<PAGE> 1
As filed with the U.S. Securities and Exchange Commission
on April 16, 1999
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. 10 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 11 [x]
(Check appropriate box or boxes)
Warburg, Pincus Trust
................................................................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
........................................... ...........
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Ms. Janna Manes
Warburg, Pincus Trust
466 Lexington Avenue
New York, New York 10017-3147
.......................................
(Name and Address of Agent for Service)
Copy to:
Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
<PAGE> 2
Approximate Date of Proposed Public Offering: As soon as practicable after this
filing is declared effective.
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.
----------------------------------
Title of Securities Being Registered:
Shares of beneficial interest, par value $.001
<PAGE> 3
WARBURG, PINCUS TRUST
FORM N-1A
CROSS REFERENCE SHEET
--------------------------
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page................................ Cover Page
2. Synopsis.................................. The Portfolio's Expenses
3. Condensed Financial
Information............................... N/A
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 Portfolio
6. Capital Stock and Other
Securities................................ General Information
7. Purchase of Securities
Being Offered............................. How to Purchase and Redeem
Shares; Management of the
Portfolio; Net Asset Value
8. Redemption or Repurchase.................. How to Purchase and Redeem
Shares
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
</TABLE>
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<TABLE>
<S> <C>
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
Portfolio"
16. Investment Advisory and
Other Services.............................. Management of the Trust; See
Prospectus--"Management of the
Portfolio"
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"; "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 Portfolio"
22. Calculation of
Performance Data............................ Determination of Performance
23. Financial Statements........................ N/A
</TABLE>
<PAGE> 5
Part C
Information required to be included in Part C is set forth after the
appropriate item, so numbered, in Part C to this registration statement
amendment.
<PAGE> 6
REGISTRANT'S PROSPECTUSES AND COMBINED STATEMENT OF ADDITIONAL INFORMATION FOR
THE OTHER PORTFOLIOS OF THE TRUST ARE INCORPORATED BY REFERENCE TO
POST-EFFECTIVE AMENDMENT NO. 5 TO THE REGISTRATION STATEMENT ON FORM N-1A, FILED
ON APRIL 7, 1998.
<PAGE> 7
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 16, 1999
PROSPECTUS
May 24, 1999
WARBURG PINCUS TRUST
- EMERGING GROWTH 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.
[WARBURG PINCUS LOGO]
<PAGE> 8
PROSPECTUS May 24, 1999
Warburg Pincus Trust (the "Trust") is an open-end management investment company
that currently offers six investment funds, one of which, the Emerging Growth
Portfolio (the "Portfolio"), is offered pursuant to this Prospectus.
The EMERGING GROWTH PORTFOLIO seeks maximum capital appreciation by investing in
equity securities of small- to medium-sized domestic companies with emerging or
renewed growth potential.
Shares of the Portfolio are not available directly to individual investors but
may be offered only to certain life insurance companies ("Participating
Insurance Companies") for allocation to certain (i) 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 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 available to investors without charge by calling the Trust at
1-800-369-2728. Warburg Pincus Funds maintains a Web site at www.warburg.com.
The Statement of Additional Information, as amended or supplemented from time to
time, bears the same date as this Prospectus and is incorporated by reference in
its entirety into this Prospectus.
SHARES OF THE 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 THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 9
THE PORTFOLIO'S EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)....................... 0
Annual Portfolio Operating Expenses (after expense
reimbursements)
(as a percentage of average net assets)
Management Fees*.......................................... .84%
12b-1 Fees................................................ 0
Other Expenses*........................................... .41%
----
Total Portfolio Operating Expenses+*...................... 1.25%
----
----
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 year................................................... $ 13
3 years.................................................. $ 40
</TABLE>
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+ Annual Portfolio Operating Expenses are based on estimated expenses for the
Portfolio's first fiscal year ended December 31, 1999.
* Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, Management Fees for the Portfolio would equal .90%; Other
Expenses would equal .51%; and Total Portfolio Operating Expenses would equal
1.41%. Other Expenses for the Portfolio are based on annualized estimates of
expenses for the fiscal year ending December 31, 1999, 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.
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 OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Emerging Growth Portfolio's investment objective is to seek maximum
capital appreciation. The Portfolio's objective is a fundamental policy and may
not be amended without first obtaining the approval of a majority of the
outstanding shares of the Portfolio. Any investment involves risk and,
therefore, there can be no assurance that the Portfolio will achieve its
investment objective. See "Portfolio Investments" and "Certain Investment
Strategies" for descriptions of certain types of investments the Portfolio may
make.
The Portfolio is a non-diversified investment fund that pursues its investment
objective by investing in a portfolio of equity securities of domestic
companies. The Portfolio ordinarily will invest at least 65% of its total assets
in common stocks or warrants of emerging growth companies that represent
attractive opportunities for maximum capital appreciation. Emerging growth
companies are either small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time.
Emerging growth companies generally stand to benefit from new products or
services, technological developments or changes in management and other factors
and include smaller companies experiencing unusual developments affecting their
market value. These "special situation companies" include companies that are
involved in the following: an acquisition or consolidation; a reorganization; a
recapitalization; a merger, liquidation, or distribution of cash, securities or
other assets; a tender or exchange offer; a breakup or workout of a holding
company; litigation which, if resolved favorably, would improve the value of the
company's stock; or a change in corporate control.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The Portfolio may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by Warburg
Pincus Asset Management, Inc., the Portfolio's investment adviser ("Warburg").
Because the market value of debt obligations can be expected to vary inversely
to changes in prevailing interest rates, investing in debt obligations may
provide an opportunity for capital appreciation 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.
The Portfolio will not acquire debt securities that are not considered
investment grade at the time of purchase. 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. Subsequent to its purchase by the Portfolio, an issue
of securities may cease to be rated or its rating may be reduced. Neither event
will require sale of such securities, although Warburg will consider such event
in its determination of whether the Portfolio should continue to hold the
securities.
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.
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) and medium-term (five years
or less remaining to maturity) money market obligations and, for temporary
defensive purposes, may invest in these securities without limit. These
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.
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<PAGE> 11
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Portfolio's holding period. The value of the underlying
securities will at all times be at least equal to the total amount of the
purchase obligation, including interest. The Portfolio bears a risk of loss in
the event that the other party to a repurchase agreement defaults on its
obligations or becomes bankrupt and the Portfolio is delayed or prevented from
exercising its right to dispose of the collateral securities, including the risk
of a possible decline in the value of the underlying securities during the
period while the Portfolio seeks to assert this right. Warburg, acting under the
supervision of the Trust's Board of Trustees (the "Board"), monitors the
creditworthiness of those bank and non-bank dealers with which the Portfolio
enters into repurchase agreements to evaluate this risk. A repurchase agreement
is considered to be a loan under the Investment Company Act of 1940, as amended
(the "1940 Act").
Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Portfolio and appropriate considering the factors of return and
liquidity, the Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio or Warburg.
As a shareholder in any mutual fund, the Portfolio will bear its ratable share
of the mutual fund's expenses, including management fees, and will remain
subject to payment of the Portfolio's administration fees and other expenses
with respect to assets so invested.
U.S. GOVERNMENT SECURITIES. U.S. government securities 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.
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. Subsequent to purchase by the Portfolio,
convertible securities may cease to be rated or a rating may be reduced. Neither
event will require sale of such securities, although Warburg will consider such
event in its determination of whether the Portfolio should continue to hold
securities.
WARRANTS. The Portfolio may invest up to 10% of its net assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
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" and "Certain Investment Strategies" in this Prospectus.
SMALLER CAPITALIZATION AND EMERGING GROWTH COMPANIES; UNSEASONED ISSUERS. The
Portfolio may invest in securities of emerging growth and small- and
medium-sized companies and companies with continuous operations of less than
three years ("unseasoned issuers"). These investments may involve greater risks
than investing in larger, more established companies since these securities may
have limited marketability and, thus, may be more volatile than securities of
larger, more established companies or the market averages in general. Because
these issuers normally have fewer shares outstanding than larger companies, it
may be more difficult to buy or sell significant amounts of such shares without
an unfavorable impact on prevailing prices. These issuers may have limited
product lines, markets or financial resources and may lack management depth. In
addition, these issuers are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning these issuers
than for larger, more established ones. These "special situation companies"
include companies that are involved in the following: an acquisition or
consolidation; a reorganization; a recapitalization; a merger, liquidation, or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the company's stock; or a change in
corporate control. Although investing in securities of these companies offers
potential for above-average returns if the companies are successful, the risk
exists that the companies will not succeed and the prices of the companies'
shares could significantly decline in value. Therefore, an investment in the
Portfolio may involve a greater degree of risk than an investment in other
mutual funds that seek capital appreciation by investing in more established,
larger companies.
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
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<PAGE> 12
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 and the
Portfolio may take longer to liquidate these positions than would be the case
for publicly traded securities. Although these securities may be resold in
privately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Portfolio. Further, companies whose
securities are not publicly traded 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.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment but increases an
investor's risk in the event of a decline in the value of the underlying
security and can result in a complete loss of the amount invested in the
warrant. In addition, the price of a warrant tends to be more volatile than, and
may not correlate exactly to, the price of the underlying security. If the
market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
NON-DIVERSIFIED STATUS. The Portfolio is classified as non-diversified under
the 1940 Act, which means that the Portfolio is not limited by the 1940 Act in
the proportion of its assets that it may invest in the obligations of a single
issuer. The Portfolio will, however, comply with diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. Being non-diversified means
that the Portfolio may invest a greater proportion of its assets in the
obligations of a small number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. To the extent that the
Portfolio assumes large positions in the securities of a small number of
issuers, its return may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
YEAR 2000 COMPLIANCE. Warburg is working to address the Year 2000 issue
relating to the change from "99" to "00" on January 1, 2000 and has obtained
assurances from service providers that they are taking similar steps. Warburg is
working on the Year 2000 issue pursuant to a plan designed to address potential
problems and progress is proceeding according to the plan. Warburg anticipates
the completion of testing of internal systems in the first part of 1999, and is
developing contingency plans intended to address any unexpected service
problems. However, there can be no assurance that these efforts will be
sufficient, and any noncompliant computer systems could hurt key Portfolio
operations, such as shareholder servicing, pricing and trading.
The Year 2000 issue affects practically all companies, organizations,
governments, markets and economies throughout the world -- including companies
or governmental entities in which Portfolio invests and markets in which it
trades. However, at this time no one knows precisely what the degree of impact
will be. To the extent that the impact on a Portfolio holding or on markets or
economies is negative, it could seriously affect the Portfolio's performance.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
- --------------------------------------------------------------------------------
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 objective and policies. High portfolio
turnover rates (100% or more) may result in higher dealer mark-ups or
underwriting commissions as well as other transaction costs, including
correspondingly higher brokerage commissions. In addition, short-term gains
realized from portfolio turnover may be taxable to shareholders as ordinary
income. See "Dividends, Distributions and Taxes -- Taxes" below and "Investment
Policies -- Portfolio Transactions" in the Statement of Additional Information.
All orders for transactions in securities or options on behalf of 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
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<PAGE> 13
that the charge for the transaction does not exceed usual and customary levels
and when doing so is consistent with guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Although there is no intention of doing so during the coming year, 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. The Portfolio may invest up to 10% of its total assets in
the securities of foreign issuers. There are certain risks involved in investing
in securities of companies and governments of foreign nations which are in
addition to the usual risks inherent in 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 respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Portfolios,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Investment in foreign securities will also result in higher
operating expenses due to the cost of converting foreign currency into U.S.
dollars, the payment of fixed brokerage commissions on foreign exchanges, which
generally are higher than commissions on U.S. exchanges, higher valuation and
communications costs and the expense of maintaining securities with foreign
custodians.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
International Depositary Receipts ("IDRs"), instruments that evidence ownership
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.
OPTIONS, FUTURES AND CURRENCY 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,
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 purchase and
write (sell) options on securities and securities indices for hedging purposes
or to increase total return. These options may trade on U.S. exchanges as well
as over-the-counter ("OTC"). 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. A securities index measures the movement of
a certain group of securities by assigning relative values to the securities
included in the index.
Up to 25% of the Portfolio's total assets may be at risk in connection with
investing in options on securities and securities indices. The amount of assets
considered to be "at risk" in these transactions is, in the case of purchasing
options, the amount of the premium paid, and, in the case of writing options,
the value of the underlying obligation.
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 inoppor-
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<PAGE> 14
tune 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 securities 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 securities index and certain other futures
contracts, are settled in cash with reference to a specified multiplier times
the change in the specified index, exchange rate or interest rate. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be "bona fide hedging" will not exceed 5%
of 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. The Portfolio will only engage in
currency exchange transactions for hedging purposes.
Hedging Considerations. The Portfolio may engage in options, futures and
currency transactions for, among other reasons, hedging purposes. A hedge is
designed to offset a loss on a portfolio position with a gain in the hedge
position; at the same time, however, a properly correlated hedge will result in
a gain in the portfolio position being offset by a loss in the hedge position.
As a result, the use of options, futures contracts and currency exchange
transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. 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.
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, indexes and currencies; interest
rate and securities 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.
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. The Portfolio will not enter into a when-issued or
delayed-delivery transaction for the purpose of leverage, but may sell the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive securities in a delayed-delivery transaction if
Warburg deems it advantageous to do so. The payment obligation and the interest
rate that will be received in when-issued and delayed-delivery transactions are
fixed at the time the buyer enters into the
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<PAGE> 15
commitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the prices of such securities may be
higher or lower than the prices 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.
INVESTMENT GUIDELINES
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The Portfolio may invest up to 10% of its total 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 10% of its total assets, and may pledge 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 limitations on borrowing, the investment guidelines set forth in this
paragraph may be changed at any time without shareholder consent by vote of the
Board, subject to the limitations contained in the 1940 Act. A complete list of
investment restrictions that 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 Statement of Additional
Information.
MANAGEMENT OF THE PORTFOLIO
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INVESTMENT ADVISER. The Trust employs Warburg as its investment adviser.
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 objective 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 .90% of the Portfolio's average daily net
assets. Warburg and the Trust's co-administrators may voluntarily waive a
portion of their fees from time to time and temporarily limit the expenses to be
borne by the Portfolio.
Warburg is a professional investment advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of April 30, 1999,
Warburg managed approximately $ billion of assets, including approximately $11
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.
CREDIT SUISSE ACQUISITION OF WARBURG. On February 15, 1999, Warburg and Credit
Suisse Group announced that they reached an agreement for Credit Suisse Group to
acquire Warburg. It is contemplated that Warburg will be acquired by a
subsidiary of Credit Suisse Group and, on or shortly after the consummation of
the acquisition, Warburg would be combined with Credit Suisse Group's existing
U.S. asset management business as a direct or indirect wholly-owned U.S.
subsidiary of Credit Suisse Group. Under the terms of the agreement, no changes
are planned to those Warburg portfolio managers and investment professionals
involved with the Portfolio. The transaction is expected to be completed in
mid-1999 upon satisfaction of the various conditions in the agreement.
