<PAGE>
As filed with the U.S. Securities and Exchange Commission
on August 11, 1997
Securities Act File No. 33-58125
Investment Company Act File No. 811-07261
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 4 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 5 [x]
(Check appropriate box or boxes)
Warburg, Pincus Trust
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(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
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(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1)
[x] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of securities
under the Securities Act of 1933, as amended, pursuant to Section (a)(1) of Rule
24f-2 under the Investment Company Act of 1940, as amended (the "1940 Act"), and
to the number or amount presently registered is added an indefinite number or
amount of such securities. The Rule 24f-2 Notice for Registrant's fiscal year
ended December 31, 1996 was filed on February 27, 1997.
<PAGE>
WARBURG, PINCUS TRUST
FORM N-1A
CROSS REFERENCE SHEET
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Part A
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page..................... Cover Page
2. Synopsis....................... The Trust's Expenses
3. Condensed Financial
Information.................... Financial Highlights
4. General Description of
Registrant..................... Cover Page; Investment Objectives and
Policies; Special Risk Considerations
and Certain Investment Strategies;
Investment Guidelines; 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
10. Cover Page..................... Cover Page
11. Table of Contents.............. Contents
12. General Information and
History........................ Management of the Trust
<PAGE>
13. Investment Objective and Investment Objectives;
Policies....................... Investment Policies
14. Management of the
Registrant..................... Management of the Trust
15. Control Persons and
Principal Holders of
Securities..................... Management of the Trust;
Miscellaneous; See Prospectus-
-"Management of the
Portfolios"
16. Investment Advisory and
Other Services.................. Management of the Trust; See
Prospectus--"Management of the
Portfolios"
17. Brokerage Allocation and
Other Practices................. Investment Policies--Portfolio
Transactions; See Prospectus--
"Portfolio Transactions and
Turnover Rate"
18. Capital Stock and Other
Securities...................... Management of the Trust--
Organization of the Trust; See
Prospectus--"Additional
Information"
19. Purchase, Redemption and
Pricing of Securities
Being Offered................... Additional Purchase and Redemption
Information; See Prospectus--"How to
Purchase and Redeem Shares in the
Portfolios"; "Net Asset Value"
20. Tax Status...................... Additional Information
Concerning Taxes; See
Prospectus--"Dividends,
Distributions and Taxes"
21. Underwriters.................... Investment Policies--Portfolio
Transactions; See Prospectus--
"Management of the Portfolios"
22. Calculation of
Performance Data................ Determination of Performance
<PAGE>
23. Financial Statements............ Report of Independent
Accountants; Financial
Statements
Part C
------
Information required to be included in Part C is set forth after
the appropriate item, so numbered, in Part C to this registration statement
amendment.
<PAGE>
REGISTRANT'S PROSPECTUSES AND COMBINED STATEMENT OF ADDITIONAL INFORMATION
FOR THE EMERGING MARKETS PORTFOLIO, THE POST-VENTURE CAPITAL PORTFOLIO, THE
SMALL COMPANY GROWTH PORTFOLIO AND THE INTERNATIONAL EQUITY PORTFOLIO ARE
INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 3 TO THE REGISTRATION
STATEMENT ON FORM N-1A, FILED ON APRIL 9, 1997.
<PAGE>
PROSPECTUS
October , 1997
WARBURG PINCUS TRUST
[ ] GROWTH & INCOME PORTFOLIO
Warburg Pincus Trust shares are not available directly to
individual investors but may be offered only through certain
insurance products and pension and retirement plans.
[Logo]
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 11, 1997
PROSPECTUS October , 1997
Warburg Pincus Trust (the 'Trust') is an open-end management investment company
that currently offers five investment funds, one of which is offered pursuant to
this Prospectus (the 'Portfolio'):
The GROWTH & INCOME PORTFOLIO (the 'Portfolio') seeks long-term growth of
capital and income by investing primarily in dividend-paying equity securities.
Shares of the Portfolio are not available directly to individual investors but
may be offered only to certain (i) life insurance companies ('Participating
Insurance Companies') for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance contracts (together, 'Variable Contracts') and (ii) tax-qualified
pension and retirement plans ('Plans'), including participant-directed Plans
which elect to make the Portfolio an investment option for Plan participants.
The Portfolio may not be available in every state due to various insurance
regulations.
This Prospectus briefly sets forth certain information about the Portfolio that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. This Prospectus should be read in
conjunction with the prospectus of the separate account of the specific
insurance product that accompanies this Prospectus or with the Plan documents or
other informational materials supplied by Plan sponsors. Additional information
about the Portfolio, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission (the 'SEC'). The SEC
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Portfolio. The Statement of Additional Information is also
available upon request and without charge by calling the Trust at (800)
369-2728. Warburg Pincus Funds maintain a Web site at www.warburg.com. The
Statement of Additional Information relating to the Portfolio, as amended or
supplemented from time to time, bears the same date as this Prospectus and is
incorporated by reference in its entirety into this Prospectus.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
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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.
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<PAGE>
THE PORTFOLIO'S EXPENSES
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<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................. 0
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees........................................................ .65%
12b-1 Fees............................................................. 0
Other Expenses......................................................... .35%
---
Total Portfolio Operating Expenses (after fee waivers and expense
reimbursements)...................................................... 1.00%
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:
1 year................................................................. $ 10
3 years................................................................ $ 32
</TABLE>
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* Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, Management Fees for the Portfolio would equal .75%; Other
Expenses would equal .45%; and Total Portfolio Operating Expenses would equal
1.20%. Other Expenses for the Portfolio are based on annualized estimates of
expenses for the fiscal year ending December 31, 1997, net of any fee waivers
or expense reimbursements. The Portfolio's investment adviser and co-
administrator have undertaken to limit the Portfolio's Total Portfolio
Operating Expenses to the limit shown in the table above through December 31,
1999.
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The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a shareholder of the Portfolio. THE TABLE DOES NOT
REFLECT ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE
VARIABLE CONTRACTS OR PLANS; SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE
PROSPECTUS OF THE SPONSORING PARTICIPATING INSURANCE COMPANY SEPARATE ACCOUNT OR
IN THE PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIALS SUPPLIED BY PLAN
SPONSORS. The Example should not be considered a representation of past or
future expenses; actual Portfolio expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Portfolio's
actual performance will vary and may result in a return greater or less than 5%.
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INVESTMENT OBJECTIVES AND POLICIES
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The Growth & Income Portfolio's investment objectives are to seek long-term
growth of capital and income. The Portfolio's objectives are a fundamental
policy and may not be amended without first obtaining the approval of a majority
of the outstanding shares of the Portfolio. Any investment involves risk and,
therefore, there can be no assurance that the Portfolio will achieve its
investment objectives. See 'Portfolio Investments' and 'Certain Investment
Strategies' for descriptions of certain types of investments the Portfolio may
make.
The Portfolio is a diversified management investment fund that pursues its
objectives by investing primarily in equity securities. The policy of the
Portfolio is to invest, under normal market conditions, substantially all of its
assets in equity securities that Warburg, Pincus Counsellors, Inc., the
Portfolio's investment adviser ('Warburg'), considers to be relatively
undervalued. Warburg will determine whether a company is undervalued based upon
research and analysis, taking into account, among other factors, price/earnings
ratio, price/book ratio, price/cash flow ratio, earnings growth, debt/capital
ratio and multiples of earnings of comparable securities. Other relevant
factors, including a company's asset value, franchise value and quality of
management, will also be considered. These factors are not applied to
prospective investments in a mechanical way; rather, Warburg analyzes each
security individually, taking all relevant factors into account. Equity
securities include common stocks, securities which are convertible into common
stocks and readily marketable securities, such as rights and warrants, which
derive their value from common stock.
The Portfolio may hold securities of any size, but currently expects to focus
on companies with market capitalizations of $1 billion or greater at the time of
initial purchase. The Portfolio seeks to achieve its income objective by
investing in dividend-paying equity securities, although the Portfolio may also
derive income from investing in fixed income securities. The amount of income
generated from the Portfolio will fluctuate, and investments in common stock in
general are subject to market risks that may cause their prices to fluctuate
over time. Therefore, an investment in the Portfolio may be more suitable for
long-term investors who can bear the risk of these fluctuations.
The Portfolio may invest up to 20% of its total assets in securities in
foreign issuers and may hold from time to time various foreign currencies
pending investment in foreign securities or conversion into U.S. dollars. The
Portfolio may also purchase without limitation dollar-denominated American
Depositary Receipts ('ADRs'). ADRs are issued by domestic banks and evidence
ownership of underlying foreign securities.
PORTFOLIO INVESTMENTS
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DEBT SECURITIES. The Portfolio may invest up to 20% of its total assets in
debt securities (other than money market obligations) and preferred stocks
that are not convertible into common stock for the purpose of seeking growth
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of capital and income. 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 growth of capital when interest
rates are expected to decline. The success of such a strategy is dependent upon
Warburg's ability to forecast accurately changes in interest rates. The market
value of debt obligations may also be expected to vary depending upon, among
other factors, the ability of the issuer to repay principal and interest, any
change in investment rating and general economic conditions.
Within the 20% limitation on investments in debt securities, up to 10% of the
Portfolio's assets may be invested in debt securities rated below investment
grade. A security will be deemed to be investment grade if it is rated within
the four highest grades by Moody's Investors Service, Inc. ('Moody's') or
Standard & Poor's Ratings Services ('S&P') or, if unrated, is determined to be
of comparable quality by Warburg. Bonds rated in the fourth highest grade may
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. The Portfolio's
holdings of debt securities rated below investment grade (commonly referred to
as 'junk bonds') may be rated as low as C by Moody's or D by S&P at the time of
purchase, or may be unrated securities and considered to be of equivalent
quality. Securities that are rated C by Moody's comprise the lowest rated class
and can be regarded as having extremely poor prospects of ever attaining any
real investment standing. Debt rated D by S&P is in default or is expected to
default upon maturity or payment date.
When Warburg believes that a defensive posture is warranted, the Portfolio
may invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
ASSET-BACKED AND MORTGAGE-BACKED SECURITIES. In addition to the Portfolio's
authority to invest in money market securities but within the 20% limitation on
investments in debt securities, the Portfolio may invest up to 5% of its net
assets in asset-backed securities and mortgage-backed securities:
Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle had not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The Portfolio may purchase
asset-backed securities that are unrated.
Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields
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<PAGE>
than those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
MONEY MARKET OBLIGATIONS. The Portfolio is authorized to invest, under
normal market conditions, up to 20% of its total assets in domestic and foreign
short-term (one year or less remaining to maturity) money market obligations
and, for temporary defensive purposes, may invest in these securities without
limit. Money market instruments consist of obligations issued or guaranteed by
the U.S. government or a foreign government, their agencies or
instrumentalities; bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign banks, domestic savings
and loans and similar institutions) that are high quality investments or, if
unrated, deemed by Warburg to be high quality investments; commercial paper
rated no lower than A-2 by S&P or Prime-2 by Moody's or the equivalent from
another major rating service or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories; and
repurchase agreements with respect to the foregoing.
Repurchase Agreements. The Portfolio may enter into repurchase agreement
transactions with member banks of the Federal Reserve System and certain
non-bank dealers. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under the terms of a typical repurchase agreement,
the Portfolio would acquire any underlying security for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Portfolio's holding
period. 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 in which the Portfolio seeks to assert this right. Warburg, acting under
the supervision of the Trust's Board of Trustees (the 'Board'), monitors the
creditworthiness of those bank and non-bank dealers with which the Portfolio
enters into repurchase agreements to evaluate this risk. A repurchase agreement
is considered to be a loan under the 1940 Act.
5
<PAGE>
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the Portfolio and appropriate considering the factors of return
and liquidity, the Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio, Warburg or
the Portfolio's co-administrator, PFPC Inc. ('PFPC'). As a shareholder in any
mutual fund, the Portfolio will bear its ratable share of the mutual fund's
expenses, including management fees, and will remain subject to payment of the
Portfolio's administrative fees and other expenses with respect to assets so
invested.
U.S. GOVERNMENT SECURITIES. The obligations issued or guaranteed by the U.S.
government in which the Portfolio may invest include: direct obligations of the
U.S. Treasury, obligations issued by U.S. government agencies and
instrumentalities, including instruments that are supported by the full faith
and credit of the United States, instruments that are supported by the right of
the issuer to borrow from the U.S. Treasury and instruments that are supported
by the credit of the instrumentality. Included among direct obligations of the
United States are Treasury Bills, Treasury Notes and Treasury Bonds, which
differ principally in terms of their maturities. Treasury Bills have maturities
of less than one year, Treasury Notes have maturities of one to 10 years and
Treasury Bonds generally have maturities of greater than 10 years at the date of
issuance. Included among the obligations issued by agencies and
instrumentalities of the United States are: instruments that are supported by
the full faith and credit of the United States (such as certificates issued by
the Government National Mortgage Association); instruments that are supported by
the right of the issuer to borrow from the U.S. Treasury (such as securities of
Federal Home Loan Banks), and instruments that are supported by the credit of
the instrumentality (such as Federal National Mortgage Association and Federal
Home Loan Mortgage Corporation bonds).
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolio may
invest, including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible securities of
similar quality. The value of convertible securities fluctuates in relation to
changes in interest rates like bonds and, in addition, fluctuates in relation to
the underlying common stock. The Portfolio may invest in and hold up to 10% of
its net assets in convertible securities rated below investment grade (as low as
C by Moody's or D by S&P) or deemed by Warburg to be of equivalent quality.
WARRANTS. The Portfolio may invest up to 15% of its total assets in
warrants. Warrants are securities that give the holder the right, but not the
obligation, to purchase equity issues of the company issuing the warrants, or
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a related company, at a fixed price either on a date certain or during a set
period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
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Investing in common stocks and securities convertible into common stocks is
subject to the inherent risk of fluctuations in the prices of such securities.
For certain additional risks relating to the Portfolio's investments, see
'Portfolio Investments' beginning at page 3 and 'Certain Investment Strategies'
beginning at page 9.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Portfolio may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the 'Securities Act'), but that can be sold to 'qualified institutional
buyers' in accordance with Rule 144A under the Securities Act ('Rule 144A
Securities'). A Rule 144A Security will be considered illiquid and therefore
subject to the Portfolio's limitation on the purchase of illiquid securities,
unless the Board determines on an ongoing basis that an adequate trading market
exists for the security. In addition to an adequate trading market, the Board
will also consider factors such as trading activity, availability of reliable
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers become uninterested for a time in purchasing Rule
144A Securities. The Board will carefully monitor any investments by the
Portfolio in Rule 144A Securities. The Board may adopt guidelines and delegate
to Warburg the daily function of determining and monitoring the liquidity of
Rule 144A Securities, although the Board will retain ultimate responsibility for
any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
The securities may be less liquid than publicly traded securities. Although
these securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Portfolio. Further, companies whose securities are not publicly traded are not
subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. The Portfolio's
investment in illiquid securities is subject to the risk that should the
Portfolio desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Portfolio's net assets could be adversely affected.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Portfolio may
utilize up to 20% of its total assets to purchase securities on a when-issued
basis and purchase or sell securities on a delayed-delivery basis. In these
transactions, payment for and delivery of the securities occurs beyond the
regular settlement dates, normally within 30-45 days after the transaction. The
Portfolio will not enter into a when-issued or delayed-delivery transaction for
the purpose of leverage, but may sell the right to
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<PAGE>
acquire a when-issued security prior to its acquisition or dispose of its right
to deliver or receive securities in a delayed-delivery transaction if Warburg
deems it advantageous to do so. The payment obligation and the interest rate
that will be received in when-issued and delayed-delivery transactions are fixed
at the time the buyer enters into the 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. The Portfolio will establish a segregated account with
its custodian consisting of cash or liquid securities in an amount equal to the
amount of its when-issued and delayed-delivery purchase commitments, and will
segregate the securities underlying commitments to sell securities for delayed
delivery.
LOWER-RATED SECURITIES. Lower-rated and comparable unrated securities
(commonly referred to as 'junk bonds'), which the Portfolio may hold (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. The market values of certain of
these securities also tend to be more sensitive to individual corporate
developments and changes in economic conditions than higher-quality securities.
In addition, medium- and lower-rated securities and comparable unrated
securities generally present a higher degree of credit risk. The risk of loss
due to default by such issuers is significantly greater because medium-and
lower-rated securities and unrated securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The market value of securities in lower rating categories is more volatile
than that of higher quality securities. In addition, the Portfolio may have
difficulty disposing of certain of these securities because there may be a thin
trading market. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Portfolio's ability to dispose of particular
issues and may make it more difficult for the Portfolio to obtain accurate
market quotations for purposes of valuing the Portfolio and calculating its net
asset value.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This effect enables the investor to gain exposure to the underlying
security with a relatively low capital investment but increases an investor's
risk in the event of a decline in the value of the underlying security and can
result in a complete loss of the amount invested in the warrant. In addition,
the price of a warrant tends to be more volatile than, and may not correlate
exactly to, the price of the underlying security. If the market price of the
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underlying security is below the exercise price of the warrant on its expiration
date, the warrant will generally expire without value.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
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The Portfolio will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Portfolio. The Portfolio
will not consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objectives and policies. It is not
possible to predict the Portfolio's turnover rate. However, it is anticipated
that the Portfolio's annual turnover rate should not exceed 150%. High portfolio
turnover rates (100% or more) may result in dealer markups or underwriting
commissions as well as other transaction costs, including correspondingly higher
brokerage commissions. In addition, short-term gains realized from portfolio
turnover may be taxable to shareholders as ordinary income. See 'Dividends,
Distributions and Taxes -- Taxes' below and 'Investment Policies -- Portfolio
Transactions' in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of the
Portfolio are placed by Warburg with broker-dealers that it selects, including
Counsellors Securities Inc., the Portfolio's distributor ('Counsellors
Securities'). The Portfolio may utilize Counsellors Securities in connection
with a purchase or sale of securities when Warburg believes 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
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Although there is no intention of doing so during the coming year, the
Portfolio is authorized to engage in the following investment strategies: (i)
lending portfolio securities and (ii) entering into reverse repurchase
agreements and dollar rolls. Detailed information concerning the Portfolio's
strategies and their related risks is contained below and in the Statement of
Additional Information.
FOREIGN SECURITIES. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in U.S. investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with
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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 Portfolio, including the withholding of dividends.
Foreign securities may be subject to foreign government taxes that would reduce
the net yield on such securities. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Investment in foreign
securities will also result in higher operating expenses due to the cost of
converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with ADRs,
European Depositary Receipts ('EDRs') and International Depositary Receipts
('IDRs'), instruments that evidence ownership in underlying securities issued by
a foreign corporation. ADRs, EDRs and IDRs may not necessarily be denominated in
the same currency as the securities whose ownership they represent. ADRs are
typically issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in Europe, and IDRs (sometimes
referred to as Global Depositary Receipts) are issued outside the United States,
each typically by non-U.S. banks and trust companies.
REITS. The Portfolio may invest up to 15% of its total assets in real estate
investment trusts ('REITs'), which are pooled investment vehicles that invest
primarily in income-producing real estate or real estate related loans or
interests. Like regulated investment companies such as the Trust, REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the 'Code'). By
investing in a REIT, the Portfolio will indirectly bear its proportionate share
of any expenses paid by the REIT in addition to the expenses of the Portfolio.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, the possibilities of failing to qualify
for the exemption from tax for distributed income under the Code and failing to
maintain their exemptions from the 1940 Act. REITs are also subject to interest
rate risks.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the
Portfolio may, but is not required to, engage in a number of strategies
involving options, futures and forward currency contracts. These strategies,
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commonly referred to as 'derivatives,' may be used (i) for the purpose of
hedging against a decline in value of the Portfolio's current or anticipated
portfolio holdings, (ii) as a substitute for purchasing or selling portfolio
securities or (iii) to seek to generate income to offset expenses or increase
return. TRANSACTIONS THAT ARE NOT CONSIDERED HEDGING SHOULD BE CONSIDERED
SPECULATIVE AND MAY SERVE TO INCREASE THE PORTFOLIO'S INVESTMENT RISK.
Transaction costs and any premiums associated with these strategies, and any
losses incurred, will affect the Portfolio's net asset value and performance.
Therefore, an investment in the Portfolio may involve a greater risk than an
investment in other mutual funds that do not utilize these strategies. The
Portfolio's use of these strategies may be limited by position and exercise
limits established by securities and commodities exchanges and other applicable
regulatory authorities.
Securities Options and Stock Index Options. The Portfolio may write 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. The Portfolio may also utilize
up to 10% of its assets to purchase options on stocks and debt securities that
are traded on U.S. and foreign exchanges, as well as over-the-counter ('OTC')
options. The purchaser of a put option on a security has the right to compel the
purchase by the writer of the underlying security, while the purchaser of a call
option on a security has the right to purchase the underlying security from the
writer. In addition to purchasing and writing options on securities, the
Portfolio may also utilize up to 10% of its total assets to purchase
exchange-listed and OTC put and call options on stock indexes, and may also
write such options. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or at less advantageous prices, limit the amount of appreciation the
Portfolio could realize on its investments or require the Portfolio to hold
securities it would otherwise sell.
Futures Contracts and Commodity Options. The Portfolio may enter into
foreign currency, interest rate and stock index futures contracts and purchase
and write (sell) related options that are traded on an exchange designated by
the Commodity Futures Trading Commission (the 'CFTC') or, if consistent with
CFTC regulations, on foreign exchanges. These futures contracts are standardized
contracts for the future delivery of foreign currency or an interest rate
sensitive security or, in the case of stock index and certain other
futures contracts, are settled in cash with reference to a specified multiplier
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times the change in the specified index, exchange rate or interest rate. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts. Although the Portfolio is limited
in the amount of assets that may be invested in futures transactions, there is
no overall limit on the percentage of the Portfolio's assets that may be at risk
with respect to futures activities.
Currency Exchange Transactions. The Portfolio will conduct its currency
exchange transactions either (i) on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, (ii) through entering into futures
contracts or options on futures contracts (as described above), (iii) through
entering into forward contracts to purchase or sell currency or (iv) by
purchasing exchange-traded currency options. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract. An option on a foreign currency
operates similarly to an option on a security. Risks associated with currency
forward contracts and purchasing currency options are similar to those described
in this Prospectus for futures contracts and securities and stock index options.
In addition, the use of currency transactions could result in losses from the
imposition of foreign exchange controls, suspension of settlement or other
governmental actions or unexpected events.
Hedging Considerations. A hedge is designed to offset a loss on a portfolio
position with a gain in the hedge position; at the same time, however, a
properly correlated hedge will result in a gain in the portfolio position being
offset by a loss in the hedge position. As a result, the use of options, futures
contracts and currency exchange transactions for hedging purposes could limit
any potential gain from an increase in value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. The Portfolio will engage in hedging
transactions only when deemed advisable by Warburg, and successful use of
hedging transactions will depend on Warburg's ability to predict correctly
movements in the hedge and the hedged position and the correlation between them,
which could prove to be inaccurate. Even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends.
Additional Considerations. To the extent that the Portfolio engages in the
strategies described above, the Portfolio may experience losses greater than if
these strategies had not been utilized. In addition to the risks described
above, these instruments may be illiquid and/or subject to trading limits, and
the Portfolio may be unable to close out a position without incurring
substantial losses, if at all. The Portfolio is also subject to the risk of a
default by a counterparty to an off-exchange transaction.
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Asset Coverage. The Portfolio will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Portfolio on securities and indexes; currency, interest
rate and stock index futures contracts and options on these futures contracts;
and forward currency contracts. The use of these strategies may require that the
Portfolio maintain cash or liquid securities in a segregated account with its
custodian or a designated sub-custodian to the extent the Portfolio's
obligations with respect to these strategies are not otherwise 'covered' through
ownership of the underlying security, financial instrument or currency or by
other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
SHORT SALES AGAINST THE BOX. The Portfolio may enter into a short sale of
securities such that when the short position is open the Portfolio owns an equal
amount of the securities sold short or owns preferred stocks or debt securities,
convertible or exchangeable without payment of further consideration, into an
equal number of securities sold short. This kind of short sale, which is
referred to as one 'against the box,' may be entered into by the Portfolio to,
for example, lock in a sale price for a security the Portfolio does not wish to
sell immediately. The Portfolio will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities in connection with short
sales against the box. Not more than 10% of the Portfolio's net assets (taken at
current value) may be held as collateral for short sales against the box at any
one time.
INVESTMENT GUIDELINES
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The Portfolio may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. The Portfolio may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption
requests, provided that reverse repurchase agreements and any other borrowing by
the Portfolio may not exceed 30% of its total assets, and may pledge its assets
to the extent necessary to secure permitted borrowings. Whenever borrowings
(including reverse repurchase agreements) exceed 5% of the value of the
Portfolio's total assets, the Portfolio will not make any investments (including
roll-overs). Except for the 30% limitation on borrowing, the investment
guidelines set forth in this paragraph may be
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changed at any time without shareholder consent by vote of the Board, subject
to the limitations contained in the 1940 Act. A complete list of investment
restrictions that the Portfolio has adopted identifying additional restrictions
that cannot be changed without the approval of the majority of the Portfolio's
outstanding shares is contained in the Portfolio's Statement of Additional
Information.
MANAGEMENT OF THE PORTFOLIOS
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INVESTMENT ADVISER. The Trust employs Warburg as investment adviser to the
Portfolio. Warburg, subject to the control of the Trust's officers and the
Board, manages the investment and reinvestment of the assets of the Portfolio in
accordance with the Portfolio's investment objectives and stated investment
policies. Warburg makes investment decisions for the Portfolio and places orders
to purchase or sell securities on behalf of the Portfolio. Warburg also employs
a support staff of management personnel to provide services to the Portfolio and
furnishes the Portfolio with office space, furnishings and equipment.
For the services provided by Warburg, the Portfolio pays Warburg a fee
calculated at an annual rate of .75% of its average daily net assets. Warburg
and the Trust's co-administrators may voluntarily waive a portion of their fees
from time to time and temporarily limit the expenses to be borne by the
Portfolio.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of June 30, 1997,
Warburg managed approximately $19.7 billion of assets, including approximately
$11.5 billion of investment company assets. Incorporated in 1970, Warburg is
indirectly controlled by Warburg, Pincus & Co. ('WP&Co.') which has no business
other than being a holding company of Warburg and its affiliates. Lionel I.
Pincus, the managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
PORTFOLIO MANAGER. Brian S. Posner has been the Portfolio Manager of the
Portfolio since its inception. Mr. Posner, a Managing Director of Warburg since
January 1997, was an employee of Fidelity Investments ('Fidelity') from 1987
until December 1996. He was the vice president and portfolio manager of the
Fidelity Equity-Income II Fund (1992-December 1996); the portfolio manager of
the Fidelity Value Fund (1990-1992); assistant portfolio manager of the Fidelity
Equity-Income Fund (1989-1990); assistant portfolio manager of the Fidelity
Capital Appreciation Fund (1989); portfolio manager of the Fidelity Select
Property-Casualty Insurance Portfolio (1987-1990) and an equity analyst (1987).
