
Contracts offered by separate accounts of Participating Insurance Companies or
through Qualified Plans. Please refer to the prospectus of the sponsoring
Participating Insurance Company separate account or to the Qualified Plan
documents for instructions on purchasing or selling a Variable Contract and on
how to select a Portfolio as an investment option for a Variable Contract or
Qualified Plan.
Purchases. All investments in the Portfolios are credited to a
Participating Insurance Company's separate account or a Qualified Plan
immediately upon acceptance of an investment by a Portfolio. Each
Participating Insurance Company or Qualified Plan receives orders from its
contract owners or plan participants 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 or Qualified Plan on that business day are aggregated, and
the Participating Insurance Company or Qualified Plan places a net purchase or
redemption order for shares of one or both Portfolios the morning of the next
business day. These orders are generally executed at the net asset value
(described below under "Net Asset Value") computed at the close of the
previous business day in order to provide a match between the contract owners'
or plan participants' orders to the Participating Insurance Company or
Qualified Plan and that Participating Insurance Company's or Qualified Plans's
orders to a Portfolio. In some cases, a Participating Insurance Company's or
Qualified Plans's orders for a Portfolio's shares may be executed at the net
asset value next computed after the order is actually transmitted to the
Portfolio.
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 and Qualified Plan participants would
be permitted to continue to authorize investment in such Portfolio and to
reinvest any dividends or capital gains distributions.
Redemptions. Shares of a Portfolio may be redeemed on any business
day. Redemptions are processed at the net asset value next calculated after
receipt and acceptance of the redemption order by the Portfolio. Redemption
proceeds will normally be wired to the Participating Insurance Company or
Qualified Plan the business day following receipt of the redemption order, but
in no event later than seven days after receipt of such order.
<PAGE>23
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 New York Stock Exchange ("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 in November or December of each calendar year. 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 or
Qualified Plan, refer to the sponsoring Participating Insurance Company
separate account prospectus or the Qualified Plan documents.
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
Accounts and Qualified Plans).
Because shares of the Portfolios may be purchased only through
Variable Contracts and Qualified Plans, it is anticipated that any income
dividends or capital gain distributions from a Portfolio are taxable, if at
all, to the Participating Insurance Companies and will be exempt from current
taxation of the Variable Contract owner or Qualified Plan participant if left
to accumulate within the Variable Contract or Qualified Plan. Dividends and
distributions made by the Portfolios to Qualified Plans are not taxable to the
Qualified Plans or their participants. Generally, withdrawals from Variable
Contracts or Qualified Plans 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 for foreign taxes
paid by the Portfolio by reason of the tax-deferred status of Variable
Contracts and Qualified Plans.
<PAGE>24
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. Satisfaction of
the requirements are not prevented by reason of the fact that shares of each
Portfolio may also be held by Qualified Plans. 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 New York Stock Exchange ("NYSE") (currently
4:00 p.m., Eastern time) on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to be closed
on New Year's Day, 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 assets from its liabilities 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
<PAGE>25
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. From time
to time, each Portfolio may advertise its average annual total return over
various periods of time. These total return figures show the average
percentage change in value of an investment in the Portfolio from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Portfolio's shares assuming that
any income dividends and/or capital gain distributions made by the Portfolio
during the period were reinvested in shares of the Portfolio. Total return
will be shown for recent one-, five- and ten-year periods, and may be shown
for other periods as well (such as from commencement of the Portfolio's
operations or on a year-by-year, quarterly or current year-to-date basis).
Total returns quoted for the Portfolios include the effect of
deducting each Portfolio's expenses, but may not include charges and expenses
attributable to any particular Variable Contract or Qualified Plan.
Accordingly, the prospectus of the sponsoring Participating Insurance Company
separate account or the Qualified Plan documents 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
<PAGE>26
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 or Qualified Plan)
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 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 or Qualified Plan) 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 or Qualified Plan) may
also describe the general biography or work experience of the portfolio
managers of the Portfolio and may include quotations attributable to the
portfolio managers describing approaches taken in managing the Portfolio's
investments, research methodology underlying stock selection or the
Portfolio's investment objective. 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 or Qualified Plan) 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 ___, 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
<PAGE>27
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. Qualified Plans may or may not pass through voting rights to their
participants depending on the terms of the particular Qualified Plan. For a
more complete discussion of voting rights, refer to the sponsoring
Participating Insurance Company separate account prospectus or the Qualified
Plan documents.
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, or that it offers its shares to Qualified Plans.
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 or Qualified Plans to withdraw its investments in one or
both Portfolios. As a result, a Portfolio may be forced to sell securities at
disadvantageous prices and orderly portfolio management could be disrupted.
In addition, the Board may refuse to sell shares of a Portfolio to any
Variable Contract or Qualified Plan or may suspend or terminate the offering
of shares of a Portfolio if such action is required by law or regulatory
authority or is in the best interests of the shareholders of the Portfolio.
Shareholder Communications. Variable Contract owners and Qualified
Plan participants of a Portfolio will receive a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Portfolio (and their market values) 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
<PAGE>28
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.
<PAGE>
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Portfolio Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Warburg Pincus Trust
Performance of Investment Funds Managed by Counsellors . . . . . . . . . . . . . . . 6
Risk Factors and Special Considerations . . . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Transactions and Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . 9
Certain Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Management of the Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
How to Purchase and Redeem Shares in
the Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 21
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE>1
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>2
Subject to Completion, dated March 17, 1995
STATEMENT OF ADDITIONAL INFORMATION
, 1995
WARBURG PINCUS TRUST
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 888-6878
Contents
Page
Investment Objectives . . . . . . . . . . . . . . . . . 2
Investment Policies . . . . . . . . . . . . . . . . . . 2
Management of the Trust . . . . . . . . . . . . . . . . 28
Additional Purchase and Redemption Information . . . . 35
Additional Information Concerning Taxes . . . . . . . . 36
Determination of Performance . . . . . . . . . . . . . 39
Auditors and Counsel . . . . . . . . . . . . . . . . . 42
Financial Statement . . . . . . . . . . . . . . . . . . 42
Appendix -- Description of Ratings . . . . . . . . . . A-1
Report of Coopers & Lybrand L.L.P.,
Independent Auditors . . . . . . . . . . . . . . . . A-3
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Warburg Pincus Trust (the "Trust") dated
_________, 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 Portfolio (together the
"Portfolios" and each a "Portfolio"). Shares of a Portfolio are not available
directly to individual investors but may be offered only (i) 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") and (ii) to certain qualified pension and retirement
plans ("Qualified Plans"). 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>3
INVESTMENT OBJECTIVES
The investment objective of the International Equity Portfolio is
long-term capital appreciation. The investment objective of the Small Company
Portfolio is capital appreciation.
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 Portfolio may invest up to 20% of its total assets in the securities
of foreign issuers. Investors should recognize that investing in foreign
companies involves certain risks, including those discussed below, which are
not typically associated with investing in United States issuers. Since the
International Equity Portfolio will, and the Small Company 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
<PAGE>4
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 United States investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the
United States 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
<PAGE>5
governmental laws or restrictions applicable to such investments, diplomatic
developments, political or social unrest and natural disasters.
The information set forth in this section has been extracted from
various governmental publications and other sources. The International Equity
Portfolio makes no representation as to the accuracy of the information, nor
has the Portfolio attempted to verify it. Furthermore, no representation is
made that any correlation exists between Japan or its economy in general and
the performance of the Portfolio.
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.
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 the
recent political upheaval in Japan. Any trade sanctions imposed upon Japan by
the U.S. as a result of the current friction or otherwise could adversely
impact Japan and the Portfolio's investments there.
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years
1989 to 1993.
<PAGE>6
CURRENT ACCOUNT
Trade
<TABLE>
<CAPTION>
Year Exports Imports Trade Balance Current 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
</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>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GDP (yen billions)
(Expenditures) 468,769.0 463,850.0 451,296.9 24,537.2 396,197.0
Change in GDP
from Preceding
Year
Nominal terms 1.1% 2.8% 6.3% 7.2% 6.7%
Real Terms 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
<PAGE>7
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.
<PAGE>8
The following table sets forth the number of Japanese companies
listed on the three major Japanese stock exchanges as of the end of 1993.
<TABLE>
NUMBER OF LISTED DOMESTIC COMPANIES
Tokyo Osaka Nagoya
----------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1st 2nd 1st 2nd 1st 2nd
Sec. Sec. Sec. Sec. Sec. Sec.
1,234 433 857 321 432 127
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
The following table sets forth the trading volume and value of
Japanese stocks on the eight Japanese stock exchanges for the years 1989 to
1994.
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
<TABLE>
<CAPTION>
Year Volume Value
<S> <C> <C>
1989 . . . . . . . . . . . . . . . . . . . . 256,296 386,395
1990 . . . . . . . . . . . . . . . . . . . . 145,837 231,837
1991 . . . . . . . . . . . . . . . . . . . . 107,844 134,160
1992 . . . . . . . . . . . . . . . . . . . . 82,563 80,456
1993 . . . . . . . . . . . . . . . . . . . . 101,172 106,123
1994 . . . . . . . . . . . . . . . . . . . . 105,936 114,622
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994; Tokyo Stock Exchange New York
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
each year from 1989 to 1994.
<PAGE>9
TOPIX
(January 4, 1968=100)
<TABLE>
<CAPTION>
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 1994; Tokyo Stock Exchange
Currency Transactions. The value in U.S. dollars of the assets of a
Portfolio that are invested in foreign securities may be affected favorably or
unfavorably by changes in exchange control regulations, and the Portfolio may
incur costs in connection with conversion between various currencies. Each
Portfolio, therefore, may engage in currency exchange transactions to protect
against uncertainty in the level of future exchange rates. 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 an
investor's total return. 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. In light of the requirements that the
Portfolio must meet to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), for a given year, each
Portfolio currently intends to limit its gross income from currency
transactions to less than 10% of its gross income for that taxable year.
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 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 the 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 dealings in forward
currency exchange for hedging purposes will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is
the purchase or sale of forward currency with respect to specific receivables
or payables of the Portfolio generally accruing in connection with the
purchase or sale of its portfolio securities. Position hedging is the sale of
forward currency with respect to portfolio security positions denominated or
quoted in the currency. The Portfolio may not position hedge with respect to
a particular currency to
<PAGE>10
an extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in or
currently convertible into that particular currency. If the Portfolio enters
into a forward currency transaction, cash or liquid high-grade debt securities
will be placed in a segregated account in an amount equal to the value of the
Portfolio's total assets committed to the consummation of the forward
contract. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
the value of the account will equal the amount of the Portfolio's commitment
with respect to the contract. Hedging transactions may be made from any
foreign currency into U.S. dollars or into other appropriate currencies.
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 offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Portfolio will obtain, on
the same maturity date, the same amount of the currency which it is obligated
to deliver. 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. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a currency and the date it enters into an offsetting
contract for the purchase of the currency, the Portfolio will realize a gain
to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices
increase, the Portfolio will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
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 involved. The use of forward currency contracts 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 the hedged currency, at the same time, they limit any potential gain
that might result should the value of the currency increase.
Foreign Currency Futures. As described below under "Futures
Activities," a Portfolio may enter into foreign currency futures contracts and
related options.
While the values of 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
<PAGE>11
rates, a currency hedge may not be entirely successful to mitigate changes in
the value of the Portfolio's investments denominated in that currency over
time.
Special Situation Companies. The Small Company 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 appreciation. 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.
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, 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 (a) do not exceed 3% of the total outstanding voting stock of
such company, (b) do not exceed 5% of the value of the Portfolio's total
assets and (c) 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.
<PAGE>12
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: (a) the Portfolio must receive
at least 100% cash collateral or equivalent securities of the type discussed
in the preceding paragraph from the borrower; (b) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (c) the Portfolio must be able to terminate the loan
at any time; (d) 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; (e) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (f) 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.
<PAGE>13
Futures Activities. A Portfolio may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options. Such contracts will be entered into on U.S. or foreign
exchanges or boards of trade approved by the Commodity Futures Trading
Commission (the "CFTC"). 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 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. The Portfolio's long and short positions in futures contracts or
options thereon written by it must be collateralized with cash or certain
liquid high-grade debt securities held in a segregated account or otherwise
"covered" in accordance with SEC interpretations in order to eliminate any
potential for leveraging. 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. 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. A stock index futures contract is an agreement
between seller and buyer to deliver and take delivery respectively, of a
commodity which is represented by a multiplier times a stock price index at a
future specified date. The delivery is a cash settlement based on the
difference between the original transaction price and the final price of the
index at the termination of the contract. Stock indexes are capitalization
weighted indexes which reflect the market value of the firms listed on the
indexes. 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. In investing in such transactions, the
Portfolio would incur brokerage costs and would be required to make and
maintain certain "margin" deposits.
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. Of course, 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. Upon entering into a futures
contract, the Portfolio will be required to deposit in a segregated account
with its custodian an amount of cash or cash equivalents, such as U.S.
government
<PAGE>14
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 stock index, interest rate or currencies
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
interest rates, stock indexes or currency values, as the case may be.
Options on Futures Contracts. Each Portfolio may purchase and write put
and call options on interest rate, foreign currency and stock index futures
contracts that are traded on
<PAGE>15
an exchange designated by the CFTC or consistent with CFTC regulations on
foreign exchanges, 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 an interest rate, currency 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
an interest rate, currency 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.
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 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
<PAGE>16
case the Portfolio may be required subsequently to place additional assets in
the segregated account in order to ensure that the value of the account
remains equal to the amount of the Portfolio's commitment. It may be expected
that the Portfolio's net assets will fluctuate to a greater degree when it
sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. When the Portfolio engages in when-issued or delayed-
delivery transactions, it relies on the other party to consummate the trade.
Failure of the seller to do so may result in the Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
Options on Securities. A Portfolio may purchase and write put and call
options on stocks and debt securities that are traded on foreign as well as
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 exchange-traded put and call
options on stocks and debt securities and 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.
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 at any time
during the option period. 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 at any time during the option
period.
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 (a) 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,
(b) 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 (c) out-of-the-money call options when Counsellors
<PAGE>17
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.
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. To secure its obligation to deliver the underlying security
when it writes a call option, the Portfolio will be required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the Options Clearing Corporation (the "Clearing Corporation") and of the
securities exchange on which the option is written.
Prior to their expirations, put and call options may be sold in closing
sale 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. Each
Portfolio expects to purchase and write options on securities only on U.S.
securities exchanges 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.
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
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
<PAGE>18
timely execution of customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions in particular options.
Moreover, a Portfolio's ability to terminate options positions established in
the over-the-counter market may be more limited than for exchange-traded
options and may also involve the risk that securities dealers participating in
over-the-counter transactions would fail to meet their obligations to the
Portfolio. The Portfolios, however, intend to purchase over-the-counter
options only from dealers whose debt securities, as determined by Counsellors,
are considered to be investment grade. If, as a covered call option writer, a
Portfolio is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. In either case,
the Portfolio would continue to be at market risk on the security and could
face higher transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or
written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held, written or exercised
in one or more accounts or through one or more brokers). It is possible that
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.
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.
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.
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
<PAGE>19
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 options or dealer options
or sell covered OTC options. Unlike exchange-listed options where an
intermediary or clearing corporation, such as the Clearing Corporation,
assures that all transactions in such options are properly executed, the
responsibility for performing all transactions with respect to OTC options
rests solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying stock to
the clearing organization if the option is exercised, and the clearing
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 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 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. A stock index measures the movement of a certain
group of stocks by assigning relative values
<PAGE>20
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 ("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 (a)
the expiration cycles of stock index options are monthly, while those of stock
options are currently quarterly, and (b) 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 (i) 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 (ii) 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.
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 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.
There can be no assurance that the use of these portfolio strategies
will be successful. When a Portfolio writes an option on a stock index, the
Portfolio will establish a segregated account with its custodian containing
cash, U.S. government securities and other liquid high-grade debt obligations
in an amount equal to the market value of the option and will maintain the
account while the option is open. 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 securities
underlying the calls on securities written by the Portfolio, may not exceed
25% of the Portfolio's net assets.
<PAGE>21
American, European and Continental Depositary Receipts. The assets of a
Portfolio may be invested in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts
("EDRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"),
are receipts issued in Europe typically by non-U.S. banks and trust companies
that evidence ownership of either foreign or domestic securities. Generally,
ADRs in registered form are designed for use in U.S. securities markets and
EDRs and CDRs in bearer form are designed for use in European securities
markets.
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,
<PAGE>22
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 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 total 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.
<PAGE>23
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.
The SEC has adopted Rule 144A which 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 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: (a)
the unregistered nature of the security; (b) the frequency of trades and
quotes for the security; (c) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (d) dealer
undertakings to make a market in the security and (e) 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.
Counsellors may borrow 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.
Non-Diversified Status (Small Company Portfolio). The Small Company
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 (a) not more than 25% of the market value of its
total assets will be invested in the securities of a single issuer, and (b)
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.
<PAGE>24
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 (a) 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
(b) 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.
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
<PAGE>25
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.
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.
<PAGE>26
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, 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
<PAGE>27
determines that such security's value determined by the methodology set forth
above does not reflect its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange (the "NYSE") is open for
trading). In addition, securities trading in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and days on which 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 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.
<PAGE>28
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 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.
<PAGE>29
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 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 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.
<PAGE>30
[Richard N. Cooper* (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 (67) . . . . . . 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;
* Indicates a Trustee who is an "interested person" of the Trust as defined
in the 1940 Act.
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.
<PAGE>31
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).]
[Richard H. King (50) . . . . . President and Portfolio Manager
466 Lexington Avenue of the International Equity Portfolio
New York, New York 10017-3147 Portfolio Manager or Co-Portfolio
Manager of other Warburg Pincus Funds;
Managing Director of EMW since 1989;
Associated with EMW since 1989; President of 4
other investment companies advised by
Counsellors.]