The acquisition and combination each will result in an "assignment," as
defined in the 1940 Act, of the Portfolio's investment advisory agreement. As
required by the 1940 Act, the Portfolio's investment advisory agreement provides
for its automatic termination in the event of its assignment. In anticipation of
the consummation of the transactions described, a new investment advisory
agreement for the Portfolio, to take effect upon consummation of the
transactions, was approved by the Trust's Board and the Portfolio's initial
shareholder. Approval by shareholders of the Portfolio following the public
offering of the Portfolio's shares will not be sought.
Credit Suisse Group is a global financial services company, providing a
comprehensive range of banking and insurance products. Active on every continent
and in all major financial centers, Credit Suisse comprises five business
units -- Credit Suisse Asset Management ("CSAM") (asset management); Credit
Suisse First Boston (investment banking); Credit Suisse Private Banking (private
banking); Credit Suisse (retail banking); and Winterthur (insurance). Credit
Suisse has approximately $680 billion of global assets under management and
employs approximately 62,000 people worldwide. The principal business address of
Credit Suisse is Paradeplatz 8, CH 8070, Zurich, Switzerland.
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<PAGE> 16
CSAM is the institutional asset management and mutual fund arm of Credit
Suisse. CSAM employs approximately 1,600 people worldwide and has global assets
under management of approximately $210 billion in multiple product services,
including equities, fixed income, derivatives and balanced portfolios. The
principal business address of CSAM is Uetlibergstrasse 231, CH 8045, Zurich,
Switzerland.
CSAM's U.S. asset management business, formerly known as BEA Associates,
changed its name to CSAM in January 1999 to more accurately reflect is
integration into Credit Suisse Asset Management and, together with its
predecessor firms, has been engaged in the investment advisory business for over
60 years. In the U.S., CSAM is an investment manager for corporate and state
pension funds, endowments and other institutions and has assets under management
of approximately $35 billion. The principal business address of CSAM's U.S.
operations is 153 East 53rd Street, New York, New York 10022.
Currently, CSAM is organized as a general partnership with two general
partners, Credit Suisse Capital Corp. and Credit Suisse Advisors Corp. As part
of the combination with Warburg, CSAM will reorganize as a limited liability
company or a corporation, which will be a direct or indirect wholly-owned U.S.
subsidiary of Credit Suisse Group. This entity will be the new adviser of the
Portfolio following the transactions described above. See the Statement of
Addition Information for more specific information.
PORTFOLIO MANAGERS. The Co-Portfolio Managers of the Portfolio have been
Elizabeth B. Dater and Stephen J. Lurito since its inception. Ms. Dater is a
Managing Director of Warburg and has been a Portfolio Manager of Warburg since
1978. Mr. Lurito is a Managing Director of Warburg and has been with Warburg
since 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
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 its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual and semiannual 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 Inc. ("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 .10%
of the first $500 million in average daily net assets, .075% of the next $1
billion in average daily net assets, and .05% of average daily net assets over
$1.5 billion, exclusive of out-of-pocket expenses. PFPC has its principal
offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PFPC Trust Company ("PFPC Trust"), serves as custodian of the
Portfolio's U.S. assets. State Street Bank and Trust Company ("State Street")
serves as custodian of the Portfolio's non-U.S. assets. Like PFPC, PFPC Trust is
a subsidiary of PNC Bank Corp. and its principal business address is 200 Stevens
Drive, Lester, Pennsylvania 19113. 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
most of its responsibilities to Boston Financial Data Services, Inc. ("BFDS"),
an affiliated service company. 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 .40%
(the "Service Fee") of the annual average value of accounts maintained by such
Organizations with a Portfolio. The Service Fee payable to any one Service
Organization is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization.
Warburg or its affiliates may, at their own expense, provide promotional
incentives for qualified recipients who support the sale of shares of 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
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<PAGE> 17
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 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 Statement
of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
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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.
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 the 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 with payment
for purchases to follow no later than the Portfolio's pricing on the next
business day. If payment for purchases is not received by such time, the
Participating Insurance Company could be held liable for resulting fees or
losses. 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. Redemption proceeds will normally be wired to
the Participating Insurance Company the business day following receipt of the
redemption order, but in no event later than seven days after receipt of such
order.
Plan participants may invest in shares of the Portfolio through their Plan by
directing the Plan trustee to purchase shares for their account in a manner
similar to that described above for contract owner purchases through
Participating Insurance Companies. 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 judgment, the Portfolio would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
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.
TELEPHONE TRANSACTIONS. Participating Insurance Companies, Plans or their
agents may elect to conduct transactions by telephone. Neither the Portfolio nor
its agents will be liable for following instructions communicated by telephone
that it reasonably believes to be genuine. Reasonable procedures will be
employed on behalf of the Portfolio to confirm that instructions communicated by
telephone are genuine. Such procedures may include providing written
confirmation of telephone transactions, tape recording telephone instructions
and requiring specific identifying information.
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 and net realized short-term and long-term capital gains annually. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. 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.
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<PAGE> 18
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).
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.
Certain provisions of the Code may require that a gain recognized by the
Portfolio upon the closing of a short sale be treated as a short-term capital
gain, and that a loss recognized by the Portfolio upon the closing of a short
sale be treated as a long-term capital loss, regardless of the amount of time
that the Portfolio held the securities used to close the short sale. The
Portfolio's use of short sales may also affect the holding periods of certain
securities held by the Portfolio if such securities are "substantially
identical" to securities used by the Portfolio to close the short sale. The
Portfolio's short selling activities will not result in unrelated business
taxable income to a tax-exempt investor.
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 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 do 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
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<PAGE> 19
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.
The Portfolio or a Participating Insurance Company or Plan sponsor may compare
the Portfolio's performance 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 appropriate indexes prepared by Frank
Russell Company relating to securities represented in the Portfolio, the T. Rowe
Price New Horizons Fund Index and the S&P 500 Index, which are unmanaged
indexes; or (iii) other appropriate indexes of investment securities or with
data developed by Warburg derived from such indexes. The Portfolio or a
Participating Insurance Company may also include evaluations published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Barron's, Business Week, Financial Times, Forbes,
Fortune, Inc., Institutional Investor, Investor's Business Daily, Money,
Morningstar, Mutual Fund Magazine, SmartMoney, The Wall Street Journal and
Worth. 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, the
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 activity, which may include a discussion of significant
portfolio holdings; analysis of holdings by industry, country, credit quality
and other characteristics; and comparison and analysis of the Portfolio with
respect to relevant market and industry benchmarks. The Portfolio may also
discuss measures of risk, the continuum of risk and return relating to different
investments and the potential impact of international securities on a portfolio
otherwise composed of U.S. 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 six series have been authorized, one of which constitutes 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 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
12
<PAGE> 20
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 the Portfolio, may be obtained by calling the Trust at 1-800
369-2728 or on the Warburg Pincus Funds Web site at www.warburg.com.
------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION OR THE 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.
13
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Portfolio's Expenses................................. 2
Investment Objective and Policies........................ 3
Portfolio Investments.................................... 3
Risk Factors and Special Considerations.................. 4
Portfolio Transactions and Turnover Rate................. 5
Certain Investment Strategies............................ 6
Investment Guidelines.................................... 8
Management of the Portfolio.............................. 8
How to Purchase and Redeem Shares........................ 10
Dividends, Distributions and Taxes....................... 10
Net Asset Value.......................................... 11
Performance.............................................. 11
General Information...................................... 12
</TABLE>
[WARBURG PINCUS LOGO]
P.O. BOX 4906, GRAND CENTRAL STATION
NEW YORK, NY 10163
1-800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREGR-1-0299
<PAGE> 24
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
SUBJECT TO COMPLETION, DATED APRIL 16, 1999
STATEMENT OF ADDITIONAL INFORMATION
May 24, 1999
WARBURG PINCUS TRUST
Emerging Growth Portfolio
P.O. Box 4906, Grand Central Station, New York, NY 10163
For information, call 1-800 369-2728
Contents
Page
INVESTMENT OBJECTIVE...........................................................1
INVESTMENT POLICIES............................................................1
MANAGEMENT OF THE TRUST.......................................................28
THE PROPOSED ACQUISITION OF WARBURG BY CREDIT SUISSE..........................32
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................40
ADDITIONAL INFORMATION CONCERNING TAXES.......................................41
DETERMINATION OF PERFORMANCE..................................................43
INDEPENDENT ACCOUNTANTS AND COUNSEL...........................................44
MISCELLANEOUS.................................................................44
FINANCIAL STATEMENTS..........................................................44
Appendix -- Description of Ratings...........................................A-1
Warburg Pincus Trust ("Trust") currently offers six managed investment
funds, one of which, the Emerging Growth Portfolio (the "Portfolio"), is
described in this Statement of Additional Information. This Statement of
Additional Information is meant to be read in conjunction with the Prospectus of
the Portfolio, dated May 24, 1999, 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 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 1-800 369-2728 or by writing to the Trust, P.O. Box 4906,
Grand Central Station, New York, NY 10163.
<PAGE> 25
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is maximum capital
appreciation.
INVESTMENT POLICIES
The following policies supplement the descriptions of the
Portfolio's investment objective and policies in the Prospectus.
Options, Futures and Currency Exchange Transactions
Securities Options. The Portfolio may write covered call options on
stock and debt securities and the Portfolio may purchase U.S. exchange-traded
and over-the-counter ("OTC") put and call options.
The Portfolio realizes fees (referred to as "premiums") for granting
the rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right of
its purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.
The principal reason for writing covered options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, 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.
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 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
<PAGE> 26
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 Asset Management, 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. 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 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.
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<PAGE> 27
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.
Securities Index Options. The Portfolio may purchase and write
exchange-listed and OTC put and call options on securities indexes. A securities
index measures the movement of a certain group of securities by assigning
relative values to the securities included in the index, fluctuating with
changes in the market values of the securities included in the index. Some
securities 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 securities indexes are similar to options on securities
except that (i) the expiration cycles of securities index options are monthly,
while those of securities options are currently quarterly, and (ii) the delivery
requirements are different. Instead of giving the right to take or make delivery
of securities at a specified price, an option on a securities index gives the
holder the right to receive a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend
3
<PAGE> 28
upon the closing level of the securities index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the exercise price of the index and the exercise price of the option times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Securities index options may
be offset by entering into closing transactions as described above for
securities options.
OTC Options. The 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 securities to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If 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 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 securities index futures contracts and purchase and write
(sell) related options traded on exchanges designated by the Commodity Futures
Trading Commission (the "CFTC") or consistent with CFTC regulations on foreign
exchanges. These transactions may be entered into for "bona fide hedging"
purposes as defined in CFTC regulations and other permissible purposes including
hedging against changes in the value of portfolio securities due to anticipated
changes in currency values, interest rates and/or market conditions and
increasing return.
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
4
<PAGE> 29
any such contracts it has entered into. The Portfolio reserves 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. 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. Securities indexes are capitalization weighted
indexes which reflect the market value of the securities listed on the indexes.
A securities index futures contract is an agreement to be settled by delivery of
an amount of cash equal to a specified multiplier times the difference between
the value of the index at the close of the last trading day on the contract and
the price at which the agreement is made.
No consideration is paid or received by 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 cash equivalents,
such as U.S. government securities or other liquid high-grade debt obligations,
equal to approximately 1% to 10% of the contract amount (this amount is subject
to change by the exchange on which the contract is traded, and brokers may
charge a higher amount). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Portfolio fails to meet its contractual
obligations. Subsequent payments, known as "variation margin," to and from the
broker, will be made daily as the currency, financial instrument or securities
index underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking-to-market." The Portfolio will also incur brokerage costs in connection
with entering into futures transactions.
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 intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist 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
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<PAGE> 30
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 securities index futures
contract, as contrasted with the direct investment in such a contract, gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior to the
expiration date of the option. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put). Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily 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 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
6
<PAGE> 31
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 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
7
<PAGE> 32
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 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 prices in the securities market generally
or, in the case of certain indexes, in an industry or market segment, rather
than movements in the price of a particular security. The risk of imperfect
correlation increases as the composition of the Portfolio's portfolio varies
from the composition of the index. In an effort to compensate for imperfect
correlation of relative movements in the hedged position and the hedge, the
Portfolio's hedge positions may be in a greater or lesser dollar amount than the
dollar amount of the hedged position. Such "over hedging" or "under hedging" may
adversely affect the Portfolio's net investment results if market movements are
not as anticipated when the hedge is established. Securities index futures
transactions may be subject to additional correlation risks. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
would distort the normal relationship between the securities 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 a securities index and movements in the price
of securities 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
currencies, interest rates or securities markets, as the case may be, and to
predict correctly 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
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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 securities and indexes; and currency, interest rate and
index futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Portfolio of cash or
liquid securities.
For example, a call option written by the Portfolio on securities
may require the Portfolio to hold the securities subject to the call (or
securities convertible into the securities without additional consideration) or
to segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Portfolio on
an index may require the Portfolio to own portfolio securities that correlate
with the index or to segregate assets (as described above) equal to the excess
of the index value over the exercise price on a current basis. The Portfolio
could purchase a put option if the strike price of that option is the same or
higher than the strike price of a put option sold by the Portfolio. If the
Portfolio holds a futures or forward contract, the Portfolio could purchase a
put option on the same futures or forward contract with a strike price as high
or higher than the price of the contract held. The Portfolio may enter into
fully or partially offsetting transactions so that its net position, coupled
with any segregated assets (equal to any remaining obligation), equals its net
obligation. Asset coverage may be achieved by other means when consistent with
applicable regulatory policies.
Additional Information on Other Investment Practices
Foreign Investments. The portfolio may invest up to 10% of its total
assets in the securities of foreign issuers. Investors should recognize that
investing in foreign companies involves certain risks, including those discussed
below, which are not typically associated with investing in U.S. issuers.
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 issued outside the United States. EDRs (CDRs)
and IDRs (GDRs) are typically issued by non-U.S. banks and trust companies and
evidence ownership of either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in U.S. securities markets and EDRs (CDRs)
and IDRs (GDRs) in bearer form are designed for use in European and non-U.S.
securities markets, respectively.
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Foreign Currency Exchange. Since the Portfolio may invest 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.