CO-ADMINISTRATORS. The Portfolio employs Counsellors Funds Service, Inc., a
wholly owned subsidiary of Warburg ('Counsellors Service'), as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Portfolio, including responding to shareholder inquiries
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and providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Portfolio and their
various service providers, furnishing corporate secretarial services, which
include preparing materials for meetings of the Board, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in the
preparation of tax returns and monitoring and developing compliance procedures
for the Portfolio. As compensation, the Portfolio pays Counsellors Service a fee
calculated at an annual rate of .10% of the Portfolio's average daily net
assets.
The Trust employs PFPC, an indirect, wholly owned subsidiary of PNC Bank
Corp., as a co-administrator. As a co-administrator, PFPC calculates the
Portfolio's net asset value, provides all accounting services for the Portfolio
and assists in related aspects of the Portfolio's operations. As compensation
the Portfolio pays PFPC a fee calculated at an annual rate of .15% of the
Portfolio's first $1 billion in average daily net assets and .05% of average
daily net assets over $1 billion. PFPC has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC'), serves as custodian of
the Portfolio's U.S. assets and State Street Bank and Trust Company ('State
Street') serves as custodian of the Portfolio's non-U.S. assets. PNC is a
subsidiary of PNC Bank Corp. and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Portfolio. It has delegated
to Boston Financial Data Services, Inc. ('BFDS'), a 50% owned subsidiary,
responsibility for most shareholder servicing functions. BFDS's principal
business address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves without compensation as
distributor of the shares of the Portfolio. Counsellors Securities is a wholly
owned subsidiary of Warburg and is located at 466 Lexington Avenue, New York,
New York 10017-3147.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay Participating Insurance
Companies and Plans or their affiliates or entities that provide services to
them ('Service Organizations') with whom it enters into agreements up to .25%
(the 'Service Fee') of the annual average value of accounts maintained by such
Organizations with the Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization.
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Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of the
Portfolio, consisting of securities dealers who have sold Portfolio shares or
others, including banks and other financial institutions, under special
arrangements. Incentives may include opportunities to attend business meetings,
conferences, sales or training programs for recipients' employees or clients and
other programs or events and may also include opportunities to participate in
advertising or sales campaigns and/or shareholder services and programs
regarding one or more Warburg Pincus Funds. Warburg or its affiliates may pay
for travel, meals and lodging in connection with these promotional activities.
In some instances, these incentives may be offered only to certain institutions
whose representatives provide services in connection with the sale or expected
sale of significant amounts of the Portfolio's shares.
TRUSTEES AND OFFICERS. The officers of the Trust manage the Portfolio's
day-to-day operations and are directly responsible to the Board. The Board sets
broad policies for the Portfolio and chooses the Trust's officers. A list of the
Trustees and officers and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Portfolio's
Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES IN THE PORTFOLIO
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Individual investors may not purchase or redeem shares of the Portfolio
directly; shares may be purchased or redeemed only through Variable Contracts
offered by separate accounts of Participating Insurance Companies or through
Plans, including participant-directed Plans which elect to make the Portfolio an
investment option for Plan participants. Please refer to the prospectus of the
sponsoring Participating Insurance Company separate account or to the Plan
documents or other informational materials supplied by Plan sponsors for
instructions on purchasing or selling a Variable Contract and on how to select
the Portfolio as an investment option for a Variable Contract or Plan.
PURCHASES. All investments in the Portfolio are credited to a Participating
Insurance Company's separate account immediately upon acceptance of an
investment by the Portfolio. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of a Portfolio on
any day that the Portfolio calculates its net asset value (a 'business day').
That night, all orders received by the Participating Insurance Company prior to
the close of regular trading on the New York Stock Exchange Inc. (the 'NYSE')
(currently 4:00 p.m., Eastern time) on that business day are aggregated, and the
Participating Insurance Company places a net purchase or redemption order for
shares of the Portfolio during the morning of the next business day. These
orders are executed at the net asset value (described below under 'Net Asset
Value') computed at the close of regular trading on the NYSE on the previous
business day in order to provide a match between the contract owners' orders to
the Participating Insurance Company and that Participating Insurance Company's
orders to the Portfolio.
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Plan participants may invest in shares of the Portfolio through their Plan by
directing the Plan trustee to purchase shares for their account. Participants
should contact their Plan sponsor for information concerning the appropriate
procedure for investing in the Portfolio.
The Portfolio reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Warburg's opinion, they are of a size that
would disrupt the management of the Portfolio. The Portfolio may discontinue
sales of its shares if management believes that a substantial further increase
in assets may adversely affect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing Variable
Contract owners and Plan participants would be permitted to continue to
authorize investment in the Portfolio and to reinvest any dividends or capital
gains distributions.
REDEMPTIONS. Shares of the Portfolio may be redeemed on any business day.
Redemption orders which are received by a Participating Insurance Company or
Plan or its agent prior to the close of regular trading on the NYSE on any
business day and transmitted to the Trust or its specified agent during the
morning of the next business day will be processed at the net asset value
computed at the close of regular trading on the NYSE on the previous business
day. Redemption proceeds will normally be wired to the Participating Insurance
Company or Plan the business day following receipt of the redemption order, but
in no event later than seven days after receipt of such order.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Portfolio calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Portfolio's portfolio securities for the applicable period less
applicable expenses. The Portfolio declares dividends from its net investment
income quarterly. Net investment income earned on weekends and when the NYSE is
not open will be computed as of the next business day. Distributions of net
realized long-term and short-term capital gains are declared annually and, as a
general rule, will be distributed or paid after the end of the fiscal year in
which they are earned. Dividends and distributions will automatically be
reinvested in additional shares of the Portfolio at net asset value unless, in
the case of a Variable Contract, a Participating Insurance Company elects to
have dividends or distributions paid in cash.
TAXES. For a discussion of the tax status of a Variable Contract or Plan,
refer to the sponsoring Participating Insurance Company separate account
prospectus or Plan documents or other informational materials supplied by Plan
sponsors.
The Portfolio intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. The Portfolio intends to distribute
all of its net income and capital gains to its shareholders (the Variable
Contracts and Plans).
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Because shares of the Portfolio may be purchased only through Variable
Contracts and Plans, it is anticipated that any income dividends or capital gain
distributions from the Portfolio are taxable, if at all, to the Participating
Insurance Companies and Plans and will be exempt from current taxation of the
Variable Contract owner or Plan participant if left to accumulate within the
Variable Contract or Plan. Generally, withdrawals from Variable Contracts or
Plans may be subject to ordinary income tax and, if made before age 59 1/2, a
10% penalty tax.
INTERNAL REVENUE SERVICE REQUIREMENTS. The Portfolio intends to comply with
the diversification requirements currently imposed by the Internal Revenue
Service on separate accounts of insurance companies as a condition of
maintaining the tax-deferred status of Variable Contracts. See the Statement of
Additional Information for more specific information.
NET ASSET VALUE
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The Portfolio's net asset value per share is calculated as of the close of
regular trading on the NYSE on each business day, Monday through Friday, except
on days when the NYSE is closed. The NYSE is currently scheduled to be closed on
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day,
and on the preceding Friday or subsequent Monday when one of the holidays falls
on a Saturday or Sunday, respectively. The net asset value per share of the
Portfolio generally changes every day.
The net asset value per share of the Portfolio is computed by dividing the
value of the Portfolio's net assets by the total number of its shares
outstanding.
Securities listed on a U.S. securities exchange (including securities traded
through the Nasdaq National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued on the basis of the closing
value on the date on which the valuation is made. Options and futures contracts
will be valued similarly. Debt obligations that mature in 60 days or less from
the valuation date are valued on the basis of amortized cost, unless the Board
determines that using this valuation method would not reflect the investments'
value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
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From time to time, the Portfolio may advertise its average annual total
return over various periods of time. These total return figures show the
average percentage change in value of an investment in the Portfolio from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Portfolio's shares assuming that any
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income dividends and/or capital gain distributions made by the Portfolio during
the period were reinvested in shares of the Portfolio. Total return will be
shown for recent one-, five- and ten-year periods, and may be shown for other
periods as well (such as from commencement of the Portfolio's operations or on a
year-by-year, quarterly or current year-to-date basis).
Total returns quoted for the Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Plan. Accordingly, the prospectus of the
sponsoring Participating Insurance Company separate account or Plan documents or
other informational materials supplied by Plan sponsors should be carefully
reviewed for information on relevant charges and expenses. Excluding these
charges and expenses from quotations of the Portfolio's performance has the
effect of increasing the performance quoted, and the effect of these charges
should be considered when comparing the Portfolio's performance to that of other
mutual funds.
When considering average annual total return figures for periods longer than
one year, it is important to note that the annual total return for one year in
the period might have been greater or less than the average for the entire
period. When considering total return figures for periods shorter than one year,
investors should bear in mind that such return may not be representative of the
Portfolio's return over a longer market cycle. The Portfolio may also advertise
its aggregate total return figures for various periods, representing the
cumulative change in value of an investment in the Portfolio for the specific
period (again reflecting changes in share prices and assuming reinvestment of
dividends and distributions). Aggregate and average total returns may be shown
by means of schedules, charts or graphs and may indicate various components of
total return (i.e., change in value of initial investment, income dividends and
capital gain distributions).
Investors should note that return figures are based on historical earnings
and are not intended to indicate future performance. The Statement of Additional
Information describes the method used to determine the total return. Current
total return figures may be obtained by calling (800) 369-2728.
In reports or other communications to investors or in advertising material,
the Portfolio or a Participating Insurance Company or Plan sponsor may describe
general economic and market conditions affecting the Portfolio. Performance may
be compared with (i) that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar investment services that
monitor the performance of mutual funds or as set forth in the publications
listed below; (ii) with the S&P 500 Index, which is an unmanaged index of common
stocks; or (iii) other appropriate indexes of investment securities or with data
developed by Warburg derived from such indexes. The Portfolio or a Participating
Insurance Company may also include evaluations published by nationally
recognized ranking services and financial publications, such as Barron's,
Business Week, Financial Times, Forbes, Fortune, Inc., Institutional Investor,
Investor's Business Daily, Money, Morningstar,
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Inc., Mutual Fund Magazine, SmartMoney and The Wall Street Journal. Morningstar,
Inc. rates funds in broad categories based on risk/reward analyses over various
periods of time. In addition, the Portfolio or a Participating Insurance Company
or Plan sponsor may from time to time compare the Portfolio's expense ratio to
that of investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
In reports or other communications to investors or in advertising, each
Portfolio or a Participating Insurance Company or Plan sponsor may also describe
the general biography or work experience of the portfolio managers of the
Portfolio and may include quotations attributable to the portfolio managers
describing approaches taken in managing the Portfolio's investments, research
methodology underlying stock selection or the Portfolio's investment objective.
In addition, the Portfolio and its portfolio managers may render periodic
updates of Portfolio investment activity, which may include, among other things,
discussion or quantitative statistical or comparative analysis of portfolio
composition and significant portfolio holdings, including analyses of holdings
by sector, industry, country or geographic region, credit quality and other
characteristics. The Portfolio may also discuss various measures of risk,
including those based on statistical or econometric analyses, the continuum of
risk and return relating to different investments and the potential impact of
foreign securities on a portfolio otherwise composed of domestic securities.
GENERAL INFORMATION
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TRUST ORGANIZATION. The Trust was organized on March 15, 1995 under the laws
of The Commonwealth of Massachusetts as a 'Massachusetts business trust.' The
Trust's Declaration of Trust authorizes the Board to issue an unlimited number
of full and fractional shares of beneficial interest, $.001 par value per share.
Shares of five series have been authorized, one of which constitute the
interests in the Portfolio. The Board may classify or reclassify any of its
shares into one or more additional series without shareholder approval.
VOTING RIGHTS. When matters are submitted for shareholder vote, shareholders
of the Portfolio will have one vote for each full share held and fractional
votes for fractional shares held. Generally, shares of the Trust will vote by
individual Portfolio on all matters except where otherwise required by law.
There will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the members
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. A meeting will be called for the purpose of
voting on the removal of a Trustee at the written request of holders of 10% of
the Trust's outstanding shares. Under current law, a Participating Insurance
Company is required to request voting instructions
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from Variable Contract owners and must vote all Trust shares held in the
separate account in proportion to the voting instructions received. Plans may or
may not pass through voting rights to Plan participants, depending on the terms
of the Plan's governing documents. For a more complete discussion of voting
rights, refer to the sponsoring Participating Insurance Company separate account
prospectus or the Plan documents or other informational materials supplied by
Plan sponsors.
CONFLICTS OF INTEREST. The Portfolio offers its shares to (i) Variable
Contracts offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with each other and (ii) Plans including
Participant-directed Plans which elect to make the Portfolio an investment
option for Plan participants. Due to differences of tax treatment and other
considerations, the interests of various Variable Contract owners and Plan
participants participating in the Portfolio may conflict. The Board will monitor
the Portfolio for any material conflicts that may arise and will determine what
action, if any, should be taken. If a conflict occurs, the Board may require one
or more Participating Insurance Company separate accounts and/or Plans to
withdraw its investments in the Portfolio. As a result, the Portfolio may be
forced to sell securities at disadvantageous prices and orderly portfolio
management could be disrupted. In addition, the Board may refuse to sell shares
of the Portfolio to any Variable Contract or Plan or may suspend or terminate
the offering of shares of the Portfolio if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolio.
SHAREHOLDER COMMUNICATIONS. Participating Insurance Companies and Plan
trustees will receive semiannual and audited annual reports, each of which
includes a list of the investment securities held by the Portfolio and a
statement of the performance of the Portfolio. Periodic listings of the
investment securities held by the Portfolio, as well as certain statistical
characteristics of a Portfolio, may be obtained by calling the Trust at (800)
369-2728.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE PORTFOLIO'S
STATEMENT OF ADDITIONAL INFORMATION OR THE PORTFOLIO'S OFFICIAL SALES LITERATURE
IN CONNECTION WITH THE OFFERING OF SHARES OF THE PORTFOLIO, AND IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE PORTFOLIO. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF THE SHARES OF THE PORTFOLIO IN ANY STATE IN WHICH, OR TO ANY PERSON TO
WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
21
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Portfolio's Expenses................................................ 2
Investment Objectives and Policies...................................... 3
Portfolio Investments................................................... 3
Risk Factors and Special Considerations................................. 7
Portfolio Transactions and Turnover Rate................................ 9
Certain Investment Strategies........................................... 9
Investment Guidelines................................................... 13
Management of the Portfolio............................................. 14
How to Purchase and Redeem Shares in the Portfolio...................... 16
Dividends, Distributions and Taxes...................................... 17
Net Asset Value......................................................... 18
Performance............................................................. 18
General Information..................................................... 20
</TABLE>
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[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
WWW.WARBURG.COM
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPGRI-1-1097
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
Subject to Completion, dated August 11, 1997
STATEMENT OF ADDITIONAL INFORMATION
October __, 1997
--------------------------------------
WARBURG PINCUS TRUST
Growth & Income Portfolio
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) 369-2728
---------------------------------------
Contents
Page
Investment Objectives......................................................2
Investment Policies........................................................2
Management Of The Trust...................................................25
Additional Purchase And Redemption Information............................31
Additional Information Concerning Taxes...................................31
Determination Of Performance..............................................33
Independent Accountants And Counsel.......................................34
Financial Statement.......................................................34
Appendix -- Description of Ratings.......................................A-1
Statement of Assets and Liabilities......................................F-1
Warburg Pincus Trust ("Trust") currently offers five managed
investment funds, one of which, the Growth & Income Portfolio (the "Portfolio"),
is described herein. This Statement of Additional Information is meant to be
read in conjunction with the Prospectus of the Portfolio dated October ____,
1997, as amended or supplemented from time to time, and is incorporated by
reference in its entirety into that Prospectus. Shares of the Portfolio are not
available directly to individual investors but may be offered only to certain
(i) life insurance companies ("Participating Insurance Companies") for
allocation to certain of their separate accounts established for the purpose of
funding variable annuity contracts and variable life insurance policies
(together "Variable Contracts") and (ii) tax-qualified pension and retirement
plans ("Plans"), including participant-directed Plans which elect to make the
Portfolio an investment option for Plan participants. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
the Portfolio should be made
<PAGE>
solely upon the information contained herein. Copies of the Trust's Prospectus
for the Portfolio and information regarding the Portfolio's current performance
may be obtained by calling the Trust at (800) 369-2728 or by writing to the
Trust, P.O. Box 9030, Boston, Massachusetts 02205-9030.
INVESTMENT OBJECTIVES
The investment objectives of the Portfolio are long-term growth of
capital and income.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Portfolio's
investment objectives and policies in the Prospectus.
Options, Futures and Currency Exchange Transactions
- ---------------------------------------------------
Securities Options. The Portfolio may write covered put and call
options on stock and debt securities and the Portfolio may purchase such options
that are traded on foreign and U.S. exchanges, as well as over-the-counter
("OTC").
The Portfolio that may write options realizes fees (referred to as
"premiums") for granting the rights evidenced by the options it has written. A
put option embodies the right of its purchaser to compel the writer of the
option to purchase from the option holder an underlying security at a specified
price for a specified time period or at a specified time. In contrast, a call
option embodies the right of its purchaser to compel the writer of the option to
sell to the option holder an underlying security at a specified price for a
specified time period or at a specified time.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, the Portfolio as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Portfolio as a put or call writer retains the risk of a decline in the price
of the underlying security. The size of the premiums that the Portfolio may
receive may be adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option-writing
activities.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
In the case of options written by the Portfolio that are deemed
covered by virtue of the Portfolio's holding convertible or exchangeable
preferred stock or debt securities, the
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time required to convert or exchange and obtain physical delivery of the
underlying common stock with respect to which the Portfolio has
written options may exceed the time within which the Portfolio must make
delivery in accordance with an exercise notice. In these instances, the
Portfolio may purchase or temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Portfolio will not bear any
market risk, since the Portfolio will have the absolute right to receive from
the issuer of the underlying security an equal number of shares to replace the
borrowed securities, but the Portfolio may incur additional transaction costs or
interest expenses in connection with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities for
which the Portfolio may write covered call options. For example, if the
Portfolio writes covered call options on mortgage-backed securities, the
mortgage-backed securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient cover. If this
occurs, the Portfolio will compensate for the decline in the value of the cover
by purchasing an appropriate additional amount of mortgage-backed securities.
Options written by the Portfolio will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Portfolio may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., the Portfolio's investment
adviser ("Warburg"), expects that the price of the underlying security will
remain flat or decline moderately during the option period, (ii) at-the-money
call options when Warburg expects that the price of the underlying security will
remain flat or advance moderately during the option period and (iii)
out-of-the-money call options when Warburg expects that the premiums received
from writing the call option plus the appreciation in market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
preceding situations, if the market price of the underlying security declines
and the security is sold at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be used in the same market
environments that such call options are used in equivalent transactions. To
secure its obligation to deliver the underlying security when it writes a call
option, the Portfolio will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the securities exchange on which
the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Portfolio prior
to the exercise of options that it has purchased or, if permissible, written,
respectively, of options of the same series) in which the Portfolio may realize
a profit or loss from the sale. An option position may be closed out only where
there exists a secondary market for an option of the same series on a recognized
securities exchange or in the OTC market. When the Portfolio has purchased an
option and engages in a closing sale transaction, whether the Portfolio realizes
a profit or loss will depend upon whether the amount received in the closing
sale transaction is more or less than the premium the Portfolio initially paid
for the original option plus the related transaction
3
<PAGE>
costs. Similarly, in cases where the Portfolio has written an option, it will
realize a profit if the cost of the closing purchase transaction is less than
the premium received upon writing the original option and will incur a loss if
the cost of the closing purchase transaction exceeds the premium received upon
writing the original option. The Portfolio may engage in a closing purchase
transaction to realize a profit, to prevent an underlying security with respect
to which it has written an option from being called or put or, in the case of
a call option, to unfreeze an underlying security (thereby permitting its sale
or the writing of a new option on the security prior to the outstanding
option's expiration). The obligation of the Portfolio under an option it has
written would be terminated by a closing purchase transaction, but the Portfolio
would not be deemed to own an option as a result of the transaction. So long as
the obligation of the Portfolio as the writer of an option continues, the
Portfolio may be assigned an exercise notice by the broker-dealer through which
the option was sold, requiring the Portfolio to deliver the underlying security
against payment of the exercise price. This obligation terminates when the
option expires or the Portfolio effects a closing purchase transaction. The
Portfolio can no longer effect a closing purchase transaction with respect to an
option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Portfolio's
ability to terminate options positions established in the OTC market may be more
limited than for exchange-traded options and may also involve the risk that
securities dealers participating in OTC transactions would fail to meet their
obligations to the Portfolio. The Portfolio, however, intends to purchase OTC
options only from dealers whose debt securities, as determined by Warburg, are
considered to be investment grade. If, as a covered call option writer, the
Portfolio is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise. In either case,
the Portfolio would continue to be at market risk on the security and could face
higher transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations governing
the maximum number of calls and puts of each class which may be held or written,
or exercised within certain time periods by an investor or group of investors
acting in concert (regardless of whether the options are written on the same or
different securities exchanges or are held, written or exercised in one or more
accounts or through one or more brokers). It is possible that the Trust or the
Portfolio and other clients of Warburg and certain of its affiliates may be
considered to be such a group. A securities exchange may order the liquidation
of positions found to be in violation of these limits and it may impose certain
other sanctions. These limits may restrict the number of options the Portfolio
will be able to purchase on a particular security.
4
<PAGE>
Stock Index Options. The Portfolio may purchase exchange-listed and OTC put
and call options on stock indexes. A stock index measures the movement of a
certain group of stocks by assigning relative values to the common stocks
included in the index, fluctuating with changes in the market values of the
stocks included in the index. Some stock index options are based on a broad
market index, such as the NYSE Composite Index, or a narrower market index
such as the Standard & Poor's 100. Indexes may also be based on a particular
industry or market segment.
Options on stock indexes are similar to options on stock except that
(i) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (b) a fixed "index multiplier." Receipt
of this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the index and the exercise
price of the option times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Stock index options may be offset by entering into closing transactions as
described above for securities options.
OTC Options. The Portfolio may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Portfolio
were to purchase a dealer option, however, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Portfolio, the Portfolio would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options generally have a continuous liquid market while dealer
options have none. Consequently, the Portfolio will generally be able to realize
the value of a dealer option it has purchased only by exercising it or reselling
it to the dealer who issued it. Similarly, when the Portfolio writes a dealer
option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Portfolio originally wrote the option. Although the Portfolio will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the
Portfolio, there can be no assurance that the Portfolio will be able to
liquidate a dealer option at a favorable price at any time prior to expiration.
The inability to enter into a closing transaction may result in material losses
to the Portfolio. Until the Portfolio, as a covered OTC call option writer, is
able to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair the Portfolio's ability to
sell portfolio securities or, with respect to currency options, currencies at
5
<PAGE>
a time when such sale might be advantageous. In the event of insolvency of the
other party, the Portfolio may be unable to liquidate a dealer option.
Futures Activities. The Portfolio may enter into foreign currency,
interest rate and stock index futures contracts and purchase and write (sell)
related options traded on exchanges designated by the Commodity Futures Trading
Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return.
The Portfolio will not enter into futures contracts and related
options for which the aggregate initial margin and premiums (discussed below)
required to establish positions other than those considered to be "bona fide
hedging" by the CFTC exceed 5% of the Portfolio's net asset value after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into. The Portfolio reserve the right to engage in transactions
involving futures contracts and options on futures contracts to the extent
allowed by CFTC regulations in effect from time to time and in accordance with
the Portfolio's policies. Although the Portfolio is limited in the amount of
assets it may invest in futures transactions (as described above and in the
Prospectus), there is no overall limit on the percentage of Portfolio assets
that may be at risk with respect to futures activities.
Futures Contracts. A foreign currency futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified non-U.S. currency at a specified price, date, time and
place. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
interest rate sensitive financial instrument (debt security) at a specified
price, date, time and place. Stock indexes are capitalization weighted indexes
which reflect the market value of the stock listed on the indexes. A stock index
futures contract is an agreement to be settled by delivery of an amount of cash
equal to a specified multiplier times the difference between the value of the
index at the close of the last trading day on the contract and the price at
which the agreement is made.
No consideration is paid or received by the Portfolio upon entering
into a futures contract. Instead, the Portfolio is required to deposit in a
segregated account with its custodian an amount of cash or liquid securities
acceptable to the broker equal to approximately 1% to 10% of the contract amount
(this amount is subject to change by the exchange on which the contract is
traded, and brokers may charge a higher amount). This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Portfolio upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
The broker will have access to amounts in the margin account if the Portfolio
fails to meet its contractual obligations. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the currency,
financial instrument or stock index underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." The Portfolio will also incur
brokerage costs in connection with entering into futures transactions.
6
<PAGE>
At any time prior to the expiration of a futures contract, the
Portfolio may elect to close the position by taking an opposite position, which
will operate to terminate the Portfolio's existing position in the contract.
Positions in futures contracts and options on futures contracts (described
below) may be closed out only on the exchange on which they were entered into
(or through a linked exchange). No secondary market for such contracts exists.
Although the Portfolio intend to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the day. It is possible that futures contract prices
could move to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions at an
advantageous price and subjecting the Portfolio to substantial losses. In such
event, and in the event of adverse price movements, the Portfolio would be
required to make daily cash payments of variation margin. In such situations, if
the Portfolio had insufficient cash, it might have to sell securities to meet
daily variation margin requirements at a time when it would be disadvantageous
to do so. In addition, if the transaction is entered into for hedging purposes,
in such circumstances the Portfolio may realize a loss on a futures contract or
option that is not offset by an increase in the value of the hedged position.
Losses incurred in futures transactions and the costs of these transactions will
affect the Portfolio's performance.
Options on Futures Contracts. The Portfolio may purchase and write put
and call options on foreign currency, interest rate and stock index futures
contracts and may enter into closing transactions with respect to such options
to terminate existing positions. There is no guarantee that such closing
transactions can be effected; the ability to establish and close out positions
on such options will be subject to the existence of a liquid market.
An option on a currency, interest rate or stock index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Portfolio.
Currency Exchange Transactions. The value in U.S. dollars of the
assets of the Portfolio that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Portfolio may incur costs in connection with conversion between various
currencies. Currency exchange transactions may be from any
7
<PAGE>
non-U.S. currency into U.S. dollars or into other appropriate currencies. The
Portfolio will conduct its currency exchange transactions (i) on a spot (i.e.,
cash) basis at the rate prevailing in the currency exchange market, (ii)
through entering into futures contracts or options on such contracts (as
described above), (iii) through entering into forward contracts to purchase or
sell currency or (iv) by purchasing exchange-traded currency options.
Forward Currency Contracts. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract as agreed upon by the
parties, at a price set at the time of the contract. These contracts are entered
into in the interbank market conducted directly between currency traders
(usually large commercial banks and brokers) and their customers. Forward
currency contracts are similar to currency futures contracts, except that
futures contracts are traded on commodities exchanges and are standardized as to
contract size and delivery date.
At or before the maturity of a forward contract, the Portfolio may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If the Portfolio retains the portfolio security and engages
in an offsetting transaction, the Portfolio, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices.
Currency Options. The Portfolio may purchase exchange-traded put and
call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.
Currency Hedging. The Portfolio's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Portfolio generally accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the sale of forward currency with respect to portfolio security
positions. The Portfolio may not position hedge to an extent greater than the
aggregate market value (at the time of entering into the hedge) of the hedged
securities.