Arnold M. Reichman (46) . . . . Trustee, President and Chief Executive Officer
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 or Vice
President and Secretary 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 (40) . . . . . Vice President, Treasurer, Chief Accounting
466 Lexington Avenue Officer and Chief Financial Officer
New York, New York 10017-3147 Managing Director, Controller and Assistant
Secretary of EMW; Associated with EMW since
1984; Treasurer of Counsellors
<PAGE>32
Securities; Vice President, Treasurer
and Chief Accounting Officer or
Treasurer and Chief Financial Officer
of 14 other investment companies advised
by Counsellors.
[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.
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.]
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 $___, and $___ 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.
<PAGE>33
Trustees' Compensation
(estimated for the fiscal year ended December 31, 1995)*
<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 $ $
Donald J. Donahue $ $
Jack W. Fritz $ $
Thomas A. Melfe $ $
Alexander B. Trowbridge $ $
</TABLE>
__________________________
* 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.
Richard H. King, [President of the Trust and] 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.
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.
<PAGE>34
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, 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
Portfolio, earned a B.A. degree from Boston University in Massachusetts and
was a participant in the Chartered Financial Analyst Program. 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
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 "Advisory Agreements," the
"Counsellors Service Co-Administration Agreement" and the "PFPC Co-
Administration Agreement," respectively). The services provided by, and the
<PAGE>35
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.
The advisory fee payable by each Portfolio is calculated at an
annual rate based on a percentage of the Portfolio's average daily net assets.
See the Prospectus, "Management of the Trust."
Organization of the Trust
The Trust has been 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 (a) 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 (b) 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
<PAGE>36
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
[Custodian] is custodian of each Portfolio's assets pursuant to a
custodian agreement (the "Custodian Agreement"). Under the Custodian
Agreement, [custodian] (a) maintains a separate account or accounts in the
name of each Portfolio, (b) holds and transfers portfolio securities on
account of each Portfolio, (c) makes receipts and disbursements of money on
behalf of each Portfolio, (d) collects and receives all income and other
payments and distributions on account of each Portfolio's portfolio securities
and (e) makes periodic reports to the Board concerning the Trust's operations.
[Custodian] is authorized to select one or more foreign or domestic banks or
trust companies to serve as sub-custodian on behalf of the Trust, provided
that [custodian] remains responsible for the performance of all its duties
under the Custodian Agreement and holds the Trust harmless from the acts and
omissions of any sub-custodian, in accordance with the Custodian Agreement.
[Transfer agent] has agreed to serve as the shareholder servicing,
transfer and dividend disbursing agent pursuant to a Transfer Agency and
Service Agreement, under which [transfer agent] (a) issues and redeems shares
of each Portfolio, (b) addresses and mails all communications by the Trust to
record owners of Portfolios' shares, including reports to shareholders,
dividend and distribution notices and proxy material for its meetings of
shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Board concerning the
transfer agent's operations with respect to the Trust. The principal business
address of [custodian, transfer agent] is [ ].
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 or through Qualified Plans. The offering
price of each Portfolio's shares is equal to its per share net asset value.
Additional information on how to purchase and redeem a Portfolio's shares and
how such shares are priced is included in the Prospectus under "Net Asset
Value."
Under the 1940 Act, a Portfolio may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which
the NYSE is closed, other than customary weekend and holiday closings, or
during which trading on the NYSE is restricted, or during which (as determined
by the SEC) an emergency exists as a result of which disposal or fair
valuation of portfolio securities is not reasonably practicable, or for such
other periods as the SEC may permit.
<PAGE>37
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 or the Qualified
Plan documents 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: (1) 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); (2) 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; (3) 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 (4) diversify its
holdings so that, at the end of each fiscal quarter of the Portfolio (a) at
least 50% of the market value of the Portfolio's assets is represented by
cash, U.S. government securities and other securities, with those other
securities limited, with respect to any one issuer, to an amount no greater in
value than 5% of the Portfolio's total assets and to not more than 10% of the
outstanding voting securities of the issuer, and (b) not more than 25% of the
market value of the Portfolio's assets is invested in the securities of any
one issuer (other than U.S. government securities or securities of other
regulated investment companies) or of two or more issuers that the Portfolio
controls and that are determined to be in the same or similar trades or
businesses or related trades or businesses. In meeting these requirements, a
Portfolio may be restricted in the selling of securities held by the Portfolio
for less than three months and in the utilization of certain of the investment
techniques described above and in the Trust's Prospectus. 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
<PAGE>38
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) 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 (1) will
require a Portfolio to mark-to-market certain types of its positions (i.e.,
treat them as if they were closed out) and (2) may cause the
<PAGE>39
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 can
only be purchased through Variable Contracts or Qualified Plans, it is
anticipated that dividends and distributions will be exempt from current
taxation if left to accumulate within the Variable Contracts or Qualified
Plans.
Investment in Passive Foreign Investment Companies
If a Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the
income may have to be distributed by the Portfolio to its shareholders, the
Variable Contracts and Qualified Plans. In addition, gain on the disposition
of shares in a PFIC generally is treated as ordinary income even though the
shares are capital assets in the hands of the Portfolio. Certain interest
charges may be imposed on the Portfolio with respect to any taxes arising from
excess distributions or gains on the disposition of shares in a PFIC.
A Portfolio may be eligible to elect to include in its gross income
its share of earnings of a PFIC on a current basis. Generally, the election
would eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Portfolio compared to a fund that
did not make the election. In addition, information required to make such an
election may not be available to the Portfolio.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice
indicating that final regulations will provide that regulated investment
companies may elect the mark-to-market election for tax years ending after
March 31, 1992 and before April 1, 1993. Whether and to what extent the
notice will apply to taxable years of a Portfolio is unclear. If the
Portfolio is not able to make the foregoing election, it may be able to avoid
the interest charge (but not the ordinary income treatment) on disposition of
the stock by electing, under proposed regulations, each
<PAGE>40
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. A
Portfolio's average annualized total return is calculated by finding the
average annual compounded rates of return for the one-, five- and ten- (or
such shorter period as the Portfolio has been in existence) year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula: P (1 + T)n = ERV. For purposes of this
formula, "P" is a hypothetical investment of $1,000; "T" is average annual
total return; "n" is number of years; and "ERV" is the ending redeemable value
of a hypothetical $1,000 payment made at the beginning of the one-, five- or
ten-year periods (or fractional portion thereof). Total return or "T" is
computed by finding the average annual change in the value of an initial
$1,000 investment over the period and assumes that all dividends and
distributions are reinvested during the period.
A Portfolio may advertise, from time to time, comparisons of its
performance with that of one or more other mutual funds with similar
investment objectives. A Portfolio may advertise 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 or Qualified Plan, which
would reduce the returns described in this section. See the Prospectus,
"Performance."
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
<PAGE>41
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.
<PAGE>42
MS-EAFE Index vs. S&P 500 Index
1972 - 1994
Annual Total Return
Year MS-EAFE Index S&P 500 Index
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
_________________
* 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-
<PAGE>43
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"), independent
auditors, 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.
<PAGE>44
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>45
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.
<PAGE>1
PART C
OTHER INFORMATION
WARBURG, PINCUS TRUST
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:
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Declaration of Trust
2 By-Laws
3 Not applicable
4* Specimen Forms of Share Certificates
5* Investment Advisory Agreements
6* Distribution Agreement
7 Not applicable
8* Custodian Agreement
9* Transfer Agency Agreement
10(a)* Opinion and Consent of Willkie Farr & Gallagher, counsel
to the Trust
10(b)* Opinion of Sullivan & Worcester, Massachusetts
counsel to the Trust
11* Consent of Independent Accountants
12 Not applicable
13* Purchase Agreement
14 Not applicable
<PAGE>2
Exhibit No. Description of Exhibit
- ----------- ----------------------
15 Not applicable
16 Not applicable
__________________
* To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control
with Registrant
All of the outstanding shares of beneficial interest of Registrant
on the date Registrant's Registration Statement becomes effective will be
owned by Warburg, Pincus Counsellors, Inc. ("Counsellors"), a corporation
formed under New York law.
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 Registrant's
Registration Statement becomes effective.
Item 27. Indemnification
Registrant, officers and directors or trustees of Counsellors, of
Counsellors Securities Inc. ("Counsellors Securities") and of Registrant are
covered by insurance policies indemnifying them for liability incurred in
connection with the operation of Registrant. These policies provide insurance
for any "Wrongful Act" of an officer, director or trustee. Wrongful Act is
defined as breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer, Director or
Trustee in connection with the operation of Registrant. Insurance coverage
does not extend to (a) conflicts of interest or gaining in fact any profit or
advantage to which one is not legally entitled, (b) intentional non-compliance
with any statute or regulation or (c) commission of dishonest, fraudulent acts
or omissions. Insofar as it relates to Registrant, the coverage is limited in
amount and, in certain circumstances, is subject to a deductible.
Under Section 8.1 of the Declaration of Trust (the "Declaration"),
the Trustees and officers of Registrant, in incurring any debts, liabilities
or obligations, or in taking or omitting any other actions for or in
connection with Registrant,
<PAGE>3
are or shall be deemed to be acting as Trustees or officers of Registrant and
not in their own capacities. No Trustee, officer, employee or agent of the
Trust shall be subject to any personal liability whatsoever in tort, contract,
or otherwise, to any other person or persons in connection with the assets or
affairs of Registrant save only that arising from his own willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office or the discharge of his functions. Registrant shall
be solely liable for any and all debts, claims, demands, judgments, decrees,
liabilities or obligations of any and every kind, against or with respect to
Registrant in tort, contract or otherwise in connection with the assets or the
affairs of Registrant and all persons dealing with Registrant shall be deemed
to have agreed that resort shall be had solely to the Trust Property (as
defined in the Declaration) of Registrant for the payment or performance
thereof.
Section 8.2 of the Declaration further limits the liability of the
Trustees by providing that a Trustee shall not be liable for errors of
judgment or mistakes of fact or law. Furthermore, (i) the Trustees shall not
be responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, consultant, Investment Adviser, Administrator,
Distributor, Custodian or Transfer Agent (as such terms are defined in the
Declaration) of Registrant, nor shall any Trustee be responsible for the act
or omission of any other Trustee; (ii) the Trustees may take advice of counsel
or other experts with respect to the meaning and operation of the Declaration
and their duties as Trustees, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice;
and (iii) in discharging their duties, the Trustees, when acting in good
faith, shall be entitled to rely upon the books of account of Registrant and
upon written reports made to the Trustees by any officer appointed by them,
any independent public accountant, and (with respect to the subject matter of
the contract involved) any officer, partner or responsible employee of a
contracting party appointed by the Trustees pursuant to Section 3 of the
Declaration. The Trustees are not required to give any bond or surety or any
other security for the performance of their duties.
Under Section 8.4 of the Declaration any past or present Trustee or
officer of Registrant (including persons who serve at Registrant's request as
directors, officers or trustees of another organization in which Registrant
has any interest as a shareholder, creditor or otherwise (hereinafter referred
to as a "Covered Person")) is indemnified to the fullest extent permitted by
law against liability and all expenses reasonably incurred by him in
connection with any action, suit or proceeding to which he may be a party or
otherwise involved by reason of his being or
<PAGE>9
having been a Covered Person. This provision does not authorize
indemnification when it is determined, in the manner specified in the
Declaration that such Covered Person has not acted in good faith in the
reasonable belief that his actions were in or not opposed to the best
interests of Registrant. Moreover, this provision does not authorize
indemnification when it is determined, in the manner specified in the
Declaration, that such Covered Person would otherwise be liable to Registrant
or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. Expenses may be paid by
Registrant in advance of the final disposition of any action, suit or
proceeding upon receipt of an undertaking by such Covered Person to repay such
expenses to Registrant in the event that it is ultimately determined that
indemnification of such expenses is not authorized under the Declaration and
either (i) the Covered Person provides security for such undertaking, (ii)
Registrant is insured against losses from such advances or (iii) the
disinterested Trustees or independent legal counsel determines, in the manner
specified in the Declaration, that there is reason to believe the Covered
Person will be found to be entitled to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to Trustees,
officers and controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the opinion of
the Securities and Exchange Commission ("SEC") such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
Item 28. Business and Other Connections of Investment
Adviser
Counsellors, a wholly owned subsidiary of Warburg, Pincus
Counsellors G.P., acts as investment adviser to Registrant. Counsellors
renders investment advice to a wide variety of individual and institutional
clients. The list
<PAGE>4
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 Cash
Reserve Fund, Warburg, Pincus New York Tax Exempt Fund, Warburg, Pincus Fixed
Income Fund, Warburg, Pincus Capital Appreciation Fund, Warburg, Pincus New
York Intermediate Municipal Fund, Warburg, Pincus Emerging Growth Fund,
Warburg, Pincus Global Fixed Income Fund, Warburg, Pincus International Equity
Fund, Warburg, Pincus Intermediate Maturity Government Fund, Warburg, Pincus
Institutional Fund, Inc., Warburg, Pincus Balanced Fund, Warburg, Pincus
Growth & Income Fund, Warburg, Pincus Japan OTC Fund, Warburg, Pincus Emerging
Markets Fund and Warburg, Pincus Short-Term Tax-Advantaged Bond Fund.
(b) The following information is provided with respect to each
director and executive officer of Counsellors Securities as of March 1, 1995.
The principal business address of each of the following individuals is 466
Lexington Avenue, New York, New York 10017-3147.
<PAGE>5
<TABLE>
<CAPTION>
Positions and Offices
with Counsellors Positions and Offices with
Name Securities Registrant
---- --------------------- --------------------------
<S> <C> <C>
Reuben S. Leibowitz President, Chief Financial Officer and None
Director
Arnold M. Reichman Senior Vice President, Secretary and Chief President, Chief Executive Officer
Operating Officer and Trustee
Stephen Distler Treasurer Vice President, Treasurer, Chief
Financial Officer and Chief Account-
ing Officer
Dale C. Christensen Vice President None
Roger Reinlieb Vice President None
Laxmi C. Bhandari Vice President None
Eugene L. Podsiadlo Senior Vice President None
Eugene P. Grace Vice President and Chief None
Compliance Officer
Lionel I. Pincus Director None
John L. Furth Director None
John L. Vogelstein Director None
</TABLE>
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)
<PAGE>6
(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) [ ]
[ ]
[ ]
(records relating to its functions as transfer agent and
custodian)
Item 31. Management Services
Not applicable.
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 Registrant's Registration Statement
under the 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 Investment Company Act of 1940, as amended,
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.
<PAGE>7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, Registrant has duly caused
this 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 16th day of March, 1995.
WARBURG, PINCUS TRUST
By: /s/ Arnold M. Reichman
Arnold M. Reichman
President
ATTEST:
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Arnold M. Reichman President, Chief Executive March 16, 1995
Arnold M. Reichman Officer and Trustee
/s/ Steven Distler Vice President, Treasurer, March 16, 1995
Steven Distler Chief Accounting Officer
and Chief Financial Officer
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit No. Description of Exhibit Numbering System
- ----------- ---------------------- ----------------
1 Declaration of Trust
2 By-Laws
3 Not applicable
4* Specimen Forms of Share
Certificates
5* Investment Advisory
Agreements
6* Distribution Agreement
7 Not applicable
8* Custodian Agreement
9* Transfer Agency
Agreement
10(a)* Opinion and Consent of
Willkie Farr & Gallagher,
counsel to the Trust
10(b)* Opinion of
Sullivan & Worcester,
Massachusetts counsel to
the Trust
11* Consent of Independent
Accountants
12 Not applicable
13* Purchase Agreement
14* Not applicable
15 Not applicable
16 Not applicable
__________________
* To be filed by amendment.
<PAGE>
WARBURG, PINCUS TRUST
AGREEMENT AND DECLARATION OF TRUST
Dated: March 15, 1995
Principal Office:
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
<PAGE>
Massachusetts Office and Name and Address of
Resident Agent:
Thomas E. Weesner, Esq.