Euro Conversion. The planned introduction of a single European
currency, the euro, on January 1, 1999 for participating European nations in the
Economic and Monetary Union presents unique risks and uncertainties for
investors in those countries, including (i) the functioning of the payment and
operational systems of banks and other financial institutions; (ii) the creation
of suitable clearing and settlement payment schemes for the euro; (iii) the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; and (iv) whether
the interest rate, tax and labor regimes of the European countries participating
in the euro will converge over time. Further, the conversion of the currencies
of other Economic Monetary Union countries, such as the United Kingdom, and the
admission of other countries, including Central and Eastern European countries,
to the Economic Monetary Union could adversely affect the euro. These or other
factors may cause market disruptions before or after the introduction of the
euro and could adversely affect the value of foreign securities and currencies
held by the Portfolio.
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
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financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies.
Political Instability. With respect to some foreign countries, there
is the possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Portfolio, political or social
instability, or domestic developments which could affect U.S. investments in
those and neighboring countries.
Delays. Securities of some foreign companies are less liquid and
their prices are more volatile than securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. Due to the increased
exposure of 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.
Increased Expenses. The operating expenses of the Portfolio, to the
extent it invests in foreign securities, may be higher than that of an
investment company investing exclusively in U.S. securities, since the expenses
of the Portfolio associated with foreign investing, such as custodial costs,
valuation costs and communication costs, are higher than those costs incurred by
other investment companies.
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
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<PAGE> 36
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.
Privatizations. The Portfolio may invest in privatizations (i.e.
foreign government programs of selling interests in government-owned or
controlled enterprises). The ability of U.S. entities, such as the Portfolio, to
participate in privatizations may be limited by local law, or the terms for
participation may be less advantageous than for local investors. There can be no
assurance that privatization programs will be available or successful.
Brady Bonds. The Portfolio may invest in so-called "Brady Bonds,"
which have been issued by Costa Rica, Mexico, Uruguay and Venezuela and which
may be issued by other Latin American countries. Brady Bonds are issued as part
of a debt restructuring in which the bonds are issued in exchange for cash and
certain of the country's outstanding commercial bank loans. Investors should
recognize that Brady Bonds do not have a long payment history. Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the over-the-counter
("OTC") secondary market for debt of Latin American issuers. In light of the
history of commercial bank loan defaults by Latin American public and private
entities, investments in Brady Bonds may be viewed as speculative.
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.
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. Each Portfolio may also invest in instruments that are
supported by the right of the issuer to borrow from the U.S. Treasury and
instruments that are supported by the credit of the instrumentality. Because the
U.S. government is not obligated by law to provide support to an instrumentality
it sponsors, 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.
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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) and medium-term
(five years or less remaining to maturity) money market obligations and for
temporary defensive purposes may invest in these securities without limit. These
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 invest in repurchase
agreement transactions with member banks of the Federal Reserve System and
certain non-bank dealers. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the seller
at an agreed-upon price and date. Under the terms of a typical repurchase
agreement, 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 Investment Company Act
of 1940, as amended (the "1940 Act").
Money Market Mutual Funds. Where Warburg believes that it would be
beneficial to the Portfolio and appropriate considering the factors of return
and liquidity, the Portfolio may invest up to 5% of its assets in securities of
money market mutual funds that are unaffiliated with the Portfolio or Warburg.
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 management fees and other expenses with
respect to assets so invested.
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
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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.
Subsequent to purchase by the Portfolio, convertible securities may cease to be
rated or a rating may be reduced below the minimum required for purchase by the
Portfolio. Neither event will require sale of such securities, although Warburg
will consider such event in its determination of whether the Portfolio should
continue to hold the securities.
Structured Securities. The Portfolio may purchase any type of
publicly traded or privately negotiated fixed income security, including
mortgage-backed securities; structured notes, bonds or debentures; and
assignments of and participations in loans.
Mortgage-Backed Securities. The Portfolio may invest in
mortgage-backed securities, such as those issued by the Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC") or certain foreign issuers.
Mortgage-backed securities represent direct or indirect participations in, or
are secured by and payable from, mortgage loans secured by real property. The
mortgages backing these securities include, among other mortgage instruments,
conventional 30-year fixed-rate mortgages, 15-year fixed-rate mortgages,
graduated payment mortgages and adjustable rate mortgages. The government or the
issuing agency typically guarantees the payment of interest and principal of
these securities. However, the guarantees do not extend to the securities' yield
or value, which are likely to vary inversely with fluctuations in interest
rates, nor do the guarantees extend to the yield or value of the Portfolio's
shares. These securities generally are "pass-through" instruments, through which
the holders receive a share of all interest and principal payments from the
mortgages underlying the securities, net of certain fees.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location, scheduled maturity and age of the mortgage and other social and
demographic conditions. Because prepayment rates of individual pools vary
widely, it is not possible to predict accurately the average life of a
particular pool. For pools of fixed-rate 30-year mortgages, a common industry
practice in the U.S. has been to assume that prepayments will result in a
12-year average life. At present, pools, particularly those with loans with
other maturities or different characteristics, are priced on an assumption of
average life determined for each pool. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the
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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 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. In addition, there is no assurance that the security interest in
the collateral can be realized.
Structured Notes, Bonds or Debentures. Typically, the value of the
principal and/or interest on these instruments is determined by reference to
changes in the value of specific currencies, interest rates, commodities,
indexes or other financial indicators (the "Reference") or the relevant change
in two or more References. The interest rate or the
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principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal is
due at maturity and, therefore, may result in the loss of the Portfolio's entire
investment. The value of structured securities may move in the same or the
opposite direction as the value of the Reference, so that appreciation of the
Reference may produce an increase or decrease in the interest rate or value of
the security at maturity. In addition, the change in interest rate or the value
of the security at maturity may be a multiple of the change in the value of the
Reference so that the security may be more or less volatile than the Reference,
depending on the multiple. Consequently, structured securities may entail a
greater degree of market risk and volatility than other types of debt
obligations.
Assignments and Participations. The Portfolio may invest in
assignments of and participations in loans issued by banks and other financial
institutions.
When the Portfolio purchases assignments from lending financial
institutions, the Portfolio will acquire direct rights against the borrower on
the loan. However, since assignments are generally arranged through private
negotiations between potential assignees and potential assignors, the rights and
obligations acquired by the Portfolio as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender.
Participations in loans will typically result in the Portfolio
having a contractual relationship with the lending financial institution, not
the borrower. The Portfolio would have the right to receive payments of
principal, interest and any fees to which it is entitled only from the lender of
the payments from the borrower. In connection with purchasing a participation,
the Portfolio generally will have no right to enforce compliance by the borrower
with the terms of the loan agreement relating to the loan, nor any rights of
set-off against the borrower, and the Portfolio may not benefit directly from
any collateral supporting the loan in which it has purchased a participation. As
a result, the Portfolio will assume the credit risk of both the borrower and the
lender selling the participation. In the event of the insolvency of the lender
selling the participation, the Portfolio may be treated as a general creditor of
the lender and may not benefit from any set-off between the lender and the
borrower.
The Portfolio may have difficulty disposing of assignments and
participations because there is no liquid market for such securities. The lack
of a liquid secondary market will have an adverse impact on the value of such
securities and on the Portfolio's ability to dispose of particular assignments
or participations when necessary to meet the Portfolio's liquidity needs or in
response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid market for assignments
and participations also may make it more difficult for the Portfolio to assign a
value to these securities for purposes of valuing the Portfolio's investment
portfolio and calculating its net asset value.
The Portfolio may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a foreign government (a
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"Borrower") and one or more financial institutions ("Lenders"). The majority of
the Portfolio's investments in Loans are expected to be in the form of
participations in Loans ("Participations") and assignments of portions of Loans
from third parties ("Assignments"). Participations typically will result in the
Portfolio having a contractual relationship only with the Lender, not with the
Borrower. The Portfolio will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
Borrower. In connection with purchasing Participations, the Portfolio generally
will have no right to enforce compliance by the Borrower with the terms of the
loan agreement relating to the Loan, nor any rights of set-off against the
Borrower, and the Portfolio may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Portfolio will assume the credit risk of both the Borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Portfolio may be treated as a general creditor of
the Lender and may not benefit from any set-off between the Lender and the
Borrower. The Portfolio will acquire Participations only if the Lender
interpositioned between the Portfolio and the Borrower is determined by Warburg
to be creditworthy.
When the Portfolio purchases Assignments from Lenders, the Portfolio
will acquire direct rights against the Borrower on the Loan. However, since
Assignments are generally arranged through private negotiations between
potential assignees and potential assignors, the rights and obligations acquired
by the Portfolio as the purchaser of an Assignment may differ from, and be more
limited than, those held by the assigning Lender.
There are risks involved in investing in Participations and
Assignments. The Portfolio may have difficulty disposing of them because there
is no liquid market for such securities. The lack of a liquid secondary market
will have an adverse impact on the value of such securities and on the
Portfolio's ability to dispose of particular Participations or Assignments when
necessary to meet the Portfolio's liquidity needs or in response to a specific
economic event, such as a deterioration in the creditworthiness of the Borrower.
The lack of a liquid market for Participations and Assignments also may make it
more difficult for the Portfolio to assign a value to these securities for
purposes of valuing the Portfolio's investment portfolio and calculating its net
asset value.
Debt Securities. The Portfolio may invest up to 20% of its total
assets in debt securities (other than money market obligations). The Portfolio
may also invest to a limited extent in zero coupon bonds, which may result in
taxable income to shareholders in the Portfolio. Debt obligations of
corporations in which the Portfolio may invest include corporate bonds,
debentures and notes. Debt securities convertible into common stock and certain
preferred stocks may have risks similar to those described below. The interest
income to be derived may be considered as one factor in selecting debt
securities for investment by Warburg. Because the market value of debt
obligations can be expected to vary inversely to changes in prevailing interest
rates, investing in debt obligations may provide an opportunity for capital
appreciation when interest rates are expected to decline. The success of such a
strategy is dependent upon Warburg's ability
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to accurately forecast changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated
within the four highest grades by Moody's or S&P or, if unrated, is determined
to be of comparable quality by Warburg. Bonds rated in the fourth highest grade
may have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. 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 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. Subsequent to its purchase by the Portfolio, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Portfolio. Neither event will require sale
of such securities, although Warburg will consider such event in its
determination of whether the Portfolio should continue to hold the securities.
Any percentage limitation on the Portfolio's ability to invest in debt
securities will not be applicable during periods when the Portfolio pursues a
temporary defensive strategy as discussed below.
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.
Below Investment Grade Securities. The Portfolio may invest up
to 5% of its total assets in securities rated below investment grade, including
convertible debt securities. While the market values of below investment grade
securities tend to react less to fluctuations in interest rate levels than do
those of investment grade 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 investment grade securities. In
addition, below investment grade securities generally present a higher degree of
credit risk. Issuers of below investment grade 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
below investment grade securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.
The market for below investment grade securities is relatively
new and has not weathered a major economic recession. Any such recession could
disrupt severely the market for such securities and may adversely affect the
value of such securities and the ability of the issuers of such securities to
repay principal and pay interest thereon.
The Portfolio may have difficulty disposing of certain of these
securities
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because there may be a thin trading market. Because there is no established
retail secondary market for many of these securities, the Portfolio anticipates
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 Portfolio's ability to dispose of
particular issues when necessary to meet the Portfolio's liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Portfolio to obtain
accurate market quotations for purposes of valuing the Portfolio and calculating
its net asset value.
The market value of below investment grade securities is more
volatile than that of investment grade 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, below investment grade securities are not intended for short-term
investment. The Portfolio may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings of such securities.
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 33 1/3% of the Portfolio's total assets taken at value (including the
loan collateral). The Portfolio will not lend portfolio securities to Warburg or
its affiliates unless it has applied for and received specific authority to do
so from the SEC. Loans of portfolio securities will be collateralized by cash,
letters of credit or U.S. Government Securities, which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of the
Portfolio 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
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<PAGE> 44
form of interest paid by the borrower when U.S. Government Securities are used
as collateral. Although the generation of income is not an investment objective
of the Portfolio, income received could be used to pay the Portfolio's expenses
and would increase an investor's 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.
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). 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 prices obtained on such
securities may be higher or lower than the prices 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 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.
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 securities having a value not less than the repurchase price (including
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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 liquid securities 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.
Warrants. The Portfolio may invest up to 10% of net assets in
warrants to purchase newly created equity securities consisting of common and
preferred stock. The equity security underlying a warrant is outstanding at the
time the warrant is issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. The value of a warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
Non-Publicly Traded and Illiquid Securities. The Portfolio may
invest up to 10% of its total 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
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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, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted by
the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Portfolio's limit on the purchase of illiquid
securities unless the Board or its delegates determines that the Rule 144A
Securities are liquid. In reaching liquidity decisions, the Board or its
delegates 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 10% of its total assets
for temporary or emergency purposes, including to meet portfolio redemption
requests so as to permit the orderly disposition of portfolio securities or to
facilitate settlement transactions on portfolio securities. Investments
(including roll-overs) will not be made when borrowings exceed 5% of the
Portfolio's total assets. Although the principal of such borrowings will be
fixed, the Portfolio's assets may change in value during the time the borrowing
is outstanding. 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 sub-custodian, which may include the lender.
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Non-Diversified Status The Portfolio is classified as
non-diversified within the meaning of the 1940 Act, which means that the
Portfolio is not limited by such Act in the proportion of its assets that it may
invest in securities of a single issuer. The Portfolio's investments will be
limited, however, in order to qualify as a "regulated investment company" for
purposes of the Code. To qualify, the Portfolio will comply with certain
requirements, including limiting its investments so that at the close of each
quarter of the taxable year (i) not more than 25% of the market value of its
total assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities of a
single issuer and the Portfolio will not own more than 10% of the outstanding
voting securities of a single issuer.
REITs. The Portfolio may invest in real estate investment trusts
("REITs"), which are pooled investment vehicles that invest primarily in
income-producing real estate or real estate related loans or interests. Like
regulated investment companies such as the Portfolio, 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 exemptions from the 1940 Act. REITs are also subject to
interest rate risks.
Small Capitalization and Emerging Growth Companies; Unseasoned
Issuers. Investments in small- and medium- sized and emerging growth companies
and companies with continuous operations of less than three years ("unseasoned
issuers") involve considerations that are not applicable to investing in
securities of established, larger-capitalization issuers, including reduced and
less reliable information about issuers and markets, less stringent financial
disclosure requirements, illiquidity of securities and markets, higher brokerage
commissions and fees and greater market risk in general. In addition, securities
of these companies may involve greater risks since these securities may have
limited marketability and, thus, may be more volatile.
"Special situation companies" are involved in an actual or
prospective acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash, securities or other assets; a
tender or exchange offer; a breakup or workout of a holding company; or
litigation which, if resolved favorably, would improve the value of the
company's stock. If the actual or prospective situation does not materialize as
anticipated, the market price of the securities of a "special situation company"
may decline significantly. Warburg believes, however, that if it analyzes
"special situation companies" carefully and invests in the securities of these
companies at the appropriate time, the Portfolio may achieve capital growth.