A decline in the U.S. dollar value of a foreign currency in which the
Portfolio's securities are denominated will reduce the U.S. dollar value of the
securities, even if their value in the foreign currency remains constant. The
use of currency hedges does not eliminate fluctuations in the underlying prices
of the securities, but it does establish a rate of exchange that can be achieved
in the future. For example, in order to protect against diminutions in the U.S.
dollar value of securities it holds, the Portfolio may purchase currency put
options. If the value of the currency does decline, the Portfolio will have the
right to sell the currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on the U.S. dollar value of its
securities that otherwise would have resulted. Conversely, if a rise in the U.S.
dollar value of a currency in which securities to be acquired are denominated is
projected, thereby potentially increasing the cost of the securities, the
Portfolio may purchase
8
<PAGE>
call options on the particular currency. The purchase of these options could
offset, at least partially, the effects of the adverse movements in exchange
rates. The benefit to the Portfolio derived from purchases of currency options,
like the benefit derived from other types of options, will be reduced by
premiums and other transaction costs. Because transactions in currency exchange
are generally conducted on a principal basis, no fees or commissions are
generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although
currency hedges limit the risk of loss due to a decline in the value of a
hedged currency, at the same time, they also limit any potential gain that
might result should the value of the currency increase. If a devaluation is
generally anticipated, the Portfolio may not be able to contract to sell a
currency at a price above the devaluation level it anticipates.
While the values of currency futures and options on futures, forward
currency contracts and currency options may be expected to correlate with
exchange rates, they will not reflect other factors that may affect the value of
the Portfolio's investments and a currency hedge may not be entirely successful
in mitigating changes in the value of the Portfolio's investments denominated in
that currency. A currency hedge, for example, should protect a Yen-denominated
bond against a decline in the Yen, but will not protect the Portfolio against a
price decline if the issuer's creditworthiness deteriorates.
Hedging. In addition to entering into options, futures and currency
exchange transactions for other purposes, including generating current income to
offset expenses or increase return, the Portfolio may enter into these
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss in a portfolio position with a gain in the
hedged position; at the same time, however, a properly correlated hedge will
result in a gain in the portfolio position being offset by a loss in the hedged
position. As a result, the use of options, futures, contracts and currency
exchange transactions for hedging purposes could limit any potential gain from
an increase in the value of the position hedged. In addition, the movement in
the portfolio position hedged may not be of the same magnitude as movement in
the hedge. With respect to futures contracts, since the value of portfolio
securities will far exceed the value of the futures contracts sold by the
Portfolio, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Portfolio's
assets.
In hedging transactions based on an index, whether the Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Portfolio's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, the
Portfolio's hedge positions may be in a greater or lesser dollar amount than the
dollar amount of the hedged position. Such "over hedging" or "under hedging" may
adversely affect the Portfolio's net investment results if market movements are
not as anticipated when the hedge is established. Stock index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through
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offsetting transactions which would distort the normal relationship between the
stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by Warburg still may not result in a successful hedging
transaction.
The Portfolio will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Portfolio of hedging
transactions will be subject to Warburg's ability to predict trends in currency,
interest rate or securities markets, as the case may be, and to correctly
predict movements in the directions of the hedge and the hedged position and the
correlation between them, which predictions could prove to be inaccurate. This
requires different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect the
Portfolio's performance.
Asset Coverage for Forward Contracts, Options, Futures and Options on
Futures. As described in the Prospectus, the Portfolio will comply with
guidelines established by the U.S. Securities and Exchange Commission (the
"SEC") with respect to coverage of forward currency contracts; options written
by the Portfolio on currencies and securities indexes and on securities; and
currency, interest rate and index futures contracts and options on these futures
contracts. These guidelines may, in certain instances, require segregation by
the Portfolio of cash or liquid securities.
For example, a call option written by the Portfolio on securities may
require the Portfolio to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Portfolio on
an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. A put option
written by the Portfolio may require the Portfolio to segregate assets (as
described above) equal to the exercise price. The Portfolio could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Portfolio. If the Portfolio holds a futures or
forward contract, the Portfolio could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. The Portfolio may enter into fully or partially offsetting
transactions so that its net position, coupled with any segregated assets (equal
to any remaining obligation), equals its net obligation. Asset coverage may be
achieved by other means when consistent with applicable regulatory policies.
Additional Information on Investment Practices
Foreign Investments. Investors should recognize that investing in
foreign companies involves certain risks, including those discussed below, which
are not typically associated with investing in U.S. issuers.
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Foreign Currency Exchange. Since the Portfolio may be investing in
securities denominated in currencies other than the U.S. dollar, and since the
Portfolio may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Portfolio's investments in
foreign companies may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the
dollar. A change in the value of a foreign currency relative to the U.S. dollar
will result in a corresponding change in the dollar value of the Portfolio's
assets denominated in that foreign currency. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed by the Portfolio with respect to its foreign
investments. The rate of exchange between the U.S. dollar and other currencies
is determined by the forces of supply and demand in the foreign exchange
markets. Changes in the exchange rate may result over time from the interaction
of many factors directly or indirectly affecting economic and political
conditions in the United States and a particular foreign country, including
economic and political developments in other countries. Of particular importance
are rates of inflation, interest rate levels, the balance of payments and the
extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of the United States and
foreign countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies. The Portfolio may use hedging
techniques with the objective of protecting against loss through the fluctuation
of the valuation of foreign currencies against the U.S. dollar, particularly the
forward market in foreign exchange, currency options and currency futures. See
"Currency Transactions" and "Futures Transactions" above.
Information. The majority of the foreign securities held by the
Portfolio will not be registered with, nor the issuers thereof be subject to
reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and about the foreign company or
government issuing them than is available about a domestic company or government
entity. Foreign companies are generally not subject to uniform financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.
Political Instability. In addition, with respect to some foreign
countries, there is the possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Portfolio, political
or social instability, or domestic developments which could affect U.S.
investments in those countries.
Delays. Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
of the Portfolio to market and foreign exchange fluctuations brought about by
such delays, and due to the corresponding negative impact on the Portfolio's
liquidity, the Portfolio will avoid investing in countries which are known to
experience settlement delays which may expose the Portfolio to unreasonable risk
of loss.
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General. In general, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. The Portfolio may invest in
securities of foreign governments (or agencies or instrumentalities thereof),
and many, if not all, of the foregoing considerations apply to such investments
as well.
Foreign Debt Securities. The returns on foreign debt securities
reflect interest rates and other market conditions prevailing in those countries
and the effect of gains and losses in the denominated currencies against the
U.S. dollar, which have had a substantial impact on investment in foreign fixed
income securities. The relative performance of various countries' fixed income
markets historically has reflected wide variations relating to the unique
characteristics of each country's economy. Year-to-year fluctuations in certain
markets have been significant, and negative returns have been experienced in
various markets from time to time.
The foreign government securities in which the Portfolio may invest
generally consist of obligations issued or backed by national, state or
provincial governments or similar political subdivisions or central banks in
foreign countries. Foreign government securities also include debt obligations
of supranational entities, which include international organizations designated
or backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the
"World Bank"), the European Coal and Steel Community, the Asian Development Bank
and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units of an issuer (including supranational issuers). Debt securities
of quasi-governmental agencies are issued by entities owned by either a
national, state or equivalent government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. An example of a multinational currency unit is the
European Currency Unit ("ECU"). An ECU represents specified amounts of the
currencies of certain member states of the European Economic Community. The
specific amounts of currencies comprising the ECU may be adjusted by the Council
of Ministers of the European Community to reflect changes in relative values of
the underlying currencies.
U.S. Government Securities. The Portfolio may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. government securities").
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
government securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration, Export-Import
Bank of the United States, Small Business Administration, Government National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association, Federal Maritime Administration,
Tennessee Valley Authority, District of Columbia Armory Board and Student Loan
Marketing Association. The Portfolio may also invest in instruments
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that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality.
Because the U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, the Portfolio will invest in obligations issued by
such an instrumentality only if Warburg determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable for
investment by the Portfolio.
Securities of Other Investment Companies. The Portfolio may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, the Portfolio may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Portfolio's total assets and
(iii) when added to all other investment company securities held by the
Portfolio, do not exceed 10% of the value of the Portfolio's total assets.
Lending of Portfolio Securities. The Portfolio may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Trust's Board of Trustees (the "Board"). These loans, if and when made, may not
exceed 20% of the Portfolio's total assets taken at value. The Portfolio will
not lend portfolio securities to affiliates of Warburg unless it has applied for
and received specific authority to do so from the SEC. Loans of portfolio
securities will be collateralized by cash, letters of credit or U.S. government
securities, which are maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio involved. From time to time,
the Portfolio may return a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Portfolio and that is acting as a "finder."
By lending its securities, the Portfolio can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Income received
could be used to pay the Portfolio's expenses and would increase its total
return. The Portfolio will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the Portfolio must receive at least 100%
cash collateral or equivalent securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must increase such collateral
whenever the market value of the securities rises above the level of such
collateral; (iii) the Portfolio must be able to terminate the loan at any time;
(iv) the Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower, provided, however, that if a material event
adversely affecting the investment occurs, the Board must terminate the loan and
regain the right to vote the securities. Loan agreements involve certain risks
in the event of default or insolvency of the other party including possible
delays or restrictions upon the Portfolio's ability to recover the loaned
securities or dispose of the collateral for the loan.
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When-Issued Securities and Delayed-Delivery Transactions. The
Portfolio may utilize up to 20% of its total assets to purchase securities on a
"when-issued" basis or purchase or sell securities for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement date at a stated price
and yield). When-issued transactions normally settle within 30-45 days. The
Portfolio will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage, but may sell the
securities before the settlement date if Warburg deems it advantageous to do so.
The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the yields obtained on such securities
may be higher or lower than the yields available in the market on the dates when
the investments are actually delivered to the buyers.
When the Portfolio agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or liquid securities that are
acceptable as collateral to the appropriate regulatory authority equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Portfolio may be required subsequently to place additional assets in
the segregated account in order to ensure that the value of the account remains
equal to the amount of the Portfolio's commitment. It may be expected that the
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. When the Portfolio engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure of
the seller to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
Depositary Receipts. The assets of the Portfolio may be invested in
the securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are receipts issued outside the United States.
EDRs, CDRs, IDRs and GDRs are typically issued by non-U.S. banks and trust
companies 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 (CDRs) and IDRs (GDRs) in bearer form are designed for use in
European securities markets and non-U.S. securities markets, respectively.
Short Sales "Against the Box." In a short sale, the Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
The Portfolio may engage in a short sale 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." 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.
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The Portfolio does 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). In such case, any future losses
in the Portfolio's long position should be offset by a gain in the short
position and, conversely, any gain in the long position should be reduced by a
loss in the short position. The extent to which such gains or losses are reduced
will depend upon the amount of the security sold short relative to the amount
the Portfolio owns. There will be certain additional transaction costs
associated with short sales against the box, but the Portfolio will endeavor to
offset these costs with the income from the investment of the cash proceeds of
short sales.
Warrants. The Portfolio may invest up to 15% of net assets in warrants
to purchase equity securities consisting of common and preferred stock. The
equity security underlying a warrant is authorized at the time the warrant is
issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
Non-Publicly Traded and Illiquid Securities. The Portfolio may not
invest more than 15% of its net assets in illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market, repurchase agreements which have a maturity of longer than seven days,
time deposits maturing in more than seven days and certain Rule 144A Securities
(as defined below). Securities that have legal or contractual restrictions on
resale but have a readily available market are not considered illiquid for
purposes of this limitation. Repurchase agreements subject to demand are deemed
to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days without borrowing. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements,
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commercial paper, foreign securities, municipal securities and corporate bonds
and notes. Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on an issuer's
ability to honor a demand for repayment. The fact that there are contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of such investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by
the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
Warburg will monitor the liquidity of restricted securities in the
Portfolio under the supervision of the Board. In reaching liquidity decisions,
Warburg may consider, inter alia, the following factors: (i) the unregistered
nature of the security; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer undertakings to make a
market in the security and (v) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).
Borrowing. The Portfolio may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities. Investments (including
roll-overs) will not be made when borrowings exceed 5% of the Portfolio's net
assets. Although the principal of such borrowings will be fixed, the Portfolio's
assets may change in value during the time the borrowing is outstanding. The
Portfolio expects that some of its borrowings may be made on a secured basis. In
such situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender.
Below Investment Grade Securities. The Portfolio may invest up to 10%
of its net assets in below investment grade debt and convertible securities.
While the market values of medium- and lower-rated securities and unrated
securities of comparable quality tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities, the market values of
certain of these securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-quality
securities. In addition, medium- and lower-rated securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
medium- and lower-rated securities and unrated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
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The market for medium- and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
Certain of these securities may be difficult to dispose of because
there may be a thin trading market. Because there is no established retail
secondary market for many of these securities, it is anticipated that these
securities could be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market for these securities does
exist, it generally is not as liquid as the secondary market for higher-rated
securities. The lack of a liquid secondary market, as well as adverse publicity
and investor perception with respect to these securities, may have an adverse
impact on market price and the ability to dispose of particular issues when
necessary to meet the liquidity needs or in response to a specific economic
event such as a deterioration in the creditworthiness of the issuer. The lack of
a liquid secondary market for certain securities also may make it more difficult
to obtain accurate market quotations for purposes of valuation and calculation
of net asset value.
The market value of securities in medium- and lower-rated categories
is more volatile than that of higher quality securities. Factors adversely
impacting the market value of these securities will adversely impact the
Portfolio's net asset value. The Portfolio will rely on the judgment, analysis
and experience of Warburg in evaluating the creditworthiness of an issuer. In
this evaluation, Warburg will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
its operating history, the quality of the issuer's management and regulatory
matters. Normally, mediumand lower-rated and comparable unrated securities are
not intended for short-term investment. Additional expenses may be incurred to
the extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings of such securities. Recent
adverse publicity regarding lower-rated securities may have depressed the prices
for such securities to some extent. Whether investor perceptions will continue
to have a negative effect on the price of such securities is uncertain.
Mortgage-Backed Securities The Portfolio may invest in mortgage-backed
securities issued by U.S. government entities, such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA")or the Federal Home Loan Mortgage Corporation ("FHLMC"). In addition,
the Portfolio may invest in mortgage-backed securities sponsored by U.S. and
foreign issuers as well as non-governmental issuers. Mortgage-backed securities
represent direct or indirect participations in, or are secured by and payable
from, mortgage loans secured by real property. The mortgages backing these
securities include, among other mortgage instruments, conventional 30-year
fixed-rate mortgages, 15-year fixed rate mortgages, graduated payment mortgages
and adjustable rate mortgages. The government or the issuing agency typically
guarantees the payment of interest and principal of these securities. However,
the guarantees do not extend to the securities' yield or value, which are likely
to vary inversely with fluctuations in interest rates, nor do the guarantees
extend to the yield or value of the Portfolio's shares. These securities
generally are "pass-through" instruments, through which the holders receive a
share of all interest and principal payments from the mortgages underlying the
securities, net of certain fees.
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Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the
Portfolio's yield.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-backed securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-backed securities, and this delay reduces the effective yield to
the holder of such securities.
Asset-Backed Securities The Portfolio may invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts and special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not presented
by other securities in which the Portfolio may invest. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the
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holders of the automobile receivables may not have a proper security interest
in the underlying automobiles. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities. Credit card receivables are generally
unsecured, and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Because asset-backed securities are relatively new, the market experience
in these securities is limited, and the market's ability to sustain liquidity
through all phases of the market cycle has not been tested.
Reverse Repurchase Agreements and Dollar Rolls. The Portfolio may
enter into reverse repurchase agreements with the same parties with whom it may
enter into repurchase agreements. Reverse repurchase agreements involve the sale
of securities held by the Portfolio pursuant to its agreement to repurchase them
at a mutually agreed upon date, price and rate of interest. At the time the
Portfolio enters into a reverse repurchase agreement, it will establish and
maintain a segregated account with an approved custodian containing cash or
liquid 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.
The Portfolio also may enter into "dollar rolls," in which the
Portfolio sells fixed-income securities for delivery in the current month and
simultaneously contracts to repurchase similar but not identical (same type,
coupon and maturity) securities on a specified future date. During the roll
period, the Portfolio would forego principal and interest paid on such
securities. The Portfolio would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
the interest earned on the cash proceeds of the initial sale. At the time the
Portfolio enters into a dollar roll transaction, it will place in a segregated
account maintained with an approved custodian cash or other liquid obligations
having a value not less than the repurchase price (including accrued interest)
and will subsequently monitor the account to ensure that its value is
maintained. Reverse repurchase agreements and dollar rolls that are accounted
for as financings are considered to be borrowings under the 1940 Act.
Other Investment Limitations
Investment limitations numbered 1 through 10 may not be changed
without the affirmative vote of the holders of a majority of the Portfolio's
outstanding shares. Such majority is defined as the lesser of (i) 67% or more of
the shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented
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<PAGE>
by proxy, or (ii) more than 50% of the outstanding shares. If a percentage
limitation (other than the percentage limitation set forth in investment
restriction No. 1 below) 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. Investment limitations 11
through 15 may be changed by a vote of the Board at any time.
The 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. 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 estate, mortgages or interests therein and securities
issued by companies which invest in real estate 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".
20
<PAGE>
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. 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 15%
of the value of the Portfolio's net assets.
15. Make additional investments (including roll-overs) if the
Portfolio's borrowings exceed 5% of its net assets.
Portfolio Valuation
- -------------------
The Prospectus discusses the time at which the net asset value of the
Portfolio is determined for purposes of sales and redemptions. The following is
a description of the procedures used by the Portfolio in valuing its assets.
Securities listed on a U.S. securities exchange (including securities
traded through the Nasdaq National Market System) or foreign securities exchange
or traded in an OTC market will be valued at the most recent sale as of the time
the valuation is made or, in the absence of sales, at the mean between the bid
and asked quotations. If there are no such quotations, the value of the
securities will be taken to be the highest bid quotation on the exchange or
market. Options or futures contracts will be valued similarly. A security which
is listed or traded on more than one exchange is valued at the quotation on the
exchange
21
<PAGE>
determined to be the primary market for such security. Short-term obligations
with maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Board. Amortized cost involves
valuing a portfolio instrument at its initial cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
The amortized cost method of valuation may also be used with respect to debt
obligations with 60 days or less remaining to maturity. In determining the
market value of portfolio investments, the Portfolio may employ outside
organizations (a "Pricing Service") which may use a matrix formula or other
objective method that takes into consideration market indexes, matrices,
yield curves and other specific adjustments. The procedures of Pricing Services
are reviewed periodically by the officers of the Trust under the general
supervision and responsibility of the Board, which may replace a Pricing Service
at any time. Securities, options and futures contracts for which market
quotations are not available and certain other assets of the Portfolio will be
valued at their fair value as determined in good faith pursuant to consistently
applied procedures established by the Board. In addition, the Board or its
delegates may value a security at fair value if it determines that such
security's value determined by the methodology set forth above does not reflect
its fair value.
Trading in securities in certain foreign countries is completed at
various times prior to the close of business on each business day in New York
(i.e., a day on which the New York Stock Exchange ("NYSE") is open for trading).
In addition, securities trading in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and days
on which the Portfolio's net asset value is not calculated. As a result,
calculation of the Portfolio's net asset value may not take place
contemporaneously with the determination of the prices of the majority of the
Portfolio's securities. 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, in which case an adjustment may be made by the Board or its
delegates. All assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the prevailing rate as
quoted by a Pricing Service. If such quotations are not available, the rate of
exchange will be determined in good faith pursuant to consistently applied
procedures established by the Board.
Portfolio Transactions
- ----------------------
Warburg is responsible for establishing, reviewing and, where
necessary, modifying the Portfolio's investment program to achieve its
investment objective. Purchases and sales of newly issued portfolio securities
are usually principal transactions without brokerage commissions effected
directly with the issuer or with an underwriter acting as principal. Other
purchases and sales may be effected on a securities exchange or
over-the-counter, depending on where it appears that the best price or execution
will be obtained. The purchase price paid by the Portfolio to underwriters of
newly issued securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or mark-down.
Transactions on U.S. stock exchanges and some foreign stock exchanges involve
the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated,
22
<PAGE>
the cost of transactions may vary among different brokers. On most foreign
exchanges, commissions are generally fixed. There is generally no stated
commission in the case of securities traded in domestic or foreign OTC markets,
but the price of securities traded in OTC markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Portfolio and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to
the Portfolio and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction or
of the overall responsibilities of Warburg. Research and other services received
may be useful to Warburg in serving both the Portfolio and its other clients
and, conversely, research or other services obtained by the placement of
business of other clients may be useful to Warburg in carrying out its
obligations to the Portfolio. Research may include furnishing advice, either
directly or through publications or writings, as to the value of securities, the
advisability of purchasing or selling specific securities and the availability
of securities or purchasers or sellers of securities; furnishing seminars,
information, analyses and reports concerning issuers, industries, securities,
trading markets and methods, legislative developments, changes in accounting
practices, economic factors and trends and portfolio strategy; access to
research analysts, corporate management personnel, industry experts, economists
and government officials; comparative performance evaluation and technical
measurement services and quotation services; and products and other services
(such as third party publications, reports and analyses, and computer and
electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Warburg in carrying out its responsibilities.
Research received from brokers or dealers is supplemental to Warburg's own
research program. The fees to Warburg under its advisory agreements with the
Trust are not reduced by reason of its receiving any brokerage and research
services.
Investment decisions for the Portfolio concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. Such other investment clients may invest in the same securities as the
Portfolio. When purchases or sales of the same security are made at
substantially the same time on behalf of such other clients, transactions are
averaged as to price and available investments allocated as to amount, in a
manner which Warburg believes to be equitable to each client, including the
Portfolio. In some instances, this investment procedure may adversely affect the
price paid or received by
23
<PAGE>
the Portfolio or the size of the position obtained or sold for the Portfolio.
To the extent permitted by law, Warburg may aggregate the securities to be sold
or purchased for the Portfolio with those to be sold or purchased for such
other investment clients in order to obtain best execution.
Any portfolio transaction for the Portfolio may be executed through
Counsellors Securities Inc., the Trust's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the
Portfolio a commission rate consistent with those charged by Counsellors
Securities to comparable unaffiliated customers in similar transactions. All
transactions with affiliated brokers will comply with Rule 17e-1 under the 1940
Act. In no instance will portfolio securities be purchased from or sold to
Warburg or Counsellors Securities or any affiliated person of such companies.
Transactions for the Portfolio may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Portfolio will deal directly with the dealers who make
a market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
The Portfolio may participate, if and when practicable, in bidding for
the purchase of securities for the Portfolio's portfolio directly from an issuer
in order to take advantage of the lower purchase price available to members of
such a group. The Portfolio will engage in this practice, however, only when
Warburg, in its sole discretion, believes such practice to be otherwise in the
Portfolio's interest.
Portfolio Turnover
- ------------------
The Portfolio does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the
Portfolio deems it desirable to sell or purchase securities. The Portfolio's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.
Certain practices that may be employed by the Portfolio could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short-term, the Portfolio will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held.
24
<PAGE>
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.
Richard N. Cooper (63) Trustee
Harvard University Professor at Harvard University; National
1737 Cambridge Street Intelligence Council from June 1995 until
Cambridge, Massachusetts 02138 January 1997; Director or Trustee of
CircuitCity Stores, Inc. (retail electronics
and appliances) and Phoenix Home Mutual
Life Insurance Company.
Donald J. Donahue (73) Trustee
27 Signal Road Chairman of Magma Copper Company from
Stamford, Connecticut 06902 December 1987 until December 1995; Chairman
and Director of NAC Holdings from September
1990 - June 1993; Director of Pioneer
Companies, Inc. (chlor-alkali chemicals)
and predecessor companies since 1990 and
Vice Chairman since December 1995.
Jack W. Fritz (70) Trustee
2425 North Fish Creek Road Private investor; Consultant and Director
P.O. Box 483 of Fritz Broadcasting, Inc. and Fritz
Wilson, Wyoming 83014 Communications (developers and
operators of radio stations); Director of
Advo, Inc. (direct mail advertising).
John L. Furth* (66) Chairman of the Board and Trustee
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970; Officer
of other investment companies advised by
Warburg.
Thomas A. Melfe (65) Trustee
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure
New York, New York 10112 Newton & Irvine; Chairman of the Board of
Municipal Fund for New York Investors, Inc.
- -----------------------
* Indicates a Trustee who is an "interested person" of the Trust as defined in
the 1940 Act.
25
<PAGE>
Arnold M. Reichman* (49) Trustee
466 Lexington Avenue Managing Director and Assistant Secretary of
New York, New York 10017-3147 Warburg; Associated with Warburg since 1984;
Senior Vice President, Secretary and Chief
Operating Officer of Counsellors Securities;
Officer of other investment companies
advised by Warburg.
Alexander B. Trowbridge (67) Trustee
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990-
November 1996; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual
Life Insurance Co., ICOS Corporation
(biopharmaceuticals), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), Harris Corp. (electronics and
communications equipment), The Gillette Co.
(personal care products) and Sun Company Inc.
(petroleum refining and marketing).
Eugene L. Podsiadlo (40) President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1991; Vice President of
Citibank, N.A. from 1987-1991; Senior Vice
President of Counsellors Securities and
officer of other investment companies
advised by Warburg.
Stephen Distler (44) Vice President
466 Lexington Avenue Managing Director, Controller and Assistant
New York, New York 10017-3147 Secretary of Warburg; Associated with
Warburg since 1984; Treasurer of Counsellors
Securities; Vice President of other
investment companies advised by Warburg.
Eugene P. Grace (45) Vice President and Secretary
466 Lexington Avenue Associated with Warburg since April 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, Chief
Compliance Officer and Assistant Secretary
of Counsellors Securities; Vice President
and Secretary of other investment companies
advised by Warburg.
- -----------------------
* Indicates a Trustee who is an "interested person" of the Trust as defined in
the 1940 Act.
26
<PAGE>
Howard Conroy (43) Vice President and Chief Financial Officer
466 Lexington Avenue Associated with Warburg since 1992;
New York, New York 10017-3147 Associated with Martin Geller, C.P.A. from
1990-1992; Vice President, Finance with
Gabelli/Rosenthal & Partners, L.P. until
1990; Vice President and Chief Financial
Officer of other investment companies
advised by Warburg.
Daniel S. Madden, CPA (31) Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with Warburg since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial
Management, Inc. from September 1994 to
October 1996; Associated with BEA Associates
from April 1993 to September 1994;
Associated with Ernst & Young LLP from 1990
to 1993. Treasurer and Chief Accounting
Officer of other investment companies advised
by Warburg.
Janna Manes, Esq. (29) Assistant Secretary
466 Lexington Avenue Associated with Warburg since 1996;
New York, New York 10017-3147 Associated with the law firm of Willkie Farr
& Gallagher from 1993-1996; Assistant
Secretary of other investment companies
advised by Warburg.