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Location . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Nature of Trust . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Real Property to be Converted into Personal Property . . . . . 5
ARTICLE 2 PURPOSE OF THE TRUST . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 POWERS OF THE TRUSTEES . . . . . . . . . . . . . . . . . . . . 6
3.1 Powers in General . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Investments . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Disposition of Assets . . . . . . . . . . . . . . . . . . 7
(c) Ownership Powers . . . . . . . . . . . . . . . . . . . . . 7
(d) Form of Holding . . . . . . . . . . . . . . . . . . . . . 7
(e) Reorganization, etc. . . . . . . . . . . . . . . . . . . . 7
(f) Voting Trusts, etc. . . . . . . . . . . . . . . . . . . . 7
(g) Contracts, etc. . . . . . . . . . . . . . . . . . . . . . 7
(h) Guaranties, etc. . . . . . . . . . . . . . . . . . . . . . 8
(i) Partnerships, etc. . . . . . . . . . . . . . . . . . . . . 8
(j) Insurance . . . . . . . . . . . . . . . . . . . . . . . . 8
(k) Pensions, etc. . . . . . . . . . . . . . . . . . . . . . . 8
(l) Power of Collection and Litigation . . . . . . . . . . . . 8
(m) Issuance and Repurchase of Shares . . . . . . . . . . . . 8
(n) Offices . . . . . . . . . . . . . . . . . . . . . . . . . 8
(o) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 9
(p) Agents, etc. . . . . . . . . . . . . . . . . . . . . . . . 9
(q) Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 9
(r) Valuation . . . . . . . . . . . . . . . . . . . . . . . . 9
(s) Indemnification . . . . . . . . . . . . . . . . . . . . . 9
(t) General . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Borrowings; Financings; Issuance of Securities . . . . . . . . 9
3.3 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5 Further Powers; Limitations . . . . . . . . . . . . . . . . . . 10
ARTICLE 4 TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . 10
4.1 Number, Designation, Election, Term, etc. . . . . . . . . . . . 10
<PAGE>
(a) Initial Trustee . . . . . . . . . . . . . . . . . . . . . 10
(b) Number . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Election and Term . . . . . . . . . . . . . . . . . . . . 11
(d) Resignation and Retirement . . . . . . . . . . . . . . . . 11
(e) Removal . . . . . . . . . . . . . . . . . . . . . . . . . 11
(f) Vacancies . . . . . . . . . . . . . . . . . . . . . . . . 11
(g) Acceptance of Trusts . . . . . . . . . . . . . . . . . . . 11
(h) Effect of Death, Resignation, etc. . . . . . . . . . . . . 12
(i) Conveyance . . . . . . . . . . . . . . . . . . . . . . . . 12
(j) No Accounting . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Trustees' Meetings; Participation by Telephone, etc. . . . . . 12
4.3 Committees; Delegation . . . . . . . . . . . . . . . . . . . . 12
4.4 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Compensation of Trustees and Officers . . . . . . . . . . . . . 13
4.6 Ownership of Shares and Securities of the Trust . . . . . . . . 13
4.7 Right of Trustees and Officers to Own Property or to Engage in
Business; Authority of Trustees to Permit Others to Do
Likewise . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Reliance on Experts . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Surety Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.10 Apparent Authority of Trustees and Officers . . . . . . . . . . 14
4.11 Other Relationships Not Prohibited . . . . . . . . . . . . . . 14
4.12 Payment of Trust Expenses . . . . . . . . . . . . . . . . . . . 14
4.13 Ownership of the Trust Property . . . . . . . . . . . . . . . . 15
ARTICLE 5 DELEGATION OF MANAGERIAL RESPONSIBILITIES . . . . . . . . . . . 15
5.1 Appointment; Action by Less than All Trustees . . . . . . . . . 15
5.2 Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Advisory . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Administration . . . . . . . . . . . . . . . . . . . . . . 16
(c) Distribution . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Custodian . . . . . . . . . . . . . . . . . . . . . . . . 16
(e) Transfer and Dividend Disbursing Agency . . . . . . . . . 16
(f) Shareholder Servicing . . . . . . . . . . . . . . . . . . 17
(g) Accounting . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 6 PORTFOLIOS AND SHARES . . . . . . . . . . . . . . . . . . . . . 17
6.1 Description of Portfolios and Shares . . . . . . . . . . . . . 17
(a) Shares; Portfolios; Series of Shares . . . . . . . . . . . 17
(b) Establishment, etc. of Portfolios; Authorization of
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Character of Separate Portfolios and Shares Thereof . . . 18
(d) Consideration for Shares . . . . . . . . . . . . . . . . . 18
6.2 Establishment and Designation of Certain Portfolios; General
Provisions for All Portfolios . . . . . . . . . . . . . . . . . 18
(a) Assets Belonging to Portfolios . . . . . . . . . . . . . . 18
(b) Liabilities of Portfolios . . . . . . . . . . . . . . . . 19
(c) Dividends . . . . . . . . . . . . . . . . . . . . . . . . 19
(d) Liquidation . . . . . . . . . . . . . . . . . . . . . . . 19
(e) Voting . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
(f) Redemption by Shareholder . . . . . . . . . . . . . . . . 20
(g) Redemption at the Option of the Trust . . . . . . . . . . 20
(h) Net Asset Value . . . . . . . . . . . . . . . . . . . . . 20
(i) Transfer . . . . . . . . . . . . . . . . . . . . . . . . . 21
(j) Equality . . . . . . . . . . . . . . . . . . . . . . . . . 21
(k) Rights of Fractional Shares . . . . . . . . . . . . . . . 21
(l) Conversion Rights . . . . . . . . . . . . . . . . . . . . 21
6.3 Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Investments in the Trust . . . . . . . . . . . . . . . . . . . 21
6.5 No Preemptive Rights . . . . . . . . . . . . . . . . . . . . . 22
6.6 Status of Shares . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 7 SHAREHOLDERS' VOTING POWERS AND MEETINGS . . . . . . . . . . . 22
7.1 Voting Powers . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Number of Votes and Manner of Voting; Proxies . . . . . . . . . 22
7.3 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.4 Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5 Quorum and Required Vote . . . . . . . . . . . . . . . . . . . 23
7.6 Action by Written Consent . . . . . . . . . . . . . . . . . . . 23
7.7 Inspection of Records . . . . . . . . . . . . . . . . . . . . . 24
7.8 Additional Provisions . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION . . . . . . . . . . . 24
8.1 Trustees, Shareholders, etc. Not Personally Liable; Notice . . 24
8.2 Trustees' Good Faith Action; Expert Advice; No Bond or Surety . 24
8.3 Indemnification of Shareholders . . . . . . . . . . . . . . . . 25
8.4 Indemnification of Trustees, Officers, etc. . . . . . . . . . . 25
8.5 Compromise Payment . . . . . . . . . . . . . . . . . . . . . . 26
8.6 Indemnification Not Exclusive, etc. . . . . . . . . . . . . . . 26
8.7 Liability of Third Persons Dealing with Trustees . . . . . . . 26
ARTICLE 9 DURATION; REORGANIZATION; AMENDMENTS . . . . . . . . . . . . . 26
9.1 Duration and Termination of Trust . . . . . . . . . . . . . . . 26
9.2 Reorganization . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3 Amendments; etc . . . . . . . . . . . . . . . . . . . . . . . . 27
9.4 Filing of Copies of Declaration and Amendments . . . . . . . . 27
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 28
10.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.3 Reliance by Third Parties . . . . . . . . . . . . . . . . . . . 28
10.4 References; Headings . . . . . . . . . . . . . . . . . . . . . 28
10.5 Use of the Name "Warburg, Pincus" . . . . . . . . . . . . . . . 28
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
<PAGE>1
AGREEMENT AND DECLARATION OF TRUST
OF
WARBURG, PINCUS TRUST
This AGREEMENT AND DECLARATION OF TRUST, made at Boston, Massachusetts
this 15th day of March, 1995 by and between the Settlor and the Trustee whose
signature is set forth below (the "Initial Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, Bryan G. Tyson, an individual residing in Natick, Massachusetts
(the "Settlor"), proposes to deliver to the Initial Trustee the sum of one
hundred dollars ($100.00) lawful money of the United States of America in
trust hereunder and to authorize the Initial Trustee and all other Persons
acting as Trustees hereunder to employ such funds, and any other funds coming
into their hands or the hands of their successor or successors as such
Trustees, to carry on the business of an investment company, and as such of
buying, selling, investing in or otherwise dealing in and with stocks, bonds,
debentures, warrants, options, futures contracts and other securities and
interests therein, or calls or puts with respect to any of the same, or such
other and further investment media and other property as the Trustees may deem
advisable, which are not prohibited by law or the terms of this Declaration;
and
WHEREAS, the Initial Trustee is willing to accept such sum, together with
any and all additions thereto and the income or increments thereof, upon the
terms, conditions and trusts hereinafter set forth; and
WHEREAS, it is proposed that the assets held by the Trustees be divided
into separate portfolios, each with its own separate investment assets,
investment objectives, policies and purposes, and that the beneficial interest
in each such portfolio shall be divided into transferable Shares of Beneficial
Interest, a separate Series of Shares for each portfolio, all in accordance
with the provisions hereinafter set forth; and
WHEREAS, it is desired that the trust established hereby (the "Trust") be
managed and operated as a trust with transferable shares under the laws of
Massachusetts, of the type commonly known as and referred to as a
Massachusetts business trust, in accordance with the provisions hereinafter
set forth,
<PAGE>2
NOW, THEREFORE, the Initial Trustee, for himself and his successors as
Trustees, hereby declares, and agrees with the Settlor, for himself and for
all Persons who shall hereafter become holders of Shares of Beneficial
Interest of the Trust, of any Series, that the Trustees will hold the sum
delivered to them upon the execution hereof, and all other and further cash,
securities and other property of every type and description which they may in
any way acquire in their capacity as such Trustees, together with the income
therefrom and the proceeds thereof, IN TRUST NEVERTHELESS, to manage and
dispose of the same for the benefit of the holders from time to time of the
Shares of Beneficial Interest of the several Series being issued and to be
issued hereunder and in the manner and subject to the provisions hereof, to
wit:
ARTICLE 1
THE TRUST
SECTION 1.1 Name. The name of the Trust shall be
"WARBURG, PINCUS TRUST",
and so far as may be practicable the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name, which
name (and the word "Trust" wherever used in this Agreement and Declaration of
Trust, except where the context otherwise requires) shall refer to the
Trustees in their capacity as Trustees, and not individually or personally,
and shall not refer to the officers, agents or employees of the Trust or of
such Trustees, or to the holders of the Shares of Beneficial Interest of the
Trust, of any Series. If the Trustees determine that the use of such name is
not practicable, legal or convenient at any time or in any jurisdiction, or if
the Trust is required to discontinue the use of such name pursuant to Section
10.5 hereof, then subject to that Section, the Trustees may use such other
designation, or they may adopt such other name for the Trust as they deem
proper, and the Trust may hold property and conduct its activities under such
designation or name.
SECTION 1.2 Location. The Trust shall have an office in Boston,
Massachusetts, unless changed by the Trustees to another location in
Massachusetts or elsewhere, but such office need not be the sole or principal
office of the Trust. The Trust may have such other offices or places of
business as the Trustees may from time to time determine to be necessary or
expedient.
SECTION 1.3 Nature of Trust. The Trust shall be a trust with
transferable shares under the laws of The Commonwealth of Massachusetts, of
the type referred to in Section 1 of Chapter 182 of the Massachusetts General
Laws and commonly termed a Massachusetts business trust. The Trust is not
intended to be, shall not be deemed to be, and shall not be treated as, a
general partnership, limited partnership, joint venture, corporation or joint
stock company. The Shareholders shall be beneficiaries and their relationship
to the Trustees shall be solely in that capacity in accordance with the rights
conferred upon them hereunder.
SECTION 1.4 Definitions. As used in this Agreement and Declaration of
Trust, the following terms shall have the meanings set forth below unless the
context thereof otherwise requires:
"Accounting Agent" shall have the meaning designated in Section 5.2(g)
hereof.
<PAGE>3
"Administrator" shall have the meaning designated in Section 5.2(b)
hereof.
"Affiliated Person" shall have the meaning assigned to such term in the
1940 Act.
"Bylaws" shall mean the Bylaws of the Trust, as amended from time to
time.
"Certificate of Designation" shall have the meaning designated in Section
6.1(b) hereof.
"Certificate of Termination" shall have the meaning designated in Section
6.1(b) hereof.
"Commission" shall have the meaning assigned to such term in the 1940
Act.
"Contracting Party" shall have the meaning designated in the preamble to
Section 5.2 hereof.
"Covered Person" shall have the meaning designated in Section 8.4 hereof.
"Custodian" shall have the meaning designated in Section 5.2(d) hereof.
"Declaration" and "Declaration of Trust" shall mean this Agreement and
Declaration of Trust and all amendments or modifications thereof as from time
to time in effect. References in this Agreement and Declaration of Trust to
"hereof", "herein" and "hereunder" shall be deemed to refer to the Declaration
of Trust generally, and shall not be limited to the particular text, Article
or Section in which such words appear.
"Disabling Conduct" shall have the meaning designated in Section 8.4
hereof.
"Distributor" shall have the meaning designated in Section 5.2(c) hereof.
"Dividend Disbursing Agent" shall have the meaning designated in Section
5.2(e) hereof.
"General Items" shall have the meaning designated in Section 6.2(a)
hereof.
"Initial Trustee" shall have the meaning assigned to such term in the
preamble hereto.
"Investment Adviser" shall have the meaning designated in Section 5.2(a)
hereof.
"Majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question. At any time at which there shall be only one
(1) Trustee in office, such term shall mean such Trustee.
"Majority Shareholder Vote," as used with respect to the election of any
Trustee at a meeting of Shareholders, shall mean the vote for the election of
such Trustee of a plurality of all outstanding Shares of the Trust, without
regard to Series, represented in person or by proxy and entitled to vote
thereon, provided that a quorum (as determined in accordance with the Bylaws)
is present, and as used with respect to any other action required or permitted
to be taken by Shareholders, shall mean the vote for such action of the
holders of that majority of all outstanding Shares (or, where a separate vote
of Shares of any particular Series is to be taken, the affirmative vote of
that majority of the outstanding Shares of that Series) of the Trust which
consists of: (i) a majority of all Shares (or of Shares of the particular
Series) represented in person or by proxy and entitled to vote on such action
at the meeting of Shareholders at which such action is to be taken,
<PAGE>4
provided that a quorum (as determined in accordance with the Bylaws) is
present; or (ii) if such action is to be taken by written consent of
Shareholders, a majority of all Shares (or of Shares of the particular Series)
issued and outstanding and entitled to vote on such action; provided, that
(iii) as used with respect to any action requiring the affirmative vote of "a
majority of the outstanding voting securities", as the quoted phrase is
defined in the 1940 Act, of the Trust or of any Portfolio, "Majority
Shareholder Vote" means the vote for such action at a meeting of Shareholders
of the smallest majority of all outstanding Shares of the Trust (or of Shares
of the particular Portfolio) entitled to vote on such action which satisfies
such 1940 Act voting requirement.
"1940 Act" shall mean the provisions of the Investment Company Act of
1940 and the rules and regulations thereunder, both as amended from time to
time, and any order or orders thereunder which may from time to time be
applicable to the Trust.
"Person" shall mean and include individuals, as well as corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, banks, trust companies, land trusts, business trusts
or other organizations established under the laws of any jurisdiction, whether
or not considered to be legal entities, and governments and agencies and
political subdivisions thereof.
"Portfolio" or "Portfolios" shall mean one or more of the separate
components of the assets of the Trust which are now or hereafter established
and designated under or in accordance with the provisions of Article 6 hereof.
"Portfolio Assets" shall have the meaning designated in Section 6.2(a)
hereof.
"Principal Underwriter" shall have the meaning designated in Section
5.2(c) hereof.
"Prospectus," as used with respect to any Portfolio or Series of Shares,
shall mean the prospectus relating to such Portfolio or Series which
constitutes part of the currently effective Registration Statement of the
Trust under the Securities Act of 1933, as such prospectus may be amended or
supplemented from time to time.
"Securities" shall mean any and all bills, notes, bonds, debentures or
other obligations or evidences of indebtedness, certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements or other money
market instruments; stocks, shares or other equity ownership interests; and
warrants, options or other instruments representing rights to subscribe for,
purchase, receive or otherwise acquire or to sell, transfer, assign or
otherwise dispose of, and scrip, certificates, receipts or other instruments
evidencing any ownership rights or interests in, any of the foregoing and
"when issued" and "delayed delivery" contracts for securities, issued,
guaranteed or sponsored by any governments, political subdivisions or
governmental authorities, agencies or instrumentalities, by any individuals,
firms, companies, corporations, syndicates, associations or trusts, or by any
other organizations or entities whatsoever, irrespective of their forms or the
names by which they may be described, whether or not they be organized and
operated for profit, and whether they be domestic or foreign with respect to
The Commonwealth of Massachusetts or the United States of America.
"Securities of the Trust" shall mean any Securities issued by the Trust.
"Series" shall mean one or more of the series of Shares authorized by the
Trustees to represent the beneficial interest in one or more of the
Portfolios.
<PAGE>5
"Settlor" shall have the meaning stated in the first "Whereas" clause set
forth above.
"Shareholder" shall mean as of any particular time any Person shown of
record at such time on the books of the Trust as a holder of outstanding
Shares of any Series, and shall include a pledgee into whose name any such
Shares are transferred in pledge.
"Shareholder Servicing Agent" shall have the meaning designated in
Section 5.2(f) hereof.
"Shares" shall mean the transferable units into which the beneficial
interest in the Trust and each Portfolio of the Trust (as the context may
require) shall be divided from time to time, and includes fractions of Shares
as well as whole Shares. All references herein to "Shares" which are not
accompanied by a reference to any particular Series or Portfolio shall be
deemed to apply to outstanding Shares without regard to Series.
"Single Class Voting," as used with respect to any matter to be acted
upon at a meeting or by written consent of Shareholders, shall mean a style of
voting in which each holder of one or more Shares shall be entitled to one
vote on the matter in question for each Share standing in his name on the
records of the Trust, irrespective of Series, and all outstanding Shares of
all Series vote as a single class.
"Statement of Additional Information," as used with respect to any
Portfolio or Series of Shares, shall mean the statement of additional
information relating to such Portfolio or Series, which constitutes part of
the currently effective Registration Statement of the Trust under the
Securities Act of 1933, as such statement of additional information may be
amended or supplemented from time to time.
"Transfer Agent" shall have the meaning defined in Section 5.2(e) hereof.
"Trust" shall have the meaning designated in the fourth "Whereas" clause
set forth above.
"Trust Property" shall mean, as of any particular time, any and all
property which shall have been transferred, conveyed or paid to the Trust or
the Trustees, and all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and which at
such time is owned or held by, or for the account of, the Trust or the
Trustees, without regard to the Portfolio to which such property is allocated.
"Trustees" shall mean, collectively, the Initial Trustee, so long as he
shall continue in office, and all other individuals who at the time in
question have been duly elected or appointed as Trustees of the Trust in
accordance with the provisions hereof and who have qualified and are then in
office. At any time at which there shall be only one (1) Trustee in office,
such term shall mean such single Trustee.
SECTION 1.5 Real Property to be Converted into Personal Property.
Notwithstanding any other provision hereof, any real property at any time
forming part of the Trust Property shall be held in trust for sale and
conversion into personal property at such time or times and in such manner and
upon such terms as the Trustees shall approve, but the Trustees shall have
power until the termination of this Trust to postpone such conversion as long
as they in their uncontrolled discretion
<PAGE>6
shall think fit, and for the purpose of determining the nature of the interest
of the Shareholders therein, all such real property shall at all times be
considered as personal property.