There can be no assurance, however, that a special situation that
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exists at the time of an investment will be consummated under the terms and
within the time period contemplated.
Other Investment Limitations
The investment limitations numbered 1 through 9 may not be changed
without the affirmative vote of the holders of a majority of 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 by proxy, or (ii)
more than 50% of the outstanding shares. Investment limitations 10 through 13
may be changed by a vote of the Board at any time.
The Portfolio may not:
1. Borrow money or issue senior securities except that the Portfolio
may (a) borrow from banks for temporary or emergency purposes, and not for
leveraging, and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing and (b) enter into
futures contracts; or mortgage, pledge or hypothecate any assets except in
connection with any bank borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Portfolio's total assets
at the time of such borrowing. Whenever borrowings described in (a) exceed 5% of
the value of the Portfolio's total assets, the Portfolio will not make any
additional investments (including roll-overs). For purposes of this restriction,
(a) the deposit of assets in escrow in connection with the purchase of
securities on a when-issued or delayed-delivery basis and (b) collateral
arrangements with respect to initial or variation margin for futures contracts
will not be deemed to be pledges of the Portfolio's assets.
2. Purchase any securities which would cause 25% or more of the
value of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in the
same industry; provided that there shall be no limit on the purchase of U.S.
Government Securities.
3. Make loans, except that the Portfolio may purchase or hold
publicly distributed fixed-income securities, lend portfolio securities and
enter into repurchase agreements.
4. Underwrite any securities issued by others except to the extent
that the investment in restricted securities and the purchase of fixed-income
securities directly from the issuer thereof in accordance with the Portfolio's
investment objective, policies and limitations may be deemed to be underwriting.
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5. Purchase or sell real estate, real estate investment trust
securities, real estate limited partnerships, and distributed commodities
contracts or invest in oil, gas or mineral exploration or development programs,
except that the Portfolio may invest in (a) fixed-income securities secured by
real estate, mortgages or interests therein, (b) securities of companies that
invest in or sponsor oil, gas or mineral exploration or development programs and
(c) futures contracts and related options.
6. Make short sales of securities or maintain a short position.
7. Purchase, write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Portfolio may (a) purchase put and call
options on securities, (b) write covered call options on securities, (c)
purchase and write put and call options on stock indices and (d) enter into
options on futures contracts.
8. 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.
9. 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 futures contracts or related
options will not be deemed to be a purchase of securities on margin.
10. Invest more than 10% of the value of the Portfolio's total
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.
11. Invest more than 10% of the value of the Portfolio's total
assets in time deposits maturing in more than seven calendar days.
12. Invest in warrants (other than warrants acquired by the
Portfolio as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market) would
exceed 10% of the value of the Portfolio's net assets.
13. Invest in oil, gas or mineral leases.
General. If a percentage limitation (other than the percentage
limitation set forth in investment restriction No. 1 above) is adhered to at the
time of an investment, a later increase or decrease in the percentage of assets
resulting from a change in the values of portfolio securities or in the amount
of the Portfolio's assets will not constitute a violation of such restriction.
Portfolio Valuation
The Prospectus discusses the time at which the net asset value of
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.
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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 highest bid and lowest asked quotations. If there are no such
quotations, the value of the securities will be taken to be the lowest bid
quotation on the exchange or market. Options and futures contracts will be
valued similarly. A security which is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary market
for such security. The valuation of short sales of securities, which are not
traded on a national exchange, will be at the mean of bid and asked prices.
Amortized cost involves valuing a portfolio instrument at its initial cost and
thereafter assuming a constant amortization to maturity of an discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. Short-term obligations with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined by
the Board. Amortized cost involves valuing a portfolio instrument at its initial
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The amortized cost method of valuation may also be used
with respect to other debt obligations with 60 days or less remaining to
maturity. Notwithstanding the foregoing, in determining the market value of
portfolio investments, the Portfolio may employ outside organizations (each, 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, futures contracts and other assets for which market
quotations are not available 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, Inc. (the "NYSE") is open for
trading). In addition, securities trading in a particular country or countries
may not take place on all business days in New York. Furthermore, trading takes
place in various foreign markets on days which are not business days in New York
and days on which the Portfolio's net asset value is not calculated. As a
result, calculation of the Portfolio's net asset value may not take place
contemporaneously with the determination of the prices of certain foreign
portfolio securities used in such calculation. All assets and liabilities
initially expressed in foreign currency values will be converted into U.S.
dollar values at the prevailing rate as quoted by a Pricing Service as of 12:00
noon (Eastern time). 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
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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, 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
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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.
Because the Portfolio has not yet commenced operations as of the
date of this Statement of Additional Information, no brokerage commissions have
been paid by the Portfolio.
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 the Portfolio or the size of the position obtained or
sold for the Portfolio. To the extent permitted by law, securities to be sold or
purchased for the Portfolio may be aggregated 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. No portfolio transactions have been executed through Counsellors Securities
since the commencement of the Portfolio's operations. 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
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<PAGE> 53
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. Consequently, the
annual portfolio turnover rate of the Portfolio may be higher than mutual funds
having similar objectives that do not utilize these strategies.
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. Shareholders of the Trust are
considering certain changes to the composition of the Board related to the
acquisition of Warburg by the Credit Suisse Group. See "The Proposed Acquisition
of Warburg by Credit Suisse" below.
Richard N. Cooper (64)* Trustee
Harvard University Professor at Harvard University;
1737 Cambridge Street National Intelligence Council from June
Cambridge, Massachusetts 02138 1995 until January 1997; Director or
Trustee of Circuit City Stores, Inc.
(Retail electronics and appliances) and
Phoenix Home Life Mutual Insurance
Company; Director/Trustee of other
investment companies in the Warburg
Pincus family of funds.
Jack W. Fritz (71) Trustee
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations); Director
of Advo, Inc. (direct mail advertising);
Director/Trustee of other investment
companies in the Warburg Pincus family
of funds.
- ----------
* Indicates Trustee who is an "interested person" of the Trust as defined in the
1940 Act.
29
<PAGE> 54
John L. Furth* (68) Chairman of the Board
466 Lexington Avenue Chairman of the Board and Managing
New York, New York 10017-3147 Director of Warburg; Associated with
Warburg since 1970; Director of
Counsellors Securities; Chairman of the
Board of other investment companies in
the Warburg Pincus family of funds.
Jeffrey E. Garten (52) Trustee
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and
Finance; Undersecretary of Commerce for
International Trade from November 1993 to
October 1995; Professor at Columbia
University from September 1992 to
November 1993; Director/Trustee of other
investment companies in the Warburg
Pincus family of funds.
Thomas A. Melfe (67) Trustee
1251 Avenue of the Americas Partner in the law firm Piper & Marbury,
29th Floor L.L.P.; Partner in the law firm of
New York, New York 10020-1104 Donovan Leisure Newton & Irvine from
April 1984 to April 1998; Chairman of the
Board, Municipal Fund for New York
Investors, Inc.; Director/Trustee of
other investment companies in the
Warburg Pincus family of funds.
Arnold M. Reichman* (50) Trustee
466 Lexington Avenue Managing Director and Chief Operating
New York, New York 10017-3147 Officer of Warburg; Director of The
RBB Fund, Inc.; Associated with Warburg
since 1984; Officer of Counsellors
Securities; Director/Trustee of other
investment companies in the Warburg
Pincus family of funds.
- ----------
* Indicates a Trustee who is an "interested person" of the Trust as defined in
the 1940 Act.
30
<PAGE> 55
Alexander B. Trowbridge (69) Trustee
1317 F Street, N.W., 5th Floor Currently retired; President of
Washington, DC 20004 Trowbridge Partners, Inc. (business
consulting) from January 1990 to
November 1996; Director or Trustee of New
England Mutual Life Insurance Co., ICOS
Corporation (biopharmaceuticals), IRI
International (energy services), The
Rouse Company (real estate development),
Harris Corp. (electronics and
communications equipment), The Gillette
Co. (personal care products) and
Sunoco, Inc. (petroleum refining and
marketing); Director/Trustee of other
investment companies in the Warburg
Pincus family of funds.
Eugene L. Podsiadlo (42) President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1991; Officer of
Counsellors Securities and other
investment companies in the Warburg
Pincus family of funds.
Steven B. Plump (40) Executive Vice President
466 Lexington Avenue Senior Vice President of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1995;
Associated with Chemical Investment
Services and its affiliates from 1993
until 1995. Officer of Counsellors
Securities and other investment companies
in the Warburg Pincus family of funds.
Stephen Distler (45) Vice President
466 Lexington Avenue Managing Director of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1984; Officer of
Counsellors Securities and other
investment companies in the Warburg
Pincus family of funds.
Lynn Martin (46) Vice President
466 Lexington Avenue Managing Director of Warburg;
New York, NY 10017-3147 Associated with Warburg since 1992;
Officer of other investment companies
in the Warburg Pincus family of funds.
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<PAGE> 56
Janna Manes, Esq. (31) Vice President and Secretary
466 Lexington Avenue Vice President, Secretary and General
New York, New York 10017-3147 Counsel of Warburg; Associated with
Warburg since 1996; Associated with the
law firm of Willkie Farr & Gallagher
from 1993 to 1996; Officer of other
investment companies in the Warburg
Pincus family of funds.
Howard Conroy, CPA (45) Vice President and Chief Financial
466 Lexington Avenue Officer Vice President of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1992;
Officer of other investment companies in
the Warburg Pincus family of funds.
Daniel S. Madden, CPA (33) Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1995; Associated with
BlackRock Financial Management, Inc. from
September 1994 to October 1996;
Associated with BEA Associates from April
1993 to September 1994; Officer of other
investment companies in the Warburg
Pincus family of funds.
Stuart J. Cohen, Esq. (30) Assistant Secretary
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1997; Associated with
the law firm of Gordon Altman Butowsky
Weitzen Shalov & Wein from 1995 to 1997;
Officer of other investment companies in
the Warburg Pincus family of funds.
No employee of Warburg, 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 for his services as Trustee, $250 for
each meeting of the Board attended and $400 for each Audit Committee meeting
attended, and is reimbursed for expenses incurred in connection with his
attendance at Board meetings.
Trustees' Compensation
(for the fiscal year ended December 31, 1998)
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<PAGE> 57
<TABLE>
<CAPTION>
Total Compensation from
Total all Investment Companies
Compensation from in Warburg Pincus
Name of Trustee Trust Fund Complex*
--------------- ----- -------------
<S> <C> <C>
John L. Furth** None None
Arnold M. Reichman** None None
Richard N. Cooper $2,150 $56,600
Donald J. Donahue**** $ 475 $13,525
Jack W. Fritz $2,400 $63,100
Jeffrey E. Garten*** $1,925 $49,325
Thomas A. Melfe $2,400 $60,700
Alexander B. Trowbridge $2,250 $64,000
</TABLE>
- ----------
* Each Trustee also serves as a Director or Trustee of 39 investment
companies advised by Warburg, except for Mr. Melfe, who also serves as a
Director or Trustee of 22 investment companies in the Warburg Pincus
family of funds.
** Mr. Furth and Mr. Reichman receive compensation as affiliates of Warburg,
and, accordingly, receive no compensation from the Trust or any other
investment company in the Warburg Pincus family of funds.
*** Mr. Garten became a Trustee of the Trust effective February 6, 1998.
**** Mr. Donahue resigned as a Trustee of the Trust effective February 6, 1998.
As of March 31, 1999, no Trustees or officers of the Trust owned any of
the outstanding shares of the Portfolio.
THE PROPOSED ACQUISITION OF WARBURG BY CREDIT SUISSE
The New Adviser
On February 15, 1999, the parent companies of Warburg entered into a
Merger Agreement and Plan of Reorganization (the "Merger Agreement") with Credit
Suisse Group ("Credit Suisse"). Under the terms of the Merger Agreement, Credit
Suisse will acquire the direct parent company of Warburg (the "Acquisition").
Upon consummation of the Acquisition, Credit Suisse intends to combine Warburg
with Credit Suisse's existing U.S. asset management business (the
"Reorganization"), and such combined businesses are expected to be conducted by
a single direct or indirect wholly-owned U.S. subsidiary of Credit Suisse, which
would be organized as a limited liability company or a corporation (the "New
Adviser"). Following consummation of the Reorganization, the New Adviser would
act as the investment adviser to the Portfolio, as further described below. It
is currently anticipated that the New Adviser will operate under the name
"Credit Suisse Asset Management" (followed by an indication of its status as a
limited liability company or a corporation). However, it is possible that the
Acquisition will be consummated but that the Reorganization will be delayed or
33
<PAGE> 58
ultimately not consummated, in which case Warburg (under Credit Suisse
ownership) would continue to act as the investment adviser to the Portfolio
until such time (if ever) as the Reorganization is consummated. The Acquisition
and the Reorganization are together referred to herein as the "Merger". Upon
completion of the Reorganization, the headquarters of the New Adviser will be in
New York; until completion of the Reorganization, the headquarters of Warburg
are expected to remain in New York.
Credit Suisse is a global financial services company, providing a
comprehensive range of banking and insurance products. Active on every continent
and in all major financial centers, Credit Suisse comprises five business units
- -- Credit Suisse Asset Management ("CSAM") (asset management); Credit Suisse
First Boston (investment banking); Credit Suisse Private Banking (private
banking); Credit Suisse (retail banking); and Winterthur (insurance). Credit
Suisse has approximately $680 billion of global assets under management and
employs approximately 62,000 people worldwide. The principal business address of
Credit Suisse is Paradeplatz 8, CH 8070, Zurich, Switzerland.
CSAM is the institutional asset management and mutual fund arm of
Credit Suisse. CSAM employs approximately 1,600 people worldwide and has global
assets under management of approximately $210 billion in multiple product
services, including equities, fixed income, derivatives and balanced portfolios.
The principal business address of CSAM is Uetlibergstrasse 231, CH 8045, Zurich,
Switzerland.
CSAM's U.S. asset management business, formerly known as BEA
Associates, changed its name to CSAM in January 1999 to more accurately reflect
its integration into Credit Suisse Asset Management and, together with its
predecessor firms, has been engaged in the investment advisory business for over
60 years. In the U.S., CSAM is an investment manager for corporate and state
pension funds, endowments and other institutions and has assets under management
of approximately $35 billion. The principal business address of CSAM's U.S.
operations is 153 East 53rd Street, New York, New York 10022.