No employee of Warburg or PFPC Inc., the Trust's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Trust
for acting as an officer or Trustee of the Trust. Each Trustee who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and $250 for each meeting of the
Board attended by him for his services as Trustee, and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
27
<PAGE>
Trustees' Compensation
(for the fiscal year ended December 31, 1996)
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Trust Managed by Warburg*
- --------------------------- ------------------ -------------------------
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $43,000
Donald J. Donahue $1,500 $43,000
Jack W. Fritz $1,500 $43,000
Thomas A. Melfe $1,500 $43,000
Alexander B. Trowbridge $1,500 $43,000
- --------------------------
* Each Trustee also serves as a Director or Trustee of 23 other investment
companies advised by Warburg.
** Mr. Furth and Mr. Reichman are considered to be interested persons of the
Trust and Warburg, as defined under Section 2(a)(19) of the 1940 Act, and,
accordingly, receive no compensation from the Trust or any other
investment company managed by Warburg.
As of August 5, 1997, no Trustees or officers of the Trust owned any
of the outstanding shares of the Portfolios.
Portfolio Manager
- -----------------
Mr. Brian S. Posner is Portfolio Manager of the Portfolio as well as
the Portfolio Manager of Warburg Pincus Growth & Income Fund and the Value
Portfolio of Warburg Pincus Institutional Fund, Inc. He has 9 years of
investment experience. Prior to joining Warburg, Mr. Posner was employed from
1987 to 1996 by Fidelity Investments, where, most recently, he was the vice
president and portfolio manager of the Fidelity Equity-Income II Fund. Mr.
Posner received an undergraduate degree from Northwestern University and his
M.B.A. in finance from the University of Chicago.
Investment Adviser and Co-Administrators
- ----------------------------------------
Warburg serves as investment adviser to the Portfolio and Counsellors
Funds Service, Inc. ("Counsellors Service") and PFPC serve as co-administrators
to the Trust pursuant to separate written agreements (the "Advisory Agreement,"
the "Counsellors Service Co-Administration Agreement" and the "PFPC
Co-Administration Agreement," respectively). The services provided by, and the
fees payable by the Trust to, Warburg under the Advisory Agreement, Counsellors
Service under the Counsellors Service Co-Administration Agreement and PFPC under
the PFPC Co-Administration Agreement are described in the Prospectus. See the
Prospectus, "Management of the Fund."
28
<PAGE>
Custodians and Transfer Agent
- -----------------------------
PNC Bank, National Association ("PNC") and State Street Bank and Trust
Company ("State Street") serve as custodian of the U.S. and non-U.S. assets,
respectively, of the Portfolio. Each custodian serves pursuant to separate
custodian agreements (the "Custodian Agreements"). Under the Custodian
Agreements, PNC and State Street each (i) maintains a separate account or
accounts in the name of the Portfolio, (ii) holds and transfers portfolio
securities on account of the Portfolio, (iii) makes receipts and disbursements
of money on behalf of the Portfolio, (iv) collects and receives all income and
other payments and distributions on account of the Portfolio's portfolio
securities held by it and (v) makes periodic reports to the Board concerning the
Trust's custodial arrangements. PNC may delegate its duties under its Custodian
Agreement with the Trust to a wholly owned direct or indirect subsidiary of PNC
or PNC Bank Corp. upon notice to the Trust and upon the satisfaction of certain
other conditions. With the approval of the Board, State Street is authorized to
select one or more foreign banking institutions and foreign securities
depositaries as sub-custodian on behalf of the Portfolio. PNC is an indirect,
wholly owned subsidiary of PNC Bank Corp., and its principal business address is
1600 Market Street, Philadelphia, Pennsylvania 19103. The principal business
address of State Street is 225 Franklin Street, Boston, Massachusetts 02110.
State Street also serves as the shareholder servicing, transfer and
dividend disbursing agent of the Trust pursuant to a Transfer Agency and Service
Agreement, under which State Street (i) issues and redeems shares of the
Portfolio, (ii) addresses and mails all communications by the Trust to record
owners of Portfolio shares, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders, (iii)
maintains shareholder accounts and, if requested, sub-accounts and (iv) makes
periodic reports to the Board concerning the transfer agent's operations with
respect to the Trust. State Street has delegated to Boston Financial Data
Services, Inc. ("BFDS"), a 50% owned subsidiary, responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.
Organization of the Trust
- -------------------------
The Trust was organized as an unincorporated Massachusetts business
trust under the name "Warburg, Pincus Trust."
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the Portfolio.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration of Trust provides for indemnification from the
Portfolio's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio would be unable to meet its
obligations, a possibility that Warburg believes is remote and immaterial. Upon
payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Portfolio. The Trustees intend to conduct the operations of the Trust in such a
way so as to avoid, as far as possible, ultimate liability of the shareholders
for liabilities of the Trust.
29
<PAGE>
All shareholders of the Portfolio, upon liquidation, will participate
ratably in the Portfolio's net assets. Shares do not have cumulative voting
rights, which means that holders of more than 50% of the shares voting for the
election of Trustees can elect all Trustees. Shares are transferable but have no
preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As described in the Prospectus, shares of the Portfolio may not be
purchased or redeemed by individual investors directly but may be purchased or
redeemed only through Variable Contracts offered by separate accounts of
Participating Insurance Companies and through Plans, including
participant-directed Plans which elect to make the Portfolio an investment
option for Plan participants. The offering price of the Portfolio's shares is
equal to its per share net asset value. Additional information on how to
purchase and redeem the Portfolio's shares and how such shares are priced is
included in the Prospectus under "Net Asset Value."
Under the 1940 Act, the Portfolio may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (The Portfolio may also suspend or postpone the recordation
of an exchange of its shares upon the occurrence of any of the foregoing
conditions.)
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Portfolio may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds. The Trust intends to comply with Rule 18f-1 promulgated under the 1940
Act with respect to redemptions in kind.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally affecting
the Trust and its shareholders is intended to be only a summary and is not
intended as a substitute for careful tax planning by prospective shareholders.
Shareholders are advised to consult the sponsoring Participating Insurance
Company separate account prospectus or the Plan documents or other informational
materials supplied by Plan sponsors and their own tax advisers with respect to
the particular tax consequences to them of an investment in the Portfolio.
The Portfolio intends to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). If it qualifies as a regulated investment company, the 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, the Portfolio must, among other things: (i) distribute to its shareholders
the
30
<PAGE>
sum of at least 90% of its taxable net investment income (for this purpose
consisting of taxable net investment income and net realized short-term capital
gains) plus at least 90% of its net tax-exempt interest income; (ii) derive at
least 90% of its gross income from dividends, interest, payments with respect
to loans of securities, gains from the sale or other disposition of securities
or foreign currencies, or other income (including, but not limited to, gains
from options, futures, and forward contracts) derived with respect to its
business of investing in such securities or currencies; and (iii) diversify its
holdings so that, at the end of each fiscal quarter of the Portfolio (a) at
least 50% of the market value of the Portfolio's assets is represented by cash,
U.S. government securities and other securities, with those other securities
limited, with respect to any one issuer, to an amount no greater in value than
5% of the Portfolio's total assets and to not more than 10% of the outstanding
voting securities of the issuer, and (b) not more than 25% of the market value
of the Portfolio's assets is invested in the securities of any one issuer
(other than U.S. government securities or securities of other regulated
investment companies) or of two or more issuers that the Portfolio controls and
that are determined to be in the same or similar trades or businesses or
related trades or businesses.
In addition, the Portfolio intends to comply with the diversification
requirements of Section 817(h) of the Code related to the tax-deferred status of
insurance company separate accounts. To comply with regulations under Section
817(h) of the Code, the Portfolio will be required to diversify its investments
so that on the last day of each calendar quarter no more than 55% of the value
of its assets is represented by any one investment, no more than 70% is
represented by any two investments, no more than 80% is represented by any three
investments and no more than 90% is represented by any four investments.
Generally, all securities of the same issuer are treated as a single investment.
For the purposes of Section 817(h), obligations of the United States Treasury
and each U.S. government agency or instrumentality are treated as securities of
separate issuers. The Treasury Department has indicated that it may issue future
pronouncements addressing the circumstances in which a Variable Contract owner's
control of the investments of a separate account may cause the Variable Contract
owner, rather than the Participating Insurance Company, to be treated as the
owner of the assets held by the separate account. If the Variable Contract owner
is considered the owner of the securities underlying the separate account,
income and gains produced by those securities would be included currently in the
Variable Contract owner's gross income. It is not known what standards will be
set forth in such pronouncements or when, if at all, these pronouncements may be
issued. In the event that rules or regulations are adopted, there can be no
assurance that the Portfolio will be able to operate as currently described, or
that the Trust will not have to change the investment goal or investment
policies of the Portfolio. While the Portfolio's investment goal is fundamental
and may be changed only by a vote of a majority of the Portfolio's outstanding
shares, the Board reserves the right to modify the investment policies of the
Portfolio as necessary to prevent any such prospective rules and regulations
from causing a Variable Contract owner to be considered the owner of the shares
of the Portfolio underlying the separate account.
The Portfolio's short sales against the box, if any, and transactions,
if any, in foreign currencies, forward contracts, options and futures contracts
(including options, futures contracts and forward contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses recognized by the Portfolio
(i.e., may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Portfolio, defer Portfolio losses and cause the
Portfolio to be
31
<PAGE>
subject to hyperinflationary currency rules. These rules could therefore affect
the character, amount and timing of distributions to shareholders. These
provisions also (i) will require the Portfolio to mark-to-market certain types
of its positions (i.e., treat them as if they were closed out) and (ii) may
cause the Portfolio to recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. The Portfolio will monitor
its transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any foreign
currency, forward contract, option, futures contract or hedged investment 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 the Portfolio may
only be purchased through Variable Contracts and Plans, it is anticipated that
dividends and distributions will be exempt from current taxation if left to
accumulate within the Variable Contracts or Plans.
DETERMINATION OF PERFORMANCE
From time to time, the Portfolio may quote its total return in
advertisements or in reports and other communications to shareholders. Total
return is calculated by finding the average annual compounded rates of return
for the one-, five-, and ten- (or such shorter period as the Portfolio has been
offered) year periods that would equate the initial amount invested to the
ending redeemable value according to the following formula: P (1 + T)n* = ERV.
For purposes of this formula, "P" is a hypothetical investment of $1,000; "T" is
average annual total return; "n" is number of years; and "ERV" is the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
one-, five- or ten-year periods (or fractional portion thereof). Total return or
"T" is computed by finding the average annual change in the value of an initial
$1,000 investment over the period and assumes that all dividends and
distributions are reinvested during the period.
The Portfolio may advertise, from time to time, comparisons of its
performance with that of one or more other mutual funds with similar investment
objectives. The Portfolio may advertise average annual calendar-year-to-date and
calendar quarter returns, which are calculated according to the formula set
forth in the preceding paragraph, except that the relevant measuring period
would be the number of months that have elapsed in the current calendar year or
most recent three months, as the case may be. Investors should note that this
performance may not be representative of the Portfolio's total return in longer
market cycles.
The Portfolio's performance will vary from time to time depending upon
market conditions, the composition of its portfolio and operating expenses
allocable to it. As described above, total return is based on historical
earnings and is not intended to indicate future performance. Consequently, any
given performance quotation should not be considered as representative of
performance for any specified period in the future. Performance information may
be useful as a basis for comparison with other investment alternatives. However,
the Portfolio's performance will fluctuate, unlike certain bank deposits or
other investments which pay a fixed yield for a stated period of time.
Performance quotations for
- --------------------------
* As used here, "n" is an exponent.
32
<PAGE>
the Portfolio include the effect of deducting the Portfolio's expenses, but may
not include charges and expenses attributable to any particular Variable
Contract or Plan, which would reduce the returns described in this section.
See the Prospectus, "Performance."
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal offices
at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Trust.
Willkie Farr & Gallagher serves as counsel for the Trust as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENT
The unaudited statement of assets and liabilities for the Portfolio
dated as of August 8, 1997 accompanies this Statement of Additional Information.
33
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
- ------------------------
Commercial paper rated A-1 by Standard and Poor's Ratings Group
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Services, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Corporate Bond Ratings
- ----------------------
The following summarizes the ratings used by S&P for corporate bonds:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Although they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher-rated
categories.
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.
A-1
<PAGE>
The following summarizes the ratings used by Moody's for corporate
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to the
bonds rated "Aa" through "Baa". The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
A-2
<PAGE>
WARBURG PINCUS TRUST
GROWTH & INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
as of August 8, 1997
(unaudited)
Assets:
Cash 0
Deferred Organizational Costs 0
Total Assets 0
Liabilities: 0
Net Assets 0
Net Asset Value, Redemption and Offering Price Per
share (1 billion shares classified for the
Growth & Income Portfolio - $.001 par value)
applicable to 1 share issued. $10.00
F-1
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements--
I. International Equity Portfolio, Small Company Growth Portfolio
and Post-Venture Capital Portfolio*
(1) Financial Statements included in Part A:
(a) Financial Highlights
(2) Audited Financial Statements incorporated by
reference in Part B (incorporated by reference to
the Fund's annual report dated December 31, 1996)
(a) Report of Coopers & Lybrand L.L.P.
(b) Statement of Net Assets
(c) Statement of Assets and Liabilities
(d) Statement of Operations
(e) Statement of Changes in Net Assets
(f) Financial Highlights
(g) Notes to Financial Statements
(h) Report of Independent Accountants
II. Emerging Markets Portfolio*
Unaudited Financial Statements included in Part B:
Statement of Assets and Liabilities
III. Growth & Income Portfolio
Unaudited Financial Statements included in Part B:
Statement of Assets and Liabilities
(b) Exhibits:
- -------------------
* Previously filed in Post-Effective Amendment NO. 3 to
Registrant's Registration Statement on Form N-1A, filed with
the Securities and Exchange Commission (the "Commission") on
April 9, 1997.
C-1
<PAGE>
Exhibit No. Description of Exhibit
----------- ----------------------
1(a) Declaration of Trust(3)
1(b) Amendment to Declaration of Trust(4)
1(c) Designation of Series relating to addition of
Post-Venture Capital and Emerging Markets
Portfolios(2)
1(d) Designation of Series relating to addition
of Growth & Income Portfolio
2 By-Laws(3)
3 Not applicable
4 Form of Share Certificate(4)
5(a) Forms of Investment Advisory Agreements
between Registrant and Warburg, Pincus
Counsellors pertaining to the International
Equity Portfolio and Small Company Growth
Portfolio(4)
5(b) Forms of Investment Advisory Agreements
between Registrant and Warburg, Pincus
Counsellors pertaining to the Post-Venture
Capital Portfolio and the Emerging Markets
Portfolio(2)
- --------------------
(1) Incorporated by reference to Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form N-1A, filed
with the Commission on April 9, 1997.
(2) Incorporated by reference to Post-Effective Amendment No. 4
to Registrant's Registration Statement on Form N-1A, filed
with the Commission on April 18, 1996.
(3) Incorporated by reference to Registrant's Registration
Statement on Form N-1A filed with the Commission on
March 17, 1995.
(4) Incorporated by reference to Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A filed
with the Commission on June 14, 1995.
C-2
<PAGE>
Exhibit No. Description of Exhibit
----------- ----------------------
5(c) Forms of Sub-Investment Advisory Agreements
between Registrant and Abbott Capital
Management, L.P. and Abbott Capital
Management, LLC pertaining to the
Post-Venture Capital Portfolio(1)
5(d) Form of Investment Advisory Agreement between
Registrant and Warburg, Pincus Counsellors
pertaining to the Growth & Income Portfolio
6(a) Form of Distribution Agreement(4)
6(b) Form of Distribution Agreement.
7 Not applicable
8(a) Form of Custodian Agreement with PNC Bank,
National Association.(4)
8(b) Form of Custodian Agreement with State
Street Bank and Trust Company(4)
8(c) Form of Custodian Agreement with Fiduciary
Trust Company International pertaining to
the Post-Venture Capital Portfolio(5)
8(d) Form of Custodian Services Agreement with
PNC Bank, National Association and the
Growth & Income Portfolio
8(e) Form of Custodian Agreement with State
Street Bank and Trust Company
9(a) Form of Transfer Agency Agreement(4)
9(b) Form of Co-Administration Agreement with
Counsellors Funds Service, Inc.(4)
9(c) Form of Co-Administration Agreement with PFPC Inc.(4)
- -----------------------
(5) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Post-Effective Amendment No. 10 to the Registration Statement on Form
N-1A of Warburg, Pincus International Equity Fund, Inc., filed on
September 25, 1995 (Securities Act File No. 33-27031).
C-3
<PAGE>
Exhibit No. Description of Exhibit
----------- ----------------------
9(d) Form of Letter Agreement between Registrant
and PFPC Inc. pertaining to inclusion of
the Post-Venture Capital Portfolio and the
Emerging Markets Portfolio under the
existing Co-Administration Agreement(2)
9(e) Form of Participation Agreement(4)
9(f) Form of Co-Administration Agreement between
Registrant and PFPC Inc. pertaining to
inclusion of the Growth & Income Portfolio.
9(g) Form of Co-Administration Agreement between
Registrant and Counsellors Funds Service,
Inc. pertaining to inclusion of the Growth
& Income Portfolio.
9(h) Form of Letter Agreement between Registrant
and State Street pertaining to te inclusion
of the Growth & Income Portfolio under the
Transfer Agency and Service Agreement.
10(a) Consent of Willkie Farr & Gallagher,
counsel to the Trust and Opinion of
Willkie Farr & Gallagher relating to the
establishment of the Growth & Income
Portfolio
10(b) Opinion of Sullivan & Worcester LLP
11 Not applicable
12(a) Purchase Agreement pertaining to the
International Equity Portfolio and Small
Company Growth Portfolio(4)
12(b) Form of Purchase Agreement pertaining to
the Post-Venture Capital Portfolio and
Emerging Markets Portfolio(2)
12(c) Form of Purchase Agreement pertaining to
the Growth & Income Portfolio
13 Retirement Plans(6)
14 Not applicable
- -------------------
(6) Incorporated by reference to Post-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A, filed
with the Commission on March 4, 1996.
C-4
<PAGE>
Item 25. Persons Controlled by or Under Common Control
---------------------------------------------
with Registrant
Not applicable
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of June 30, 1997
-------------- -------------------
International Equity Portfolio- 12
shares of beneficial interest
par value $.001 per share
Small Company Growth Portfolio- 15
shares of beneficial interest
par value $.001 per share
Emerging Markets Portfolio- 0
shares of beneficial interest
par value $.001 per share
Post-Venture Capital Portfolio- 11
shares of beneficial interest
par value $.001 per share
Item 27. Indemnification
---------------
Registrant, officers and directors or trustees of Warburg, Pincus
Counsellors, Inc., Registrant's investment adviser ("Warburg"), of Counsellors
Securities, Inc., Registrant's distributor ("Counsellors Securities"), and of
Registrant are covered by insurance policies indemnifying them for liability
incurred in connection with the operation of Registrant. Discussion of this
coverage is incorporated by reference to Item 27 of Part C of the Trust's
Registration Statement filed on March 17, 1995 (Securities Act File No.
33-58125).
Item 28. Business and Other Connections of Investment
Adviser
--------------------------------------------
Warburg, a wholly owned subsidiary of Warburg, Pincus Counsellors
Holdings, Inc. acts as investment adviser to Registrant. Warburg renders
investment advice to a wide variety of individual and institutional clients. The
list required by this Item 28 of officers and directors of Warburg, together
with information as to their other business, profession, vocation or
C-5
<PAGE>
employment of a substantial nature during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by Warburg (SEC File No.
801-07321).
Abbott Capital Management, LLC ("Abbott") acts as sub-investment
adviser for the Registrant's Post-Venture Capital Portfolio. Abbott renders
investment advice and provides full-service private equity programs to clients.
The list required by this Item 28 of Officers and Directors of Abbott, together
with information as to their other business, profession, vocation, or employment
of a substantial nature during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Abbott (SEC File No. 801-27914).
Item 29. Principal Underwriter
---------------------
(a) Counsellor Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor for the RBB Fund, Inc.,
Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation Fund; Warburg
Pincus Cash Reserve Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus
Emerging Markets Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus Global
Fixed Income Fund; Warburg Pincus Global Post-Venture Capital Fund; Warburg
Pincus Growth & Income Fund, Inc.; Warburg Pincus Health Sciences Fund, Inc.;
Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate Maturity
Government Fund; Warburg Pincus International Equity Fund; Warburg Pincus Japan
Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus New York Intermediate
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus
Post-Venture Capital Fund; Warburg, Pincus Small Company Growth Fund; Warburg
Pincus Small Company Value Fund; Warburg Pincus Strategic Value Fund; Warburg
Pincus Tax Free Fund; and Warburg Pincus Trust II.
(b) For information relating to each director and officer of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654) filed
by Counsellors Securities under the Securities Exchange Act of 1934.
(c) None.
Item 30. Location of Accounts and Records
--------------------------------
(1) Warburg, Pincus Trust
335 Madison Avenue
New York, New York 10017
(Trust's Declaration of Trust, by-laws and minute
books)
C-6
<PAGE>
(2) Counsellors Funds Service, Inc.
335 Madison Avenue
New York, New York 10017
(records relating to its functions as co-
administrator)
(3) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-
administrator)
(4) Counsellors Securities Inc.
335 Madison Avenue
New York, New York 10017
(records relating to its functions as distributor)
(5) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as
investment adviser)
(6) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as
transfer agent and custodian)
(7) PNC Bank, National Association
1600 Market Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
(8) Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048
(records relating to its functions as custodian)
(9) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as transfer
agent and dividend disbursing agent)
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees of Registrant when requested in
C-7
<PAGE>
writing to do so by the holders of at least 10% of Registrant's outstanding
shares. Registrant undertakes further, in connection with the meeting, to comply
with the provisions of Section 16(c) of the 1940 Act relating to communications
with the shareholders of certain common law trusts.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
(c) Registrant hereby undertakes to file a post-effective amendment
with financial statements of the Growth & Income Portfolio, which need not be
certified, within four to six months from the date that Portfolio commences
operations.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York, on the 8th day of August, 1997.
WARBURG, PINCUS TRUST
By:/s/Eugene L. Podsiadlo
-------------------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed below by the following persons in the capacities
and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/John L. Furth Chairman of August 8, 1997
- ----------------------- the Board of
John L. Furth Trustees
/s/Eugene L. Podsiadlo President August 8, 1997
- -----------------------
Eugene L. Podsiadlo
/s/Howard Conroy Vice President August 8, 1997
- ----------------------- and Chief Financial
Howard Conroy Officer
/s/Daniel S. Madden Treasurer and August 8, 1997
- ----------------------- Chief Accounting
Daniel S. Madden Officer
/s/Richard N. Cooper Trustee August 8, 1997
- -----------------------
Richard N. Cooper
/s/Donald J. Donahue Trustee August 8, 1997
- -----------------------
Donald J. Donahue
/s/Jack W. Fritz Trustee August 8, 1997
- -----------------------
Jack W. Fritz
/s/Thomas A. Melfe Trustee August 8, 1997
- -----------------------
Thomas A. Melfe
/s/Arnold M. Reichman Trustee August 8, 1997
- -----------------------
Arnold M. Reichman
/s/Alexander B. Trowbridge Trustee August 8, 1997
- ---------------------------
Alexander B. Trowbridge
C-9
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(d) Designation of Series relating to addition of Growth &
Income Portfolio.
5(d) Form of Investment Advisory Agreement between
Registrant and Warburg, Pincus Counsellors, Inc.
pertaining to the Growth & Income Portfolio.
6(b) Form of Distribution Agreement.
8(d) Form of Custodian Services Agreement with PNC
Bank, National Association and the Growth &
Income Portfolio.
8(e) Form of Custodian Agreement with State Street
Bank and Trust Company and the Growth & Income
Portfolio.
9(f) Form of Co-Administration Agreement between
Registrant and PFPC Inc. pertaining to
inclusion of the Growth & Income Portfolio.
9(g) Form of Co-Administration Agreement between
Registrant and Counsellors Funds Service, Inc.
pertaining to inclusion of the Growth & Income
Portfolio.
9(h) Form of Letter Agreement between Registrant
and State Street pertaining to the inclusion
of the Growth & Income Portfolio under the
Transfer Agency and Service Agreement.
10(a) Consent of Willkie Farr & Gallagher, counsel
to the Trust and Opinion of Willkie Farr &
Gallagher relating to the establishment of the
Growth & Income Portfolio.
10(b) Opinion of Sullivan & Worcester LLP
13(c) Form of Purchase Agreement pertaining to the
Growth & Income Portfolio.
<PAGE>
WARBURG, PINCUS TRUST
---------------------
Certificate of Establishment and
Designation of the Growth & Income Portfolio
The undersigned, being the Assistant Secretary of Warburg, Pincus
Trust, a Massachusetts trust with transferable shares (the "Fund"), being
hereunto authorized by vote of a Majority of the Trustees of the Fund acting
pursuant to Section 6.1(b) and Section 9.3 of the Agreement and Declaration of
Trust of the Fund dated March 15, 1995, as now in effect (the "Declaration"),
does hereby establish and designate the following Portfolio (in addition to the
Portfolios now existing) into which the assets of the Fund shall be divided:
Growth & Income Portfolio
(the "Additional Portfolio"), having relative rights and preferences as follows:
1. The beneficial interest in the Additional Portfolio shall be
represented by a separate series (the "Additional Series") of shares of
beneficial interest, par value one mil ($.001) per share ("Shares"), which shall
bear the name of the Additional Portfolio to which it relates and shall
represent the beneficial interest only in such Additional Portfolio. An
unlimited number of Shares of the Additional Series may be issued.
2. The Additional Portfolio shall be authorized to invest in cash,
securities, instruments and other property as from time to time described in the
Fund's then currently effective registration statement under the Securities Act
of 1933, as amended.
3. The Shares of the Additional Portfolio, and the Series thereof,
shall have the additional relative rights and preferences, shall be subject to
the liabilities, shall have the other characteristics, and shall be subject to
the powers of the Trustees, all as set forth in paragraphs (a) through (l) of
Section 6.2 of the Declaration. Without limitation of the foregoing sentence,
each Share of the Additional Series shall be redeemable, shall be entitled to
one vote, or a ratable fraction of one vote in respect of a fractional share, as
to matters on which Shares of such Series shall be entitled to vote, and shall
represent a share of the beneficial interest in the assets of the Portfolio to
which that Additional Series relates, all as provided in the Declaration of
Trust.
<PAGE>
4. This Certificate may be executed in several counterparts, each of
which shall be an original and all of which shall constitute one instrument.
IN WITNESS WHEREOF, I have hereunto set my hand as of the day and year
set forth opposite my signature below.
/s/ Janna Manes
Dated: July 31, 1997 ______________________________
Name: Janna Manes
Title: Assistant Secretary
ACKNOWLEDGMENT
--------------
STATE OF NEW YORK )
)
COUNTY OF NEW YORK ) ss. July 31, 1997
Then personally appeared the above named Janna Manes and
acknowledged the foregoing instrument to be his/her free act and deed.
Before me,
/s/ Cheryl Horowitz
_____________________________
Notary Public
My Commission Expires: May 16, 1999
CHERYL HOROWITZ
NOTARY PUBLIC, State of New York
No. 31-5043759
Qualified in New York County
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INVESTMENT ADVISORY AGREEMENT
_________________ __, 1997
Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust (the "Trust"), a business trust organized under
the laws of The Commonwealth of Massachusetts, is an open-end, management
investment company that currently offers four portfolios, one of which is the
Growth & Income Portfolio (the "Portfolio"). The Trust on behalf of the
Portfolio herewith confirms its agreement with Warburg, Pincus Counsellors, Inc.