ARTICLE 2
PURPOSE OF THE TRUST
The purpose of the Trust shall be to engage in the business of being an
investment company, and as such of subscribing for, purchasing or otherwise
acquiring, holding for investment or trading in, borrowing, lending and
selling short, selling, assigning, negotiating or exchanging and otherwise
disposing of, and turning to account, realizing upon and generally dealing in
and with, in any manner, (a) Securities of all kinds, (b) precious metals and
other minerals, contracts to purchase and sell, and other interests of every
nature and kind in, such metals or minerals, and (c) rare coins and other
numismatic items, and all as the Trustees in their discretion shall determine
to be necessary, desirable or appropriate, and to exercise and perform any and
every act, thing or power necessary, suitable or desirable for the
accomplishment of such purpose, the attainment of any of the objectives or the
furtherance of any of the powers given hereby which are lawful purposes,
objects or powers of a trust with transferable shares of the type commonly
termed a Massachusetts business trust; and to do every other act or acts or
thing or things incidental or appurtenant to or growing out of or in
connection with the aforesaid objectives, purposes or powers, or any of them,
which a trust of the type commonly termed a Massachusetts business trust is
not now or hereafter prohibited from doing, exercising or performing.
ARTICLE 3
POWERS OF THE TRUSTEES
SECTION 3.1 Powers in General. The Trustees shall have, without other
or further authorization, full, entire, exclusive and absolute power, control
and authority over, and management of, the business of the Trust and over the
Trust Property, to the same extent as if the Trustees were the sole owners of
the business and property of the Trust in their own right, and with such
powers of delegation as may be permitted by this Declaration, subject only to
such limitations as may be expressly imposed by this Declaration of Trust or
by applicable law. The enumeration of any specific power or authority herein
shall not be construed as limiting the aforesaid power or authority or any
specific power or authority. Without limiting the foregoing, the Trustees may
adopt Bylaws not inconsistent with this Declaration of Trust providing for the
conduct of the business and affairs of the Trust and may amend and repeal them
to the extent that such Bylaws do not reserve that right to the Shareholders;
they may select, and from time to time change, the fiscal year of the Trust;
they may adopt and use a seal for the Trust, provided, that unless otherwise
required by the Trustees, it shall not be necessary to place the seal upon,
and its absence shall not impair the validity of, any document, instrument or
other paper executed and delivered by or on behalf of the Trust; they may from
time to time in accordance with the provisions of Section 6.1 hereof establish
one or more Portfolios to which they may allocate such of the Trust Property,
subject to such liabilities, as they shall deem appropriate, each such
Portfolio to be operated by the Trustees as a separate and distinct investment
medium and with separately defined investment objectives and policies and
distinct investment purposes, all as established by the Trustees, or from time
to time changed by them; they may as they consider appropriate elect and
remove officers and appoint and terminate agents and consultants and hire and
terminate employees, any one or more of the foregoing of whom may be a
<PAGE>7
Trustee; they may appoint from their own number, and terminate, any one or
more committees consisting of one or more Trustees, including without implied
limitation an Executive Committee, which may, when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 5.2 they may employ one or more Investment Advisers, Administrators
and Custodians and may authorize any Custodian to employ subcustodians or
agents and to deposit all or any part of such assets in a system or systems
for the central handling of Securities, retain Transfer, Dividend Disbursing,
Accounting or Shareholder Servicing Agents or any of the foregoing, provide
for the distribution of Shares by the Trust through one or more Distributors,
Principal Underwriters or otherwise, set record dates or times for the
determination of Shareholders entitled to participate in, benefit from or act
with respect to various matters; and in general they may delegate to any
officer of the Trust, to any committee of the Trustees and to any employee,
Investment Adviser, Administrator, Distributor, Custodian, Transfer Agent,
Dividend Disbursing Agent, or any other agent or consultant of the Trust, such
authority, powers, functions and duties as they consider desirable or
appropriate for the conduct of the business and affairs of the Trust,
including without implied limitation the power and authority to act in the
name of the Trust and of the Trustees, to sign documents and to act as
attorney-in-fact for the Trustees. Without limiting the foregoing and to the
extent not inconsistent with the 1940 Act or other applicable law, the
Trustees shall have power and authority:
(a) Investments. To invest and reinvest cash and other property;
to buy, for cash or on margin, and otherwise acquire and hold, Securities
created or issued by any Persons, including Securities maturing after the
possible termination of the Trust; to make payment therefor in any lawful
manner in exchange for any of the Trust Property; and to hold cash or
other property uninvested without in any event being bound or limited by
any present or future law or custom in regard to investments by trustees;
(b) Disposition of Assets. Upon such terms and conditions as they
deem best, to lend, sell, exchange, mortgage, pledge, hypothecate, grant
security interests in, encumber, negotiate, convey, transfer or otherwise
dispose of, and to trade in, any and all of the Trust Property, free and
clear of all trusts, for cash or on terms, with or without advertisement,
and on such terms as to payment, security or otherwise, all as they shall
deem necessary or expedient;
(c) Ownership Powers. To vote or give assent, or exercise any and
all other rights, powers and privileges of ownership with respect to, and
to perform any and all duties and obligations as owners of, any
Securities or other property forming part of the Trust Property, the same
as any individual might do; to exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of Securities,
and to receive powers of attorney from, and to execute and deliver
proxies or powers of attorney to, such Person or Persons as the Trustees
shall deem proper, receiving from or granting to such Person or Persons
such power and discretion with relation to Securities or other property
of the Trust, all as the Trustees shall deem proper;
(d) Form of Holding. To hold any Security or other property in a
form not indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust, or of
the Portfolio to which such Securities or property belong, or in the name
of a Custodian, subcustodian or other nominee or nominees, or otherwise,
upon such terms, in such manner or with such powers, as the Trustees may
determine, and with or without indicating any trust or the interest of
the Trustees therein;
<PAGE>8
(e) Reorganization, etc. To consent to or participate in any plan
for the reorganization, consolidation or merger of any corporation or
issuer, any Security of which is or was held in the Trust or any
Portfolio; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer, and to pay calls or subscrip-
tions with respect to any Security forming part of the Trust Property;
(f) Voting Trusts, etc. To join with other holders of any
Securities in acting through a committee, depository, voting trustee or
otherwise, and in that connection to deposit any Security with, or
transfer any Security to, any such committee, depository or trustee, and
to delegate to them such power and authority with relation to any
Security (whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such portion of the
expenses and compensation of such committee, depository or trustee as the
Trustees shall deem proper;
(g) Contracts, etc. To enter into, make and perform all such
obligations, contracts, agreements and undertakings of every kind and
description, with any Person or Persons, as the Trustees shall in their
discretion deem expedient in the conduct of the business of the Trust,
for such terms as they shall see fit, whether or not extending beyond the
term of office of the Trustees, or beyond the possible expiration of the
Trust; to amend, extend, release or cancel any such obligations,
contracts, agreements or understandings; and to execute, acknowledge,
deliver and record all written instruments which they may deem necessary
or expedient in the exercise of their powers;
(h) Guaranties, etc. To endorse or guarantee the payment of any
notes or other obligations of any Person; to make contracts of guaranty
or suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust Property or any part thereof to secure any
of or all such obligations;
(i) Partnerships, etc. To enter into joint ventures, general or
limited partnerships and any other combinations or associations;
(j) Insurance. To purchase and pay for entirely out of Trust
Property such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of distributions
and principal on its portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
consultants, Investment Advisers, managers, Administrators, Distributors,
Principal Underwriters, or other independent contractors, or any thereof
(or any Person connected therewith), of the Trust, individually, against
all claims and liabilities of every nature arising by reason of holding,
being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such Person in any
such capacity, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have
the power to indemnify such Person against such liability;
(k) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, share bonus, share purchase, savings, thrift and
other retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts as a
means of
<PAGE>9
providing such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust;
(l) Power of Collection and Litigation. To collect, sue for and
receive all sums of money coming due to the Trust, to employ counsel, and
to commence, engage in, prosecute, intervene in, join, defend, compound,
compromise, adjust or abandon, in the name of the Trust, any and all ac-
tions, suits, proceedings, disputes, claims, controversies, demands or
other litigation or legal proceedings relating to the Trust, the business
of the Trust, the Trust Property, or the Trustees, officers, employees,
agents and other independent contractors of the Trust, in their capacity
as such, at law or in equity, or before any other bodies or tribunals,
and to compromise, arbitrate or otherwise adjust any dispute to which the
Trust may be a party, whether or not any suit is commenced or any claim
shall have been made or asserted;
(m) Issuance and Repurchase of Shares. To issue, sell, repurchase,
redeem, retire, cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in Shares of any Series, and, subject to
Article 6 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares of any Series, any of
the Portfolio Assets belonging to the Portfolio to which such Series
relates, whether constituting capital or surplus or otherwise, to the
full extent now or hereafter permitted by applicable law; provided, that
any Shares belonging to the Trust shall not be voted, directly or
indirectly;
(n) Offices. To have one or more offices, and to carry on all or
any of the operations and business of the Trust, in any of the States,
Districts or Territories of the United States, and in any and all foreign
countries, subject to the laws of such State, District, Territory or
country;
(o) Expenses. To incur and pay any and all such expenses and
charges as they may deem advisable (including without limitation
appropriate fees to themselves as Trustees), and to pay all such sums of
money for which they may be held liable by way of damages, penalty, fine
or otherwise;
(p) Agents, etc. To retain and employ any and all such servants,
agents, employees, attorneys, brokers, investment advisers, accountants,
architects, engineers, builders, escrow agents, depositories,
consultants, ancillary trustees, custodians, agents for collection,
insurers, banks and officers, as they think best for the business of the
Trust or any Portfolio, to supervise and direct the acts of any of the
same, and to fix and pay their compensation and define their duties;
(q) Accounts. To determine, and from time to time change, the
method or form in which the accounts of the Trust shall be kept;
(r) Valuation. Subject to the requirements of the 1940 Act, to
determine from time to time the value of all or any part of the Trust
Property and of any services, Securities, property or other consideration
to be furnished to or acquired by the Trust, and from time to time to
revalue all or any part of the Trust Property in accordance with such
appraisals or other information as is, in the Trustees' sole judgment,
necessary and satisfactory;
(s) Indemnification. In addition to the mandatory indemnification
provided for in Article 8 hereof and to the extent permitted by law, to
indemnify or enter into agreements
<PAGE>10
with respect to indemnification with any Person with whom this Trust has
dealings, including, without limitation, any independent contractor, to such
extent as the Trustees shall determine; and
(t) General. To do all such other acts and things and to conduct,
operate, carry on and engage in such other lawful businesses or business
activities as they shall in their sole and absolute discretion consider
to be incidental to the business of the Trust or any Portfolio as an
investment company, and to exercise all powers which they shall in their
discretion consider necessary, useful or appropriate to carry on the
business of the Trust or any Portfolio, to promote any of the purposes
for which the Trust is formed, whether or not such things are
specifically mentioned herein, in order to protect or promote the
interests of the Trust or any Portfolio, or otherwise to carry out the
provisions of this Declaration.
SECTION 3.2 Borrowings; Financings; Issuance of Securities. The
Trustees shall have power to borrow or in any other manner raise such sum or
sums of money, and to incur such other indebtedness for goods or services, or
for or in connection with the purchase or other acquisition of property, as
they shall deem advisable for the purposes of the Trust, in any manner and on
any terms, and to evidence the same by negotiable or non-negotiable Securities
which may mature at any time or times, even beyond the possible date of
termination of the Trust; to issue Securities of any type for such cash,
property, services or other considerations, and at such time or times and upon
such terms, as they may deem advisable; and to reacquire any such Securities.
Any such Securities of the Trust may, at the discretion of the Trustees, be
made convertible into Shares of any Series, or may evidence the right to
purchase, subscribe for or otherwise acquire Shares of any Series, at such
times and on such terms as the Trustees may prescribe.
SECTION 3.3 Deposits. Subject to the requirements of the 1940 Act,
the Trustees shall have power to deposit any moneys or Securities included in
the Trust Property with any one or more banks, trust companies or other
banking institutions, whether or not such deposits will draw interest. Such
deposits are to be subject to withdrawal in such manner as the Trustees may
determine, and the Trustees shall have no responsibility for any loss which
may occur by reason of the failure of the bank, trust company or other banking
institution with which any such moneys or Securities have been deposited,
other than liability based on their gross negligence or willful fault.
SECTION 3.4 Allocations. The Trustees shall have power to determine
whether moneys or other assets received by the Trust shall be charged or
credited to income or capital, or allocated between income and capital,
including the power to amortize or fail to amortize any part or all of any
premium or discount, to treat any part or all of the profit resulting from the
maturity or sale of any asset, whether purchased at a premium or at a
discount, as income or capital, or to apportion the same between income and
capital, to apportion the sale price of any asset between income and capital,
and to determine in what manner any expenses or disbursements are to be borne
as between income and capital, whether or not in the absence of the power and
authority conferred by this Section 3.4 such assets would be regarded as
income or as capital or such expense or disbursement would be charged to
income or to capital; to treat any dividend or other distribution on any
investment as income or capital, or to apportion the same between income and
capital; to provide or fail to provide reserves, including reserves for
depreciation, amortization or obsolescence in respect of any Trust Property in
such amounts and by such methods as they shall determine; to allocate less
than all of the consideration paid for Shares of any Series to the shares of
beneficial interest account of the Portfolio to which such Shares relate and
to allocate the balance thereof to paid-in capital of that Portfolio, and to
reallocate such amounts from time to time; all as the Trustees may reasonably
deem proper.
<PAGE>11
SECTION 3.5 Further Powers; Limitations. The Trustees shall have
power to do all such other matters and things, and to execute all such
instruments, as they deem necessary, proper or desirable in order to carry
out, promote or advance the interests of the Trust, although such matters or
things are not herein specifically mentioned. Any determination as to what is
in the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. The
Trustees shall not be required to obtain any court order to deal with the
Trust Property. The Trustees may limit their right to exercise any of their
powers through express restrictive provisions in the instruments evidencing or
providing the terms for any Securities of the Trust or in other contractual
instruments adopted on behalf of the Trust.
ARTICLE 4
TRUSTEES AND OFFICERS
SECTION 4.1 Number, Designation, Election, Term, etc.
(a) Initial Trustee. Upon his execution of this Declaration of
Trust or a counterpart hereof or some other writing in which he accepts
such Trusteeship and agrees to the provisions hereof, the individual
whose signature is affixed hereto as Initial Trustee shall become the
Initial Trustee hereof.
(b) Number. The Trustees serving as such, whether named below or
hereafter becoming Trustees, may, by a written instrument signed by a
Majority of the Trustees (or by an officer of the Trust pursuant to the
vote of a Majority of the Trustees), increase or decrease the number of
Trustees to a number other than the number theretofore determined. No
decrease in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term, but the number
of Trustees may be decreased in conjunction with the removal of a Trustee
pursuant to subsection (e) of this Section 4.l.
(c) Election and Term. The Trustees shall be elected by the
Shareholders of the Trust at the first meeting of Shareholders
immediately prior to the initial public offering of Shares of the Trust,
and the term of office of any Trustees in office before such election
shall terminate at the time of such election. Subject to Section 16(a)
of the 1940 Act and to the preceding sentence of this subsection (c), the
Trustees shall have the power to set and alter the terms of office of the
Trustees, and at any time to lengthen or shorten their own terms or make
their terms of unlimited duration, to elect their own successors and,
pursuant to subsection (f) of this Section 4.1, to appoint Trustees to
fill vacancies; provided, that Trustees shall be elected by a Majority
Shareholder Vote at any such time or times as the Trustees shall
determine that such action is required under Section 16(a) of the 1940
Act or, if not so required, that such action is advisable; and further
provided, that, after the initial election of Trustees by the
Shareholders, the term of office of any incumbent Trustee shall continue
until the termination of this Trust or his earlier death, resignation,
retirement, bankruptcy, adjudicated incompetency or other incapacity or
removal, or if not so terminated, until the election of such Trustee's
successor in office has become effective in accordance with this
subsection (c).
(d) Resignation and Retirement. Any Trustee may resign his trust
or retire as a Trustee, by a written instrument signed by him and
delivered to the other Trustees or to any
<PAGE>12
officer of the Trust, and such resignation or retirement shall take effect
upon such delivery or upon such later date as is specified in such instrument.
(e) Removal. Any Trustee may be removed with or without cause at
any time: (i) by written instrument, signed by at least two-thirds (2/3)
of the number of Trustees prior to such removal, specifying the date upon
which such removal shall become effective; or (ii) by vote of
Shareholders holding not less than two-thirds (2/3) of the Shares of each
Series then outstanding, cast in person or by proxy at any meeting called
for the purpose; or (iii) by a written declaration signed by Shareholders
holding not less than two-thirds (2/3) of the Shares of each Series then
outstanding and filed with the Trust's Custodian.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from
any reason, including an increase in the number of Trustees, may (but
need not unless required by the 1940 Act) be filled by a Majority of the
Trustees, subject to the provisions of Section 16(a) of the 1940 Act,
through the appointment in writing of such other individual as such
remaining Trustees in their discretion shall determine; provided, that if
there shall be no Trustees in office, such vacancy or vacancies shall be
filled by vote of the Shareholders. Any such appointment or election
shall be effective upon such individual's written acceptance of his
appointment as a Trustee and his agreement to be bound by the provisions
of this Declaration of Trust, except that any such appointment in
anticipation of a vacancy to occur by reason of retirement, resignation
or increase in the number of Trustees to be effective at a later date
shall become effective only at or after the effective date of said
retirement, resignation or increase in the number of Trustees.
(g) Acceptance of Trusts. Any individual appointed as a Trustee
under subsection (f), and any individual elected as a Trustee under
subsection (c), of this Section 4.1 who was not, immediately prior to
such election, acting as a Trustee, shall accept such appointment or
election in writing and agree in such writing to be bound by the
provisions hereof, and whenever such individual shall have executed such
writing and any conditions to such appointment or election shall have
been satisfied, such individual shall become a Trustee and the Trust
Property shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance.