William W. Priest will be the Chief Executive Officer of the New
Adviser. It is anticipated that the directors of the New Adviser will be Philip
Ryan, Agnes Reicke, Hal Liebes and Michael Guarasci, each of whom is currently
an executive officer of Credit Suisse and/or its affiliates. The business
address for Mr. Ryan is Beaufort House, 15 St. Botolph Street, London EC3A 7JJ
England. The business address for Ms. Reicke is Uetlibergstrasse 231, CH 8045,
Zurich, Switzerland. The business address for Messrs. Liebes and Guarasci is 153
East 53rd Street, New York, NY 10022. The New Adviser will also have an
operating committee consisting of senior investment professionals drawn from the
combined resources of Warburg and CSAM.
Terms and Conditions
Under the Merger Agreement, Credit Suisse will pay up to $650
million to Warburg, Pincus Counsellors G.P. ("Counsellors") for Warburg in a
combination of cash and Credit Suisse common stock, which includes an initial
$450 million payable at closing
34
<PAGE> 59
and additional contingent consideration of up to $200 million payable over three
years. Counsellors, 70% of which is owned by Warburg, Pincus & Co. and 30% of
which is owned by certain employees of Warburg, is the indirect owner of
Warburg.
The Acquisition is subject to a number of conditions, including (but
not limited to) the absence of any judgment or injunction preventing the
Acquisition, or any governmental litigation challenging the Acquisition or
seeking damages in connection therewith or private litigation that is reasonably
likely to succeed on the merits, and the continued accuracy of the
representations and warranties contained in the Merger Agreement; the consent to
the "assignment" of the advisory agreements resulting from the Acquisition by
Warburg advisory clients whose advisory contracts provide for the management of
at least $18 billion of assets (excluding for such purpose fluctuations in
market value of assets under management subsequent to December 31, 1998) and
$13.5 billion of assets (including all fluctuations in market value); the
approval of the governing Board and shareholders of each fund managed by Warburg
having more than $10 million of net assets of new investment advisory agreements
with the New Adviser; no more than 25% of the Directors of any fund managed by
Warburg being "interested persons" (as defined in the 1940 Act) of Counsellors,
Credit Suisse or their respective affiliates; the contemporaneous consummation
of the Private Equity Investment (as described below); Credit Suisse having been
granted a perpetual, world-wide, royalty-free license to use the "Warburg
Pincus" name in the asset management sector of the financial services industry;
and all necessary regulatory approvals. Each of the foregoing conditions may be
waived in whole or in part in connection with the consummation of the
Acquisition. The Acquisition is expected to close in mid-1999, although there is
no assurance that it will be consummated.
Counsellors and Warburg Pincus Asset Management Holdings, Inc., the
parent company of Warburg, have agreed to use their reasonable best efforts to
assure, prior to the closing of the Acquisition, the satisfaction of the
conditions set forth in Section 15(f) of the 1940 Act with respect to each Fund.
In addition, the Merger Agreement provides that, as of the closing of the
Acquisition, the Board of each fund managed by Warburg shall be composed of
eight Directors consisting of one Director selected by Counsellors who is an
officer of the parent company of Warburg (who shall be the Vice-Chairman of the
Board of such Fund), one Director selected by Credit Suisse, who is an officer
of Credit Suisse or one of its subsidiaries (who shall be Chairman of the Board
of such Fund) and six Directors who are not "interested persons" of Counsellors,
Credit Suisse or their respective affiliates within the meaning of the 1940 Act.
In addition to acquiring Warburg, Credit Suisse also has agreed to
acquire an interest in the private equity business of Warburg, Pincus & Co., the
current ultimate parent company of Warburg. Credit Suisse has agreed to purchase
a 19.9% passive minority stake in Warburg, Pincus & Co.'s private equity
business (the "Private Equity Investment"). Warburg, Pincus & Co. manages over
$7 billion in private equity investments, with an additional $5 billion of
committed capital available for investment.
Each of Messrs. John L. Furth and Arnold M. Reichman, current
Trustees of the Trust, is a partner of Counsellors and of Warburg, Pincus & Co.,
the current
35
<PAGE> 60
ultimate parent company of Warburg, and will share in the purchase prices
received by Counsellors and Warburg, Pincus & Co. from Credit Suisse in
connection with the Acquisition and the Private Equity Investment, respectively.
The Assignment of the Investment Advisory Agreement
The Acquisition and the Reorganization are expected to be
consummated simultaneously. In such event, consummation of the Merger would
constitute a single "assignment," as that term is defined in the 1940 Act, of
the Portfolio's Advisory Agreement with Warburg. As required by the 1940 Act,
the Advisory Agreement provides for its automatic termination in the event of
its assignment. In anticipation of the Merger, a new investment advisory
agreement (the "New Advisory Agreement") between the Portfolio and the New
Adviser was approved by the Board of Trustees and the initial shareholder of the
Portfolio to take effect upon consummation of the Acquisition and
Reorganization. However, if the Acquisition is consummated but the
Reorganization is delayed or not ultimately consummated, the New Advisory
Agreement would take effect between the Portfolio and Warburg (under Credit
Suisse ownership) upon consummation of the Acquisition, and would remain in
effect with Warburg until such time (if ever) as the Reorganization is
consummated.
In the event that the Acquisition and the Reorganization are not
simultaneously consummated, upon consummation of the Reorganization, the New
Advisory Agreement would be transferred to the New Adviser as part of the
combination of the businesses of Warburg and Credit Suisse's existing U.S. asset
management business, and the New Adviser thereafter would act as the investment
adviser to the Portfolio pursuant to such New Advisory Agreement. If not
consummated simultaneously with the Acquisition, consummation of the
Reorganization could be deemed to constitute a second "assignment" of the
Portfolio's investment advisory agreement (which would result in its automatic
termination, as discussed above).
In connection with the Acquisition and Reorganization, a notice of a
special meeting of shareholders to be held on May 21, 1999 (the "Special
Meeting"), a proxy statement and proxy cards were sent on or about March 26,
1999 to current shareholders of funds managed by Warburg including the other
portfolios of the Trust. Items to be considered at the Special Meeting include:
(1) the approval or disapproval of a new advisory agreement between each of the
other portfolios of the Trust and the New Adviser and (2) the election of
Directors/Trustees of the Trust.
The initial shareholder of the Portfolio has approved the New
Advisory Agreement with the New Adviser to take effect upon consummation of the
Reorganization (if consummated) in the event that the Reorganization is
consummated after consummation of the Acquisition. Approval by shareholders of
the Portfolio following the public offering of the Portfolio's shares will not
be sought and shareholders of the Portfolio will not be entitled to vote on the
New Advisory Agreement or the election of Trustees.
The New Board of Trustees
36
<PAGE> 61
Warburg intends to rely on Section 15(f) of the 1940 Act, which
provides a non-exclusive safe harbor for an investment adviser to an investment
company or any of the investment adviser's affiliated persons (as defined under
the 1940 Act) to receive any amount or benefit in connection with a change in
control of the investment adviser so long as two conditions are met. First, for
a period of three years after the Acquisition, at least 75% of the board members
of the investment company must not be "interested persons" of the investment
company's investment adviser or its predecessor adviser. On or prior to the
consummation of the Acquisition, the Trust's Board of Trustees, assuming the
election of the nominees that shareholders of the other portfolios of the Trust
are being asked to elect at the Special Meeting, would be in compliance with
this provision of Section 15(f). Second, an "unfair burden" must not be imposed
upon the investment company as a result of such transaction or any express or
implied terms, conditions or understandings applicable thereto. The term "unfair
burden" is defined in Section 15(f) to include any arrangement during the
two-year period after the transaction whereby the investment adviser, or any
interested person of any such adviser, receives or is entitled to receive any
compensation, directly or indirectly, from the investment company or its
shareholders (other than fees for bona fide investment advisory or other
services) or from any other person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than bona fide ordinary compensation as principal underwriter for such
investment company). No such compensation agreements are contemplated in
connection with the Merger. Warburg and Credit Suisse have undertaken to pay the
costs of preparing and distributing proxy materials to, and of holding the
Special Meetings as well as other direct fees and expenses incurred by funds
managed by Warburg in connection with the Merger, including the fees and
expenses of legal counsel to the funds and the non-interested directors.
Upon the closing of the Acquisition, assuming the election of the nominees
that shareholders of the other portfolios of the Trust are being asked to elect
at the Special Meeting, Messrs. Cooper, Furth and Melfe will resign as Trustees
of the Trust and the following persons will serve as the Trust's Board of
Trustees:
Richard H. Francis (65) Trustee
40 Grosvenor Road Currently retired; Executive Vice
Short Hills, New Jersey 07078 President and Chief Financial Officer of
Pan Am Corporation and Pan American
World Airways, Inc. from 1988 to 1991;
Director of one other investment company
advised by CSAM; Director of The
Infinity Mutual Funds, BISYS Group
Incorporated.
37
<PAGE> 62
Jack W. Fritz (71) Trustee
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014 Fritz Communications (developers and
operators of radio stations); Director
of Advo, Inc. (direct mail advertising);
Director/Trustee of other investment
companies in the Warburg Pincus family
of funds.
Jeffrey E. Garten (52) Trustee
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and
Finance; Undersecretary of Commerce for
International Trade from November 1993 to
October 1995; Professor at Columbia
University from September 1992 to
November 1993; Director/Trustee of other
investment companies in the Warburg
Pincus family of funds.
James S. Pasman, Jr. (68) Trustee
29 The Trillium Currently retired; President and Chief
Pittsburgh, Pennsylvania 15238 Operating Officer of National
InterGroup, Inc. from April 1989 to March
1991; Chairman of Permian Oil Co. from
April 1989 to March 1991; Director of two
other investment companies advised by
CSAM; Director of Education Management
Corp., Tyco International Ltd.; Trustee,
BT Insurance Funds Trust.
William W. Priest* (56) Trustee
c/o Credit Suisse Asset Management Chairman- Management Committee, Chief
153 East 53rd Street Executive Officer and Executive Director
New York, New York 10022 of CSAM (U.S.) since 1990; Director of
TIG Holdings, Inc.; Director of other
investment companies advised by CSAM.
- ----------
* Indicates a Trustee who is an "interested person" of the Trust as defined in
the 1940 Act.
38
<PAGE> 63
Steven N. Rappaport (49) Trustee
c/o Loanet, Inc. President of Loanet, Inc. since 1997;
153 East 53rd Street, Executive Vice President of Loanet, Inc.
Suite 5500 from 1994 to 1997; Director, President,
New York, New York 10022 North American Operations, and former
Executive Vice President from 1992 to
1993 of Worldwide Operations of Metallurg
Inc.; Executive Vice President, Telerate,
Inc. from 1987 to 1992; Partner in the
law firm of Hartman & Craven until 1987;
Director of other investment companies
advised by CSAM.
Arnold M. Reichman* (50) Trustee
466 Lexington Avenue Managing Director and Chief Operating
New York, New York 10017-3147 Officer of Warburg; Director of The RBB
Fund, Inc.; Associated with Warburg
since 1984; Officer of Counsellors
Securities; Director/Trustee of other
investment companies in the Warburg
Pincus family of funds.
Alexander B. Trowbridge (69) Trustee
1317 F Street, N.W., 5th Floor Currently retired; President of
Washington, DC 20004 Trowbridge Partners, Inc. (business
consulting) from January 1990 to November
1996; Director or Trustee of New England
Mutual Life Insurance Co., ICOS
Corporation (biopharmaceuticals), IRI
International (energy services), The
Rouse Company (real estate development),
Harris Corp. (electronics and
communications equipment), The Gillette
Co. (personal care products) and Sunoco,
Inc. (petroleum refining and marketing);
Director/Trustee of other investment
companies in the Warburg Pincus family of
funds.
The election of Messrs. Priest, Francis, Pasman and Rappaport to the
Trust's Board of Trustees will take effect only upon the closing of the
Acquisition; the election of Messrs. Reichman, Fritz, Garten and Trowbridge will
be immediately effective in any event as they currently are members of the
Trust's Board.
39
<PAGE> 64
If the Acquisition is not consummated, Warburg will remain the Portfolio's
investment adviser pursuant to it current investment advisory agreement and the
composition of the Trust's Board will remain unchanged.
Portfolio Managers
Elizabeth B. Dater is Co-Portfolio Manager of the Portfolio and
manages other Warburg Pincus Funds. Prior to joining Warburg in 1978, she was a
vice president of Research at Fiduciary Trust Company of New York and an
institutional sales assistant at Lehman Brothers. Ms. Dater has been a regular
panelist on Maryland Public Television's Wall Street Week with Louis Rukeyser
since 1976. Ms. Dater earned a B.A. degree from Boston University in
Massachusetts.
Stephen J. Lurito is Co-Portfolio Manager of the Portfolio and
manages other Warburg Pincus Funds. Mr. Lurito has been with Warburg since 1987.
Prior to that he was a research analyst at Sanford C. Bernstein & Company, Inc.
Mr. Lurito earned a B.A. degree from the University of Virginia and a M.B.A.
from the University of Pennsylvania.
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 Agreements" 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. These fees are calculated at an annual rate based on a percentage of
the Portfolio's average daily net assets. See the Prospectus, "Management of the
Portfolio."
Because the Portfolio has not yet commenced operations as of the
date of this Statement of Additional Information no advisory fees or
co-administration fees have been paid by this Portfolio.
Custodian and Transfer Agent
PFPC Trust Company ("PFPC Trust") 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. Each custodian serves
pursuant to separate custodian agreements (the "Custodian Agreements"). Under
the Custodian Agreements, PFPC 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. PFPC Trust may delegate its
duties under its Custodian Agreement with the Trust to a wholly owned direct or
indirect subsidiary of PFPC Trust or PNC Bank Corp. upon notice to the Trust and
upon the satisfaction of certain other conditions. State Street is
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<PAGE> 65
authorized to select one or more foreign banking institutions and foreign
securities depositaries as sub-custodian on behalf of the relevant Portfolio and
PFPC Trust is authorized to select one or more domestic banks or trust companies
to serve as sub-custodian on behalf of the Portfolio. PFPC Trust has entered
into a sub-custodian agreement with PNC Bank, National Association ("PNC"),
pursuant to which PNC provides asset safekeeping and securities clearing
services. PFPC Trust and PNC are each indirect, wholly owned subsidiaries of PNC
Bank Corp., and their principal business address is 200 Stevens Drive, Lester,
Pennsylvania 19113. 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., an affiliate of State Street ("BFDS"), responsibility for most
shareholder servicing functions. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.
Organization of the 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.
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
41
<PAGE> 66
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.
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<PAGE> 67
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 continue to qualify to be treated as a
regulated investment company each taxable year under the Internal Revenue Code
of 1986, as amended (the "Code"). To so qualify, the Portfolio must, among other
things: (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities, loans and gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; and (b) diversify its holdings so that, at the
end of each quarter of the Portfolio's taxable year, (i) at least 50% of the
market value of the Portfolio's assets is represented by cash, securities of
other regulated investment companies, U.S. Government securities and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Portfolio's assets and not greater than 10%
of the outstanding voting securities of such issuer and (ii) not more than 25%
of the value of its assets is invested in the securities (other than U.S.