(the "Adviser") as follows:
1. Investment Description; Appointment
-----------------------------------
The Trust desires to employ the capital of the Portfolio by investing
and reinvesting in investments of the kind and in accordance with the
limitations specified in its Declaration of Trust, as may be amended from time
to time, and in its Prospectus and Statement of Additional Information relating
to the Portfolio as from time to time in effect, and in such manner and to such
extent as may from time to time be approved by the Board of Trustees of the
Trust. Copies of the Trust's Prospectus and Statement of Additional Information
relating to the Portfolio and Declaration of Trust, as each may be amended from
time to time, have been or will be submitted to the Adviser. The Trust desires
to employ and hereby appoints the Adviser to act as investment adviser to the
Portfolio. The Adviser accepts the appointment and agrees to furnish the
services for the compensation set forth below.
2. Services as Investment Adviser
------------------------------
Subject to the supervision and direction of the Board of Trustees of
the Trust, the Adviser will (a) act in strict conformity with the Trust's
Declaration of Trust, the Investment Company Act of 1940 and the Investment
Advisers Act of 1940, as the same may from time to time be amended, (b) manage
the Portfolio in accordance with the Portfolio's investment objective and
policies as stated in the Trust's Prospectus and Statement of Additional
Information relating to the Portfolio as from time to time in effect, (c) make
investment decisions for the Portfolio, (d) place purchase and sale orders for
securities on behalf of the Portfolio and (e) calculate and monitor the
Portfolio's asset diversification each calendar quarter so that on the last day
of each calendar quarter the Portfolio will be in compliance with
diversification requirements of Section 817(h) of the Internal
<PAGE>
Revenue Code of 1986, as the same may be amended from time to time, and
regulations thereunder. In providing those services, the Adviser will provide
investment research and supervision of the Portfolio's investments and conduct a
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Portfolio's assets. In addition, the Adviser will furnish
the Trust with whatever statistical information the Trust may reasonably request
with respect to the securities that the Portfolio may hold or contemplate
purchasing.
3. Brokerage
---------
In executing transactions for the Portfolio and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any portfolio
transaction, the Adviser will consider all factors it deems relevant including,
but not limited to, breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
for transactions executed through the broker or dealer in the aggregate. In
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser may consider the
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as the same may from time to time be
amended) provided to the Portfolio and/or other accounts over which the Adviser
or an affiliate exercises investment discretion.
4. Information Provided to the Trust
---------------------------------
The Adviser will keep the Trust informed of developments materially
affecting the Portfolio, and will, on its own initiative, furnish the Trust from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. Standard of Care
----------------
The Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2, 3 and 4 above. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust or the
Portfolio in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to protect
the Adviser against any liability to the Trust or the Portfolio or to
shareholders of the Trust or the Portfolio to which the Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Adviser's reckless
disregard of its obligations and duties under this Agreement.
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<PAGE>
6. Limitation of Liability
-----------------------
The Trust and the Adviser agree that the obligations of the Trust under
this Agreement will not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Trust, individually, but are binding only upon the assets and property of the
Portfolio, as provided in the Declaration of Trust. The execution and delivery
of this Agreement have been authorized by the Trustees of the Trust, and signed
by an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer will
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Portfolio as provided in the Declaration of Trust. No series of the Trust,
including the Portfolio, will be liable for any claims against any other series.
7. Compensation
------------
In consideration of the services rendered pursuant to this Agreement,
the Portfolio will pay the Adviser an annual fee calculated at an annual rate of
.75% of the Portfolio's average daily net assets. The fee for the period from
the date the Trust's initial registration statement relating to the Portfolio is
declared effective by the Securities and Exchange Commission to the end of the
year during which the initial registration statement is declared effective shall
be prorated according to the proportion that such period bears to the full
yearly period. Upon any termination of this Agreement before the end of a year,
the fee for such part of that year shall be prorated according to the proportion
that such period bears to the full yearly period and shall be payable upon the
date of termination of this Agreement. For the purpose of determining fees
payable to the Adviser, the value of the Portfolio's net assets shall be
computed at the times and in the manner specified in the Trust's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
8. Expenses
--------
The Adviser will bear all expenses in connection with the performance
of its services under this Agreement. The Portfolio will bear its proportionate
share of certain other expenses to be incurred in its operation, including:
investment advisory and administration fees; taxes, interest, brokerage fees and
commissions, if any; fees of Trustees of the Trust who are not officers,
directors, or employees of the Adviser or any of its affiliates; fees of any
pricing service employed to value shares of the Portfolio; Securities and
Exchange Commission fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; the Portfolio's
proportionate share of insurance premiums; outside auditing and legal expenses;
costs of maintenance of the Portfolio's
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<PAGE>
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of the shareholders of the Portfolio and of the officers or Board
of Trustees of the Trust; and any extraordinary expenses.
The Portfolio will be responsible for nonrecurring expenses which may
arise, including costs of litigation to which the Portfolio is a party and of
indemnifying officers and Trustees of the Trust with respect to such litigation
and other expenses as determined by the Trustees.
9. Services to Other Companies or Accounts
---------------------------------------
The Trust understands that the Adviser now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and to one or more other investment companies or series of investment
companies, and the Trust has no objection to the Adviser so acting, provided
that whenever the Portfolio and one or more other accounts or investment
companies or portfolios advised by the Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each entity. The Trust
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Portfolio. In addition, the Trust understands
that the persons employed by the Adviser to assist in the performance of the
Adviser's duties hereunder will not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right of the
Adviser or any affiliate of the Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
10. Term of Agreement
-----------------
This Agreement shall continue until April 17, 1999 and thereafter shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually by (a) the Board of Trustees of the
Trust or (b) a vote of a "majority" (as defined in the Investment Company Act of
1940) of the Portfolio's outstanding voting securities, provided that in either
event the continuance is also approved by a majority of the Board of Trustees
who are not "interested persons" (as defined in said Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable, without penalty, on 60 days'
written notice, by the Board of Trustees of the Trust or by vote of holders of a
majority of the Portfolio's shares, or upon 90 days' written notice, by the
Adviser. This
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<PAGE>
Agreement will also terminate automatically in the event of its assignment (as
defined in said Act).
11. Representation by the Trust
---------------------------
The Trust represents that a copy of its Declaration of Trust, dated
March 15, 1995, together with all amendments thereto, is on file in the office
of the Secretary of State of The Commonwealth of Massachusetts.
12. Miscellaneous
-------------
The Trust recognizes that directors, officers and employees of the
Adviser may from time to time serve as directors, trustees, officers and
employees of corporations and business trusts (including other investment
companies) and that such other corporations and trusts may include the name
"Warburg, Pincus" as part of their names, and that the Adviser or its affiliates
may enter into advisory or other agreements with such other corporations and
trusts. If the Adviser ceases to act as the investment adviser of the
Portfolio's shares, the Trust agrees that, at the Adviser's request, the Trust's
license to use the words "Warburg, Pincus" will terminate and that the Trust
will take all necessary action to change the name of the Trust and the Portfolio
to names not including the words "Warburg, Pincus."
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By:______________________________
Name:
Title:
Accepted:
WARBURG, PINCUS COUNSELLORS, INC.
By:______________________________
Name:
Title:
5
<PAGE>
DISTRIBUTION AGREEMENT
__________ __, 1997
Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
This is to confirm that Counsellors Securities Inc. shall be the
distributor of shares of beneficial interest, par value $.001 per share, issued
by the Growth & Income Portfolio of Warburg, Pincus Trust (the "Trust") under
terms of the Distribution Agreement between the Trust and Counsellors Securities
Inc., dated June 20, 1995.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By:_____________________________
Name:
Title:
Accepted:
COUNSELLORS SECURITIES INC.
By:________________________
Name:
Title:
<PAGE>
CUSTODIAN SERVICES AGREEMENT
_____________, 1997
PNC Bank
Airport Business Center
International Court 2
200 Stevens Drive
Philadelphia, Pennsylvania 19113
Dear Sirs:
In accordance with Article 17 of the Custodian Services Agreement Terms
and Conditions, dated June 20, 1995 (the "Agreement"), between Warburg, Pincus
Trust (the "Trust") and PNC Bank, National Association (the "Bank"), the Trust
hereby notifies the Bank of the Trust's desire to amend Exhibit A of the
Agreement to include the Growth & Income Portfolio, a series of shares of
beneficial interest of the Trust (the "Portfolio"), and to have the Bank render
services as custodian under the terms of the Agreement with respect to the
Portfolio.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By:__________________________
Name:
Title:
Accepted:
PNC BANK, NATIONAL ASSOCIATION
By:___________________________
Name:
Title:
<PAGE>
CUSTODIAN CONTRACT
This Contract is between Warburg, Pincus *[name of Fund], a *[business
trust/corporation] organized and existing under the laws of *[The Commonwealth
of Massachusetts/the State of Maryland], having a Board of *[Trustees/Directors]
(the "Board") and its principal place of business at 466 Lexington Avenue, New
York, New York 10017 (the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund intends to offer shares in one or more series as
listed on Schedule F hereto (such series, together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with Article 20 hereof, being herein referred to as the
"Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto do hereby agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolio(s), including securities which the Fund, on behalf of the
applicable Portfolio, desires to be held in places within the United States of
America ("domestic securities") and securities it desires to be held outside the
United States of America ("foreign securities") pursuant to the provisions of
the Fund's *[declaration of trust on file with the Secretary of The Commonwealth
of Massachusetts /Articles of Incorporation], as amended from time to time (the
"Charter"). The Fund, on behalf of the Portfolio(s), agrees to deliver to the
Custodian all securities and cash of such Portfolios generally described in
Schedule F, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of *[capital stock/beneficial interest] ("Shares")
of the Fund representing interests in the Portfolios as may be issued or sold
from time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Fund on behalf of a Portfolio and not
delivered to (i) the Custodian to be held by it, (ii) a sub-custodian located in
the United States and employed pursuant to this Article 1 or (iii) a foreign
sub-custodian or a foreign securities system employed pursuant to Article 3.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians located in the
United States of America, including any state or
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<PAGE>
political subdivision thereof and any territory over which its political
sovereignty extends (the "United States" or "U.S."), but only in accordance with
an applicable vote by the Board. The Custodian may also employ as sub-custodians
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign sub-custodians and foreign securities depositories designated in
Schedule A hereto but only in accordance with the terms hereof and an applicable
vote of the Board on behalf of the applicable Portfolio(s).
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property to be held by
it in the United States including all domestic securities owned by such
Portfolio other than (a) securities which are maintained in a "U.S.
Securities System" (as such term is defined in Section 2.10 of this
Contract) and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct Paper
System") which is deposited and/or maintained in the Custodian's Direct
Paper Book Entry System pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio and (i) held by the Custodian,
(ii) held in an account of the Custodian in a U.S. Securities System
(as defined in Section 2.10 hereof) or (iii) held in the Direct Paper
System Account (as defined in Section 2.11 hereof), only upon receipt
of Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate
by the parties, and only in the cases listed below. Any U.S. Securities
System account shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for its customers
("U.S. Securities System Account"). The Custodian's Direct Paper
Book-Entry System account shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise for its
customers ("Direct Paper System Account").
1) Upon sale of such securities for the account of the Portfolio
and receipt of full payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio; provided
that the Custodian shall have taken reasonable
2
<PAGE>
steps to ensure timely collection of the payment for, or the
return of, such securities by the depository agent;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian; and
provided further that the Custodian shall have taken
reasonable steps to ensure timely collection of such cash or
other consideration;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any domestic sub-custodian appointed
pursuant to Article 1; or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) In the case of delivery of physical certificates or
instruments representing securities, upon the sale of such
securities for the account of the Portfolio, to the broker or
its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that, in
any such case, the Custodian shall have taken reasonable steps
to ensure prompt collection of the payment for, or the return
of, such securities by the broker or its clearing agent, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement or
protective plan; provided that, in any such case, the new
securities and/or cash are to be delivered to the Custodian;
9) In the case of warrants, puts, calls, futures contracts,
options, rights or similar securities, the surrender thereof
in the exercise or sale of such warrants, puts, calls, futures
contracts, options, rights or similar securities; provided
that, in any such case, the securities and cash received in
exchange therefor are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio to the borrower thereof in accordance with
the terms of a written securities lending
3
<PAGE>
agreement to which a Portfolio is a party or is otherwise
approved by the Portfolio, but only against receipt of
adequate collateral as agreed upon from time to time by the
Custodian and the Fund on behalf of the Portfolio, which may
be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities, except
that in connection with any loans for which collateral is to
be credited to the Custodian's U.S. Securities System Account,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral provided that, if Proper
Instructions require such delivery to be made through a U.S.
Securities System, such delivery is made in accordance with
the requirements of such U.S. Securities System;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a futures commission merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
contract market, or of any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio;
14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information related to the Portfolio (the
"Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption;
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a copy of a resolution of the
Board or of any executive committee thereof signed by an
officer of the Fund and certified by the Fund's Secretary or
Assistant Secretary (a "Certified Resolution") specifying the
securities of the Portfolio to be delivered,
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<PAGE>
setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such
securities shall be made; and
16) Upon the termination of this Contract as hereinafter set
forth, in accordance with Article 16 hereof.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any domestic
sub-custodian appointed pursuant to Article 1. The Portfolios reserve
the right to instruct the Custodian as to the method of registration
and safekeeping of the securities of the Portfolios. All securities
accepted by the Custodian on behalf of the Portfolio under the terms of
this Contract shall be in "street name" or other good delivery form at
the time of delivery on behalf of the Portfolio.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"). Funds held by the Custodian for a Portfolio may be
deposited by it to its credit as Custodian in the banking department of
the Custodian or in such other banks or trust companies (a "Banking
Institution") as it may in its discretion deem necessary or desirable;
provided, however, that every Banking Institution shall be qualified to
act as a custodian under the 1940 Act, and that each such Banking
Institution and the funds to be deposited with each Banking Institution
on behalf of each applicable Portfolio shall be approved by vote of a
majority of the Board. Such funds shall be deposited by the Custodian
in its capacity as Custodian and shall be withdrawable by the Custodian
only in that capacity.
2.5 Availability of Federal Funds. Upon agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
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<PAGE>
2.6 Collection of Income. Subject to the provisions of the last sentence of
the first paragraph of this Section 2.6, the Custodian shall collect on
a timely basis all income and other payments with respect to United
States-registered securities held hereunder to which each Portfolio
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other
payments with respect to domestic bearer securities if, on the date of
payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's account. Without limiting the generality of the foregoing,
the Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. If
payment is not received by the Custodian within a reasonable time after
proper demands have been made, the Custodian shall so notify the Fund
in writing and send copies of all demand letters, any written responses
and memoranda of all oral responses to telephonic demands therefor. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts to timely
collect income due the Fund on such securities.
Collection of income due each Portfolio on domestic securities loaned
pursuant to the provisions of Section 2.2(10) shall be the
responsibility of the Fund; the Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data in its possession as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian
of the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the 1940 Act
to act as a custodian and has been designated by the Custodian
as its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities
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<PAGE>
either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section
2.2 (4), (5), (8) or (9) hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, advisory
fees, administration fees, accounting fees, transfer agent
fees, legal fees and operating expenses of the Fund whether or
not such expenses are to be in whole or part capitalized or
treated as deferred expenses;
5) For the payment of any dividends and capital distributions on
Shares of the Portfolio declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a Certified Resolution, specifying the amount of
such payment, setting forth the purpose for which such payment
is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be
made; and
8) Upon the termination of this Contract as hereinafter set
forth, in accordance with Article 16.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of domestic securities
for the account of a Portfolio is (i) made by the Custodian in advance
of receipt of the securities purchased and (ii) such payment in advance
of receipt is not made with respect to a transaction settling via the
Depository Trust Company, in the absence of Proper Instructions from
the Fund on behalf of such Portfolio to so pay in advance the Custodian
shall be absolutely liable to the Fund for the non-receipt of such
securities purchased except as specifically stated
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otherwise in Sections 2.7(1)(e), 2.7(2) and 2.10(3) of this Contract,
in which case the Custodian will be subject to the standard of care set
forth in Article 13 hereof.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act, as its agent to
carry out such of the provisions of this Article 2 as the Custodian may
from time to time direct; provided, however, that the appointment of
any agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies or its
successor or successors (each a "U.S. Securities System") in accordance
with applicable Federal Reserve Board and SEC rules and regulations, if
any, and subject to the following provisions:
1) The Custodian may keep eligible domestic securities of the
Portfolio in a U.S. Securities System provided that such
securities are held in a U.S. Securities System Account;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for domestic securities purchased for
the account of the Portfolio only upon (i) receipt of advice
from the U.S. Securities System that such securities have been
transferred to the U.S. Securities System Account and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Portfolio.
The Custodian shall transfer securities sold for the account
of the Portfolio only upon (x) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the U.S. Securities System Account and (y) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio in the form of a written advice or notice and
shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transactions in
the U.S. Securities System for the account of the Portfolio;
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4) The Custodian shall provide the Fund on behalf of the
Portfolio(s) with any report obtained by the Custodian on the
U.S. Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial certificate required by Article 14
hereof; and
6) The Custodian, at the Fund's expense in the absence of
negligence or willful misconduct on the Custodian's part or on
the part of sub-custodians or agents appointed pursuant to
this Contract, shall enforce on behalf of the Fund such rights
as it may have against the U.S. Securities System. Anything to
the contrary in this Contract notwithstanding, the Custodian
shall be liable to the Fund for the benefit of the Portfolio
for any loss or damage to the Portfolio resulting from use of
the U.S. Securities System by reason of any negligence,
misfeasance, bad faith or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
the Direct Paper Account;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an
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entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the
Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Portfolio; and
6) The Custodian shall provide the Fund with any report on its
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Direct Paper
System which had been prepared as of the time of such request.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
a U.S. Securities System Account by the Custodian pursuant to Section
2.10 hereof (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation or of any registered national securities exchange
(or the Commodity Futures Trading Commission and/or any contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash and/or securities in
connection with (a) options purchased, sold or written by the
Portfolio, (b) commodity futures contracts or options thereon
purchased, sold or written by the Portfolio or (c) other transactions
requiring segregation as described in the Fund's registration statement
as in effect from time to time, (iii) for the purposes of compliance by
the Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of this clause (iv), upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the applicable
Portfolio, a Certified Resolution setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper
corporate purposes.
2.13 Proxies. The Custodian or its sub-custodian shall, with respect to the
domestic securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if the securities are
registered otherwise than in the name of the Portfolio or a nominee of
the Portfolio, all proxies, without indication of the manner in which
such proxies are to be
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voted, and shall promptly deliver to the Fund on behalf of the
Portfolio all proxies, including those for bearer securities, all proxy
soliciting materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund for each Portfolio all written notices,
announcements or information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of
rights in connection therewith, notices of exercise of call and put
options written by the Fund on behalf of the Portfolio and the maturity
of futures contracts and options thereon purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange offers
or other similar transactions, the Custodian shall transmit promptly to
the Portfolio all written notices, announcements or information
received by the Custodian from issuers of the securities whose tender
or exchange is sought and from the party (or its agents) making the
tender or exchange offer. If the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts to notify the Fund of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or exchange
offers. If the Portfolio desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least two (2) business days
prior to the date on which the Custodian is to take such action; with
respect to notice given by the Portfolio to the Custodian subsequent
thereto, the Custodian shall use its best efforts under the
circumstances to take the requested action.
2.15 Reports to Fund by Independent Public Accountant. The Custodian shall
provide the Fund with reports by independent public accountants on
accounting system, internal accounting control and procedures for
safeguarding cash, securities, futures contracts and options on futures
contracts and other assets, including cash, securities and other assets
deposited and/or maintained in a U.S. Securities System (as defined in
Section 2.10) or with a sub-custodian, relating to the services
provided by the Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may reasonably be
required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States
eligible foreign custodians as defined in Rule 17f-5 under the 1940 Act
("Rule 17f-5") designated on Schedule A hereto (the "foreign
11
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sub-custodians"). Upon receipt of Proper Instructions, together with a
Certified Resolution, the Custodian and the Fund on behalf of the
Portfolio(s) may agree to amend Schedule A hereto from time to time to
designate additional or different foreign sub-custodians. Upon receipt
of Proper Instructions, the Fund may instruct the Custodian to cease
the employment of any one or more such foreign sub-custodians for
maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5, (b)
cash and cash equivalents in such amounts as the Custodian may
determine to be reasonably necessary to effect the Portfolio's foreign
securities transactions and (c) such cash and securities as the Fund
shall give Proper Instructions to be held in segregated accounts
pursuant to Section 3.21 hereof. The Custodian shall identify on its
books as belonging to the Fund the foreign securities of the Fund held
by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolio(s) shall
be maintained in a clearing agency or a securities depository within
the meaning of Rule 17f-5(c)(2)(iii) and (iv) listed on Schedule A
(each a "foreign securities system") only through arrangements
implemented by the foreign banking institutions (as defined in Section
3.5 below) serving as sub-custodians pursuant to the terms hereof
(foreign securities systems and U.S. Securities Systems are referred to
herein collectively as the "Securities Systems"). Where possible after
reasonable efforts, such arrangements shall include entry into
agreements containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers; provided,
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund, (ii) the Custodian shall
require that the securities and other non-cash property so held by the
foreign sub-custodian be held separately from the assets of the foreign
sub-custodian or of others, (iii) the Custodian shall reconcile the
holdings of each customer in the single account daily, and (iv) such
holding shall be consistent with the terms of the SEC staff no-action
letter to the Custodian (NO. 95-35-CC) or subsequent SEC position or
Rule.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign sub-custodian as defined in Rule 17f-5(c)(2)(i) or (ii) (each a
"foreign banking institution") shall provide that (a) the Fund's assets
will be indemnified or its assets insured in the event of loss; (b) the
assets of each Portfolio will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the foreign
banking institution or its
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creditors or agent, except a claim of payment for their safe custody or
administration; (c) beneficial ownership of the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (d) adequate records
will be maintained identifying the assets as held by the Custodian on
behalf of its customers; (e) officers of or auditors employed by or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; (f) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents; and (g) such foreign banking institution shall notify
the Custodian in the event that it ceases to qualify as either a branch
of a "qualified U.S. bank" or an "eligible foreign custodian", as such
terms are defined in Rule 17f-5(c), as amended.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of the foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Delivery of Securities. The Custodian (or its foreign sub-custodian)
shall release and deliver foreign securities of a Portfolio held by the
foreign sub-custodian, or in a foreign securities system account of the
Custodian (or its foreign sub-custodian), only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
(a) Upon sale of such securities for the Portfolio in accordance
with reasonable market practice in the jurisdiction where such
securities are held or traded, including, without limitation:
(i) delivery against expectation of receiving later payment
where such delivery is the customarily established securities
trading practice generally accepted by Institutional Clients
(as hereinafter defined) in the jurisdiction or market where
the transaction occurs; or (ii) in the case of a sale effected
through a foreign securities system, in accordance with the
rules governing the operation of the foreign securities
system;
(b) In connection with any repurchase agreement related to such
securities;
(c) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio; provided that
the Custodian (or its foreign sub-custodian) shall have taken
reasonable steps in accordance with procedures generally
accepted by Institutional Clients in the particular market to
ensure
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timely collection of the payment for, or the return of, such
securities by the depository agent;
(d) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian (or its
foreign sub-custodian); and provided further that the
Custodian (or its foreign sub-custodian) shall have taken
reasonable steps in accordance with procedures generally
accepted by Institutional Clients in the particular market to
ensure timely collection of such cash or other consideration;
(e) To the issuer thereof, or its agent, for transfer into the
name of the Custodian (or its foreign sub-custodian) or of any
nominee of the Custodian (or its foreign sub-custodian) or for
exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian (or its
foreign sub-custodian);
(f) To brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market
custom; provided that, in any such case, the Custodian (or its
foreign sub-custodian) shall have taken reasonable steps in
accordance with procedures generally accepted by Institutional
Clients in the particular market to ensure prompt collection
of the payment for, or the return of, such securities by the
broker, clearing bank or clearing agent, the Custodian (or its
foreign sub-custodian) shall have no responsibility or
liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities
except as may arise from the negligence or willful misconduct
of the Custodian (or of its foreign sub-custodian);
(g) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and/or
cash are to be delivered to the Custodian (or its foreign
sub-custodian) in accordance with procedures generally
accepted by Institutional Clients in the particular market;
(h) In the case of warrants, puts, calls, futures contracts,
options, rights or similar securities, the surrender thereof
in the exercise or sale of such warrants, puts, calls, futures
contracts, options, rights or similar securities; provided
that, in any such case, the securities and cash received in
exchange therefor are to be delivered to the Custodian (or its
foreign sub-custodian) in accordance with procedures generally
accepted by Institutional Clients in the particular market;
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(i) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets of the Portfolio by the
Fund, but only against receipt of amounts borrowed;
(j) In connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(k) In connection with the loan of securities made by the
Portfolio to the borrower thereof in accordance with (i) the
terms of a written securities lending agreement to which a
Portfolio and State Street Bank and Trust Company, as lending
agent, are parties or (ii) in accordance with the terms of
Proper Instructions;
(l) For any other purpose, but only upon receipt of a Certified
Resolution and Proper Instructions specifying the securities
to be delivered, setting forth the purpose for which delivery
is to be made, declaring such purpose to be a proper corporate
purpose and naming the person or persons to whom delivery of
such securities shall be made; and
(m) Upon termination of this Contract as hereinafter set forth, in
accordance with Article 16 hereof.
3.8 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out, or direct its foreign sub-custodians to pay out, monies
of a Portfolio in the following cases only:
(a) Upon the purchase of foreign securities, options, futures or
options on futures contracts for the Portfolio, unless
otherwise directed by Proper Instructions, by (i) delivering
money to the seller thereof or to a dealer therefor (or an
agent for such seller or dealer), against delivery of such
securities to the foreign sub-custodian; or (ii) in accordance
with the customarily established securities trading practices
generally accepted by Institutional Clients in the
jurisdiction or market in which the transaction occurs,
against expectation of receiving later delivery of such
securities; or (iii) in the case of a purchase effected
through a foreign securities system, in accordance with the
rules governing the operation of such foreign securities
system;
(b) In connection with the conversion, exchange or surrender of
securities of the Portfolio as set forth in Section 3.7
hereof;
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(c) For the payment of any expense or liability including but not
limited to the following payments for the account of the
Portfolio: interest, taxes, advisory, administration,
accounting, transfer agent and legal fees, and operating
expenses;
(d) For the purchase or sale of foreign exchange or foreign
exchange contracts for the Portfolio, including transactions
executed with or through the Custodian or its foreign
sub-custodians;
(e) In connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(f) In connection with the borrowing of securities;
(g) For any purpose, but only upon receipt of a Certified
Resolution and Proper Instructions specifying the amount of
such payment and naming the person or persons to whom such
payment is to be made; and
(h) Upon termination of this Contract as hereinafter set forth, in
accordance with Article 16 hereof.