(h) Effect of Death, Resignation, etc. No vacancy, whether
resulting from the death, resignation, retirement, removal or incapacity
of any Trustee, an increase in the number of Trustees or otherwise, shall
operate to annul or terminate the Trust hereunder or to revoke or
terminate any existing agency or contract created or entered into
pursuant to the terms of this Declaration of Trust. Until such vacancy
is filled as provided in this Section 4.1, the Trustees in office (if
any), regardless of their number, shall have all the powers granted to
the Trustees and shall discharge all the duties imposed upon the Trustees
by this Declaration. A written instrument certifying the existence of
such vacancy signed by a Majority of the Trustees shall be conclusive
evidence of the existence of such vacancy.
(i) Conveyance. In the event of the resignation or removal of a
Trustee or his otherwise ceasing to be a Trustee, such former Trustee or
his legal representative shall, upon request of the continuing Trustees,
execute and deliver such documents as may be required for the purpose of
consummating or evidencing the conveyance to the Trust or the remaining
Trustees of any Trust Property held in such former Trustee's name, but
the execution and delivery of such documents shall not be requisite to
the vesting of title to the Trust Property
<PAGE>13
in the remaining Trustees, as provided in subsection (g) of this Section 4.1
and in Section 4.13 hereof.
(j) No Accounting. Except to the extent required by the 1940 Act
or under circumstances which would justify his removal for cause, no
Person ceasing to be a Trustee (nor the estate of any such Person) shall
be required to make an accounting to the Shareholders or remaining
Trustees upon such cessation.
SECTION 4.2 Trustees' Meetings; Participation by Telephone, etc. An
annual meeting of Trustees shall be held not later than the last day of the
fourth month after the end of each fiscal year of the Trust and special
meetings may be held from time to time, in each case, upon the call of such
officers as may be thereunto authorized by the Bylaws or vote of the Trustees,
or by any two (2) Trustees, or pursuant to a vote of the Trustees adopted at a
duly constituted meeting of the Trustees, and upon such notice as shall be
provided in the Bylaws. The Trustees may act with or without a meeting, and a
written consent to any matter, signed by a Majority of the Trustees, shall be
equivalent to action duly taken at a meeting of the Trustees, duly called and
held. Except as otherwise provided by the 1940 Act or other applicable law,
or by this Declaration of Trust or the Bylaws, any action to be taken by the
Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum, consisting of at least a Majority of the Trustees, being
present), within or without Massachusetts. If authorized by the Bylaws, all
or any one or more Trustees may participate in a meeting of the Trustees or
any Committee thereof by means of conference telephone or similar means of
communication by means of which all Persons participating in the meeting can
hear each other, and participation in a meeting pursuant to such means of
communication shall constitute presence in person at such meeting. The
minutes of any meeting thus held shall be prepared in the same manner as a
meeting at which all participants were present in person.
SECTION 4.3 Committees; Delegation. The Trustees shall have power,
consistent with their ultimate responsibility to supervise the affairs of the
Trust, to delegate from time to time to an Executive Committee, and to one or
more other Committees, or to any single Trustee, the doing of such things and
the execution of such deeds or other instruments, either in the name of the
Trust or the names of the Trustees or as their attorney or attorneys in fact,
or otherwise as the Trustees may from time to time deem expedient, and any
agreement, deed, mortgage, lease or other instrument or writing executed by
the Trustee or Trustees or other Person to whom such delegation was made shall
be valid and binding upon the Trustees and upon the Trust.
SECTION 4.4 Officers. The Trustees shall elect such officers or
agents, who shall have such powers, duties and responsibilities as the
Trustees may deem to be advisable, and as they shall specify by resolution or
in the Bylaws. Except as may be provided in the Bylaws, any officer elected
by the Trustees may be removed at any time with or without cause. Any two (2)
or more offices may be held by the same individual.
SECTION 4.5 Compensation of Trustees and Officers. The Trustees shall
fix the compensation of all officers and Trustees. Without limiting the
generality of any of the provisions hereof, the Trustees shall be entitled to
receive reasonable compensation for their general services as such, and to fix
the amount of such compensation, and to pay themselves or any one or more of
themselves such compensation for special services, including legal,
accounting, or other professional services, as they in good faith may deem
reasonable. No Trustee or officer resigning and (except where a right to
receive compensation for a definite future period shall be expressly provided
in a written agreement with the Trust, duly approved by the Trustees) no
Trustee or officer removed shall have any right to any compensation as such
Trustee or officer for any period following his
<PAGE>14
resignation or removal, or any right to damages on account of his removal,
whether his compensation be by the month, by the year or otherwise.
SECTION 4.6 Ownership of Shares and Securities of the Trust. Any
Trustee, and any officer, employee or agent of the Trust, and any organization
in which any such Person is interested, may acquire, own, hold and dispose of
Shares of any Series and other Securities of the Trust for his or its
individual account, and may exercise all rights of a holder of such Shares or
Securities to the same extent and in the same manner as if such Person were
not such a Trustee, officer, employee or agent of the Trust; subject, in the
case of Trustees and officers, to the same limitations as directors or
officers (as the case may be) of a Massachusetts business corporation; and the
Trust may issue and sell or cause to be issued and sold and may purchase any
such Shares or other Securities from any such Person or any such organization,
subject only to the general limitations, restrictions or other provisions
applicable to the sale or purchase of Shares of such Series or other
Securities of the Trust generally.
SECTION 4.7 Right of Trustees and Officers to Own Property or to
Engage in Business; Authority of Trustees to Permit Others to Do Likewise.
The Trustees, in their capacity as Trustees, and (unless otherwise
specifically directed by vote of the Trustees) the officers of the Trust in
their capacity as such, shall not be required to devote their entire time to
the business and affairs of the Trust. Except as otherwise specifically
provided by vote of the Trustees, or by agreement in any particular case, any
Trustee or officer of the Trust may acquire, own, hold and dispose of, for his
own individual account, any property, and acquire, own, hold, carry on and
dispose of, for his own individual account, any business entity or business
activity, whether similar or dissimilar to any property or business entity or
business activity invested in or carried on by the Trust, and without first
offering the same as an investment opportunity to the Trust, and may exercise
all rights in respect thereof as if he were not a Trustee or officer of the
Trust. The Trustees shall also have power, generally or in specific cases, to
permit employees or agents of the Trust to have the same rights (or lesser
rights) to acquire, hold, own and dispose of property and businesses, to carry
on businesses, and to accept investment opportunities without offering them to
the Trust, as the Trustees have by virtue of this Section 4.7.
SECTION 4.8 Reliance on Experts. The Trustees and officers may
consult with counsel, engineers, brokers, appraisers, auctioneers,
accountants, investment bankers, securities analysts or other Persons (any of
which may be a firm in which one or more of the Trustees or officers is or are
members or otherwise interested) whose profession gives authority to a
statement made by them on the subject in question, and who are reasonably
deemed by the Trustees or officers in question to be competent, and the advice
or opinion of such Persons shall be full and complete personal protection to
all of the Trustees and officers in respect of any action taken or suffered by
them in good faith and in reliance on or in accordance with such advice or
opinion. In discharging their duties, Trustees and officers, when acting in
good faith, may rely upon financial statements of the Trust represented to
them to be correct by any officer of the Trust having charge of its books of
account, or stated in a written report by an independent certified public
accountant fairly to present the financial position of the Trust. The
Trustees and officers may rely, and shall be personally protected in acting,
upon any instrument or other document believed by them to be genuine.
SECTION 4.9 Surety Bonds. No Trustee, officer, employee or agent of
the Trust shall, as such, be obligated to give any bond or surety or other
security for the performance of any of his duties, unless required by
applicable law or regulation, or unless the Trustees shall otherwise determine
in any particular case.
<PAGE>15
SECTION 4.10 Apparent Authority of Trustees and Officers. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by such
officer, or to make inquiry concerning or be liable for the application of
money or property paid, loaned or delivered to or on the order of the Trustees
or of such officer.
SECTION 4.11 Other Relationships Not Prohibited. The fact that:
(a) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
Contracting Party (as defined in Section 5.2 hereof), or of or for any
parent or affiliate of any Contracting Party, or that the Contracting
Party or any parent or affiliate thereof is a Shareholder or has an
interest in the Trust or any Portfolio, or that
(b) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other corporations,
trusts, associations, partnerships, limited partnerships or other
organizations, or have other business or interests,
shall not affect the validity of any contract for the performance and
assumption of services, duties and responsibilities to, for or of the Trust
and/or the Trustees or disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any liability or
accountability to the Trust or to the holders of Shares of any Series;
provided, that, in the case of any relationship or interest referred to in the
preceding clause (i) on the part of any Trustee or officer of the Trust,
either (x) the material facts as to such relationship or interest have been
disclosed to or are known by the Trustees not having any such relationship or
interest and the contract involved is approved in good faith by a majority of
such Trustees not having any such relationship or interest (even though such
unrelated or disinterested Trustees are less than a quorum of all of the
Trustees), (y) the material facts as to such relationship or interest and as
to the contract have been disclosed to or are known by the Shareholders
entitled to vote thereon and the contract involved is specifically approved in
good faith by vote of the Shareholders, or (z) the specific contract involved
is fair to the Trust as of the time it is authorized, approved or ratified by
the Trustees or by the Shareholders.
SECTION 4.12 Payment of Trust Expenses. The Trustees are authorized to
pay or to cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, and according to any
allocation to particular Portfolios made by them pursuant to Section 6.2(b)
hereof, all expenses, fees, charges, taxes and liabilities incurred or arising
in connection with the business and affairs of the Trust or in connection with
the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, Investment Adviser, Administrator, Distributor, Principal
Underwriter, auditor, counsel, Custodian, Transfer Agent, Dividend Disbursing
Agent, Accounting Agent, Shareholder Servicing Agent, and such other agents,
consultants, and independent contractors and such other expenses and charges
as the Trustees may deem necessary or proper to incur.
SECTION 4.13 Ownership of the Trust Property. Legal title to all the
Trust Property shall be vested in the Trustees as joint tenants, except that
the Trustees shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the name of the
Trust, or of any particular Portfolio, or in the name of any other Person as
nominee, on such terms as the Trustees may determine; provided, that the
interest of the Trust and of the
<PAGE>16
respective Portfolio therein is appropriately protected. The right, title and
interest of the Trustees in the Trust Property shall vest automatically in
each Person who may hereafter become a Trustee. Upon the termination of the
term of office of a Trustee as provided in Section 4.1(c), (d) or (e) hereof,
such Trustee shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of such Trustee
in the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered pursuant to Section 4.1(i) hereof.
ARTICLE 5
DELEGATION OF MANAGERIAL RESPONSIBILITIES
SECTION 5.1 Appointment; Action by Less than All Trustees. The
Trustees shall be responsible for the general operating policy of the Trust
and for the general supervision of the business of the Trust conducted by
officers, agents, employees or advisers of the Trust or by independent
contractors, but the Trustees shall not be required personally to conduct all
the business of the Trust and, consistent with their ultimate responsibility
as stated herein, the Trustees may appoint, employ or contract with one or
more officers, employees and agents to conduct, manage and/or supervise the
operations of the Trust, and may grant or delegate such authority to such
officers, employees and/or agents as the Trustees may, in their sole
discretion, deem to be necessary or desirable, without regard to whether such
authority is normally granted or delegated by trustees. With respect to those
matters of the operation and business of the Trust which they shall elect to
conduct themselves, except as otherwise provided by this Declaration or the
Bylaws, if any, the Trustees may authorize any single Trustee or defined group
of Trustees, or any committee consisting of a number of Trustees less than the
whole number of Trustees then in office without specification of the
particular Trustees required to be included therein, to act for and to bind
the Trust, to the same extent as the whole number of Trustees could do, either
with respect to one or more particular matters or classes of matters, or
generally.
SECTION 5.2 Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time in their discretion and
without limiting the generality of their powers and authority otherwise set
forth herein, enter into one or more contracts with any one or more
corporations, trusts, associations, partnerships, limited partnerships or
other types of organizations, or individuals ("Contracting Party"), to provide
for the performance and assumption of some or all of the following services,
duties and responsibilities to, for or on behalf of the Trust and/or any
Portfolio, and/or the Trustees, and to provide for the performance and
assumption of such other services, duties and responsibilities in addition to
those set forth below, as the Trustees may deem appropriate:
(a) Advisory. An investment advisory or management agreement
whereby the Investment Adviser shall undertake to furnish the Trust such
management, investment advisory or supervisory, administrative,
accounting, legal, statistical and research facilities and services, and
such other facilities and services, if any, as the Trustees shall from
time to time consider desirable, all upon such terms and conditions as
the Trustees may in their discretion determine to be not inconsistent
with this Declaration, the applicable provisions of the 1940 Act or any
applicable provisions of the Bylaws. Any such advisory or management
agreement and any amendment thereto shall be subject to approval by a
Majority Shareholder Vote at a meeting of the Shareholders of the Trust.
Notwithstanding
<PAGE>17
any provisions of this Declaration, the Trustees may authorize the Investment
Adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales, loans or exchanges of
portfolio securities of the Trust on behalf of the Trustees or may authorize
any officer or employee of the Trust or any Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of the Investment
Adviser (and all without further action by the Trustees). Any such purchases,
sales, loans and exchanges shall be deemed to have been authorized by all of
the Trustees. The Trustees may, in their sole discretion, call a meeting of
Shareholders in order to submit to a vote of Shareholders at such meeting the
approval of continuance of any such investment advisory or management
agreement. If the Shareholders of any Portfolio should fail to approve any
such investment advisory or management agreement, the Investment Adviser may
nonetheless serve as Investment Adviser with respect to any other Portfolio
whose Shareholders shall have approved such contract.
(b) Administration. An agreement whereby the agent, subject to
the general supervision of the Trustees and in conformity with any
policies of the Trustees with respect to the operations of the Trust and
each Portfolio, will supervise all or any part of the operations of the
Trust and each Portfolio, and will provide all or any part of the
administrative and clerical personnel, office space and office equipment
and services appropriate for the efficient administration and operations
of the Trust and each Portfolio (any such agent being herein referred to
as an "Administrator").
(c) Distribution. An agreement providing for the sale of Shares
of any one or more Series to net the Trust not less than the net asset
value per Share (as described in Section 6.2(h) hereof) and pursuant to
which the Trust may appoint the other party to such agreement as its
principal underwriter or sales agent for the distribution of such Shares.
The agreement shall contain such terms and conditions as the Trustees may
in their discretion determine to be not inconsistent with this
Declaration, the applicable provisions of the 1940 Act and any applicable
provisions of the Bylaws (any such agent being herein referred to as a
"Distributor" or a "Principal Underwriter", as the case may be).
(d) Custodian. The appointment of a bank or trust company having
an aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least two million dollars ($2,000,000) as
custodian of the Securities and cash of the Trust and of each Portfolio
and of the accounting records in connection therewith (any such agent
being herein referred to as a "Custodian").
(e) Transfer and Dividend Disbursing Agency. An agreement with an
agent to maintain records of the ownership of outstanding Shares, the
issuance and redemption and the transfer thereof (any such agent being
herein referred to as a "Transfer Agent"), and to disburse any dividends
declared by the Trustees and in accordance with the policies of the
Trustees and/or the instructions of any particular Shareholder to
reinvest any such dividends (any such agent being herein referred to as a
"Dividend Disbursing Agent").
(f) Shareholder Servicing. An agreement with an agent to provide
service with respect to the relationship of the Trust and its
Shareholders, records with respect to Shareholders and their Shares, and
similar matters (any such agent being herein referred to as a
"Shareholder Servicing Agent").
<PAGE>18
(g) Accounting. An agreement with an agent to handle all or any
part of the accounting responsibilities, whether with respect to the
Trust's properties, Shareholders or otherwise (any such agent being
herein referred to as an "Accounting Agent").
The same Person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or
in addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine. Nothing herein
shall preclude, prevent or limit the Trust or a Contracting Party from
entering into sub-contractual arrangements relative to any of the matters
referred to in subsections (a) through (g) of this Section 5.2.
ARTICLE 6
PORTFOLIOS AND SHARES
SECTION 6.1 Description of Portfolios and Shares.
(a) Shares; Portfolios; Series of Shares. The beneficial interest
in the Trust shall be divided into Shares having a nominal or par value of one
mil ($.001) per Share, of which an unlimited number may be issued. The
Trustees shall have the authority from time to time to establish and designate
one or more separate, distinct and independent Portfolios into which the
assets of the Trust shall be divided, and to authorize a separate Series of
Shares for each such Portfolio (each of which Series, including without
limitation each Series authorized in Section 6.2 hereof, shall represent
interests only in the Portfolio with respect to which such Series was
authorized), as they deem necessary or desirable. Except as otherwise
provided as to a particular Portfolio herein, or in the Certificate of
Designation therefor, the Trustees shall have all the rights and powers, and
be subject to all the duties and obligations, with respect to each such
Portfolio and the assets and affairs thereof as they have under this Declara-
tion with respect to the Trust and the Trust Property in general.
(b) Establishment, etc. of Portfolios; Authorization of Shares.
The establishment and designation of any Portfolio in addition to the
Portfolios established and designated in Section 6.2 hereof and the
authorization of the Shares thereof shall be effective upon the execution by a
Majority of the Trustees (or by an officer of the Trust pursuant to the vote
of a Majority of the Trustees) of an instrument setting forth such
establishment and designation and the relative rights and preferences of the
Shares of such Portfolio and the manner in which the same may be amended (a
"Certificate of Designation"), and may provide that the number of Shares of
such Series which may be issued is unlimited, or may limit the number
issuable. At any time that there are no Shares outstanding of any particular
Portfolio previously established and designated, including any Portfolio
established and designated in Section 6.2 hereof, the Trustees may by an
instrument executed by a Majority of the Trustees (or by an officer of the
Trust pursuant to the vote of a Majority of the Trustees) terminate such
Portfolio and the establishment and designation thereof and the authorization
of its Shares (a "Certificate of Termination"). Each Certificate of
Designation, Certificate of Termination and any instrument amending a
Certificate of Designation shall have the status of an amendment to this
Declaration of Trust, and shall be filed and become effective as provided in
Section 9.4 hereof.