Government Securities or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the Portfolio controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. The Portfolio expects that all of its foreign currency
gains will be directly related to its principal business of investing in stocks
and securities.
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
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<PAGE> 68
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 transactions in foreign currencies, forward
contracts, options and futures contracts (including options and futures
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
realized by the Portfolio (i.e., may affect whether gains or losses are ordinary
or capital), accelerate recognition of income to the Portfolio and defer
Portfolio losses. These rules could therefore affect the character, amount and
timing of distributions to shareholders. These provisions also (a) will require
the Portfolio to mark-to-market certain types of the positions in its portfolio
(i.e., treat them as if they were closed out) and (b) 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 in order to mitigate the effect of
these rules and prevent disqualification of the Portfolio 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.
Investment in Passive Foreign Investment Companies
If the Portfolio purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed by the Portfolio to its shareholders, the Variable
Contracts and Plans. In addition, gain on the disposition of shares in a PFIC
generally is treated as ordinary income even though the shares are capital
assets in the hands of the Portfolio. Certain interest charges may be imposed on
the Portfolio with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Portfolio may be eligible to elect to include in its gross
income its share of earnings of a PFIC on a current basis. Generally, the
election would eliminate the interest charge and the ordinary income treatment
on the disposition of stock, but such an election may have the effect of
accelerating the recognition of income and gains by the Portfolio compared to a
fund that did not make the election. In addition, information required to make
such an election may not be available to the Portfolio.
Alternatively, the Portfolio may make a mark-to-market election for
regulated investment companies that will result in the Portfolio being treated
as if it had sold and repurchased all of the PFIC stock at the end of each year.
In this case, the Portfolio would
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<PAGE> 69
report gains as ordinary income and would deduct losses as ordinary losses to
the extent of previously recognized gains. The election, once made, would be
effective for all subsequent taxable years of the Portfolio, unless revoked with
the consent of the IRS. By making the election, the Portfolio could potentially
ameliorate the adverse tax consequences with respect to its ownership of shares
in a PFIC, but in any particular year may be required to recognize income in
excess of the distributions it receives from PFICs and its proceeds from
dispositions of PFIC company stock. The Portfolio may have to distribute this
"phantom" income and gain to satisfy its distribution requirement and to avoid
imposition of the 4% excise tax. The Portfolio will make the appropriate tax
elections, if possible, and take any additional steps that are necessary to
mitigate the effect of these rules.
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 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."
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<PAGE> 70
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for the Trust. The financial statements for the Trust that are
incorporated by reference in this Statement of Additional Information have been
audited by PwC, and have been included herein in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Trust as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of the date of this Statement of Additional Information, the
Portfolio has not yet begun selling shares. Consequently, there are no persons
that own of record 5% or more of the Portfolio's outstanding shares.
FINANCIAL STATEMENTS
As of the date of this Statement of Additional Information, the
Portfolio has not yet commenced operations. Consequently, there are no financial
statements for the Portfolio at this time.
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<PAGE> 71
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.
The following summarizes the ratings used by Moody's for corporate bonds:
A-1
<PAGE> 72
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.
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<PAGE> 73
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements--
(1) Financial Statements included in Part A:
(incorporated by reference to Post-Effective Amendment No. 5
to the Trust's Registration Statement on Form N-1A filed
with the Commission on April 7, 1998)
(2) Audited Financial Statements incorporated by reference in
Part B (incorporated by reference to the Trust's annual
report dated December 31, 1998)
(a) Statement of Net Assets
(b) Statement of Operations
(c) Statement of Changes in Net Assets
(d) Financial Highlights
(e) Notes to Financial Statements
(f) Report of Independent Accountants
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
1(a) Declaration of Trust.(1)
1(b) Amendment to Declaration of Trust.(2)
1(c) Designation of Series relating to addition of
Post-Venture Capital and Emerging Markets
Portfolios.(3)
1(d) Designation of Series relating to addition of Growth
& Income Portfolio.(4)
</TABLE>
- -------------------
(1) Incorporated by reference to Registrant's Registration Statement on
Form N-1A filed with the Commission on March 17, 1995.
(2) 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.
(3) Incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on April 18, 1996.
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<PAGE> 74
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
1(e) Designation of Series relating to addition of Emerging
Growth Portfolio.
2(a) By-Laws.(1)
2(b) Amendment to By-Laws.(5)
3 Not applicable.
4 Form of Share Certificate.(2)
5(a) Forms of Investment Advisory Agreements pertaining to
the International Equity and Small Company Growth
Portfolios.(2)
5(b) Forms of Investment Advisory Agreements pertaining to
the Post-Venture Capital and Emerging Markets
Portfolios.(3)
5(c) Form of Sub-Investment Advisory Agreement pertaining to
the Post-Venture Capital Portfolio.(3)
5(d) Form of Investment Advisory Agreement pertaining to the
Growth & Income Portfolio.(4)
5(e) Forms of Investment Advisory Agreements pertaining to
the Emerging Growth Portfolio
6(a) Form of Distribution Agreement.(2.)
6(b) Form of Letter Agreement pertaining to inclusion of the
Growth & Income Portfolio to the existing Distribution
Agreement.(4)
</TABLE>
- --------------------------------------------------------------------------------
(4) Incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A, filed with the
Commission on August 11, 1997.
(5) Incorporated by reference; material provisions of this exhibit are
substantially similar to those of the corresponding exhibit to
Post-Effective Amendment No. 19 to the Registration Statement on Form
N-1A of Warburg, Pincus Capital Appreciation Fund filed on February
23, 1998 (Securities Act File No. 33-12344; Investment Company Act
File No. 811-5041).
C-2
<PAGE> 75
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
6(c) Form of Letter Agreement pertaining to inclusion of the
Emerging Growth Portfolio to the existing
Distribution Agreement.
7 Not applicable
8(a) Form of Custodian Services Agreement with PFPC Trust
Company.
8(b) Form of Custodian Agreement with State Street Bank and
Trust Company.(6)
8(c) Form of Sub-Custodian Services Agreement with PFPC
Trust Company and PNC Bank, National Association.
9(a) Form of Transfer Agency Agreement.(2)
9(b) Form of Co-Administration Agreement with Counsellors
Funds Service, Inc.(2)
9(c) Form of Co-Administration Agreement with PFPC Inc.(2)
9(d) Form of Letter Agreement between Registrant and PFPC
Inc. pertaining to inclusion of the Post-Venture
Capital and Emerging Markets Portfolios to the existing
Co-Administration Agreement.(3)
9(e) Form of Participation Agreement.(2)
9(f) Form of Co-Administration Agreement between Registrant
and PFPC Inc. pertaining to inclusion of the Growth &
Income Portfolio.(4)
9(g) Form of Co-Administration Agreement between Registrant
and Counsellors Funds Service, Inc. pertaining to
inclusion of the Growth & Income Portfolio.(4)
</TABLE>
- -------------------
(6) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit to the
Registration Statement on Form N-14 of Warburg, Pincus Major Foreign
Markets Fund, Inc. (formerly known as Warburg, Pincus Managed
EAFE(R) Countries Fund, Inc.) on November 5, 1997 (Securities Act File
No. 333-39611).
C-3
<PAGE> 76
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
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.(4)
9(i) Form of Letter Agreement between Registrant and PFPC
Inc. pertaining to inclusion of the Emerging Growth
Portfolio under the existing Co-Administration
Agreement.
9(j) Form of Letter Agreement between Registrant and State
Street pertaining to the inclusion of the Emerging
Growth Portfolio under the Transfer Agency and Service
Agreement.
10(a) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Trust.
10(b) Opinion of Sullivan & Worcester LLP
11 Not applicable
12(a) Purchase Agreement pertaining to the International
Equity and Small Company Growth Portfolios.(2)
12(b) Form of Purchase Agreement pertaining to the
Post-Venture Capital and Emerging Markets
Portfolios.(3)
12(c) Form of Purchase Agreement pertaining to the Growth &
Income Portfolio.(4)
12(d) Form of Purchase Agreement pertaining to the Emerging
Growth Portfolio.
14 Not applicable
16 Not applicable
17 Not applicable
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant
From time to time, Warburg Pincus Asset Management, Inc. ("Warburg"),
Registrant's investment adviser, may be deemed to control Registrant and other
registered investment companies
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<PAGE> 77
it advises through its beneficial ownership of more than 25% of the relevant
fund's shares on behalf of discretionary advisory clients. Warburg has seven
wholly-owned subsidiaries: Counsellors Securities Inc., a New York corporation;
Counsellors Funds Service, Inc., a Delaware corporation; Counsellors Agency
Inc., a New York corporation; Warburg, Pincus Investments International
(Bermuda), Ltd., a Bermuda corporation; Warburg, Pincus Asset Management
International, Inc., a Delaware corporation; Warburg Pincus Asset Management
(Japan), Inc., a Japanese corporation; and Warburg Pincus Asset Management
(Dublin) Limited, an Irish corporation.
Item 26. Number of Holders of Securities
N/A
Item 27. Indemnification
Registrant, and officers and directors of Warburg, Counsellors
Securities, Inc., Registrant's distributor ("Counsellors Securities"), and
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 Asset Management
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 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 Post-Venture Capital Portfolio. Abbott renders investment advice
and provides full-service private equity programs to clients. The list required
by this Item 28 of Officers and Directors of Abbott, together with information
as to their other business, profession, vocation, or employment of a substantial
nature during the past two years, is incorporated by reference to Schedules A
and D of Form ADV filed by Abbott (SEC File No. 801-27914).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant.
Counsellors Securities currently acts as distributor
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for Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation Fund;
Warburg Pincus Cash Reserve Fund; Warburg Pincus Central & Eastern Europe Fund;
Warburg Pincus Emerging Growth Fund; Warburg Pincus Emerging Markets Fund;
Warburg Pincus Emerging Markets II Fund; Warburg Pincus European Equity Fund;
Warburg Pincus Fixed Income Fund; Warburg Pincus Global Fixed Income Fund;
Warburg Pincus Global Post-Venture Capital Fund; Warburg Pincus Global
Telecommunications Fund; Warburg Pincus Growth & Income Fund; Warburg Pincus
Health Sciences Fund; Warburg Pincus High Yield Fund; Warburg Pincus
Institutional Fund; Warburg Pincus Intermediate Maturity Government Fund;
Warburg Pincus International Equity Fund; Warburg Pincus International Growth
Fund; Warburg Pincus International Small Company Fund; Warburg Pincus Japan
Growth Fund; Warburg Pincus Japan Small Company Fund; Warburg Pincus Long-Short
Equity Fund; Warburg Pincus Long-Short Market Neutral Fund; Warburg Pincus Major
Foreign Markets Fund; Warburg Pincus Municipal Bond Fund; Warburg Pincus New
York Intermediate Municipal Fund; Warburg Pincus New York Tax Exempt Fund;
Warburg Pincus Post-Venture Capital Fund; Warburg Pincus Select Economic Value
Equity Fund; Warburg Pincus Small Company Growth Fund; Warburg Pincus Small
Company Value Fund; Warburg Pincus Strategic Global Fixed Income Fund; Warburg
Pincus Strategic Value Fund; Warburg Pincus Trust II; Warburg Pincus U.S. Core
Equity Fund; Warburg Pincus U.S. Core Fixed Income Fund; Warburg Pincus
WorldPerks Money Market Fund; and Warburg Pincus WorldPerks Tax Free Money
Market Fund.
(b) For information relating to each director and officer of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654) filed
by Counsellors Securities under the Securities Exchange Act of 1934.
(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)
(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)
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<PAGE> 79
(4) Counsellors Securities Inc.
335 Madison Avenue
New York, New York 10017
(records relating to its functions as distributor)
(5) Warburg Pincus Asset Management, 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 custodian, shareholder
servicing agent, transfer agent and dividend disbursing
agent)
(7) PFPC Trust Company
200 Stevens Drive
Lester, Pennsylvania 19103
(records relating to its functions as custodian)
(8) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02171
(records relating to its functions as shareholder servicing
agent, 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 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-7
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York, on the 16th day of April, 1999.
WARBURG, PINCUS TRUST
By:/s/Eugene L. Podsiadlo
------------------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act, this Amendment has
been signed below by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/John L. Furth Chairman of the April 16, 1999
- ---------------- Board of Trustees
John L. Furth
/s/Eugene L. Podsiadlo President April 16, 1999
- ----------------------
Eugene L. Podsiadlo
/s/Howard Conroy Vice President April 16, 1999
- ---------------- and Chief
Howard Conroy Financial Officer
/s/Daniel S. Madden Treasurer and April 16, 1999
- ------------------- Chief Accounting
Daniel S. Madden Officer
/s/Richard N. Cooper Trustee April 16, 1999
- --------------------
Richard N. Cooper
/s/Jack W. Fritz Trustee April 16, 1999
- ----------------
Jack W. Fritz
/s/Jeffrey E. Garten Trustee April 16, 1999
- --------------------
Jeffrey E. Garten
/s/Thomas A. Melfe Trustee April 16, 1999
- ------------------
Thomas A. Melfe
/s/Arnold M. Reichman Trustee April 16, 1999
- ---------------------
Arnold M. Reichman
/s/Alexander B. Trowbridge Trustee April 16, 1999
- --------------------------
Alexander B. Trowbridge
</TABLE>
<PAGE> 81
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
1(e) Designation of Series relating to addition of
Emerging Growth Portfolio.
5(e) Forms of Investment Advisory Agreements pertaining
to the Emerging Growth Portfolio
6(c) Form of Letter Agreement pertaining to inclusion of
the Emerging Growth Portfolio to the existing
Distribution Agreement.
8(a) Form of Custodian Services Agreement with PFPC Trust
Company.
8(c) Form of Sub-Custodian Services Agreement with PFPC
Trust Company and PNC Bank, National Association.
9(i) Form of Letter Agreement between Registrant and PFPC
Inc. pertaining to inclusion of the Emerging
Growth Portfolio under the existing Co-Administration
Agreement.
9(j) Form of Letter Agreement between Registrant and State
Street pertaining to the inclusion of the Emerging
Growth Portfolio under the Transfer Agency and Service
Agreement.
10(a) Opinion and Consent of Willkie Farr & Gallagher,
counsel to the Trust.
10(b) Opinion of Sullivan & Worcester LLP
12(d) Form of Purchase Agreement pertaining to the Emerging
Growth Portfolio.
</TABLE>
<PAGE> 1
1(e)
WARBURG, PINCUS TRUST
Certificate of Establishment and
Designation of the Emerging Growth 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:
Emerging Growth 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.
4. This Certificate may be executed in several counterparts, each of
which shall be an original and all of which shall constitute one instrument.