3.9 Market Conditions. Notwithstanding any provision of this Contract to
the contrary, settlement and payment for securities received for the
account of each applicable Portfolio and delivery of securities
maintained for the account of each applicable Portfolio may be effected
in accordance with the customary securities trading or securities
processing practices and procedures generally accepted by Institutional
Clients in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the purchaser
thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer. For purposes
of this Contract, "Institutional Clients" means U.S. registered
investment companies, or major, U.S.-based commercial banks, insurance
companies, pension funds or substantially similar financial
institutions which as a part of their ordinary business operations,
purchase or sell securities and make use of non-U.S. custodial
services. For the purposes of this section, the "DVP/RVP Model" is a
settlement system which offers a simultaneous and irrevocable exchange
of securities (on the delivery side) and cash value (on the payment
side) to settle a transaction. The Custodian will provide the Fund (i)
with a copy of The Guide to Custody in World Markets, which at the time
of its printing shall contain the Custodian's best information with
respect to customary securities trading or securities processing
practices and procedures generally accepted by Institutional Clients in
the jurisdictions and markets set forth therein, (ii) a summary
extracted therefrom and dated the date hereof which shall set forth the
Custodian's best information with respect to the markets in which some
or all securities transactions do not settle in accordance with the
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DVP/RVP Model, and (iii) updates to The Guide to Custody in World
Markets as published and to the aforementioned summary as appropriate.
3.10 Registration of Securities. Securities maintained in the custody of a
foreign banking institution (other than bearer securities) shall be
registered in the name of the Portfolio or in the name of any nominee
of the Fund on behalf of the Portfolio or in the name of any nominee of
the Custodian or of such foreign banking institution, and the Fund
agrees to hold any such nominee harmless from any liability arising
solely as a result of its status as a holder of record of such
securities unless liability results from the negligence, bad faith or
willful misconduct on the part of such nominee, the Custodian or such
foreign banking institution. The Custodian and its foreign
sub-custodian shall not be obligated to accept securities on behalf of
a Portfolio under the terms of this Contract unless the form of such
securities and the manner in which they are delivered are in accordance
with reasonable market practice in the particular jurisdiction and
generally accepted by Institutional Clients.
3.11 Bank Accounts. The Custodian (or its foreign sub-custodian) may open
and maintain outside the United States a bank account or bank accounts
on behalf of the Fund or its applicable Portfolios in foreign banking
institutions designated on Schedule A, subject only to draft or order
by the Custodian or its foreign sub-custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the
account of the Fund on behalf of its applicable Portfolios.
3.12 Collection of Income. The Custodian (or its foreign sub-custodian)
shall use reasonable efforts in accordance with market practice
generally accepted by Institutional Clients to collect all income and
other payments in due course with respect to the securities held
hereunder to which the applicable Portfolio shall be entitled and shall
credit such income, as collected, to the applicable Portfolio. With
respect to Portfolio securities held in an account with a foreign
banking institution as described in Section 3.4 hereof, income
collected with respect to such securities will be allocated to the
Portfolio pro-rata based on the Portfolio's settled and registered
position in such securities. In the event that extraordinary measures
are required to collect such income, the Fund and the Custodian shall
consult as to such measures and as to the compensation and expenses of
the Custodian attendant thereto.
Collection of income due each Portfolio on securities loaned shall be
the responsibility of the Fund; the Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data in its possession as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian
or its foreign sub-custodians of the income to which the Portfolio is
properly entitled.
3.13 Appointment of Agents. The Custodian (or its foreign sub-custodian) may
at any time or times in its discretion appoint (and may at any time
remove) agents to carry out such of
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the provisions of this Article 3 as the Custodian (or its foreign
sub-custodian) may from time to time direct; provided, however, that
any such agent shall be an "eligible foreign custodian" within the
meaning of Rule 17f-5 under the 1940 Act and that the appointment of
any agent shall not relieve the Custodian (or such foreign
sub-custodian) of its responsibilities or liabilities hereunder.
3.14 Proxies. The Custodian will generally, with respect to the foreign
securities held under this Article 3, use best efforts accepted by
Institutional Clients to facilitate the exercise of voting and other
shareholder proxy rights, subject always to the laws, regulations and
practical constraints that may obtain in the jurisdiction where such
securities are issued. The Fund acknowledges that local conditions may
have the effect of severely limiting the ability of the Fund to
exercise shareholder rights.
3.15 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of securities and
expirations of rights in connection therewith) received by the
Custodian via its sub-custodians from issuers of the securities being
held for the account of the applicable Portfolio. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Fund written information so received by the Custodian from issuers of
the securities whose tender or exchange is sought or from the party (or
his or its agents) making the tender or exchange offer. Provided the
Custodian has complied with the requirements in the previous sentence,
the Custodian shall not be liable for any untimely exercise of any
tender, exchange or other right or power in connection with securities
or other property of a Portfolio at any time held by it or its foreign
subcustodians unless (i) it or its foreign subcustodians are in actual
possession of such securities or property and (ii) it receives Proper
Instructions with regard to the exercise of any such right or power,
and both (i) and (ii) occur at least three business days prior to the
date on which such right or power is to be exercised. With respect to
Proper Instructions received by the Custodian thereafter, the Custodian
shall use its best efforts in the light of local conditions to take the
requested action.
3.16 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution (i) to exercise reasonable
care in the performance of its duties and (ii) to indemnify, and hold
harmless, the Custodian and the Fund from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with
the institution's performance of such obligations. The Custodian shall
take reasonable steps, which, in the absence of negligence or willful
misconduct on the Custodian's part or on the part of the relevant
foreign banking institution, shall be at the relevant Portfolio's
expense, to enforce effectively (i) the rights of the Custodian and the
Fund under such agreements and (ii), in the event of any loss, damage,
cost, expense, liability or claim arising out of or in connection with
the performance of a foreign securities system, the
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rights of the Custodian, the applicable foreign banking institution or
the Fund against such system.
3.17 Subrogation. If the Custodian shall be unsuccessful in enforcing its
and the Fund's rights as set forth in Section 3.16 hereof, it shall so
inform the Fund, noting the steps it has taken. Thereafter, at the
election of the Fund on behalf of the Portfolio, (a) the Fund shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claims against a foreign banking institution as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the
extent that the Portfolio has not been made whole for any such loss,
damage, cost, expense, liability or claim, (b) the Fund shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claims against a foreign securities system which the Custodian
may have as a consequence of any loss, damage, cost, expense, liability
or claim arising out of or in connection with the performance by a
foreign securities system if and to the extent that the relevant
Portfolio(s) has not been made whole for any such loss, damage, cost,
expense, liability or claim, and (c) the Custodian shall to the extent
allowable under applicable law, take commercially reasonable steps to
procure the subrogation to the Fund of the foreign banking
institution's rights against the foreign securities system as a
consequence of any loss, damage, cost, expense, liability or claim
arising out of or in connection with the performance by a foreign
securities system if and to the extent that the relevant Portfolio(s)
has not been made whole for any such loss, damage, cost, expense,
liability or claim.
3.18 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning each foreign
sub-custodian listed from time to time on Schedule A. Such information
shall be similar in kind and scope to that furnished to the Fund in
connection with the initial approval of this Contract, but shall also
include a report concerning any recommendations to consider change of a
foreign subcustodian (including the reason for said change). In
addition, the Custodian will provide the Portfolios with such
information as a Portfolio shall reasonably request in order to enable
the Fund to comply with Rule 17f-5. In addition, the Custodian will
promptly inform the Fund in writing in accordance with Article 17 in
the event that the Custodian learns of (i) a material adverse change in
the condition, financial or otherwise, of a foreign sub-custodian, (ii)
any loss of the assets of the Fund or (iii), in the case of any foreign
sub-custodian not the subject of an exemptive order from the SEC
modifying the shareholder equity requirement under Rule 17f-5, is
notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below
$200 million or that its shareholders' equity has declined below $200
million (in each case in terms of U.S. dollars or the local currency
equivalent thereof and computed in accordance with generally accepted
U.S. accounting principles).
3.19 State Street London. Cash held for each Portfolio of the Fund in the
United Kingdom shall be maintained in an interest bearing account
established for the Fund with the
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Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.20 Tax Law. It shall be the responsibility of the Custodian and the
foreign banking institutions to use reasonable efforts and due care to
perform such steps typical for persons acting as global custodian for
Institutional Clients as are required to collect any tax refund, to
ascertain the appropriate rate of tax withholding and to provide such
documents as may be required to enable the Fund to receive appropriate
tax treatment under applicable tax laws and any applicable treaty
provisions. Except to the extent that imposition of such item arises
from the Custodian's or the foreign banking institutions' failure to
perform in accordance with the terms of this Section, the Custodian
shall have no responsibility or liability for any obligations now or
hereafter imposed on the Fund, the Fund's custody account in the
relevant jurisdiction or the Custodian as custodian of the Fund by the
tax law of the domicile of the Fund's custody account in the
jurisdiction or of any jurisdiction in which the Fund is invested or
any political subdivision thereof. Unless otherwise informed by the
Fund in writing, the Custodian, in performance of its duties under this
Section, shall be entitled to apply treatment of the Fund according to
the nationality of the Fund, the particulars of its organization and
other relevant details that shall be supplied by the Fund. The
Custodian shall be entitled to rely on any information supplied in
writing by an authorized representative of the Fund. The Custodian may
engage reasonable professional advisors knowledgeable about the subject
matter, which may include attorneys, accountants or financial
institutions in the regular business of investment administration, and
may rely upon advice received therefrom. It shall be the duty of the
Fund to inform the Custodian of any change in the organization,
domicile or other relevant fact concerning tax treatment of the Fund,
and further to inform the Custodian if the Fund is or becomes the
beneficiary of any special ruling or treatment not applicable to the
general nationality and category of entity of which the Fund is a part
under general laws and treaty provisions.
3.21 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain, or cause the applicable foreign banking
institution to establish and maintain, a segregated account or accounts
for and on behalf of each such Portfolio, into which account or
accounts may be transferred cash and/or securities (i) in accordance
with the provisions of any agreement among the Fund on behalf of the
Portfolio, the Custodian (or such foreign banking institution) and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation or of any registered national securities exchange
(or the Commodity Futures Trading Commission and/or any contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash and/or securities in
connection with (a) options purchased, sold or written by the
Portfolio, (b) commodity futures contracts or options thereon
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purchased, sold or written by the Portfolio or (c) other transactions
requiring segregation as described in the Fund's registration statement
as in effect from time to time, (iii) for the purposes of compliance by
the Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of this clause (iv), upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the applicable
Portfolio, a Certified Resolution , setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
4. Payments for Sales or Repurchases or Redemptions of Shares
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares of that Portfolio issued or sold from
time to time by the Fund. The Custodian will provide timely notification to the
Fund on behalf of each Portfolio and the Transfer Agent of any receipt by it of
payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Charter and any applicable votes of the Board pursuant
thereto, the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of Shares who have delivered
to the Transfer Agent a request for redemption or repurchase of their Shares.
5. Proper Instruction
Proper Instructions as used throughout this Contract means a writing
signed or initialed by two persons as the Board shall have from time to time
authorized. Each such writing shall set forth the specific transaction or type
of transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing,
provided that the fact that such confirming written instructions are not
received by the Custodian shall in no way invalidate the enforceability of
transactions authorized by oral instructions. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three - party agreement which requires a segregated asset
account in accordance with Sections 2.12, 3.7(j), 3.8(e) and 3.20.
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5A. Contractual Settlement
The Custodian shall credit or debit the appropriate cash account of the
applicable Portfolio in connection with the purchase, sale, maturity, redemption
or other disposition of securities and other assets held for the time being in
the Portfolio on an actual settlement basis. Notwithstanding the foregoing, with
respect to the markets set forth on Schedule E hereto the Custodian may, in its
sole discretion, from time to time agree to provide a Portfolio with an
arrangement whereby the Portfolio will be given the opportunity of settling the
purchase, sale, maturity, redemption or other disposition of securities to be
held in the Portfolio in the manner and subject to the terms and limitations
described in this Article 5A. A transaction to which these contractual
settlement provisions applies shall be called a "Covered Transaction."
(a) With respect to a Covered Transaction that represents a
purchase of securities, the Custodian shall debit the
applicable Portfolio's cash account in accordance with Proper
Instructions as of the time and date that monies would
ordinarily be required to settle such a transaction in the
applicable markets as set forth on Schedule E hereto. Such
amounts shall be re-credited to the appropriate cash account
on settlement date upon Proper Instructions to the Custodian
that the Portfolio has canceled the Covered Transaction.
(b) With respect to the settlement of a Covered Transaction which
is a sale, maturity, redemption or other disposition,
provisional credit of an amount equal to the net sale,
maturity, redemption or other disposition proceeds of the
transaction (the "Settlement Amount") shall be made to the
account of the applicable Portfolio as if the Settlement
Amount had been received as of the close of business on the
date that monies would ordinarily be required to settle such
transaction in the applicable markets as set forth on Schedule
E. Such provisional credit will be made if the Custodian has
received Proper Instructions with respect to, or reasonable
notice of, the Covered Transaction, as applicable, and if the
Custodian or its agents are in possession of the asset(s)
associated with the Covered Transaction in good deliverable
form and are not aware of any facts which would lead them to
reasonably believe that the Covered Transaction will not
settle in the time period ordinarily applicable to
transactions in the applicable market. In the event that the
Custodian determines not to provide a provisional credit with
respect to a particular transaction, the Custodian will
promptly notify the Fund of this determination.
(c) For each Covered Transaction with respect to which the
Custodian shall provide provisional credit in an amount up to
the Settlement Amount (the "Credited Amount"), simultaneously
with the making of such provisional credit, the Fund agrees
that the Custodian shall have, and hereby grants to the
Custodian, a firstpriority security interest in any property
at any time held for the account of the applicable Portfolio
to the full extent of the Credited Amount.
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(d) The Custodian shall have the right, upon sending notice to the
Fund, to reverse any provisional credit given in accordance
with subsection (b) hereof in the event that the actual
proceeds of the subject Covered Transaction have not been
received by the Custodian, its agents or its sub-custodians
within thirty (30) days of having made such provisional credit
or at any time when the Custodian believes for reasonable
cause that such Covered Transaction will not settle in
accordance with its terms or amounts due pursuant thereto will
not be collectable, as applicable (in which case the notice
required herein will contain a description of such cause),
whereupon (i) the Custodian shall promptly notify the Fund
with respect thereto and (ii) a sum equal to the Credited
Amount shall become immediately payable by the Fund to the
Custodian and may be debited from any cash account held for
benefit of the applicable Portfolio in accordance with the
terms of any notice given hereunder; the Custodian's right to
debit the account as set forth above shall not be contingent
on the giving of notice to the Fund. The amount of any accrued
dividends, interest and other distributions with respect to
assets associated with such Covered Transaction may be set off
against the Credited Amount.
(e) In the event that the Custodian is unable to debit an account
of the Fund, with respect to the applicable Portfolio, and the
Portfolio fails to pay any sums due to the Custodian at the
time the same becomes payable in accordance with subsection
(d), and such failure is not cured within one (1) business day
after notice of such failure to the Fund, or if any of the
following conditions occurs, the Custodian may charge the Fund
for reasonable costs and expenses associated with the
provisional credit, including without limitation the cost of
funds associated therewith at the then-prevailing Federal
Funds rate (or local market equivalent thereof where the
Credited Amount was advanced), and the provisions of
subsection (f) will apply:
(1) If a final judgment for the payment of money shall be
rendered against a Portfolio and such judgment shall
not have been discharged or its execution stayed
pending appeal within sixty (60) days of entry or
such judgment shall not have been discharged within
sixty (60) days of expiration of any such stay;
(2) the Fund passing a resolution for its voluntary
winding-up (otherwise than for the purpose of
corporate reconstruction or amalgamation);
(3) the presentation of a petition for the winding-up
of or the making of an administration order in
relation to the Fund;
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(4) the appointment of a receiver or administrator over
any of the assets of the Fund; or
(5) the Fund ceasing or threatening to cease to carry
on its business.
(f) If an event outlined in subsection (e) occurs, including to
the extent permitted by applicable law the events described in
(1) through (5) thereof, the Custodian shall have the right to
immediately execute and foreclose upon its security interest
in any of the assets of the applicable Portfolio.
(g) The Custodian shall not be obliged to transfer any sums
credited to a Portfolio in accordance with subsection (b) to
or to the order or benefit of the Portfolio while any amount
which is payable to the Custodian under this Article 5A
remains unpaid.
(h) The operation of the provisions of this Article 5A shall be
without prejudice to any other remedies provided the Custodian
in this Contract, including without limitation the remedies
set forth in Article 13 hereof, or under any applicable law.
The Fund agrees that the Custodian shall have a right of
set-off against cash held for the applicable Portfolio in any
currency for any amount provided to such Portfolio by the
Custodian hereunder or from time to time arising out of or in
connection with this Contract, as amended, and/or the
operation of any account hereunder and the Custodian shall
have the right to debit such Portfolio with all or part of
such sums and apply or appropriate the cash in or towards the
discharge of such amounts in such manner and order as is
commercially reasonable under the circumstances. For the
purposes of this right of set-off, the Custodian may make such
currency conversions or effect any transactions in such
currencies at the Custodian's then-prevailing rates at such
times as are commercially reasonable under the circumstances
and may effect any transfers between, or entries on, any
account of the applicable Portfolio as is commercially
reasonable under the circumstances.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to the
Custodian's duties under this Contract as set forth in
Schedule B, provided that all such payments shall be accounted
for to the Fund on behalf of the Portfolio;
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2) surrender securities to the issuer or its agent in temporary
form for securities in definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed by or on behalf
of the Fund. The Custodian may receive and accept a certified copy of a vote of
the Board as conclusive evidence (a) of the authority of any person to act in
accordance with such resolution or (b) of any determination or of any action by
the Board pursuant to the Charter as described in such resolution, and such
resolution may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board to keep the books of account of
each Portfolio and/or compute the net asset value per share of the outstanding
Shares of each Portfolio or, if directed in writing to do so by the Fund on
behalf of the Portfolio(s), shall itself keep such books of account and/or
compute such net asset value per share for a fee to be agreed to by the
Custodian and the Fund. If so directed, for a fee to be agreed upon by the
parties at the time of such direction, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Prospectus and shall advise
the Fund and the Transfer Agent daily of the total amount of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Prospectus.
9. Records and Reports
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of
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the Fund under the 1940 Act, with particular attention to Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the
Fund and, together with any insurance policies and fidelity or similar bonds
maintained by the Custodian, shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund (including counsel and independent accountants)
and employees and agents of the SEC and other governmental regulatory
authorities having jurisdiction. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian. When requested to do so by the Fund and for such compensation
as shall be agreed upon between the Fund and the Custodian, the Custodian shall
include certificate numbers in such tabulations.
None of the parties hereto shall, unless compelled to do so by any
court or entity of competent jurisdiction either before or after the termination
of this Contract, disclose to any person not authorized by the relevant party to
receive the same any confidential information relating to such party and to the
affairs of such party of which the party disclosing the same shall have become
possessed during the period of this Contract and each party shall use its best
endeavors to prevent any such disclosure as aforesaid.
The Custodian shall send to the Fund an advice or notification of any
transfers of securities to or from the custody accounts indicating, as to
securities acquired for the Fund, the identity of the entity having physical
possession of such securities.
In addition to reports required to be provided elsewhere herein, the
Custodian agrees to provide to the Fund (i) the reports set forth on Schedule D
hereto, as amended from time to time, at such times as set forth on such
Schedule and in substantially the forms provided to the Fund, and (ii) any other
special and periodic reports related to the services to be provided hereunder as
the Fund may reasonably request and as may be mutually agreed upon by the
parties.
The Custodian agrees to attend periodic meetings of the Board to
discuss the operations to be performed under this Contract at such times and at
such places as the Fund may reasonably request.
The Custodian shall provide GlobalQuest(R) software to the parties and
at the locations specified on attached Schedule C pursuant to the terms of the
Data Services Addendum to Custodian Contract at no additional charge other than
as provided therein.
10. Opinion by Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to the Custodian's activities hereunder in
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connection with the preparation of the Fund's Form N-1A, Form N-SAR and any
other special or periodic reports to the SEC and with respect to any other SEC
requirements.
11. Disaster Recovery; Banker's Blanket Bond
In the event of equipment failures beyond the Custodian's control, the
Custodian shall, at no additional expense to a Portfolio, take reasonable steps
to minimize service interruptions. The Custodian shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision for (i) periodic back-up of the computer files and data
with respect to a Portfolio and (ii) emergency use of electronic data processing
equipment to provide services under this Contract and the Data Access Services
Addendum hereto.
The Custodian hereby warrants to the Fund that the Custodian is
maintaining a Bankers' Blanket Bond in a commercially reasonable amount, and the
Custodian hereby agrees to notify the Fund in the event its Bankers' Blanket
Bond is canceled or otherwise lapses.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as set forth on Schedule B hereto, as such
Schedule B may be amended in writing from time to time by the Fund, on behalf of
each applicable Portfolio, and the Custodian.
13. Responsibility of Custodian
The Custodian shall exercise reasonable care in carrying out the
provisions of this Contract and Proper Instructions.
The Custodian shall be responsible for the acts and omissions of (i)
sub-custodians located in the United States of America appointed pursuant to
Article 1 hereof, (ii) foreign banking institutions appointed pursuant to the
terms of Article 3 hereof as if such acts and omissions were those of the
Custodian, and (iii) Japan Securities Depository Center ("JASDEC"), Euroclear
and Cedel Bank S.A.
So long as and to the extent that it exercises reasonable care, the
Custodian shall not be responsible for the title, validity or genuineness of any
property or evidence of title thereto received by it or delivered by it pursuant
to this Contract and shall be held harmless in acting upon any notice, request,
consent, certificate or other instrument reasonably believed by it to be genuine
and to be signed by the proper party or parties, including any futures
commission merchant acting pursuant to the terms of a three-party futures or
options agreement. The Custodian shall be kept indemnified by (to the extent of
the assets in the applicable Portfolio(s))
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<PAGE>
and shall be without liability to the Fund for any action taken or omitted by it
in good faith without negligence or willful misconduct on its part or on the
part of its sub-custodians or agents. The Custodian shall be entitled reasonably
to rely on and may act upon advice of counsel experienced in the pertinent area
of law (who may be counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian, agent or
nominee, the Custodian shall be without liability to the Fund for any loss,
liability, claim or expense resulting from or caused by (i) events or
circumstances beyond the reasonable control of the Custodian or any
sub-custodian or Securities System or any agent or nominee of any of the
foregoing, including, without limitation, (a) the interruption, suspension or
restriction of trading on or the closure of any securities markets, and (b)
power or other mechanical or technological failures or interruptions, computer
viruses or communications disruptions, recognizing in each such case the
obligation of the Custodian, its subcustodians, agents and nominees to take
reasonable steps as circumstances require to minimize the effect of such
failures, interruptions, viruses and disruptions; (ii) errors by the Fund or its
investment advisor in their instructions to the Custodian provided such
instructions have been given in accordance with this Contract; (iii) the
insolvency of or acts or omissions by a Securities System except to the extent
set forth in subparagraph (iii) in the second paragraph of this Section 13; (iv)
any delay or failure of any broker, agent or intermediary, central bank or other
commercially prevalent payment or clearing system to deliver to the Custodian's
sub-custodian or agent securities purchased or in the remittance of payment made
in connection with securities sold; (v) any delay or failure of any company,
corporation, or other body in charge of registering or transferring securities
in the name of the Custodian, the Fund, the Custodian's sub-custodians, nominees
or agents or any consequential losses arising out of such delay or failure to
transfer such securities including non-receipt of bonus, dividends and rights
and other accretions or benefits; (vi) delays or inability to perform its duties
due to any disorder in market infrastructure with respect to any particular
security or Securities System; (vii) any provision of any present or future law
or regulation or order of the United States, or any other country, or political
subdivision thereof or of any court of competent jurisdiction; and (viii) any
loss where the Custodian, its sub-custodian, its agent or its nominee has
otherwise exercised reasonable care. Regardless of whether assets are maintained
in the custody of a foreign banking institution or a foreign securities system,
the Custodian shall not be liable for "country risk", i.e., any loss, damage,
cost, expense, liability or claim resulting from, or caused by, the direction of
or authorization by the Fund to maintain custody of any securities or cash of
the Fund or of a Portfolio in a foreign country including, but not limited to,
losses resulting from nationalization, expropriation, imposition of currency
controls or restrictions, acts of war or terrorism, riots, revolutions, work
stoppages, natural disasters or other similar events or acts. Notwithstanding
the foregoing, in delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a) political risk
(including, but not limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed hostilities)
or (b) other losses (excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear incident or other
losses, provided that the Custodian and State Street London Ltd. have exercised
reasonable care.
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If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
the Custodian.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement) for the benefit of a
Portfolio, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall (a) promptly notify the Fund with
respect thereto and (b) be entitled to utilize available cash and to dispose of
such Portfolio's assets to the extent necessary to obtain reimbursement,
provided that such utilization shall not be contingent on the giving of notice
to the Fund.
In the event that the Custodian or its nominee shall incur or be
assessed any taxes (except as are directly attributable to income, franchise or
similar taxes which may be imposed on or assessed against the Custodian, its
affiliates, subsidiaries, agents, or nominees) accruing to the Custodian, its
affiliates, subsidiaries or agents in the course of its or their performance of
this Contract, including without limitation taxes on dividends, interest and
capital gain earned with respect to Portfolio assets, except such as may arise
from its or its nominee's own negligent action, negligent failure to act or
willful misconduct, any property at any time held for the account of the
applicable Portfolio shall be security therefor and the Custodian shall (a)
provide the Fund with three (3) New York business days' notice with respect
thereto and (b), in the event such matter has not been resolved within such
time, be entitled to utilize available cash and to dispose of such Portfolio's
assets to the extent necessary to obtain reimbursement.
In the event that the Custodian or its nominee shall be subject to any
claims or liabilities accruing to the Custodian, its affiliates, subsidiaries or
agents in the course of its or their performance of this Contract, which claims
or liabilities either (i) are described on Schedule B hereto or (ii) could not
reasonably have been anticipated by the Custodian on the date hereof, except
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and the Custodian
shall (a) provide the Fund with three (3) New York business days' notice with
respect thereto and (b), in the event such matter has not been resolved within
such time, be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
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Upon the Custodian becoming aware in the course of the performance of
its duties hereunder of the occurrence of any event with respect to the assets
of a Portfolio held by the Custodian or its sub-custodian or agent hereunder
which causes or may cause any loss, damage, cost, expense or other liability to
a Portfolio, the Custodian shall promptly notify an authorized person of the
Fund and, at the Fund's request, assist the Fund in using all commercially
reasonable key steps under the circumstances to mitigate the effects of such
event and to avoid continuing harm to the Portfolio. If the steps referred to in
the previous sentence would be, in the reasonable determination of the
Custodian, beyond the normal scope of the Custodian's services as a global
custodian of mutual fund assets, the taking of those steps shall be at the
Fund's expense.