<PAGE>19
(c) Character of Separate Portfolios and Shares Thereof. Each
Portfolio established hereunder shall be a separate component of the assets of
the Trust, and the holders of Shares of the Series representing the beneficial
interest in the assets of that Portfolio shall be considered Shareholders of
such Portfolio, but such Shareholders shall also be considered Shareholders of
the Trust for purposes of receiving reports and notices and, except as
otherwise provided herein or in the Certificate of Designation of a particular
Portfolio as to such Portfolio, or as required by the 1940 Act or other
applicable law, the right to vote, all without distinction by Series. The
Trustees shall have exclusive power without the requirement of Shareholder ap-
proval to establish and designate such separate and distinct Portfolios, and
to fix and determine the relative rights and preferences as between the shares
of the respective Portfolios as to rights of redemption and the price, terms
and manner of redemption, special and relative rights as to dividends and
other distributions and on liquidation, sinking or purchase fund provisions,
conversion rights, and conditions under which the Shareholders of the several
Portfolios shall have separate voting rights or no voting rights.
(d) Consideration for Shares. The Trustees may issue Shares of
any Series for such consideration (which may include property subject to, or
acquired in connection with the assumption of, liabilities) and on such terms
as they may determine (or for no consideration if pursuant to a Share dividend
or split-up), all without action or approval of the Shareholders. All Shares
when so issued on the terms determined by the Trustees shall be fully paid and
non-assessable (but may be subject to mandatory contribution back to the Trust
as provided in Section 6.2(h) hereof). The Trustees may classify or
reclassify any unissued Shares, or any Shares of any Series previously issued
and reacquired by the Trust, into Shares of one or more other Portfolios that
may be established and designated from time to time.
SECTION 6.2 Establishment and Designation of Certain Portfolios;
General Provisions for All Portfolios. Without limiting the authority of the
Trustees set forth in Section 6.1(a) hereof to establish and designate further
Portfolios, there are hereby established and designated the following two (2)
Portfolio(s): the International Equity Portfolio and the Small Company
Portfolio. The Shares of such Portfolios, and the Shares of any further
Portfolios that may from time to time be established and designated by the
Trustees shall (unless the Trustees otherwise determine with respect to some
further Portfolio at the time of establishing and designating the same) have
the following relative rights and preferences:
(a) Assets Belonging to Portfolios. Any portion of the Trust
Property allocated to a particular Portfolio, and all consideration
received by the Trust for the issue or sale of Shares of such Portfolio,
together with all assets in which such consideration is invested or
reinvested, all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall be held by the Trustees in trust for the benefit of the
holders of Shares of that Portfolio and shall irrevocably belong to that
Portfolio for all purposes, and shall be so recorded upon the books of
account of the Trust, and the Shareholders of such Portfolio shall not
have, and shall be conclusively deemed to have waived, any claims to the
assets of any Portfolio of which they are not Shareholders. Such
consideration, assets, interest, dividends, income, earnings, profits,
gains and proceeds, together with any General Items allocated to that
Portfolio as provided in the following sentence, are herein referred to
collectively as "Portfolio Assets" of such Portfolio, and as assets
"belonging to" that Portfolio. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as
<PAGE>20
belonging to any particular Portfolio (collectively "General Items"), the
Trustees shall allocate such General Items to and among any one or more of the
Portfolios established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable; and any
General Items so allocated to a particular Portfolio shall belong to and be
part of the Portfolio Assets of that Portfolio. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all
Portfolios for all purposes.
(b) Liabilities of Portfolios. The assets belonging to each
particular Portfolio shall be charged with the liabilities in respect of
that Portfolio and all expenses, costs, charges and reserves attributable
to that Portfolio, and any general liabilities, expenses, costs, charges
or reserves of the Trust which are not readily identifiable as pertaining
to any particular Portfolio shall be allocated and charged by the
Trustees to and among any one or more of the Portfolios established and
designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
indebtedness, expenses, costs, charges and reserves allocated and so
charged to a particular Portfolio are herein referred to as "liabilities
of" that Portfolio. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Portfolios for all purposes. Any creditor of any
Portfolio may look only to the assets of that Portfolio to satisfy such
creditor's debt.
(c) Dividends. Dividends and distributions on Shares of a
particular Portfolio may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the Shareholders of that Portfolio, from such
of the income, accrued or realized, and capital gains, realized or
unrealized, and out of the assets belonging to that Portfolio, as the
Trustees may determine, after providing for actual and accrued
liabilities of that Portfolio. All dividends and distributions on Shares
of a particular Portfolio shall be distributed pro rata to the
Shareholders of that Portfolio in proportion to the number of such Shares
held by such holders at the date and time of record established for the
payment of such dividends or distributions, except that in connection
with any dividend or distribution program or procedure the Trustees may
determine that no dividend or distribution shall be payable on Shares as
to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Trustees under such
program or procedure, or that dividends or distributions shall be payable
on Shares which have been tendered by the holder thereof for redemption
or repurchase, but the redemption or repurchase proceeds of which have
not yet been paid to such Shareholder. Such dividends and distributions
may be made in cash or Shares of that Portfolio or a combination thereof
as determined by the Trustees, or pursuant to any program that the
Trustees may have in effect at the time for the election by each
Shareholder of the mode of the making of such dividend or distribution to
that Shareholder. Any such dividend or distribution paid in Shares will
be paid at the net asset value thereof as determined in accordance with
subsection (h) of this Section 6.2.
(d) Liquidation. In the event of the liquidation or dissolution
of the Trust, the Shareholders of each Portfolio of which Shares are
outstanding shall be entitled to receive, when and as declared by the
Trustees, the excess of the Portfolio Assets over the liabilities of such
Portfolio. The assets so distributable to the Shareholders of any
particular Portfolio shall be distributed among such Shareholders in
proportion to the number of Shares of that Portfolio held by them and
recorded on the books of the Trust. The liquidation of any
<PAGE>21
particular Portfolio may be authorized by vote of a Majority of the Trustees,
subject to the affirmative vote of "a majority of the outstanding voting
securities" of that Portfolio, as the quoted phrase is defined in the 1940
Act, determined in accordance with clause (iii) of the definition of "Majority
Shareholder Vote" in Section 1.4 hereof.
(e) Voting. The Shareholders shall have the voting rights set
forth in or determined under Article 7 hereof.
(f) Redemption by Shareholder. Each holder of Shares of a
particular Portfolio shall have the right at such times as may be
permitted by the Trust, but no less frequently than once each week, to
require the Trust to redeem all or any part of his Shares of that
Portfolio at a redemption price equal to the net asset value per Share of
that Portfolio next determined in accordance with subsection (h) of this
Section 6.2 after the Shares are properly tendered for redemption;
provided, that the Trustees may from time to time, in their discretion,
determine and impose a fee for such redemption. Payment of the
redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable,
the Trust may make payment wholly or partly in Securities or other assets
belonging to such Portfolio at the value of such Securities or assets
used in such determination of net asset value. Notwithstanding the
foregoing, the Trust may postpone payment of the redemption price and may
suspend the right of the holders of Shares of any Portfolio to require
the Trust to redeem Shares of that Portfolio during any period or at any
time when and to the extent permissible under the 1940 Act.
(g) Redemption at the Option of the Trust. Each Share of any
Portfolio shall be subject to redemption at the option of the Trust at
the redemption price which would be applicable if such Share were then
being redeemed by the Shareholder pursuant to subsection (f) of this
Section 6.2: (i) at any time, if the Trustees determine in their sole
discretion that failure to so redeem may have materially adverse
consequences to the holders of the Shares of the Trust or of any
Portfolio, or (ii) upon such other conditions with respect to maintenance
of Shareholder accounts of a minimum amount as may from time to time be
determined by the Trustees and set forth in the then current Prospectus
of such Portfolio. Upon such redemption the holders of the Shares so
redeemed shall have no further right with respect thereto other than to
receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any
Portfolio at any time shall be the quotient obtained by dividing the
value of the net assets of such Portfolio at such time (being the current
value of the assets belonging to such Portfolio, less its then existing
liabilities) by the total number of Shares of that Portfolio then
outstanding, all determined in accordance with the methods and
procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time. The Trustees may
determine to maintain the net asset value per Share of any Portfolio at a
designated constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the 1940 Act for the continuing
declaration of income attributable to that Portfolio as dividends payable
in additional Shares of that Portfolio at the designated constant dollar
amount and for the handling of any losses attributable to that Portfolio.
Such procedures may provide that in the event of any loss each
Shareholder shall be deemed to have contributed to the shares of
beneficial interest account of that Portfolio his pro rata portion of the
total number of Shares required to be canceled in order to permit the net
asset value per Share of that Portfolio to be maintained, after
reflecting such loss, at the designated
<PAGE>22
constant dollar amount. Each Shareholder of the Trust shall be deemed to have
expressly agreed, by his investment in any Portfolio with respect to which the
Trustees shall have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Portfolio shall be
transferable, but transfers of Shares of a particular Portfolio will be
recorded on the Share transfer records of the Trust applicable to that
Portfolio only at such times as Shareholders shall have the right to
require the Trust to redeem Shares of that Portfolio and at such other
times as may be permitted by the Trustees.
(j) Equality. All Shares of each particular Portfolio shall
represent an equal proportionate interest in the assets belonging to that
Portfolio (subject to the liabilities of that Portfolio), and each Share
of any particular Portfolio shall be equal to each other Share thereof;
but the provisions of this sentence shall not restrict any distinctions
permissible under subsection (c) of this Section 6.2 that may exist with
respect to dividends and distributions on Shares of the same Portfolio.
The Trustees may from time to time divide or combine the Shares of any
particular Portfolio into a greater or lesser number of Shares of that
Portfolio without thereby changing the proportionate beneficial interest
in the assets belonging to that Portfolio or in any way affecting the
rights of the holders of Shares of any other Portfolio.
(k) Rights of Fractional Shares. Any fractional Share of any
Series shall carry proportionately all the rights and obligations of a
whole Share of that Series, including rights and obligations with respect
to voting, receipt of dividends and distributions, redemption of Shares,
and liquidation of the Trust or of the Portfolio to which they pertain.
(l) Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to
provide that holders of Shares of any Portfolio shall have the right to
convert said Shares into Shares of one or more other Portfolios in
accordance with such requirements and procedures as the Trustees may
establish.
SECTION 6.3 Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a Transfer Agent or similar agent for
the Trust, which books shall be maintained separately for the Shares of each
Series that has been authorized. Certificates evidencing the ownership of
Shares need not be issued except as the Trustees may otherwise determine from
time to time, and the Trustees shall have power to call outstanding Share
certificates and to replace them with book entries. The Trustees may make
such rules as they consider appropriate for the issuance of Share
certificates, the use of facsimile signatures, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
Transfer Agent or similar agent, as the case may be, shall be conclusive as to
who are the Shareholders and as to the number of Shares of each Portfolio held
from time to time by each such Shareholder.
The holders of Shares of each Portfolio shall upon demand disclose to the
Trustees in writing such information with respect to their direct and indirect
ownership of Shares of such Portfolio as the Trustees deem necessary to comply
with the provisions of the Internal Revenue Code, or to comply with the
requirements of any other authority.
<PAGE>23
SECTION 6.4 Investments in the Trust. The Trustees may accept
investments in any Portfolio of the Trust from such Persons and on such terms
and for such consideration, not inconsistent with the provisions of the 1940
Act, as they from time to time authorize. The Trustees may authorize any
Distributor, Principal Underwriter, Custodian, Transfer Agent or other Person
to accept orders for the purchase of Shares that conform to such authorized
terms and to reject any purchase orders for Shares, whether or not conforming
to such authorized terms.
SECTION 6.5 No Preemptive Rights. No Shareholder, by virtue of
holding Shares of any Portfolio, shall have any preemptive or other right to
subscribe to any additional Shares of that Portfolio, or to any shares of any
other Portfolio, or any other Securities issued by the Trust.
SECTION 6.6 Status of Shares. Every Shareholder, by virtue of having
become a Shareholder, shall be held to have expressly assented and agreed to
the terms hereof and to have become a party hereto. Shares shall be deemed to
be personal property, giving only the rights provided herein. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or
any part of the Trust Property or right to call for a partition or division of
the same or for an accounting, nor shall the ownership of Shares constitute
the Shareholders partners. The death of a Shareholder during the continuance
of the Trust shall not operate to terminate the Trust or any Portfolio, nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Declaration of Trust.
ARTICLE 7
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.1 Voting Powers. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Sections
4.1(c) and (e) hereof, (ii) with respect to the approval or termination in
accordance with the 1940 Act of any contract with a Contracting Party as
provided in Section 5.2 hereof as to which Shareholder approval is required by
the 1940 Act, (iii) with respect to any termination or reorganization of the
Trust or any Portfolio to the extent and as provided in Sections 9.1 and 9.2
hereof, (iv) with respect to any amendment of this Declaration of Trust to the
extent and as provided in Section 9.3 hereof, (v) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or any
Portfolio, or the Shareholders of any of them (provided, however, that a
Shareholder of a particular Portfolio shall not in any event be entitled to
maintain a derivative or class action on behalf of any other Portfolio or the
Shareholders thereof), and (vi) with respect to such additional matters
relating to the Trust as may be required by the 1940 Act, this Declaration of
Trust, the Bylaws or any registration of the Trust with the Commission (or any
successor agency) or any State, or as the Trustees may consider necessary or
desirable. If and to the extent that the Trustees shall determine that such
action is required by law or by this Declaration, they shall cause each matter
required or permitted to be voted upon at a meeting or by written consent of
Shareholders to be submitted to a separate vote of the outstanding Shares of
each Portfolio entitled to vote thereon; provided, that (i) when expressly
required by the 1940 Act or by other law, actions of Shareholders shall be
taken by Single Class Voting of all outstanding Shares of each Series whose
holders are entitled to vote thereon; and (ii) when the Trustees determine
that any matter to be submitted to a vote of Shareholders affects only the
rights or interests of Shareholders of one or more but not all Portfolios,
then only the Shareholders of the Portfolios so affected shall be entitled to
vote thereon.
<PAGE>24
SECTION 7.2 Number of Votes and Manner of Voting; Proxies. On each
matter submitted to a vote of the Shareholders, each holder of Shares of any
Series shall be entitled to a number of votes equal to the number of Shares of
such Series standing in his name on the books of the Trust. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person
or by proxy. A proxy with respect to Shares held in the name of two (2) or
more Persons shall be valid if executed by any one of them unless at or prior
to exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the
challenger. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of
Trust or the Bylaws to be taken by Shareholders.
SECTION 7.3 Meetings. Meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided, or
upon any other matter deemed by the Trustees to be necessary or desirable.
Written notice of any meeting of Shareholders shall be given or caused to be
given by the Trustees by mailing such notice at least seven (7) days before
such meeting, postage prepaid, stating the time, place and purpose of the
meeting, to each Shareholder at the Shareholder's address as it appears on the
records of the Trust. The Trustees shall promptly call and give notice of a
meeting of Shareholders for the purpose of voting upon removal of any Trustee
of the Trust when requested to do so in writing by Shareholders holding not
less than ten percent (10%) of the Shares then outstanding. If the Trustees
shall fail to call or give notice of any meeting of Shareholders for a period
of thirty (30) days after written application by Shareholders holding at least
ten percent (10%) of the Shares then outstanding requesting that a meeting be
called for any other purpose requiring action by the Shareholders as provided
herein or in the Bylaws, then Shareholders holding at least ten percent (10%)
of the Shares then outstanding may call and give notice of such meeting, and
thereupon the meeting shall be held in the manner provided for herein in case
of call thereof by the Trustees.
SECTION 7.4 Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution,
or for the purpose of any other action, the Trustees may from time to time
close the transfer books for such period, not exceeding thirty (30) days
(except at or in connection with the termination of the Trust), as the
Trustees may determine; or without closing the transfer books the Trustees may
fix a date and time not more than sixty (60) days prior to the date of any
meeting of Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares,
and no Shareholder becoming such after that date and time shall be so entitled
to vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.
SECTION 7.5 Quorum and Required Vote. A majority of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a
reasonable time after the date set for the original meeting without the
necessity of further notice. A Majority Shareholder Vote at a meeting of
which a quorum is present shall decide any question, except when a different
vote is required or permitted by any provision of the 1940 Act or other
applicable law or
<PAGE>25
by this Declaration of Trust or the By-Laws, or when the Trustees shall in
their discretion require a larger vote or the vote of a majority or larger
fraction of the Shares of one or more particular Series.
SECTION 7.6 Action by Written Consent. Subject to the provisions of
the 1940 Act and other applicable law, any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof or of the Shares of any particular
Series as shall be required by the 1940 Act or by any express provision of
this Declaration of Trust or the Bylaws or as shall be permitted by the
Trustees) consent to the action in writing and if the writings in which such
consent is given are filed with the records of the meetings of Shareholders,
to the same extent and for the same period as proxies given in connection
with a Shareholders' meeting. Such consent shall be treated for all purposes
as a vote taken at a meeting of Shareholders.
SECTION 7.7 Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
stockholders of a Massachusetts business corporation under the Massachusetts
Business Corporation Law.