<PAGE> 2
IN WITNESS WHEREOF, I have hereunto set my hand as of the day and year
set forth opposite my signature below.
Dated: November 24, 1998 /s/ Janna Manes
-----------------------
Name: Janna Manes
Title: Assistant Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK )
)
COUNTY OF NEW YORK ) ss. November 24, 1998
Then personally appeared the above named Janna Manes and acknowledged
the foregoing instrument to be her free act and deed.
Before me,
/s/ Maryann Canfield
------------------------
Notary Public
My Commission Expires: September 12, 2000
-2-
<PAGE> 1
5(e)
INVESTMENT ADVISORY AGREEMENT
May __, 1999
Warburg, Pincus Asset Management, 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 six portfolios, one of which is the
Emerging Growth Portfolio (the "Portfolio"). The Trust on behalf of the
Portfolio herewith confirms its agreement with Warburg, Pincus Asset Management,
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> 2
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.
2
<PAGE> 3
6. Limitation of Liability
The Trust and the Adviser agree that the obligations of the Trust
under this Agreement will not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Trust, individually, but are binding only upon the assets and property of the
Portfolio, as provided in the Declaration of Trust. The execution and delivery
of this Agreement have been authorized by the Trustees of the Trust, and signed
by an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer will
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Portfolio as provided in the Declaration of Trust. No series of the Trust,
including the Portfolio, will be liable for any claims against any other series.
7. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Portfolio will pay the Adviser an annual fee calculated at an
annual rate of .90% of the Portfolio's average daily net assets. The fee for the
period from the date the Trust's initial registration statement relating to the
Portfolio is declared effective by the Securities and Exchange Commission to the
end of the year during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period bears
to the full yearly period. Upon any termination of this Agreement before the end
of a year, the fee for such part of that year shall be prorated according to the
proportion that such period bears to the full yearly period and shall be payable
upon the date of termination of this Agreement. For the purpose of determining
fees payable to the Adviser, the value of the Portfolio's net assets shall be
computed at the times and in the manner specified in the Trust's Prospectus or
Statement of Additional Information relating to the Portfolio as from time to
time in effect.
8. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement. The Portfolio will bear its
proportionate share of certain other expenses to be incurred in its operation,
including: investment advisory and administration fees; taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Trust who are
not officers, directors, or employees of the Adviser or any of its affiliates;
fees of any pricing service employed to value shares of the Portfolio;
Securities and Exchange Commission fees and state Blue Sky qualification fees;
charges of custodians and 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
3
<PAGE> 4
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, 2000 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
4
<PAGE> 5
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 ASSET MANAGEMENT, INC.
By:
----------------------------
Name:
Title:
5
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
____ __, 1999
______________ Asset Management, 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 six portfolios, one of which is the
Emerging Growth Portfolio (the "Portfolio"). The Trust on behalf of the
Portfolio herewith confirms its agreement with [___________________] Asset
Management, 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 the Trust's Prospectus and Statement of Additional Information
relating to the Portfolio as from time to time in effect (the "Prospectus" and
"SAI," respectively), and in such manner and to such extent as may from time to
time be approved by the Board of Trustees of the Trust. Copies of the Trust's
Prospectus and SAI relating to the Portfolio have been or will be submitted to
the Adviser. The Trust desires to employ and hereby appoints the Adviser to act
as investment adviser to the Portfolio. The Adviser accepts the appointment and
agrees to furnish the services for the compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision and direction of the Board of Trustees
of the Trust, the Adviser will (a) act in strict conformity with the Trust's
Agreement and Declaration of Trust, the Investment Company Act of 1940 (the
"1940 Act") and the Investment Advisers Act of 1940, as the same may from time
to time be amended, (b) manage the Portfolio's assets in accordance with the
Portfolio's investment objective and policies as stated in the Trust's
Prospectus and SAI relating to the Portfolio, (c) make investment decisions for
the Portfolio, (d) place purchase and sale orders for securities on behalf of
the Portfolio, (e) exercise voting rights in respect of portfolio securities and
other investments for the Portfolio, and (f) monitor and evaluate the services
provided by the Portfolio's investment sub-adviser(s), if any, under the terms
of the applicable investment sub-advisory agreement(s). In providing those
services, the
<PAGE> 7
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.
Subject to the approval of the Board of Trustees of the Trust and where
required, the Portfolio's shareholders, the Adviser may engage an investment
sub-adviser or sub-advisers to provide advisory services in respect of the
Portfolio and may delegate to such investment sub-adviser(s) the
responsibilities described in subparagraphs (b), (c), (d) and (e) above. In the
event that an investment sub-adviser's engagement has been terminated, the
Adviser shall be responsible for furnishing the Trust with the services required
to be performed by such investment sub-adviser(s) under the applicable
investment sub-advisory agreements or arranging for a successor investment
sub-adviser(s) to provide such services on terms and conditions acceptable to
the Trust and the Trust's Board of Trustees and subject to the requirements of
the 1940 Act.
3. Brokerage
In executing transactions for the Portfolio, selecting brokers or
dealers and negotiating any brokerage commission rates, 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.
2
<PAGE> 8
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 in connection with the matters to which this Agreement relates, provided
that nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Trust or the Portfolio or to shareholders of the
Trust or the Portfolio to which the Adviser would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Adviser's reckless disregard of
its obligations and duties under this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this
Agreement, the Portfolio will pay the Adviser an annual fee calculated at an
annual rate of .90% of the Portfolio's average daily net assets. The fee for the
period from the date of this Agreement to the end of the year 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 SAI relating to
the Portfolio.
7. Expenses
The Adviser will bear all expenses in connection with the
performance of its services under this Agreement, including the fees payable to
any investment sub-adviser engaged pursuant to paragraph 2 of 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, any
sub-adviser or any of their affiliates; fees of any pricing service employed to
value shares of the Portfolio; Securities and Exchange Commission fees and state
blue sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Portfolio's proportionate share of insurance premiums;
outside auditing and legal expenses; costs of maintenance of the Portfolio's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to
3
<PAGE> 9
existing shareholders; costs of shareholders' reports and meetings of the
shareholders of the Trust and of the officers or Board of Trustees of the Trust;
and any extraordinary expenses.
The Trust 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.
8. 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,
provided that doing so does not adversely affect the ability of the adviser to
perform its services under this Agreement.
9. Term of Agreement
This Agreement shall continue for an initial two-year period
commencing on the date first written above, 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 1940 Act) of the
Portfolio's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board of Trustees who are not
"interested persons" (as defined in said Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board of Trustees of the Trust or by vote of holders of a
majority of the Portfolio's shares, or upon 90 days' written notice, by the
Adviser. This Agreement will also terminate automatically in the event of its
assignment (as defined in said Act).
4
<PAGE> 10
10. Representation by the Trust
The Trust represents that a copy of its Agreement and 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.
11. Limitation of Liability
It is expressly agreed that this Agreement was executed by or on
behalf of the Trust and not by the Trustees of the Trust or its officers
individually, and the obligations of the Trust hereunder shall not be binding
upon any of the Trustees, shareholders, nominees, officers, agents or employees
of the Trust individually, but bind only the assets and property of the
Portfolio, as provided in the Declaration of Trust of the Trust. The execution
and delivery of this Agreement have been authorized by the Trustees and the sole
shareholder of the Portfolio and signed by an authorized officer of the Trust,
acting as such, and neither such authorization by such Trustees and shareholder
nor such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Portfolio as provided
in its Declaration of Trust.
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", "Warburg Pincus", "CS", "CSAM", "Credit Suisse" or "Credit Suisse
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" , "Warburg Pincus" "CS", "CSAM", "Credit
Suisse" or "Credit Suisse 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", "Warburg Pincus", "CS", "CSAM", "Credit
Suisse" or "Credit Suisse Warburg Pincus".
5
<PAGE> 11
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:
[__________________] ASSET MANAGEMENT, INC.
By:
------------------------
Name:
-----------------
Title:
----------------
6
<PAGE> 1
6(c)
DISTRIBUTION AGREEMENT
May __, 1999
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 Emerging Growth 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> 1
8-(a)
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of __________, 1999 by and between PFPC TRUST
COMPANY ("PFPC Trust"), a limited purpose trust company organized under the laws
of Delaware, and each investment company or series thereof listed on Schedule A
(each such investment company or portfolio referred to herein as the "Fund")
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC Trust to provide custodian
services, and PFPC Trust wishes to furnish custodian services, either directly
or through an affiliate, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Directors to give
Oral Instructions and Written Instructions on behalf of the Fund
and listed on the Authorized Persons Appendix attached hereto
and made a part hereof or any amendment thereto as may be
received by PFPC Trust. An Authorized Person's scope of
authority may be
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limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "Book-Entry System" means Federal Reserve Treasury
book-entry system for United States and federal agency
securities, its successor or successors, and its nominee or
nominees and any book-entry system maintained by an exchange
registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "Oral Instructions" mean oral instructions received by PFPC
Trust from an Authorized Person or from a person reasonably
believed by PFPC Trust to be an Authorized Person.
(g) "PFPC Trust" means PFPC Trust Company or a subsidiary or
affiliate of PFPC Trust Company.
(h) "SEC" means the Securities and Exchange Commission.
(i) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(j) "Shares" mean the shares of common stock or beneficial interest
of any series or class of the Fund.
(k) "Property" means:
(i) any and all securities and other investment items which
the Fund may from time to time deposit, or cause to be
deposited, with PFPC Trust or which PFPC Trust may from
time to time hold for the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by PFPC Trust from time to
time, from or on behalf of the Fund.
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(l) "Written Instructions" mean written instructions signed by two
Authorized Persons and received by PFPC Trust. The instructions
may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC Trust to provide custodian
services to the Fund, and PFPC Trust accepts such appointment and agrees
to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PFPC Trust with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Directors, approving the appointment of PFPC
Trust to provide services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of the Fund's advisory agreements;
(d) a copy of the distribution agreement with respect to each class
of Shares;
(e) copies of any shareholder servicing agreements made in respect
of the Fund; and
(f) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
PFPC Trust undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be
performed by PFPC Trust hereunder. Except as specifically set forth
herein, PFPC Trust assumes no responsibility for such compliance by the
Fund.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC Trust shall
act only upon Oral Instructions and Written Instructions.
(b) PFPC Trust shall be entitled to rely upon any Oral Instructions
and Written
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Instructions it receives from an Authorized Person
(or from a person reasonably believed by PFPC Trust to be an
Authorized Person) pursuant to this Agreement. PFPC Trust may
assume that any Oral Instructions or Written Instructions
received hereunder are not in any way inconsistent with the
provisions of organizational documents of the Fund or of any
vote, resolution or proceeding of the Fund's Board of Directors
or of the Fund's shareholders, unless and until PFPC Trust
receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Trust Written Instructions
confirming Oral Instructions (except where such Oral
Instructions are given by PFPC Trust or its affiliates) so that
PFPC Trust 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 Trust shall in no way invalidate the
transactions or enforceability of the transactions authorized by
the Oral Instructions. Where Oral Instructions or Written
Instructions reasonably appear to have been received from an
Authorized Person, PFPC Trust shall incur no liability to the
Fund in acting upon such Oral Instructions or Written
Instructions provided that PFPC Trust's actions comply with the
other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC Trust is in doubt as to any action
it should or should not take, PFPC Trust may request directions
or advice, including Oral Instructions or Written Instructions,
from the Fund.
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(b) Advice of Counsel. If PFPC Trust shall be in doubt as to any
question of law pertaining to any action it should or should not
take, PFPC Trust may request advice at its own cost from such
counsel of its own choosing (who may be counsel for the Fund,
the Fund's investment adviser or PFPC Trust, at the option of
PFPC Trust).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions
PFPC Trust receives, and the advice it receives from counsel,
PFPC Trust shall be entitled to rely upon and, after notice to
the Fund, follow the advice of counsel. In the event PFPC Trust
so relies on the advice of counsel, PFPC Trust remains liable
for any action or omission on the part of PFPC Trust which
constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC Trust of any duties, obligations or
responsibilities set forth in this Agreement.
(d) Protection of PFPC Trust. PFPC Trust shall be protected in any
action it takes or does not take in reliance upon directions,
advice or Oral Instructions or Written Instructions it receives
from the Fund or from counsel and which PFPC Trust believes, in
good faith, to be consistent with those directions, advice or
Oral Instructions or Written Instructions. Nothing in this
section shall be construed so as to impose an obligation upon
PFPC Trust (i) to seek such directions, advice or Oral
Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other provisions
of this Agreement, the same is a condition of PFPC
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Trust's properly taking or not taking such action.
Nothing in this subsection shall excuse PFPC Trust when
an action or omission on the part of PFPC Trust
constitutes willful misfeasance, bad faith, negligence
or reckless disregard by PFPC Trust of any duties,
obligations or responsibilities set forth in this
Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund
which are in the possession or under the control of PFPC Trust,
shall be the property of the Fund. Such books and records shall
be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund and
Authorized Persons shall have access to such books and records
at all times during PFPC Trust's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and
records shall be provided by PFPC Trust to the Fund or to an
authorized representative of the Fund, at the Fund's expense.
8. CONFIDENTIALITY. PFPC Trust agrees to keep confidential all
records of the Fund and information relating to the Fund and its
shareholders, unless the release of such records or information
is otherwise consented to, in writing, by the Fund. The Fund
agrees that such consent shall not be unreasonably withheld and
may not be withheld where PFPC Trust may be exposed to civil or
criminal contempt proceedings or when required to divulge such
information or records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC Trust shall cooperate with
the Fund's independent public accountants and shall take all
reasonable action in the performance of its obligations under
this Agreement to ensure that the necessary information is made
available to such accountants for the expression of their
opinion, as required by the Fund.
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10. DISASTER RECOVERY. PFPC Trust shall enter into and shall
maintain in effect with appropriate parties one or more
agreements making reasonable provisions for emergency use of
electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC
Trust shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions. PFPC Trust
shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure provided such
loss or interruption is not caused by PFPC Trust's own willful
misfeasance, bad faith, negligence or reckless disregard of its
duties or obligations under this Agreement.
11. YEAR 2000 READINESS DISCLOSURE. PFPC Trust (a) has reviewed its
business and operations as they relate to the services provided
hereunder, (b) has developed or is developing a program to
remediate or replace computer applications and systems, and (c)
has developed a testing plan to test the remediation or
replacement of computer applications/systems, in each case, to
address on a timely basis the risk that certain computer
applications/systems used by PFPC Trust may be unable to
recognize and perform properly date sensitive functions
involving dates prior to, including and after December 31, 1999,
including dates such as February 29, 2000 (the "Year 2000
Challenge"). To the best of PFPC Trust's knowledge and belief,
the reasonably foreseeable consequences of the Year 2000
Challenge will not adversely effect PFPC Trust's ability to
perform its duties and obligations under this Agreement.