In no event shall the Custodian be liable hereunder for indirect,
special or consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of the date set forth below,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
in writing and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such termination to
take effect (i) in the case of termination by a Portfolio not sooner than one
hundred eighty (180) days after the date of such delivery or mailing or (ii) in
the case of termination by the Custodian not sooner than one hundred twenty
(120) days after the date of such delivery or mailing, except that, in the event
of a breach of this Contract on the part of the Fund, such termination shall not
take effect sooner than sixty (60) days thereafter; provided, however that the
Custodian shall not, with respect to a Portfolio, act under Section 2.10 hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board has approved the initial use of a particular
Securities System by such Portfolio, as required by Rule 17f-4 under the 1940
Act and that the Custodian shall not, with respect to a Portfolio, act under
Section 2.11 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board has approved the initial use
of the Direct Paper System by such Portfolio; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Charter, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of the Board (i) substitute another bank or trust company
for the Custodian by giving notice as described above to the Custodian or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the relevant Federal or State
agency or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
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Upon termination of this Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and the Custodian's reasonable out-of-pocket
costs, expenses and disbursements in connection therewith, such termination to
be conducted in a professional and businesslike manner.
15. Ownership Certificates for Tax Purposes
The Custodian shall, in its capacity as the Fund's agent, execute
ownership and other certificates and affidavits for all governmental purposes in
connection with receipt of income or other payments with respect to securities
or other assets of each Portfolio held by it and in connection with transfers of
such securities or assets.
16. Successor Custodian
If a successor Custodian shall be appointed by the Board, the Custodian
shall, upon termination, deliver to such successor Custodian at the offices of
the Custodian, duly endorsed and in the form for transfer, all securities, funds
and other properties of each applicable Portfolio then held by it hereunder and
shall transfer to an account of the successor Custodian all of the securities of
each such Portfolio held in a Securities System. If no such successor Custodian
shall be appointed, the Custodian shall, in like manner, upon receipt of a
Certified Resolution, deliver at the offices of the Custodian and transfer such
securities, funds and other properties in accordance with such resolution. In
the event that no written order designating a successor Custodian or Certified
Resolution shall have been delivered to the Custodian on or before the date when
such termination shall become effective, then the Custodian shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, doing business in Boston, Massachusetts, or New York, New York, of its own
selection, having an aggregate capital, surplus, and undivided profits, as shown
by its last published report, of not less than $200,000,000, all securities,
funds and other properties held by the Custodian on behalf of each applicable
Portfolio and all instruments held by the Custodian relative thereto and all
other property held by it under this Contract on behalf of each applicable
Portfolio and to transfer to an account of such successor Custodian all of the
securities of each such Portfolio held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the Custodian under this
Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the Certified Resolution referred to or of the
Board to appoint a successor Custodian, the Custodian shall be entitled to fair
compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
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17. Notices.
Any notice, instruction or other instrument required to be given
hereunder may be delivered in person to the offices of the parties as set forth
herein during normal business hours or delivered prepaid registered mail or by
telex, cable or telecopy to the parties at the following addresses or such other
addresses as may be notified in writing by any party from time to time. If
notice is sent by confirming telegram, cable, telex, or facsimile sending
device, it shall be deemed to have been given immediately if confirmed in
writing by overnight delivery. If notice is sent by first-class mail, it shall
be deemed to have been given five days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the day it is
delivered.
To the Company: *[NAME OF FUND]
466 Lexington Avenue
New York, NY 10017-3147, USA
Attention: Eugene P. Grace
Telephone: 212-878-0812
Telecopy: 212-878-9351
To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive
North Quincy, Massachusetts 02171, USA
Attention: Neal J. Chansky
Telephone: 617-985-5127
Telecopy: 617-537-2626
18. Headings
The section headings in this Contract are for the convenience of
reference only and do not form a part of this Contract.
19. Counterparts
This Contract may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
20. Additional Funds
In the event that the Fund establishes additional series of Shares with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so
32
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notify the Custodian in writing and, if the Custodian agrees in writing to
provide such services, the parties hereto will amend Schedule F to so reflect
and such series of Shares shall become a Portfolio hereunder.
21. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
22. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
23. Recourse Against Shareholders, Officers and Trustees*
This Contract is executed by the officers of the Fund in their capacity
as such and not individually. Any responsibility or liability of the Fund (or a
particular Portfolio) under any provision of this Contract shall be satisfied
solely from the assets of the Fund or the particular Portfolio, tangible or
intangible, realized or unrealized, and in no event shall the Custodian, a
sub-custodian or agent have any recourse against the shareholders, officers or
Trustees of the Fund under this Contract or against any one Portfolio for the
obligations of any other Portfolio.
24. Reproduction of Documents.
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
- -------------------
* To be included in contracts with business trusts only.
33
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25. Shareholder Communications Election
SEC Rule 14b-2 under the Securities Exchange Act of 1934, as amended,
requires banks which hold securities for the account of customers to respond to
requests by issuers of securities for the names, addresses and holdings of
beneficial owners of securities of that issuer held by the bank unless the
beneficial owner has expressly objected to disclosure of this information. In
order to comply with the rule, the Custodian needs the Fund to indicate whether
it authorizes the Custodian to provide the Fund's name, address, and share
position to requesting companies whose securities the Fund owns. If the Fund
tells the Custodian "no", the Custodian will not provide this information to
requesting companies. If the Fund tells the Custodian "yes" or does not check
either "yes" or "no" below, the Custodian is required by the rule to treat the
Fund as consenting to disclosure of this information for all securities owned by
the Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's name
and address for any purpose other than corporate communications. Please indicate
below whether the Fund consents or objects by checking one of the alternatives
below.
YES [ ] The Custodian is authorized to release the Fund's
name, address and share positions.
NO [X] The Custodian is not authorized to release the
Fund's name, address and share positions.
34
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IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of *[Date].
WARBURG, PINCUS *[complete name of Fund]
By:__________________________
Name:________________________
Title:_______________________
STATE STREET BANK AND TRUST COMPANY
By:_________________________
Name: Ronald E. Logue
Title: Executive Vice President
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SCHEDULE C
Pursuant to the terms of (i) the Custodian Contract dated *[date] between the
registered investment companies listed on Schedule F thereto, as such Schedule F
may be amended from time to time, and State Street Bank and Trust Company and
(ii) the Data Access Services Addendum thereto of even date therewith (the "Data
Access Services Addendum"), the following persons and/or entities may use the
Data Access Services (as such term is defined in the Data Access Services
Addendum):
36
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SCHEDULE D
Reports
Description of Report Period of Report
--------------------- ----------------
Open Trades* Daily
Cash Availability Daily (by 10:00 a.m.)
Cash Transaction Statement* Daily
Portfolio Holdings Report* Daily
Failed Trades Report Daily
Corporate Action Report - (Pre-Notification) Daily
Global Cash Statement* Daily
Currency Balance Report Daily
Cash Transaction Statement* Weekly
Corporate Action Report (Summary) Weekly
Out-for-Transfer Report Weekly
Sedol Holdings Report Weekly
Purchase/Sales Report* Monthly
Broker Top Ten Report* Monthly
Capital Stock Activity Report Monthly
Cash Transaction Statement* Monthly
Corporate Action Report Monthly
Global Cash Statement* Monthly
Failed Trades Monthly
Outstanding Receivables* Monthly
FX Activity Report Monthly
Base Equivalent Cash Statement* Monthly
Corporate Action Final Notification When Applicable
* Also Available Via GlobalQuest(R)
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SCHEDULE E
Countries/Settlement Systems with Respect to which
Contractual Settlement May be Provided
Australia
Austria
Belgium
Canada
Denmark
Euroclear
Finland
France
Germany
Hong Kong
Indonesia
Ireland
Italy
Japan
Luxembourg
Malaysia
Mexico
Netherlands
New Zealand
Norway
Philippines
Portugal
Singapore
South Africa
Spain
Sweden
Switzerland
Thailand
United States
United Kingdom
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SCHEDULE F
39
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DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
AGREEMENT between Warburg, Pincus *[Name of Fund] (the "Customer") and
State Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets
of the Customer pursuant to a certain Custodian Contract (the "Custodian
Contract") dated as of *[Date];
WHEREAS, State Street has developed and utilizes proprietary accounting
and other systems, including State Street's proprietary Multicurrency HORIZON(R)
Accounting System, in its role as custodian of the Customer, and maintains
certain Customer-related data ("Customer Data") in databases which databases are
under the control and ownership of State Street (the "Data Access Services");
and
WHEREAS, State Street makes available to the Customer certain Data
Access Services solely for the benefit of the Customer, and intends to provide
additional services, consistent with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Agreement, State
Street hereby agrees to provide the Customer with access to State Street's
Multicurrency HORIZON(R) Accounting System and the other information systems
(collectively, the "System") as described in Attachment A, on a remote basis for
the purpose of obtaining reports, solely on computer hardware, system software
and telecommunication links of the Customer, or certain third parties approved
by State Street that provide services to the Customer (the "Service Provider")
as listed in Attachment B and solely with respect to the Customer (the
"Designated Configuration") or on any designated substitute or back-up equipment
configuration with State Street's written consent, such consent not to be
unreasonably withheld.
b. Data Access Services. State Street agrees to make available to the
Customer the Data Access Services subject to the terms and conditions of this
Agreement and data access operating standards and procedures as may be issued by
State Street from time to time. The
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ability of the Customer to originate electronic instructions to State Street on
behalf of the Customer in order to (i) effect the transfer or movement of cash
or securities held under custody by State Street, (ii) transmit accounting or
other information (such transactions are referred to herein as "Client
Originated Electronic Financial Instructions"), and (iii) access data for the
purpose of reporting and analysis, shall be deemed to be Data Access Services
for purposes of this Agreement.
c. Additional Services. State Street shall make available to the
Customer, on terms generally available to State Street's other custody clients
which are investment companies registered under the Investment Company Act of
1940, as amended, additional Systems that are not described in the attachments
to this Agreement that are made available to other U.S.-registered investment
company custody clients of State Street. In the absence of any other written
agreement concerning such additional systems, the term "System" shall include,
and this Agreement shall govern, the Customer's access to and use of any
additional System made available by State Street and/or accessed by the
Customer.
2. NO USE OF THIRD PARTY SOFTWARE
State Street and the Customer acknowledge that in connection with the
Data Access Services provided under this Agreement, the Customer will have
access, through the Data Access Services, to Customer Data and to functions of
State Street's proprietary systems; provided, however that in no event will the
Customer have direct access to any third party systems-level software that
retrieves data for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Locations. The System and the Data
Access Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Customer or certain agents of the Customer
(the "Designated Agents") located in Delaware and New York ("Designated
Locations").
b. Designated Configuration; Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the
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<PAGE>
Designated Locations. State Street and the Customer agree that each will engage
or retain the services of trained personnel to enable both parties to perform
their respective obligations under this Agreement. State Street agrees to use
commercially reasonable efforts to maintain the System so that it remains
serviceable, provided, however, that State Street does not guarantee or assure
uninterrupted remote access use of the System.
c. Scope of Use. The Customer will use the System and the Data Access
Services only for (x) the processing of securities transactions and (y)
accessing data for informational purposes related to services provided pursuant
to the Custodian Contract or such other services as the Custodian may from time
to time agree in writing to provide. The Customer shall not, and shall cause its
employees and agents not to (i) permit any third party (other than a Service
Provider) to use the System or the Data Access Services, (ii) sell, rent,
license or otherwise use the System or the Data Access Services for any purpose
other than as expressly authorized under this Agreement, (iii) allow access to
the System or the Data Access Services through terminals or any other computer
or telecommunications facilities located outside the Designated Locations, (iv)
allow or cause any information (other than portfolio holdings, valuations of
portfolio holdings, and other information reasonably necessary for the
management or distribution of the assets of the Customer) transmitted from State
Street's databases, including data from third party sources, available through
use of the System or the Data Access Services to be redistributed or
retransmitted to another computer, terminal or other device for other than use
for or on behalf of the Customer or (v) modify the System in any way, including
without limitation, developing any software for or attaching any devices or
computer programs to any equipment, system, software or database which forms a
part of or is resident on the Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned
System shutdown, the Customer's access to services performed by the System or to
Data Access Services at a Designated Location may be transferred to a different
location only upon the prior written consent of State Street. In the event of an
emergency or System shutdown, the Customer may use any back-up site included in
the Designated Configuration or any other back-up site agreed to by State
Street, which agreement will not be unreasonably withheld. The Customer may
secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street,
the Customer shall not modify, enhance or otherwise create derivative works
based upon the System, nor shall the Customer reverse engineer, decompile or
otherwise attempt to secure the source code for all or any part of the System.
3
<PAGE>
g. Security Procedures. The Customer shall comply with data access
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and to
access the Data Access Services. The Customer shall have access only to the
Customer Data and authorized transactions agreed upon from time to time by State
Street and, upon notice from State Street, the Customer shall discontinue remote
use of the System and access to Data Access Services for any security reasons
cited by State Street.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State Street
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information (other than Customer Data) made available to the Customer by State
Street as part of the Data Access Services and through the use of the System
constitute copyrighted, trade secret, or other proprietary information of
substantial value to State Street. Any and all such proprietary information
provided by State Street to the Customer shall be deemed proprietary and
confidential information of State Street (hereinafter "Proprietary
Information"). The Customer agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder. The Customer further acknowledges that State Street shall not be
required to provide the Service Provider with access to the System unless it has
first received from the Service Provider an undertaking with respect to State
Street's Proprietary Information in the form of Attachment C to this Agreement.
The Customer shall use all commercially reasonable efforts to assist State
Street in identifying and preventing any unauthorized use, copying or disclosure
of the Proprietary Information or any portions thereof or any of the logic,
formats or designs contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer shall
advise State Street immediately in the event the Customer learns or has reason
to believe
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that any person to whom the Customer has given access to the Proprietary
Information, or any portion thereof, has violated or intends to violate the
terms of this Agreement, and the Customer will, at its expense, cooperate with
State Street in seeking injunctive or other equitable relief in the name of the
Customer or State Street against any such person.
c. Injunctive Relief. The Customer acknowledges that the disclosure of
any Proprietary Information, or of any information which at law or equity ought
to remain confidential, will immediately give rise to continuing irreparable
injury to State Street inadequately compensable in damages at law. In addition,
State Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the
termination of this Agreement.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer
agrees that State Street's liability to the Customer arising out of contract,
strict liability in tort, or any other cause of action under this Agreement for
its provision of Data Access Services or the System shall be limited to (i)
U.S.$750,000.00 per such cause of action and (ii) a total of U.S.$2,000,000.00
during the term of this Agreement. The parties agree that in the event the
Customer purchases Data Access Services in addition to GlobalQuest(R), they will
negotiate in good faith with respect to the foregoing damages limitation. No
action, regardless of form, arising out of this Agreement may be brought by the
Customer more than two years after the Customer has knowledge that the cause of
action has arisen.
b. Warranty. State Street represents and warrants that it has the right
to provide the Customer with access to the System and, to the best of State
Street's knowledge, the System does not infringe upon the intellectual property
rights of third parties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET. IN NO EVENT WILL
STATE STREET BE LIABLE TO THE CUSTOMER OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL
OR INCIDENTAL DAMAGES WHICH MAY ARISE FROM THE CUSTOMER'S ACCESS TO THE SYSTEM
OR USE OF INFORMATION OBTAINED THEREBY.
c. Third-Party Data. Organizations from which State Street may obtain
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the Customer,
the Customer shall be solely responsible for the accuracy of any accounting
statements or reports produced using the Data Access Services and the System and
the conformity thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable for any costs or
damages due to delay or nonperformance under this Agreement arising out of any
cause or event beyond such party's control, including without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party, or the Customer as a result of work stoppage, power or other mechanical
failure, computer virus, natural disaster, governmental action, or communication
disruption; provided that State Street shall take reasonable steps under the
facts and circumstances then prevailing to mitigate continuing harm to the
Customer resulting from State Street's nonperformance under this Agreement
arising out of such causes and events.
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from
any loss, damage or expense including reasonable attorney's fees, (a "loss")
suffered by State Street arising from the negligence or willful misconduct in
the use by the Customer of the Data Access Services or the System, including any
loss incurred by State Street resulting from a security breach at a Designated
Location or committed by the Customer, the Service Provider(s), or either of
their employees or agents.
State Street agrees to defend, indemnify and hold Customer harmless
from and against any claims, suits or damages sustained (including reasonable
attorney's fees) if Customer is called upon to defend any claim that Customer's
use of the System directly infringes any United States patent, trade secret or
copyright, provided (a) Customer promptly notifies State Street in writing of
such claim, and (b) Customer agrees that State Street shall have sole control
over the defense or settlement of such claim.
7. FEES
Fees and charges for the use of the System and the Data Access Services
and related payment terms shall be as set forth in Schedule B of the Custodian
Contract, as such Schedule B may be revised from time to time by the parties
(the "Fee Schedule").
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8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated
State Street training facility or at a Designated Location, to the Customer's
personnel in connection with the use of the System on the Designated
Configuration. The Customer agrees that it will set aside, during regular
business hours or at other times agreed upon by both parties, sufficient time to
enable all operators of the System and the Data Access Services, designated by
the Customer, to receive the training offered by State Street pursuant to this
Agreement.
b. Installation and Conversion. State Street shall be responsible for
the technical installation and conversion ("Installation and Conversion") of the
Designated Configuration. The Customer shall have the following responsibilities
in connection with Installation and Conversion of the System:
(i) The Customer shall be solely responsible for the timely
acquisition and maintenance of the hardware and software that
attach to the Designated Configuration in order to use the
Data Access Services at the Designated Locations.
(ii) State Street and the Customer each agree that they will assign
qualified personnel to actively participate during the
Installation and Conversion phase of the System implementation
to enable both parties to perform their respective obligations
under this Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
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10. TERM OF AGREEMENT
a. Term of Agreement. This Agreement shall become effective on the date
of its execution by State Street and shall remain in full force and effect until
terminated as herein provided.
b. Termination of Agreement. Either party may terminate this Agreement
(i) for any reason by giving the other party at least one-hundred and eighty
days' prior written notice in the case of notice of termination by State Street
to the Customer or thirty days' notice in the case of notice from the Customer
to State Street of termination; or (ii) immediately for failure of the other
party to comply with any material term and condition of the Agreement by giving
the other party written notice of termination. In the event the Customer shall
cease doing business, shall become subject to proceedings under the bankruptcy
laws (other than a petition for reorganization or similar proceeding) or shall
be adjudicated bankrupt, this Agreement and the rights granted hereunder shall,
at the option of State Street, immediately terminate with notice to the
Customer. This Agreement shall in any event terminate as to the Customer within
90 days after the termination of the Custodian Contract applicable to such
Customer.
c. Termination of the Right to Use. Upon termination of this Agreement
for any reason, any right to use the System and access to the Data Access
Services shall terminate and the Customer shall immediately cease use of the
System and the Data Access Services. Immediately upon termination of this
Agreement for any reason, the Customer shall return to State Street all copies
of documentation and other Proprietary Information in its possession and State
Street shall return to Customer all Customer Data in its possession; provided,
however, that in the event that either party terminates this Agreement or the
Custodian Contract for any reason other than the Customer's breach, State Street
shall provide the Data Access Services for a period of time and at a price to be
agreed upon by the parties. Should State Street be in possession of information
requested by regulatory agencies having jurisdiction over the
7
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Customer, State Street will cooperate with the Customer to make such information
available to such regulatory agencies for a commercially reasonable time
following termination of this Agreement.
11. MISCELLANEOUS
a. Assignment; Successors. This Agreement and the rights and
obligations of the Customer and State Street hereunder shall not be assigned by
either party without the prior written consent of the other party, except that
State Street may assign this Agreement to a successor of all or a substantial
portion of its business, or to a party controlling, controlled by, or under
common control with State Street.
b. Survival. All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
c. Entire Agreement. This Agreement and the attachments hereto
constitute the entire understanding of the parties hereto with respect to the
Data Access Services and the use of the System and supersedes any and all prior
or contemporaneous representations or agreements, whether oral or written,
between the parties as such may relate to the Data Access Services or the
System, and cannot be modified or altered except in a writing duly executed by
the parties. This Agreement is not intended to supersede or modify the duties
and liabilities of the parties hereto under the Custodian Contract or any other
agreement between the parties hereto except to the extent that any such
agreement specifically refers to the Data Access Services or the System. No
single waiver or any right hereunder shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Agreement shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of *[Date].
WARBURG, PINCUS *[Name of Fund]
By: __________________________________
Name: __________________________________
Title: __________________________________
STATE STREET BANK AND TRUST COMPANY
By: __________________________________
Name: Ronald E. Logue
Title: Executive Vice President
9
<PAGE>
ATTACHMENT A
System Product Description
I. Multicurrency HORIZON(R) Accounting System. The Multicurrency
HORIZON(R) Accounting System is designed to provide lot level portfolio and
general ledger accounting for SEC and ERISA type requirements and includes the
following services: 1) recording of general ledger entries; 2) calculation of
daily income and expense; 3) reconciliation of daily activity with the trial
balance, and 4) appropriate automated feeding mechanisms to (i) domestic and
international settlement systems, (ii) daily, weekly and monthly evaluation
services, (iii) portfolio performance and analytic services, (iv) customer's
internal computing systems and (v) various State Street provided information
services products.
II. GlobalQuest(R). GlobalQuest(R) is designed to provide customer
access to the following information maintained on The Multicurrency HORIZON(R)
Accounting System: 1) cash transactions and balances; 2) purchases and sales; 3)
income receivables; 4) tax refund; 5) daily-priced positions; 6) open trades; 7)
settlement status; 8) foreign exchange transactions; 9) trade history; and 10)
daily, weekly and monthly evaluation services.
<PAGE>
ATTACHMENT B
Designated Configuration
<PAGE>
ATTACHMENT C
Undertaking
The undersigned understands that in the course of its employment as an
agent of Warburg, Pincus *[Name of Fund] (the "Customer") it will have access to
State Street Bank and Trust Company's ("State Street") Multicurrency HORIZON(R)
Accounting System and other information systems (collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs screen formats, report formats, interactive design techniques,
documentation and other information made available to the Undersigned by State
Street as part of the Data Access Services provided to the Customer and through
the use of the System constitute copyrighted, trade secret, or other proprietary
information of substantial value to State Street. Any and all such information
provided by State Street to the Undersigned shall be deemed proprietary and
confidential information of State Street ( hereinafter "Proprietary
Information"). The Undersigned agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession. With respect to any dispute arising in connection with this
Undertaking, the Undersigned (i) understands that this Undertaking shall be
construed in accordance with the laws of The Commonwealth of Massachusetts and
(ii) consents to the jurisdiction of the courts of The Commonwealth of
Massachusetts.
*[Name of Designated Agent]
By: ______________________________
Name: ______________________________
Title: ______________________________
Date: ______________________________
<PAGE>
ATTACHMENT D
Support
During the term of this Agreement, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Customer Designated Persons may contact State
Street's HORIZON(R) Help Desk and Customer Assistance Center between the hours
of 8 a.m. and 6 p.m. (Eastern time) on all business days for the purpose of
obtaining answers to questions about the use of the System, or to report
apparent problems with the System. From time to time, the Customer shall provide
to State Street a list of persons, not to exceed five in number, who shall be
permitted to contact State Street for assistance (such persons being referred to
as the "Customer Designated Persons").
b. Technical Support. State Street will provide technical support to
assist the Customer in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Customer and shall offer the Customer reasonable
training on the enhancement. Charges for system enhancements shall be as
provided in the Fee Schedule. State Street retains the right to charge for
related systems or products that may be developed and separately made available
for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall make
a written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
support the Customer's use of the System: (1) for use on any computer equipment
or telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Customer has modified the System in
breach of this Agreement.
<PAGE>
CO-ADMINISTRATION AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of ________ __, 1997 by and between Warburg,
Pincus Trust (the "Trust"), a Massachusetts business trust, and PFPC Inc.
("PFPC"), a Delaware corporation, which is an indirect, wholly owned subsidiary
of PNC Bank Corp.
The Trust is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust wishes to
retain PFPC to provide certain administration and accounting services with
respect to series of the Trust that may be offered from time to time (each a
"Portfolio" and collectively the "Portfolios"), and PFPC wishes to furnish such
services.
In consideration of the promises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
-----------
(a) "Authorized Person." The term "Authorized Person" shall mean any
officer of the Trust and any other person, who is duly authorized by the Trust's
Governing Board, to give Oral and Written Instructions on behalf of the Trust.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix to each Services Attachment to this Agreement. If PFPC provides
more than one service hereunder, the Trust's designation of Authorized Persons
may vary by service.
(b) "CFTC." The term "CFTC" shall mean the Commodities Futures Trading
Commission.
(c) "Governing Board." The Term "Governing Board" shall mean the
Trust's Board of Directors if the Trust is a corporation or the Trust's Board of
Trustees if the Trust is a trust, or, where duly authorized, a competent
committee thereof.
(d) "Oral Instructions." The term "Oral Instructions" shall mean oral
instructions received by PFPC from an Authorized Person or from a person
reasonably believed by PFPC to be an Authorized Person.
(e) "PNC." The term "PNC" shall mean PNC Bank or a subsidiary or
affiliate of PNC Bank.
(f) "SEC." The term "SEC" shall mean the Securities and Exchange
Commission.
<PAGE>
(g) "Securities and Commodities Laws." The terms the "1933 Act" shall
mean the Securities Act of 1933, as amended, the "1934 Act" shall mean the
Securities Exchange Act of 1934, as amended, the "1940 Act" shall mean the
Investment Company Act 1940, as amended, and the "CEA" shall mean the
Commodities Exchange Act, as amended.
(h) "Services." The term "Services" shall mean the service provided to
the Trust by PFPC.
(i) "Shares." The terms "Shares" shall mean the shares of beneficial
interest of any series or class of the Trust.
(j) "Property." The term "Property" shall mean:
(i) any and all securities and other investment items which the
Trust may from time to time deposit, or cause to be
deposited, with PNC or which PNC may from time to time hold
for the Trust;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Trust,
which are received by PNC from time to time, from or on
behalf of the Trust.
(k) "Written Instructions." The term "Written Instructions" shall mean
written instructions signed by one Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Appointment.
-----------
The Trust hereby appoints PFPC to provide administration and accounting
services with respect to the Portfolios, in accordance with the terms set forth
in this Agreement. PFPC accepts such appointment and agrees to furnish such
services.
2
<PAGE>
3. Delivery of Documents.
---------------------
The Trust has provided or, where applicable, will provide PFPC with the
following:
(a) certified or authenticated copies of the resolutions of the Trust's
Governing Board, approving the appointment of PNC or its affiliates to provide
services with respect to the Portfolios;
(b) a copy of the Trust's most recent effective registration statement
with respect to the Portfolios;
(c) a copy of the Trust's advisory agreement or agreements with respect
to the Portfolios;
(d) a copy of the Trust's distribution agreement or agreements with
respect to the Portfolios;
(e) a copy of the Trust's administration or co-administration agreement
with respect to the Portfolios if PFPC is not providing the Trust with such
services;
(f) copies of any shareholder servicing agreements made in respect of
the Trust with respect to the Portfolios; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
------------------------------------------------
PFPC undertakes to comply with all applicable requirements of the 1933
Act, the 1934 Act, the 1940 Act, and the CEA, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to all
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Trust.
5. Instructions.
------------
Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral and Written Instructions.