SECTION 7.8 Additional Provisions. The Bylaws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE 8
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 8.1 Trustees, Shareholders, etc. Not Personally Liable;
Notice. The Trustees and officers of the Trust, in incurring any debts,
liabilities or obligations, or in taking or omitting any other actions for or
in connection with the Trust, are or shall be deemed to be acting as Trustees
or officers of the Trust and not in their own capacities. No Shareholder
shall be subject to any personal liability whatsoever in tort, contract or
otherwise to any other Person or Persons in connection with the assets or the
affairs of the Trust or of any Portfolio, and subject to Section 8.4 hereof,
no Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever in tort, contract, or otherwise, to any other
Person or Persons in connection with the assets or affairs of the Trust or of
any Portfolio, save only that arising from his own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office or the discharge of his functions. The Trust (or if the
matter relates only to a particular Portfolio, that Portfolio) shall be solely
liable for any and all debts, claims, demands, judgments, decrees, liabilities
or obligations of any and every kind, against or with respect to the Trust or
such Portfolio in tort, contract or otherwise in connection with the assets or
the affairs of the Trust or such Portfolio, and all Persons dealing with the
Trust or any Portfolio shall be deemed to have agreed that resort shall be had
solely to the Trust Property of the Trust or the Portfolio Assets of such
Portfolio, as the case may be, for the payment or performance thereof.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers or officer shall give notice that this Declaration
of Trust is on file with the Secretary of The Commonwealth of Massachusetts
and shall recite to the effect that the same was executed or made by or on
behalf of the Trust or by them as Trustees or Trustee or as officers or of-
ficer, and not individually, and that the obligations of such instrument are
not binding upon any of them or the Shareholders individually but are binding
only upon the assets and property of the Trust, or the particular Portfolio in
question, as the case may be, but the omission thereof shall not operate to
bind any
<PAGE>26
Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually, or to subject the Portfolio Assets of any Portfolio to the
obligations of any other Portfolio.
SECTION 8.2 Trustees' Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. Subject to Section 8.4 hereof, a
Trustee shall be liable for his own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. Subject to the foregoing, (i) the
Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, consultant, Investment Adviser,
Administrator, Distributor or Principal Underwriter, Custodian or Transfer
Agent, Dividend Disbursing Agent, Shareholder Servicing Agent or Accounting
Agent of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee; (ii) the Trustees may take advice of counsel or
other experts with respect to the meaning and operation of this Declaration of
Trust and their duties as Trustees, and shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice; and (iii) in discharging their duties, the Trustees, when acting in
good faith, shall be entitled to rely upon the books of account of the Trust
and upon written reports made to the Trustees by any officer appointed by
them, any independent public accountant, and (with respect to the subject
matter of the contract involved) any officer, partner or responsible employee
of a Contracting Party appointed by the Trustees pursuant to Section 5.2
hereof. The Trustees as such shall not be required to give any bond or surety
or any other security for the performance of their duties.
SECTION 8.3 Indemnification of Shareholders. If any Shareholder (or
former Shareholder) of the Trust shall be charged or held to be personally
liable for any obligation or liability of the Trust solely by reason of being
or having been a Shareholder and not because of such Shareholder's acts or
omissions or for some other reason, the Trust (upon proper and timely request
by the Shareholder) shall assume the defense against such charge and satisfy
any judgment thereon, and the Shareholder or former Shareholder (or the heirs,
executors, administrators or other legal representatives thereof, or in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled (but solely out of the assets of the Portfolio of
which such Shareholder or former Shareholder is or was the holder of Shares)
to be held harmless from and indemnified against all loss and expense arising
from such liability.
SECTION 8.4 Indemnification of Trustees, Officers, etc. Subject to
the limitations set forth hereinafter in this Section 8.4, the Trust shall
indemnify (from the assets of the Portfolio or Portfolios to which the conduct
in question relates) each of its Trustees and officers (including Persons who
serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise [hereinafter, together with such Person's heirs, executors,
administrators or personal representative, referred to as a "Covered Person"])
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person
may be or may have been threatened, while in office or thereafter, by reason
of being or having been such a Trustee or officer, director or trustee, except
with respect to any matter as to which it has been determined that such
Covered Person (i) did not act in good faith in the reasonable belief that
such Covered Person's action was in or not opposed to the best interests of
the Trust or (ii) had acted with willful misfeasance, bad faith, gross
negligence
<PAGE>27
or reckless disregard of the duties involved in the conduct of such Covered
Person's office (either and both of the conduct described in (i) and (ii)
being referred to hereafter as "Disabling Conduct"). A determination that the
Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the Covered Person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of the
facts, that the indemnitee was not liable by reason of Disabling Conduct by
(a) a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust as defined in Section 2(a)(19) of the 1940 Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments,
in compromise or as fines or penalties), may be paid from time to time by the
Portfolio or Portfolios to which the conduct in question related in advance of
the final disposition of any such action, suit or proceeding; provided, that
the Covered Person shall have undertaken to repay the amounts so paid to such
Portfolio or Portfolios if it is ultimately determined that indemnification of
such expenses is not authorized under this Article 8 and (i) the Covered
Person shall have provided security for such undertaking, (ii) the Trust shall
be insured against losses arising by reason of any lawful advances, or (iii) a
majority of a quorum of the disinterested Trustees, or an independent legal
counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that there
is reason to believe that the Covered Person ultimately will be found entitled
to indemnification.
SECTION 8.5 Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 8.4
hereof, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless
such indemnification shall be approved (i) by a majority of a quorum of the
disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent
legal counsel pursuant to clause (ii) shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with
either of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered Person's action
was in or not opposed to the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
SECTION 8.6 Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article 8 shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article 8, a "disinterested" Person is one against whom none of the
actions, suits or other proceedings in question, and no other action, suit or
other proceeding on the same or similar grounds is then or has been pending or
threatened. Nothing contained in this Article 8 shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees and
officers, and other Persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability insurance
on behalf of any such Person.
SECTION 8.7 Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or
<PAGE>28
to be made by the Trustees or to see to the application of any payments made
or property transferred to the Trust or upon its order.
ARTICLE 9
DURATION; REORGANIZATION; AMENDMENTS
SECTION 9.1 Duration and Termination of Trust. Unless terminated as
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to any Portfolio or Series of Shares shall operate
to terminate the Trust. The Trust may be terminated at any time by a Majority
of the Trustees, subject to the favorable vote of the holders of not less than
a majority of the Shares outstanding and entitled to vote of each Portfolio of
the Trust, or by an instrument or instruments in writing without a meeting,
consented to by the holders of not less than a majority of such Shares, or by
such greater or different vote of Shareholders of any Series as may be
established by the Certificate of Designation by which such Series was
authorized. Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or
anticipated as may be determined by the Trustees, the Trust shall in
accordance with such procedures as the Trustees consider appropriate reduce
the remaining assets to distributable form in cash, Securities or other
property, or any combination thereof, and distribute the proceeds to the
Shareholders, in conformity with the provisions of Section 6.2(d) hereof.
SECTION 9.2 Reorganization. The Trustees may sell, convey and
transfer all or substantially all of the assets of the Trust, or the assets
belonging to any one or more Portfolios, to another trust, partnership,
association or corporation organized under the laws of any state of the United
States, or may transfer such assets to another Portfolio of the Trust, in
exchange for cash, Shares or other Securities (including, in the case of a
transfer to another Portfolio of the Trust, Shares of such other Portfolio),
or to the extent permitted by law then in effect may merge or consolidate the
Trust or any Portfolio with any other Trust or any corporation, partnership,
or association organized under the laws of any state of the United States, all
upon such terms and conditions and for such consideration when and as
authorized by vote or written consent of a Majority of the Trustees and
approved by the affirmative vote of the holders of not less than a majority of
the Shares outstanding and entitled to vote of each Portfolio whose assets are
affected by such transaction, or by an instrument or instruments in writing
without a meeting, consented to by the holders of not less than a majority of
such Shares, and/or by such other vote of any Series as may be established by
the Certificate of Designation with respect to such Series. Following such
transfer, the Trustees shall distribute the cash, Shares or other Securities
or other consideration received in such transaction (giving due effect to the
assets belonging to and indebtedness of, and any other differences among, the
various Portfolios of which the assets have so been transferred) among the
Shareholders of the Portfolio of which the assets have been so transferred;
and if all of the assets of the Trust have been so transferred, the Trust
shall be terminated. Nothing in this Section 9.2 shall be construed as
requiring approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or
other organizations, and to sell, convey or transfer less than substantially
all of the Trust Property or the assets belonging to any Portfolio to such
organizations or entities.
SECTION 9.3 Amendments; etc. All rights granted to the Shareholders
under this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided, except that no
amendment shall repeal the limitations on personal liability of any
Shareholder or Trustee or the prohibition of assessment upon the Shareholders
(otherwise
<PAGE>29
than as permitted under Section 6.2(h) hereof) without the express consent of
each Shareholder or Trustee involved. Subject to the foregoing, the
provisions of this Declaration of Trust (whether or not related to the rights
of Shareholders) may be amended at any time, so long as such amendment does
not adversely affect the rights of any Shareholder with respect to which such
amendment is or purports to be applicable and so long as such amendment is not
in contravention of applicable law, including the 1940 Act, by an instrument
in writing signed by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees). Any amendment to this
Declaration of Trust that adversely affects the rights of all Shareholders may
be adopted at any time by an instrument in writing signed by a Majority of the
Trustees (or by an officer of the Trust pursuant to a vote of a Majority of
the Trustees) when authorized to do so by the vote in accordance with Section
7.1 hereof of Shareholders holding a majority of all the Shares outstanding
and entitled to vote, without regard to Series, or if said amendment adversely
affects the rights of the Shareholders of less than all of the Portfolios, by
the vote of the holders of a majority of all the Shares entitled to vote of
each Portfolio so affected. Subject to the foregoing, any such amendment
shall be effective when the instrument containing the terms thereof and a
certificate (which may be a part of such instrument) to the effect that such
amendment has been duly adopted, and setting forth the circumstances thereof,
shall have been executed and acknowledged by a Trustee or officer of the Trust
and filed as provided in Section 9.4 hereof.
SECTION 9.4 Filing of Copies of Declaration and Amendments. The
original or a copy of this Declaration and of each amendment hereto (including
each Certificate of Designation and Certificate of Termination), shall be kept
at the office of the Trust where it may be inspected by any Shareholder, and
one copy of each such instrument shall be filed with the Secretary of The
Commonwealth of Massachusetts, as well as with any other governmental office
where such filing may from time to time be required by the laws of
Massachusetts. A restated Declaration, integrating into a single instrument
all of the provisions of this Declaration which are then in effect and
operative, may be executed from time to time by a Majority of the Trustees and
shall, upon filing with the Secretary of The Commonwealth of Massachusetts, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 Governing Law. This Declaration of Trust is executed and
delivered in The Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the construction and effect of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth.
SECTION 10.2 Counterparts. This Declaration of Trust and any amendment
thereto may be simultaneously executed in several counterparts, each of which
so executed shall be deemed to be an original, and such counterparts,
together, shall constitute but one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.
SECTION 10.3 Reliance by Third Parties. Any certificate executed by an
individual who, according to the records in the office of the Secretary of The
Commonwealth of Massachusetts appears to be a Trustee hereunder, certifying
to: (a) the number or identity of Trustees or Shareholders, (b) the due
authorization of the execution of any instrument or writing, (c) the form of
any vote passed as a meeting of Trustees or Shareholders, (d) the fact that
the number of Trustees or
<PAGE>30
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration of Trust, (e) the form of any
By-Law adopted, or the identity of any officers elected, by the Trustees, or
(f) the existence or non-existence of any fact or facts which in any manner
relate to the affairs of the Trust, shall be conclusive evidence as to the
matters so certified in favor of any Person dealing with the Trustees, or any
of them, and the successors of such Person.
SECTION 10.4 References; Headings. The masculine gender shall include
the feminine and neuter genders. Headings are placed herein for convenience
of reference only and shall not be taken as a part of this Declaration or
control or affect the meaning, construction or effect hereof.
SECTION 10.5 Use of the Name "Warburg, Pincus". Warburg, Pincus
Counsellors, Inc. ("WPCI") has consented to the use by the Trust of the
identifying name "Warburg, Pincus," which is a property right of WPCI. The
Trust will only use the name "Warburg, Pincus" as a component of its name and
for no other purpose, and will not purport to grant to any third party the
right to use the name "Warburg, Pincus" for any purpose. WPCI or any
corporate affiliate of WPCI may use or grant to others the right to use the
name "Warburg, Pincus" as all or a portion of a corporate or business name or
for any commercial purpose, including a grant of such right to any other
investment company. At the request of WPCI, the Trust will take such action
as may be required to provide its consent to the use of such name by WPCI, or
any corporate affiliate of WPCI, or by any Person to whom WPCI or an affiliate
of WPCI shall have granted the right to the use of the name "Warburg, Pincus."
Upon the termination of any investment advisory or management agreement into
which WPCI and the Trust may enter, the Trust shall, upon request by WPCI,
cease to use the name "Warburg, Pincus" as a component of its name, and shall
not use such name or initials as a part of its name or for any other
commercial purpose, and shall cause
<PAGE>31
its officers and Trustees to take any and all actions which WPCI may request
to effect the foregoing and to reconvey to WPCI or such corporate affiliate
any and all rights to such name.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal,
for himself and his assigns, and has thereby accepted the Trusteeship as the
Initial Trustee of Warburg, Pincus Trust hereby granted and agreed to the
provisions hereof, all as of the day and year first above written.
/s/ Thomas E. Weesner
Thomas E. Weesner
The undersigned Settlor of Warburg, Pincus Trust hereby accepts, approves
and authorizes the foregoing Agreement and Declaration of Trust of Warburg,
Pincus Trust.
/s/ Bryan G. Tyson
Bryan G. Tyson
<PAGE>
ACKNOWLEDGMENTS
M A S S A C H U S E T T S
Suffolk, ss.: March ___, 1995
Then personally appeared the above-named Thomas E. Weesner and
acknowledged the foregoing instrument to be his free act and deed.
Before me
Notary Public
My commission expires:
M A S S A C H U S E T T S
Suffolk, ss.: March ___, 1995
Then personally appeared the above-named Bryan G. Tyson and acknowledged
the foregoing instrument to be his free act and deed.
Before me
Notary Public
My commission expires:
<PAGE>
WARBURG, PINCUS TRUST
Bylaws
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 SHAREHOLDERS AND SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . 1
1.1 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Presiding Officer; Secretary . . . . . . . . . . . . . . . . . . 1
1.3 Authority of Chairman of Meeting to Interpret Declaration and
Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Voting; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Shareholders' Action in Writing . . . . . . . . . . . . . . . . . 2
ARTICLE 2 TRUSTEES AND TRUSTEES' MEETINGS . . . . . . . . . . . . . . . . . 2
2.1 Number of Trustees . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Regular Meetings of Trustees . . . . . . . . . . . . . . . . . . 2
2.4 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Quorum; Presiding Officer . . . . . . . . . . . . . . . . . . . . 2
2.6 Participation by Telephone . . . . . . . . . . . . . . . . . . . 3
2.7 Location of Meetings . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Votes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Rulings of Chairman . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Trustees' Action in Writing . . . . . . . . . . . . . . . . . . . 3
2.11 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Time and Terms of Election . . . . . . . . . . . . . . . . . . . 3
3.3 Resignation and Removal . . . . . . . . . . . . . . . . . . . . . 3
3.4 Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7 Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . 4
3.8 Chief Accounting Officer and Assistant Accounting Officers . . . 4
3.9 Secretary and Assistant Secretaries . . . . . . . . . . . . . . . 4
3.10 Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.11 Execution of Deeds, etc. . . . . . . . . . . . . . . . . . . . . 5
3.12 Power to Vote Securities . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4 COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Power of Trustees to Designate Committees . . . . . . . . . . . . 5
4.2 Rules for Conduct of Committee Affairs . . . . . . . . . . . . . 5
4.3 Trustees May Alter, Abolish, etc., Committees . . . . . . . . . . 6
4.4 Minutes; Review by Trustees . . . . . . . . . . . . . . . . . . . 6
<PAGE>
ARTICLE 5 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 6 SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Uncertificated Shares . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Share Certificates . . . . . . . . . . . . . . . . . . . . . . . 6
6.4 Lost, Stolen, etc., Certificates . . . . . . . . . . . . . . . . 7
6.5 Record Transfer of Pledged Shares . . . . . . . . . . . . . . . . 7
ARTICLE 7 CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 8 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1 Bylaws Subject to Amendment . . . . . . . . . . . . . . . . . . . 7
8.2 Notice of Proposal to Amend Bylaws Required . . . . . . . . . . . 7
<PAGE>1
WARBURG, PINCUS TRUST
BYLAWS
These Articles are the Bylaws of Warburg, Pincus Trust, a trust with
transferable shares established under the laws of The Commonwealth of
Massachusetts (the "Trust"), pursuant to an Agreement and Declaration of Trust
of the Trust (the "Declaration") made the 15th day of March, 1995, and filed
in the office of the Secretary of the Commonwealth. These Bylaws have been
adopted by the Trustees pursuant to the authority granted by Section 3.1 of
the Declaration.
All words and terms capitalized in these Bylaws, unless otherwise defined
herein, shall have the same meanings as they have in the Declaration.
ARTICLE 1
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
SECTION 1.1 Meetings. A meeting of the Shareholders of the Trust
shall be held whenever called by the Trustees and whenever election of a
Trustee or Trustees by Shareholders is required by the provisions of the 1940
Act. Meetings of Shareholders shall also be called by the Trustees when
requested in writing by Shareholders holding at least ten percent (10%) of the
Shares then outstanding for the purpose of voting upon removal of any Trustee,
or if the Trustees shall fail to call or give notice of any such meeting of
Shareholders for a period of thirty (30) days after such application, then
Shareholders holding at least ten percent (10%) of the Shares then outstanding
may call and give notice of such meeting. Notice of Shareholders' meetings
shall be given as provided in the Declaration.
SECTION 1.2 Presiding Officer; Secretary. The Trustees present at any
Shareholders' meeting shall elect one of their number as chairman of the
meeting. Unless otherwise provided for by the Trustees, the Secretary of the
Trust shall be the secretary of all meetings of Shareholders and shall record
the minutes thereof.
SECTION 1.3 Authority of Chairman of Meeting to Interpret Declaration
and Bylaws. At any Shareholders' meeting the chairman of the meeting shall be
empowered to determine the construction or interpretation of the Declaration
or these Bylaws, or any part thereof or hereof, and his ruling shall be final.
SECTION 1.4 Voting; Quorum. At each meeting of Shareholders, except
as otherwise provided by the Declaration, every holder of record of Shares
entitled to vote shall be entitled to a number of votes equal to the number of
Shares standing in his name on the Share register of the Trust. Shareholders
may vote by proxy and the form of any such proxy may be prescribed from time
to time by the Trustees. A quorum shall exist if the holders of a majority of
the outstanding Shares of the Trust entitled to vote without regard to Series
are present in person or by proxy, but any lesser number shall be sufficient
for adjournments. At all meetings of the Shareholders, votes
<PAGE>2
shall be taken by ballot for all matters which may be binding upon the
Trustees pursuant to Section 7.1 of the Declaration. On other matters, votes
of Shareholders need not be taken by ballot unless otherwise provided for by
the Declaration or by vote of the Trustees, or as required by the 1940 Act,
but the chairman of the meeting may in his discretion authorize any matter to
be voted upon by ballot.
SECTION 1.5 Inspectors. At any meeting of Shareholders, the chairman
of the meeting may appoint one or more Inspectors of Election or Balloting to
supervise the voting at such meeting or any adjournment thereof. If
Inspectors are not so appointed, the chairman of the meeting may, and on the
request of any Shareholder present or represented and entitled to vote shall,
appoint one or more Inspectors for such purpose. Each Inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of Inspector of Election or Balloting, as the
case may be, at such meeting with strict impartiality and according to the
best of his ability. If appointed, Inspectors shall take charge of the polls
and, when the vote is completed, shall make a certificate of the result of the
vote taken and of such other facts as may be required by law.
SECTION 1.6 Shareholders' Action in Writing. Nothing in this Article
1 shall limit the power of the Shareholders to take any action by means of
written instruments without a meeting, as permitted by Section 7.6 of the
Declaration.
ARTICLE 2
TRUSTEES AND TRUSTEES' MEETINGS
SECTION 2.1 Number of Trustees. There shall initially be one (1)
Trustee, and the number of Trustees shall thereafter be such number as from
time to time shall be fixed by a vote adopted by a Majority of the Trustees.
SECTION 2.2 Regular Meetings of Trustees. Regular meetings of the
Trustees may be held without call or notice at such places and at such times
as the Trustees may from time to time determine; provided, that notice of
such determination, and of the time, place and purposes of the first regular
meeting thereafter, shall be given to each absent Trustee in accordance with
Section 2.4 hereof.
SECTION 2.3 Special Meetings of Trustees. Special meetings of the
Trustees may be held at any time and at any place when called by the President
or the Treasurer or by two (2) or more Trustees, or if there shall be fewer
than three (3) Trustees, by any Trustee; provided, that notice of the time,
place and purposes thereof is given to each Trustee in accordance with Section
2.4 hereof by the Secretary or an Assistant Secretary or by the officer or the
Trustees calling the meeting.
SECTION 2.4 Notice of Meetings. Notice of any regular or special
meeting of the Trustees shall be sufficient if given in writing to each
Trustee, and if sent by mail at least five (5) days, or by telegram, Federal
Express or other similar delivery service at least twenty-four (24) hours
before the meeting, addressed to his usual or last known business or residence
address, or if delivered to him in person at least twenty-four (24) hours
before the meeting. Notice of a special meeting need not be given to any
Trustee who was present at an earlier meeting, not more than thirty-one (31)
days prior to the subsequent meeting, at which the subsequent meeting was
called. Notice of a meeting may be waived by any Trustee by written waiver of
notice, executed by him before or after the meeting, and such waiver shall be
filed with the records of the meeting. Attendance by a Trustee at
<PAGE>3
a meeting shall constitute a waiver of notice, except where a Trustee attends
a meeting for the purpose of protesting prior thereto or at its commencement
the lack of notice.
SECTION 2.5 Quorum; Presiding Officer. At any meeting of the
Trustees, a Majority of the Trustees shall constitute a quorum. Any meeting
may be adjourned from time to time by a majority of the votes cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice. Unless the Trustees have elected otherwise,
either generally or in a particular case, the Trustees present at each meeting
shall elect one of their number as chairman of such meeting.
SECTION 2.6 Participation by Telephone. One or more of the Trustees
may participate in a meeting thereof or of any Committee of the Trustees by
means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
SECTION 2.7 Location of Meetings. Trustees' meetings may be held at
any place within or without Massachusetts.
SECTION 2.8 Votes. Voting at Trustees' meetings may be conducted
orally, by show of hands or, if requested by any Trustee, by written ballot.
The results of all voting shall be recorded by the Secretary in the minute
book.
SECTION 2.9 Rulings of Chairman. All other rules of conduct adopted
and used at any Trustees' meeting shall be determined by the chairman of such
meeting, whose ruling on all procedural matters shall be final.
SECTION 2.10 Trustees' Action in Writing. Nothing in this Article
2 shall limit the power of the Trustees to take action by means of a written
instrument without a meeting, as provided in Section 4.2 of the Declaration.
SECTION 2.11 Resignations. Any Trustee may resign at any time by
written instrument signed by him and delivered to the President or the
Secretary or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
ARTICLE 3
OFFICERS
SECTION 3.1 Officers of the Trust. The officers of the Trust shall
consist of a President, a Treasurer and a Secretary, and may include one or
more Vice Presidents, Assistant Treasurers and Assistant Secretaries, and such
other officers as the Trustees may designate. Any person may hold more than
one office.
SECTION 3.2 Time and Terms of Election. The President, the Treasurer
and the Secretary shall be elected by the Trustees at their first meeting and
shall hold office until their successors shall have been duly elected and
qualified, and may be removed at any meeting by the affirmative vote of a
Majority of the Trustees. All other officers of the Trust may be elected or
appointed at any
<PAGE>4
meeting of the Trustees. Such officers shall hold office for any term, or
indefinitely, as determined by the Trustees, and shall be subject to removal,
with or without cause, at any time by the Trustees.
SECTION 3.3 Resignation and Removal. Any officer may resign at any
time by giving written notice to the Trustees. Such resignation shall take
effect at the time specified therein, and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it
effective. If the office of any officer or agent becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office or
otherwise, the Trustees may choose a successor, who shall hold office for the
unexpired term in respect of which such vacancy occurred. Except to the
extent expressly provided in a written agreement with the Trust, no officer
resigning or removed shall have any right to any compensation for any period
following such resignation or removal, or any right to damage on account of
such removal.
SECTION 3.4 Fidelity Bond. The Trustees may, in their discretion,
direct any officer appointed by them to furnish at the expense of the Trust a
fidelity bond approved by the Trustees, in such amount as the Trustees may
prescribe.
SECTION 3.5 President. Unless the Trustees otherwise provide, the
President shall preside at all meetings of the Shareholders and of the
Trustees. The President, subject to the supervision of the Trustees, shall
have general charge and supervision of the business, property, affairs and
personnel of the Trust and such other powers and duties as the Trustees may
prescribe.
SECTION 3.6 Vice Presidents. In the absence or disability of the
President, the Vice President or, if there shall be more than one, the Vice
Presidents in the order of their seniority or as otherwise designated by the
Trustees, shall exercise all of the powers and duties of the President. The
Vice Presidents shall have the power to execute bonds, notes, mortgages and
other contracts, agreements and instruments in the name of the Trust, and
shall do and perform such other duties as the Trustees or the President shall
direct.
SECTION 3.7 Treasurer and Assistant Treasurers. The Treasurer shall
be the chief financial officer of the Trust, and shall have the custody of the
Trust's funds and Securities, and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit
all moneys, and other valuable effects in the name and to the credit of the
Trust, in such depositories as may be designated by the Trustees, taking
proper vouchers for such disbursements, shall have such other duties and
powers as may be prescribed from time to time by the Trustees, and shall
render to the Trustees, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the Trust. If no
Controller is elected, the Treasurer shall also have the duties and powers of
the Controller, as provided in these Bylaws. Any Assistant Treasurer shall
have such duties and powers as shall be prescribed from time to time by the
Trustees or the Treasurer, and shall be responsible to and shall report to the
Treasurer. In the absence or disability of the Treasurer, the Assistant
Treasurer or, if there shall be more than one, the Assistant Treasurers in the
order of their seniority or as otherwise designated by the Trustees shall have
the powers and duties of the Treasurer.
SECTION 3.8 Chief Accounting Officer and Assistant Accounting
Officers. If a Chief Accounting Officer is elected, he shall be the chief
accounting officer of the Trust and shall be in charge of its books of account
and accounting records and of its accounting procedures, and shall have such
duties and powers as are commonly incident to the office of a controller, and
such other duties and powers as may be prescribed from time to time by the
Trustees. The Controller shall be responsible to and shall report to the
Trustees, but in the ordinary conduct of the Trust's business,
<PAGE>5
shall be under the supervision of the Treasurer. Any Assistant Accounting
Officer shall have such duties and powers as shall be prescribed from time to
time by the Trustees or the Chief Accounting Officer, and shall be responsible
to and shall report to the Chief Accounting Officer. In the absence or
disability of the Chief Accounting Officer, the Assistant Accounting Officer
or, if there shall be more than one, the Assistant Accounting Officers in the
order of their seniority or as otherwise designated by the Trustees shall have
the powers and duties of the Chief Accounting Officer.
SECTION 3.9 Secretary and Assistant Secretaries. The Secretary
shall, if and to the extent requested by the Trustees, attend all meetings of
the Trustees, any Committee of the Trustees and/or the Shareholders and record
all votes and the minutes of proceedings in a book to be kept for that
purpose, shall give or cause to be given notice of all meetings of the
Trustees, any Committee of the Trustees, and of the Shareholders and shall
perform such other duties as may be prescribed by the Trustees. The
Secretary, or in his absence any Assistant Secretary, shall affix the Trust's
seal to any instrument requiring it, and when so affixed, it shall be attested
by the signature of the Secretary or an Assistant Secretary. The Secretary
shall be the custodian of the Share records and all other books, records and
papers of the Trust (other than financial) and shall see that all books,
reports, statements, certificates and other documents and records required by
law are properly kept and filed. In the absence or disability of the
Secretary, the Assistant Secretary or, if there shall be more than one, the
Assistant Secretaries in the order of their seniority or as otherwise
designated by the Trustees shall have the powers and duties of the Secretary.
SECTION 3.10 Substitutions. In case of the absence or disability
of any officer of the Trust, or for any other reason that the Trustees may
deem sufficient, the Trustees may delegate for the time being the powers or
duties, or any of them, of such officer to any other officer, or to any
Trustee.
SECTION 3.11 Execution of Deeds, etc. Except as the Trustees may
generally or in particular cases otherwise authorize or direct, all deeds,
leases, transfers, contracts, proposals, bonds, notes, checks, drafts and
other obligations made, accepted or endorsed by the Trust shall be signed or
endorsed on behalf of the Trust by the President, one of the Vice Presidents
or the Treasurer.
SECTION 3.12 Power to Vote Securities. Unless otherwise ordered
by the Trustees, the Treasurer and the Secretary each shall have full power
and authority on behalf of the Trust to give proxies for and/or to attend and
to act and to vote at any meeting of stockholders of any corporation in which
the Trust may hold stock, and at any such meeting the Treasurer or the
Secretary, as the case may be, his proxy shall possess and may exercise any
and all rights and powers incident to the ownership of such stock which, as
the owner thereof, the Trust might have possessed and exercised if present.
The Trustees, by resolution from time to time, or, in the absence thereof,
either the Treasurer or the Secretary, may confer like powers upon any other
person or persons as attorneys and proxies of the Trust.
ARTICLE 4
COMMITTEES
SECTION 4.1 Power of Trustees to Designate Committees. The Trustees,
by vote of a Majority of the Trustees, may elect from their number an
Executive Committee and any other Committees and may delegate thereto some or
all of their powers except those which by law, by the Declaration or by these
Bylaws may not be delegated; provided, that the Executive Committee shall
<PAGE>6
not be empowered to elect the President, the Treasurer or the Secretary, to
amend the Bylaws, to exercise the powers of the Trustees under this Section
4.1 or under Section 4.3 hereof, or to perform any act for which the action of
a Majority of the Trustees is required by law, by the Declaration or by these
Bylaws. The members of any such Committee shall serve at the pleasure of the
Trustees.
SECTION 4.2 Rules for Conduct of Committee Affairs. Except as
otherwise provided by the Trustees, each Committee elected or appointed
pursuant to this Article 4 may adopt such standing rules and regulations for
the conduct of its affairs as it may deem desirable, subject to review and
approval of such rules and regulations by the Trustees at the next succeeding
meeting of the Trustees, but in the absence of any such action or any contrary
provisions by the Trustees, the business of each Committee shall be conducted,
so far as practicable, in the same manner as provided herein and in the
Declaration for the Trustees.
SECTION 4.3 Trustees May Alter, Abolish, etc., Committees. The
Trustees may at any time alter or abolish any Committee, change the membership
of any Committee, or revoke, rescind or modify any action of any Committee or
the authority of any Committee with respect to any matter or class of matters;
provided, that no such action shall impair the rights of any third parties.
SECTION 4.4 Minutes; Review by Trustees. Any Committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees.
ARTICLE 5
SEAL
The seal of the Trust shall consist of a flat-faced circular die with the
word "Massachusetts", together with the name of the Trust, the words "Trust
Seal", and the year of its organization cut or engraved thereon, but, unless
otherwise required by the Trustees, the seal shall not be necessary to be
placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE 6
SHARES
SECTION 6.1 Issuance of Shares. The Trustees may issue Shares of any
or all Series either in certificated or uncertificated form, they may issue
certificates to the holders of Shares of a Series which was originally issued
in uncertificated form, and if they have issued Shares of any Series in
certificated form, they may at any time discontinue the issuance of Share
certificates for such Series and may, by written notice to such Shareholders
of such Series require the surrender of their Share certificates to the Trust
for cancellation, which surrender and cancellation shall not affect the
ownership of Shares for such Series.
SECTION 6.2 Uncertificated Shares. For any Series of Shares for which
the Trustees issue Shares without certificates, the Trust or the Transfer
Agent may either issue receipts therefor or may keep accounts upon the books
of the Trust for the record holders of such Shares, who shall in either case
be deemed, for all purposes hereunder, to be the holders of such Shares as if
they had received
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certificates therefor and shall be held to have expressly assented and agreed
to the terms hereof and of the Declaration.
SECTION 6.3 Share Certificates. For any Series of Shares for which
the Trustees shall issue Share certificates, each Shareholder of such Series
shall be entitled to a certificate stating the number of Shares owned by him
in such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the President or a Vice-President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Trust. Such signatures may be facsimiles if the certificate is
countersigned by a Transfer Agent, or by a Registrar, other than a Trustee,
officer or employee of the Trust. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall cease to be such
officer before such certificate is issued, it may be issued by the Trust with
the same effect as if he were such officer at the time of its issue.
SECTION 6.4 Lost, Stolen, etc., Certificates. If any certificate for
certificated Shares shall be lost, stolen, destroyed or mutilated, the
Trustees may authorize the issuance of a new certificate of the same tenor and
for the same number of Shares in lieu thereof. The Trustees shall require the
surrender of any mutilated certificate in respect of which a new certificate
is issued, and may, in their discretion, before the issuance of a new
certificate, require the owner of a lost, stolen or destroyed certificate, or
the owner's legal representative, to make an affidavit or affirmation setting
forth such facts as to the loss, theft or destruction as they deem necessary,
and to give the Trust a bond in such reasonable sum as the Trustees direct, in
order to indemnify the Trust.
SECTION 6.5 Record Transfer of Pledged Shares. A pledgee of Shares
pledged as collateral security shall be entitled to a new certificate in his
name as pledgee, in the case of certificated Shares, or to be registered as
the holder in pledge of such Shares in the case of uncertificated Shares;
provided, that the instrument of pledge substantially describes the debt or
duty that is intended to be secured thereby. Any such new certificate shall
express on its face that it is held as collateral security, and the name of
the pledgor shall be stated thereon, and any such registration of
uncertificated Shares shall be in a form which indicates that the registered
holder holds such Shares in pledge. After such issue or registration, and
unless and until such pledge is released, such pledgee and his successors and
assigns shall alone be entitled to the rights of a Shareholder, and entitled
to vote such Shares.
ARTICLE 7
CUSTODIAN
The Trust shall at all times employ a bank or trust company having a
capital, surplus and undivided profits of at least Two Million Dollars
($2,000,000) as Custodian of the capital assets of the Trust. The Custodian
shall be compensated for its services by the Trust upon such basis as shall be
agreed upon from time to time between the Trust and the Custodian.
ARTICLE 8
AMENDMENTS
SECTION 8.1 Bylaws Subject to Amendment. These Bylaws may be altered,
amended or repealed, in whole or in part, at any time by vote of the holders
of a majority of the Shares (or
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whenever there shall be more than one Series of Shares, of the holders of a
majority of the Shares of each Series) issued, outstanding and entitled to
vote. The Trustees, by vote of a Majority of the Trustees, may alter, amend
or repeal these Bylaws, in whole or in part, including Bylaws adopted by the
Shareholders, except with respect to any provision hereof which by law, the
Declaration or these Bylaws requires action by the Shareholders. Bylaws
adopted by the Trustees may be altered, amended or repealed by the
Shareholders.
SECTION 8.2 Notice of Proposal to Amend Bylaws Required. No proposal
to amend or repeal these Bylaws or to adopt new Bylaws shall be acted upon at
a meeting unless either (i) such proposal is stated in the notice or in the
waiver of notice, as the case may be, of the meeting of the Trustees or
Shareholders at which such action is taken, or (ii) all of the Trustees or
Shareholders, as the case may be, are present at such meeting and all agree to
consider such proposal without protesting the lack of notice.