3
<PAGE>
PFPC shall be entitled to rely upon any Oral and Written Instructions
it receives from an Authorized Person (or from a person reasonably believed by
PFPC to be an Authorized Person) pursuant to this Agreement. PFPC may assume
that any Oral or Written Instruction received hereunder is not in any way
inconsistent with the provisions of organizational documents or this Agreement
or of any vote, resolution or proceeding of the Trust's Governing Board or of
the Trust's shareholders.
The Trust agrees to forward to PFPC Written Instructions confirming
Oral Instructions so that PFPC receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by PFPC shall in no way
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions. The Trust further agrees that PFPC shall incur no
liability to the Trust in acting upon Oral or Written Instructions provided such
instructions reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
-----------------------
(a) Advice of the Trust. If PFPC is in doubt as to any action it should
or should not take, PFPC may request directions or advice, including Oral or
Written Instructions, from the Trust.
(b) Advice of Counsel. If PFPC shall be in doubt as to any questions of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Trust, the Portfolios' adviser (the "Adviser") or PFPC, at the option of
PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PNC receives from the Trust, and the
advice it receives from counsel, PFPC shall be entitled to rely upon and follow
the advice of counsel.
(d) Protection of PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Trust or from counsel and which PFPC believes,
in good faith, to be consistent with those directions, advice and Oral or
Written Instructions.
Nothing in this paragraph shall be construed so as to impose an
obligation upon PFPC (i) to seek such directions,
4
<PAGE>
advice or Oral or Written Instructions, or (ii) to act in accordance with such
directions, advice or Oral or Written Instructions unless, under the terms of
other provisions of this Agreement, the same is a condition of PFPC's properly
taking or not taking such action.
7. Records.
-------
The book and records pertaining to the Portfolios, which are in the
possession of PFPC, shall be the property of the Trust. Such books and records
shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Trust, or the Trust's
Authorized Persons, shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Trust,
copies of any such books and records shall be provided by PFPC to the Trust or
to an Authorized Person of the Trust, at the Trust's expense.
PFPC shall keep the following records:
(a) all books and records with respect to the Portfolios' books of
account;
(b) records of the Portfolios' securities transactions; and
(c) all other books and records as PFPC is required to maintain
pursuant to Rule 31a-1 of the 1940 Act and as specifically set forth in Appendix
A hereto.
8. Confidentiality.
---------------
PPFC agrees to keep confidential all records of the Portfolios and
information relative to the Portfolios and its shareholders (past, present and
potential), unless the release of such records or information is otherwise
consented to, in writing, by the Trust. The Trust agrees that such consent shall
not be unreasonably withheld. The Trust further agrees that, should PFPC be
required to provide such information or records to duly constituted authorities
(who may institute civil or criminal contempt proceedings for failure to
comply), PFPC shall not be required to seek the Trust's consent prior to
disclosing such information.
5
<PAGE>
9. Liaison with Accountants.
------------------------
PFPC shall act as liaison with the Portfolios' independent public
accountants and shall provide account analyses, fiscal year summaries, and other
audit-related schedules. PFPC shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such accountants for the expression of their
opinion, as such may be required by the Trust from time to time.
10. Disaster Recovery.
-----------------
PFPC shall enter into and shall maintain in effect with appropriate
parties one or more agreements making reasonable provision of emergency use of
electronic data processing equipment to the extent appropriate equipment is
available. In the event of equipment failures, PFPC shall, at no additional
expense to the Portfolios, take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
11. Compensation.
------------
As compensation for services rendered by PFPC during the term of this
Agreement, the Portfolios will pay to PFPC a fee or fees as may be agreed to in
writing by the Trust and PFPC.
12. Indemnification.
---------------
The Portfolios agree to indemnify and hold harmless PFPC and its
nominees from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act, the 1934
Act, the 1940 Act, the CEA, and any state and foreign securities and blue sky
laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PFPC takes or does not take (i) at the request or on the direction
of or in reliance on the advice of the Trust or (ii) upon Oral or Written
Instructions. Neither PFPC, nor any of its nominees, shall be indemnified
against any liability to the Portfolios or to its shareholders (or any expenses
incident to such liability) arising out of PFPC's own willful misfeasance, bad
faith, negligence or reckless disregard of its duties and obligations under this
Agreement.
6
<PAGE>
13. Responsibility of PFPC.
----------------------
PFPC shall be under no duty to take any action on behalf of the Trust
except as specifically set forth herein or as may be specifically agreed to by
PFPC, in writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC shall be responsible for its own negligent failure to
perform its duties under this Agreement. Notwithstanding the foregoing, PFPC
shall not be responsible for losses beyond its control, provided that PFPC has
acted in accordance with the standard of care set forth above; and provided
further that PFPC shall only be responsible for that portion of losses or
damages suffered by the Portfolios that are attributable to the negligence of
PFPC.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC, in connection with its duties under this
Agreement, shall not be liable for (a) the validity or invalidity or authority
or lack thereof of any Oral or Written Instruction, notice or other instrument
which conforms to the applicable requirements of this Agreement, and which PFPC
reasonably believes to be genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood or catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PFPC shall
have no liability to the Trust for any consequential, special or indirect losses
or damages which the Trust may incur or suffer by or as a consequence of PFPC's
performance of the services provided hereunder, whether or not the likelihood of
such losses or damages was known by PFPC.
14. Description of Accounting Services.
----------------------------------
(a) Services on a Continuing Basis. PFPC will perform the following
accounting functions if required:
(i) Journalize the Portfolios' investment, capital share and
income and expense activities;
(ii) Verify investment buy/sell trade tickets when received from
the Adviser and transmit trades to the Portfolios' custodian
for proper settlement;
7
<PAGE>
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Reconcile cash and investment balances of the Portfolios
with the custodian, and provide the Adviser with the
beginning cash balance available for investment purposes;
(vi) Update the cash availability throughout the day as required
by the Adviser;
(vii) Post to and prepare the Portfolios' Statement of Assets and
Liabilities and the Statement of Operations;
(viii) Calculate various contractual expenses (e.g., advisory and
custody fees);
(ix) Monitor the expense accruals and notify Portfolios'
management of any proposed adjustments;
(x) Control all disbursements from the Trust and authorize such
disbursements upon Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine the Portfolios' net income;
(xiii) Obtain security market quotes from independent pricing
services approved by the Adviser, or if such quotes are
unavailable, then obtain such prices from the Adviser, and
in either case calculate the market value of the Portfolios'
investments;
(xiv) Transmit or mail a copy of the daily portfolio valuation to
the Adviser;
(xv) Compute the net asset value of the Portfolios;
(xvi) As appropriate, compute the Portfolios' yields, total
return, expense ratios,
8
<PAGE>
portfolio turnover rate, and, if required, portfolio
average dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement, which will include
the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. Description of Administration Services.
--------------------------------------
(a) Services on a Continuing Basis.
(i) Prepare quarterly broker security transactions summaries;
(ii) Prepare monthly security transaction listings;
(iii) Prepare for execution and file the Trust's federal and state
tax returns;
(iv) Prepare and file the Portfolios' semi-annual reports with
the SEC on Form N-SAR;
(v) Prepare and file with the SEC the Portfolios' annual and
semi-annual shareholder reports;
(vi) Assist with the preparation of registration statements and
other filings relating to the registration of Shares; and
(vii) Monitor the Trust's status as a regulated investment company
under Sub-Chapter M of the Internal Revenue Code of 1986, as
amended.
9
<PAGE>
16. Duration and Termination.
------------------------
This Agreement shall continue until terminated by the Trust or by PFPC
on sixty (60) days' prior written notice to the other party.
17. Notices.
-------
All notices and other communications, including Written Instructions,
shall be in writing or by confirming telegram, cable, telex or facsimile sending
device. If notice is sent by confirming telegram, cable, telex or facsimile
sending device, it shall be deemed to have been given immediately. If notice is
sent by first-class mail, it shall be deemed to have been given three days after
it has been mailed. If notice is sent by messenger, it shall be deemed to have
been given on the day it is delivered. Notices shall be addressed (a) if to PFPC
at PFPC's address, 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to
the Trust, at the address of the Trust; or (c) if to neither of the foregoing,
at such other address as shall have been notified to the sender of any such
notice or other communication.
18. Amendments.
----------
This Agreement, or any term thereof, may be changed or waived only by
written amendment, signed by the party against whom enforcement of such change
or waiver is sought.
19. Delegation.
----------
PFPC may assign its rights and delegate its duties hereunder to any
wholly owned direct or indirect subsidiary of PNC Bank or PNC Bank Corp.,
provided that (i) PFPC gives the Trust thirty (30) days' prior written notice;
(ii) the delegate agrees with PFPC to comply with all relevant provisions of the
1940 Act; and (iii) PFPC and such delegate promptly provide such information as
the Trust may request, and respond to such questions as the Trust may ask,
relative to the delegation, including (without limitation) the capabilities of
the delegate.
10
<PAGE>
20. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21. Further Actions.
---------------
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
22. Limitation of Liability.
-----------------------
The Trust and PFPC agree that the obligations of the Trust and the
Portfolios under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust or the Portfolios, individually, but are binding only upon
the assets and property of the Portfolios, as provided in the Trust's
Declaration of Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust, and signed by an authorized officer of
the Trust, acting as such, and neither the authorization by the Trustees nor the
execution and delivery by the officer will be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but will
bind only the trust property of the Trust as provided in the Declaration of
Trust. No series of the Trust, including the Portfolios, will be liable for any
claims against any other series.
23. Miscellaneous.
-------------
This Agreement embodies the entire agreement and understanding between
the parties and supersedes all prior agreements and understandings relating to
the subject matter hereof, provided that the parties may embody in one or more
separate documents their agreement, if any, with respect to delegated and/or
Oral Instructions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware law. If any provision of this agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
and
11
<PAGE>
shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PFPC INC.
By:______________________________
Name:
Title:
WARBURG, PINCUS TRUST
By:______________________________
Name:
Title:
12
<PAGE>
APPENDIX A
None.
<PAGE>
______________ __, 1997
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017
RE: CO-ADMINISTRATION SERVICE FEES
------------------------------
Gentlemen:
This letter constitutes our agreement with respect to compensation to
be paid to PFPC Inc. ("PFPC") under the terms of a Co-Administration Agreement
dated ___________ ___, 1997 between you (the "Trust"), and PFPC. Pursuant to
Paragraph 11 of that Agreement, and in consideration of the services to be
provided to you, on behalf of the Growth & Income Portfolio (the "Portfolio"),
you will pay PFPC an annual co-administration fee, to be calculated daily and
paid monthly. You will also reimburse PFPC for its out-of-pocket expenses
incurred on behalf of the Portfolios, including, but not limited to: postage and
handling, telephone, telex, FedEx and outside pricing service charges.
The annual administration and accounting fee with respect to the
Portfolio shall be .15% of the Portfolio's first $1 billion in average daily net
assets and .05% of average daily net assets over $1 billion.
In each month the Portfolio shall pay to PFPC the asset based fee as
calculated above. The fee for the period from the day of the year this agreement
is entered into until the end of that year shall be pro-rated according to the
proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement, and you intend to
be legally bound thereby, please execute a copy of this letter and return it to
us.
Very truly yours,
PFPC INC.
By:____________________________
Name:
Title:
Accepted: WARBURG, PINCUS TRUST
By:_____________________________
Name:
Title:
<PAGE>
CO-ADMINISTRATION AGREEMENT
____________ __, 1997
Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Dear Sirs:
Warburg, Pincus Trust (the "Trust"), a business trust organized under
the laws of The Commonwealth of Massachusetts, confirms its agreement with
Counsellors Funds Service, Inc. ("Counsellors Service") with respect to series
of the Trust that may be offered from time to time (each a "Portfolio" and
collectively the "Portfolios"), as follows:
1. Investment Description; Appointment
-----------------------------------
The Trust desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in its
Declaration of Trust, as amended from time to time (the "Declaration of Trust"),
in its By-laws, as amended from time to time (the "By-laws"), in the Trust's
prospectus (the "Prospectus") and Statement of Additional Information (the
"Statement of Additional Information") relating to the Portfolios as in effect
from time to time, and in such manner and to the extent as may from time to time
be approved by the Board of Trustees of the Trust. Copies of the Prospectus,
Statement of Additional Information and the Declaration of Trust and By-laws
have been submitted to Counsellors Service. The Trust employs Warburg, Pincus
Counsellors, Inc. (the "Adviser") as its investment adviser with respect to the
Portfolios and desires to employ and hereby appoints Counsellors Service as its
co-administrator with respect to the Portfolios. Counsellors Service accepts
this appointment and agrees to furnish the services for the compensation set
forth below.
2. Services as Co-Administrator
----------------------------
Subject to the supervision and direction of the Board of Trustees of
the Trust, Counsellors Service will:
(a) assist in supervising all aspects of the Portfolios' operations,
except those performed by other parties pursuant to written agreements with the
Trust;
(b) provide various shareholder liaison services including, but not
limited to, responding to inquiries of
<PAGE>
shareholders regarding the Portfolios, providing information on shareholder
investments, assisting shareholders of the Portfolios in changing dividend
options, account designations and addresses, and other similar services;
(c) provide certain administrative services including, but not limited
to, providing periodic statements showing the account balance of a Portfolio
shareholder and integrating the statements with those of other transactions and
balances in the shareholder's other accounts serviced by the Portfolios'
custodian or transfer agent;
(d) supply the Portfolios with office facilities (which may be
Counsellors Service's own offices), data processing services, clerical, internal
executive and administrative services, and stationery and office supplies;
(e) furnish corporate secretarial services, including assisting in the
preparation of materials for Board of Trustees meetings and distributing those
materials and preparing minutes of meetings of the Trust's Board of Trustees and
any Committees thereof and of the Trust's shareholders;
(f) coordinate the preparation of reports to the Portfolios'
shareholders of record and filings with the Securities and Exchange Commission
(the "SEC") including, but not limited to, proxy statements; annual, semi-annual
and quarterly reports to shareholders; and post-effective amendments to the
Trust's Registration Statement on Form N-1A with respect to the Portfolios (the
"Registration Statement");
(g) assist in the preparation of the Trust's tax returns with respect
to the Portfolios and assist in other regulatory filings as necessary;
(h) assist the Adviser, at the Adviser's request, in monitoring and
developing compliance procedures for the Portfolios which will include, among
other matters, procedures to assist the Adviser in monitoring compliance with
the Portfolios' investment objectives, policies, restrictions, tax matters and
applicable laws and regulations; and
(i) acting as liaison between the Trust and the Trust's independent
public accountants, counsel, custodian or custodians, transfer agent and
co-administrator and taking all reasonable action in the performance of its
obligations under this Agreement to assure that all necessary information is
made available to each of them.
In performing all services under this Agreement, Counsellors Service
shall act in conformity with applicable law, the Trust's Declaration of Trust
and By-laws, and all amendments thereto, and the investment objectives,
investment policies and other practices and policies set forth in the
Registration
2
<PAGE>
Statement, as such Registration Statement and practices and policies may be
amended from time to time.
3. Compensation
------------
In consideration of services rendered pursuant to this Agreement, the
Trust will pay Counsellors Service on the first business day of each month a fee
for the previous month at an annual rate of .10% of each Portfolio's average
daily net assets. The fee for the period from the date a Portfolio commences its
investment operations to the end of the month during which the Portfolio
commences its investment operations shall be prorated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such part
of a month shall be prorated according to the proportion which such period bears
to the full monthly period and shall be payable upon the date of termination of
this Agreement. For the purpose of determining fees payable to Counsellors
Service, fees shall be calculated monthly and the value of each Portfolio's net
assets shall be computed at the times and in the manner specified in the
Prospectus and Statement of Additional Information as from time to time in
effect.
4. Expenses
--------
Counsellors Service will bear all expenses in connection with the
performance of its services under this Agreement; provided, however, that the
Trust will reimburse Counsellors Service for the out-of-pocket expenses incurred
by it on behalf of the Portfolios. Such reimbursable expenses shall include, but
not be limited to, postage, telephone, telex and FedEx charges. Counsellors
Service will bill the Portfolios as soon as practicable after the end of each
calendar month for the expenses it is entitled to have reimbursed.
Each Portfolio will bear its proportionate share of certain other
expenses to be incurred in its operation, including: taxes, interest, brokerage
fees and commissions, if any; fees of Trustees of the Trust who are not
officers, directors, or employees of the Adviser or Counsellors Service; SEC
fees and state Blue Sky qualification fees; charges of custodians and transfer
and dividend disbursing agents; certain insurance premiums; outside auditing and
legal expenses; costs of maintenance of corporate existence; except as otherwise
provided herein, costs attributable to investor services, including without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings, and meetings of the officers of Board of Trustees of the Trust;
costs of any pricing services; and any extraordinary expenses.
3
<PAGE>
5. Standard of Care
----------------
Counsellors Service shall exercise its best judgment in rendering the
services listed in paragraph 2 above. Counsellors Service shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Portfolios in connection with the matters to which this Agreement
relates provided that nothing in this Agreement shall be deemed to protect or
purport to protect Counsellors Service against liability to the Trust or the
Portfolios to their shareholders to which Counsellors Service would otherwise be
subject by reason of willful misfeasance, bad faith or negligence on its part in
the performance of its duties or by reason of Counsellors Service's reckless
disregard of its obligations and duties under this Agreement.
6. Limitation of Liability
-----------------------
The Trust and Counsellors Service agree that the obligations of the
Trust under this Agreement will not be binding upon any of the Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust or the Portfolios, individually, but are binding only upon
the assets and property of the Trust, as provided in the Declaration of Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust, and signed by an authorized officer of the Trust, acting
as such, and neither the authorization by the Trustees nor the execution and
delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the trust property of the Portfolios as provided in the Declaration of
Trust. No series of the Trust including the Portfolios will be liable for any
claims against any other series.
7. Term of Agreement
-----------------
This Agreement shall become effective with respect to a Portfolio as of
the date the Portfolio commences its investment operations and shall continue
until April 17, 1999 and shall continue automatically (unless terminated as
provided herein) for successive annual periods ending on April 17th of each
year, provided that such continuance is specifically approved at least annually
by the Board of Trustees of the Trust, including a majority of the Board of
Trustees who are not "interested persons" (as defined in the Investment Company
Act of 1940, as amended) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval. This Agreement
is terminable, without penalty, on sixty (60) days' written notice, by the Board
of Trustees of the Trust or, with respect to a Portfolio, by vote of holders of
a majority of the Portfolio's shares, or upon sixty (60) days' written notice,
by Counsellors Service.
4
<PAGE>
8. Service to Other Companies or Accounts
--------------------------------------
The Trust understands that Counsellors Service now acts, will continue
to act and may act in the future as administrator, co-administrator or
administrative services agent to one or more other investment companies, and the
Trust has no objection to Counsellors Service's so acting. The Trust understands
that the persons employed by Counsellors Service to assist in the performance of
Counsellors Service's duties hereunder will not devote their full time to such
service and nothing contained in this Agreement shall be deemed to limit or
restrict the right of Counsellors Service or any affiliate of Counsellors
Service to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed copy
hereof.
Very truly yours,
WARBURG, PINCUS TRUST
By_______________________________
Name:
Title:
Accepted:
COUNSELLORS FUNDS SERVICE, INC.
By:____________________________
Name:
Title:
5
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
_____________ __, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Dear Sirs:
In accordance with Article 10 of the Transfer Agency and Service
Agreement, dated June 20, 1995 (the "Agreement"), between Warburg, Pincus Trust
(the "Trust") and State Street Bank and Trust Company (the "Bank"), the Trust
hereby notifies the Bank of the Trust's desire to have the Bank render services
as transfer agent under the terms of the Agreement with respect to the Growth &
Income Portfolio, a series of shares of beneficial interest of the Trust.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
WARBURG, PINCUS TRUST
By:__________________________
Name:
Title:
Accepted:
STATE STREET BANK AND TRUST COMPANY
By:________________________________
Name:
Title:
<PAGE>
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
August 11, 1997
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus Trust (the "Trust"), a business
trust organized under the laws of The Commonwealth of Massachusetts, in
connection with the Trust's establishment of a new series, the Growth & Income
Portfolio (the "Portfolio").
We have examined copies of the Trust's Declaration of Trust, as amended (the
"Declaration"), the Trust's By-Laws, the Trust's Registration Statement, as
amended, on Form N-1A, Securities Act File No. 33-58125 and Investment Company
Act File No. 811-07261 (the "Registration Statement"), and all resolutions
adopted by the Trust's Board of Trustees at the Portfolio's organizational
meeting held on July 30, 1997. We have also examined such other records,
documents, papers, statutes and authorities as we have deemed necessary to form
a basis for the opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Trust and
others.
Based upon the foregoing, we are of the opinion that the shares of beneficial
interest of the Portfolio, par value $.001 per share (the "Shares"), when duly
sold, issued and paid for in accordance with the terms of the Declaration, the
Trust's By-Laws and the Registration Statement, will be validly issued and will
be fully paid and non-assessable shares of beneficial interest of the Trust,
except that, as set forth in the Registration Statement, shareholders of the
Trust may under certain circumstances be held personally liable for its
obligations.
<PAGE>
Warburg Pincus Trust
August 11, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the statement of additional
information included as part of the Registration Statement and to the filing of
this opinion as an exhibit to any application made by or on behalf of the Trust
or any distributor or dealer in connection with the registration or
qualification of the Trust or the Shares under the securities laws of any state
or other jurisdiction.
We are admitted to practice only in the State of New York and are not admitted
to practice under, nor are we experts with respect to, the laws of the
Commonwealth of Massachusetts. Accordingly, in rendering the opinions set forth
above when we have relied with your consent on the opinion of Sullivan &
Worcester, special Massachusetts counsel to the Trust, as to all matters of
Massachusetts law.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
August 11, 1997
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Re: Warburg, Pincus Trust
Ladies and Gentlemen:
You have requested our opinion as to certain matters of Massachusetts
law relating to Warburg, Pincus Trust, a Massachusetts trust with transferable
shares (the "Trust"), established under an Agreement and Declaration of Trust
filed March 15, 1995, as amended by a Certificate of Amendment filed April 4,
1995, and supplemented by a Certificate of Establishment and Designation of
Series of Shares filed April 18, 1996, and further supplemented by a Certificate
of Establishment and Designation of the Growth & Income Portfolio filed August
8, 1997 (as so amended and supplemented, the "Declaration").
We have acted as Massachusetts counsel to the Trust in connection with
the execution and delivery of the Declaration and the actions of the Trustees to
organize the Trust and to authorize the issuance and sale of the shares of
beneficial interest, par value $.001 per share (the "Shares"), of the Growth &
Income Portfolio of the Trust (the "Portfolio"). In this connection we have
participated in the drafting of, and are familiar with, the Declaration and the
Bylaws of the Trust, and we have examined the Prospectus (the "Prospectus") and
the Statement of Additional Information included in the Trust's Registration
Statement on Form N-1A (the "Registration Statement"), substantially in the form
in which the Registration Statement is about to be filed with the Securities and
Exchange Commission (the "SEC"), the records of the actions of the Trustees to
organize the Trust and to authorize the issuance of the Shares of the Portfolio,
certificates of Trustees and officers of the Trust and of public officials as to
matters of fact, and such other documents and instruments, certified or
otherwise identified to our satisfaction, and such questions of law and fact, as
we have considered necessary or appropriate for purposes of the opinions
expressed herein. We have assumed the genuineness of the signatures on, and the
authenticity of, all documents furnished to us, and the conformity to the
originals of documents submitted to us as certified copies, which facts we have
not independently verified.
Based upon and subject to the foregoing, we hereby advise you that, in
our opinion, under the laws of The Commonwealth of Massachusetts:
<PAGE>
Willkie Farr & Gallagher -2-
1. The Trust has been duly organized and is validly existing as a
trust with transferable shares of the type commonly called a
Massachusetts business trust.
2. The Trust is authorized to issue an unlimited number of
Shares; the Shares of the Portfolio to be offered for sale by
the Prospectus have been duly and validly authorized by all
requisite action of the Trustees of the Trust, and no action
of the shareholders of the Trust is required in such
connection.
3. The Shares of the Portfolio, when duly sold, issued and paid
for as contemplated by the Prospectus, will be validly and
legally issued, fully paid and nonassessable by the Trust.
With respect to the opinion stated in paragraph 3 above, we wish to
point out that the shareholders of a Massachusetts business trust may under some
circumstances be subject to assessment at the instance of creditors to pay the
obligations of such trust in the event that its assets are insufficient for the
purpose.
This letter expresses our opinions as to the provisions of the
Declaration and the laws of Massachusetts applying to business trusts generally,
but does not extend to the Massachusetts Securities Act, or to federal
securities or other laws.
You may rely upon the foregoing opinions in rendering your opinion
letter on the same matters which is to be filed as an exhibit to the
Registration Statement, and we hereby consent to the reference to us in the
Prospectus, and to the filing of this letter with the SEC as an exhibit to the
Registration Statement. In giving such consent, we do not thereby concede that
we come within the category of persons whose consent is required under Section 7
of the Securities Act.
Very truly yours,
/s/ SULLIVAN & WORCESTER LLP
SULLIVAN & WORCESTER LLP
<PAGE>
PURCHASE AGREEMENT
Warburg, Pincus Trust (the "Trust"), a business trust organized under
the laws of the Commonwealth of Massachusetts, with respect to the Growth &
Income Portfolio (the "Portfolio"), and Warburg, Pincus Counsellors, Inc.
("Counsellors") hereby agree as follows:
1. The Trust offers Counsellors and Counsellors hereby purchases one
share of beneficial interest of the Portfolio, having a par value $.001 per
share, at a price of $10.00 per Share (the "Initial Share"). Counsellors hereby
acknowledges receipt of a certificate representing the Initial Share, and the
Trust hereby acknowledges receipt from Counsellors of $10.00 in full payment for
the Initial Share.
2. Counsellors represents and warrants to the Trust that the Initial
Share is being acquired for investment purposes and not for the purpose of
distribution.
3. Counsellors agrees that if any holder of the Initial Share redeems
it before five years after the date upon which the Portfolio commences its
investment activities, the redemption proceeds will be reduced by the amount of
unamortized organizational expenses, in the same proportion as the Initial Share
being redeemed bears to the number of Initial Shares outstanding at the time of
redemption. The parties hereby acknowledge that any shares acquired by
Counsellors other than the Initial Share have not been acquired to fulfill the
requirements of Section 14 of the Investment Company Act of 1940, as amended,
and, if redeemed, their redemption proceeds will not be subject to reduction
based on the unamortized organizational expenses of the Portfolio.
4. The Trust and Counsellors agree that the obligations of the Trust
under this Agreement will not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Trust, individually, but are binding only upon the assets and property of the
Trust, as provided in the Declaration of Trust. The execution and delivery of
this Agreement have been authorized by the Trustees of the Trust, and signed by
an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer will
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Trust as provided in the Declaration of Trust. No series of the Trust,
including the Portfolio, will be liable for any claims against any other series.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the __ day of ________, 1997.
WARBURG, PINCUS TRUST
By:______________________________
Name:
Title:
ATTEST:
__________________________
WARBURG, PINCUS COUNSELLORS, INC.
By:______________________________
Name:
Title:
ATTEST:
__________________________
2