12. COMPENSATION. As compensation for custody services rendered by
PFPC Trust during the term of this Agreement, the Fund will pay
to PFPC Trust a fee or fees as may be
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agreed to in writing from time to time by the Fund and PFPC
Trust.
13. INDEMNIFICATION. The Fund agrees to indemnify and hold harmless
PFPC Trust and its affiliates from all taxes, charges, expenses,
assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and
any state and foreign securities and blue sky laws, and
amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or
indirectly from any action or omission to act which PFPC Trust
takes (i) at the request or on the direction of or in reliance
on the advice of the Fund or (ii) upon Oral Instructions or
Written Instructions. Neither PFPC Trust, nor any of its
affiliates, shall be indemnified against any liability (or any
expenses incident to such liability) arising out of PFPC Trust's
or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties under this
Agreement.
14. RESPONSIBILITY OF PFPC TRUST.
(a) PFPC Trust shall be under no duty to take any action on
behalf of the Fund except as specifically set forth
herein or as are reasonably incidental to those set
forth herein or as may be specifically agreed to by PFPC
Trust in writing. PFPC Trust 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 Trust
shall be liable for any damages arising out of PFPC
Trust's failure to perform its duties under this
Agreement to the extent such damages arise out of PFPC
Trust's willful misfeasance, bad faith, negligence or
reckless disregard of its duties under this
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Agreement.
(b) Without limiting the generality of the foregoing or of
any other provision of this Agreement, (i) PFPC Trust
shall not be under any duty or obligation to inquire
into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral
Instruction or Written Instruction, notice or other
instrument which conforms to the applicable requirements
of this Agreement, and which PFPC Trust reasonably
believes to be genuine; or (B) subject to section 10,
delays or errors or loss of data occurring by reason of
circumstances beyond PFPC Trust's control, including
acts of civil or military authority, national
emergencies, fire, flood, catastrophe, acts of God,
insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PFPC Trust nor its affiliates shall be
liable to the Fund for any consequential, special or
indirect losses or damages which the Fund may incur or
suffer, including by or as a consequence of PFPC Trust's
or its affiliates' performance of the services provided
hereunder, whether or not the likelihood of such losses
or damages was known by PFPC Trust or its affiliates.
15. DESCRIPTION OF SERVICES.
(a) Delivery of the Property. The Fund will deliver or
arrange for delivery to PFPC Trust, certain Property
owned by the Fund, including cash received as a result
of the distribution of Shares, during the period that is
set forth in this Agreement. PFPC Trust will not be
responsible for such Property until actual receipt.
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(b) Receipt and Disbursement of Money. PFPC Trust, acting
upon Written Instructions, shall open and maintain
separate accounts in the Fund's name using all cash
received from or for the account of the Fund, subject to
the terms of this Agreement. In addition, upon Written
Instructions, PFPC Trust shall open separate custodial
accounts for each separate series or portfolio of the
Fund (collectively, the "Accounts") and shall hold in
the Accounts all cash received from or for the Accounts
of the Fund specifically designated to each separate
series or portfolio.
PFPC Trust shall make cash payments from or for the
Accounts of the Fund only for:
(i) purchases of securities in the name of the Fund
or PFPC Trust or PFPC Trust's nominee as
provided in sub-section (j) and for which PFPC
Trust has received a copy of the broker's or
dealer's confirmation or payee's invoice, as
appropriate;
(ii) purchase or redemption of Shares of the Fund;
(iii) payment of, subject to Written Instructions,
interest, taxes, administration, accounting,
distribution, advisory, management fees or
similar expenses which are to be borne by the
Fund;
(iv) payment to, subject to receipt of Written
Instructions, the Fund's transfer agent, as
agent for the shareholders, an amount equal to
the amount of dividends and distributions stated
in the Written Instructions to be distributed in
cash by the transfer agent to shareholders, or,
in lieu of paying the Fund's transfer agent,
PFPC Trust may arrange for the direct payment of
cash dividends and distributions to shareholders
in accordance with procedures mutually agreed
upon from time to time by and among the Fund,
PFPC Trust and the Fund's transfer agent.
(v) payments, upon receipt of Written Instructions,
in connection with the conversion, exchange or
surrender of securities owned or subscribed to
by the Fund and held by or delivered to PFPC
Trust;
(vi) payments of the amounts of dividends received
with respect to securities sold short; and
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(vii) payments, upon Written Instructions, made for
other Fund purposes.
PFPC Trust is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received
as custodian for the Accounts.
(c) Receipt of Securities; Subcustodians.
(i) PFPC Trust shall hold all securities received by
it for the Accounts in a separate account that
segregates such securities from those of any
other persons, firms or corporations, except for
securities held in a Book-Entry System. All such
securities shall be held or disposed of only
upon Written Instructions of the Fund pursuant
to the terms of this Agreement. PFPC Trust shall
have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any
such securities or investment, except upon the
express terms of this Agreement and upon Written
Instructions, accompanied by a certified
resolution of the Fund's Board of Directors,
authorizing the transaction. In no case may any
member of the Fund's Board of Directors, or any
officer, employee or agent of the Fund withdraw
any securities.
At PFPC Trust's own expense and for its own
convenience PFPC Trust may enter into
sub-custodian agreements with a subsidiary or
affiliate of PFPC Trust having an aggregate
capital, surplus and undivided profits,
according to its last published report, of at
least twenty million dollars ($20,000,000). In
addition, such bank or trust company must be
qualified to act as custodian and agree to
comply with this Agreement and with the relevant
provisions of the 1940 Act and other applicable
rules and regulations. Any such arrangement will
not be entered into without prior written notice
to the Fund.
PFPC Trust shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold the
Fund harmless from its own acts or omissions, under the
standards of care provided for herein, or the acts and omissions
of any sub-custodian retained by PFPC Trust under the terms of
this sub-section (c).
(d) Transactions Requiring Instructions. Upon receipt of
Oral Instructions or Written Instructions and not
otherwise, PFPC Trust, directly or through the use of
the
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Book-Entry System, shall:
(i) deliver any securities held for the Fund against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral Instructions or Written
Instructions, proxies, consents, authorizations, and
any other instruments whereby the authority of the Fund
as owner of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or
its agent, when such securities are called, redeemed,
retired or otherwise become payable; provided that, in
any such case, the cash or other consideration is to be
delivered to PFPC Trust;
(iv) deliver any securities held for the Fund against receipt
of other securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing,
tender offer, merger, consolidation or recapitalization
of any corporation, or the exercise of any conversion
privilege;
(v) deliver any securities held for the Fund to any
protective committee, reorganization committee or other
person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold
under the terms of this Agreement such certificates of
deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such
delivery;
(vi) make such transfer or exchanges of the assets of the
Fund and take such other steps as shall be stated in
said Oral Instructions or Written Instructions to be for
the purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to the Fund to any bank or
trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the Fund;
provided, however, that securities shall be released
only upon payment to PFPC Trust of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made subject to
proper prior authorization, further securities may be
released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on
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receipt of payment therefor; and pay out moneys of the
Fund in connection with such repurchase agreements, but
only upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by the
Fund in connection with any conversion of such
securities, pursuant to their terms, into other
securities;
(x) release and deliver securities owned by the Fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof; and
(xi) release and deliver or exchange securities owned by the
Fund for other corporate purposes.
PFPC Trust must also receive a certified resolution
describing the nature of the corporate purpose and the
name and address of the person(s) to whom delivery shall
be made when such action is pursuant to sub-paragraph
(d)(xi).
(e) Use of Book-Entry System. The Fund shall deliver to
PFPC Trust certified resolutions of the Fund's Board of
Directors approving, authorizing and instructing PFPC Trust on a
continuous basis, to deposit in the Book-Entry System all
securities belonging to the Fund eligible for deposit therein
and to utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and sales of securities
by the Fund, and deliveries and returns of securities loaned,
subject to repurchase agreements or used as collateral in
connection with borrowings. PFPC Trust shall continue to perform
such duties until it receives Written Instructions or Oral
Instructions authorizing contrary actions.
PFPC Trust shall administer the Book-Entry System as follows:
(i) With respect to securities of the Fund which are
maintained in the Book-Entry System, the records of PFPC
Trust shall identify by Book-Entry or otherwise those
securities belonging to the Fund. PFPC Trust shall
furnish to the Fund a detailed statement of the Property
held for
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the Fund under this Agreement from time to time and
upon written request.
(ii) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated from
any assets and cash controlled by PFPC Trust in other
than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities.
PFPC Trust and its sub-custodian, if any, will pay out
money only upon receipt of securities and will deliver
securities only upon the receipt of money.
(iii) All books and records maintained by PFPC Trust which
relate to the Fund's participation in the Book-Entry
System will at all times during PFPC Trust's regular
business hours be open to the inspection of Authorized
Persons, and PFPC Trust will furnish to the Fund all
information in respect of the services rendered as it
may require.
PFPC Trust will also provide the Fund with such reports on its
own system of internal control as the Fund may reasonably
request from time to time.
(f) Registration of Securities. All Securities held for the Fund
which are issued or issuable only in bearer form, except such
securities held in the Book-Entry System, shall be held by PFPC
Trust in bearer form; all other securities held for the Fund may
be registered in the name of the Fund, PFPC Trust, the
Book-Entry System, a sub-custodian, or any duly appointed
nominee of the Fund, PFPC Trust, Book-Entry System or
sub-custodian. The Fund reserves the right to instruct PFPC
Trust as to the method of registration and safekeeping of the
securities of the Fund. The Fund agrees to furnish to PFPC Trust
appropriate instruments to enable PFPC Trust to hold or deliver
in proper form for transfer, or to register in the name of its
nominee or in the name of the Book-Entry System, any securities
which it may hold for the Accounts and which may from time to
time be registered in the name of the Fund.
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(g) Voting and Other Action. Neither PFPC Trust nor its nominee
shall vote any of the securities held pursuant to this Agreement
by or for the account of the Fund, except in accordance with
Written Instructions. PFPC Trust, directly or through the use of
the Book-Entry System, shall execute in blank and promptly
deliver all notices, proxies and proxy soliciting materials
received by PFPC Trust as custodian of the Property to the
registered holder of such securities. If the registered holder
is not the Fund, then Written Instructions or Oral Instructions
must designate the person who owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, PFPC Trust is authorized to take
the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund,
all income, dividends, distributions, coupons,
option premiums, other payments and similar
items, included or to be included in the
Property, and, in addition, promptly advise the
Fund of such receipt and credit such income, as
collected, to the Fund's account;
(B) endorse and deposit for collection, in the name
of the Fund, checks, drafts, or other orders for
the payment of money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the
Fund's securities as a result of a stock
dividend, share split-up or reorganization,
recapitalization, readjustment or other
rearrangement or distribution of rights or
similar securities issued with respect to any
securities belonging to the Fund and held by
PFPC Trust hereunder;
(D) present for payment and collect the amount
payable upon all securities which may mature or
be called, redeemed, or retired, or otherwise
become payable on the date such securities
become payable; and
(E) take any action which may be necessary and
proper in connection with the collection and
receipt of such income and other payments
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and the endorsement for collection of checks,
drafts, and other negotiable instruments.
(ii) Miscellaneous Transactions.
(A) deliver or cause to be delivered Property
against payment or other consideration or
written receipt therefor in the following cases:
(1) for examination by a broker or dealer
selling for the account of the Fund in
accordance with street delivery custom;
(2) for the exchange of interim receipts or
temporary securities for definitive
securities; and
(3) for transfer of securities into the name
of the Fund or PFPC Trust or nominee of
either, or for exchange of securities
for a different number of bonds,
certificates, or other evidence,
representing the same aggregate face
amount or number of units bearing the
same interest rate, maturity date and
call provisions, if any; provided that,
in any such case, the new securities are
to be delivered to PFPC Trust.
(B) Unless and until PFPC Trust receives Oral
Instructions or Written Instructions to the
contrary, PFPC Trust shall:
(1) pay all income items held by it which
call for payment upon presentation and
hold the cash received by it upon such
payment for the account of the Fund;
(2) collect interest and cash dividends
received, with notice to the Fund, to
the account of the Fund;
(3) hold for the account of the Fund all
stock dividends, rights and similar
securities issued with respect to any
securities held by PFPC Trust; and
(4) execute as agent on behalf of the Fund
all necessary ownership certificates
required by the Internal Revenue Code or
the Income Tax Regulations of the United
States Treasury Department or under the
laws of any state now or hereafter in
effect, inserting the Fund's name on
such certificate as the owner of the
securities covered thereby, to the
extent it may lawfully do so.
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(i) Segregated Accounts.
(i) PFPC Trust shall upon receipt of Written Instructions or
Oral Instructions establish and maintain segregated
accounts on its records for and on behalf of the Fund.
Such accounts may be used to transfer cash and
securities, including securities in the Book-Entry
System:
(A) for the purposes of compliance by the Fund
with the procedures required by a securities or
option exchange, providing such procedures
comply with the 1940 Act and any releases of the
SEC relating to the maintenance of segregated
accounts by registered investment companies; and
(B) Upon receipt of Written Instructions, for other
proper corporate purposes.
(j) Purchases of Securities. PFPC Trust shall settle
purchased securities upon receipt of Oral Instructions
or Written Instructions from the Fund or its investment
advisers that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased
and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Fund involved; and
(vii) the name of the person from whom or the broker through
whom the purchase was made. PFPC Trust shall upon
receipt of securities purchased by or for the Fund pay
out of the moneys held for the account of the Fund the
total amount payable to the person from whom or the
broker through whom the purchase was made, provided
that the same conforms to the total amount payable as
set forth in such Oral Instructions or Written
Instructions.
(k) Sales of Securities. PFPC Trust shall settle sold securities
upon receipt of Oral Instructions or Written Instructions
from the Fund that specify:
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(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and
accrued interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to
whom the sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any.
PFPC Trust shall deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total amount
payable is the same as was set forth in the Oral Instructions or Written
Instructions. Subject to the foregoing, PFPC Trust may accept payment in
such form as shall be satisfactory to it, and may deliver securities and
arrange for payment in accordance with the customs prevailing among
dealers in securities.
(l) Reports; Proxy Materials.
(i) PFPC Trust shall furnish to the Fund the following
reports:
(A) such periodic and special reports as the Fund
may reasonably request;
(B) a monthly statement summarizing all transactions
and entries for the account of the Fund, listing
securities belonging to the Fund with the
adjusted average cost of each issue and the
market value at the end of such month and
stating the cash account of the Fund including
disbursements;
(C) the reports required to be furnished to the Fund
pursuant to Rule
18
<PAGE> 19
17f-4; and
(D) such other information as may be agreed upon
from time to time between the Fund and PFPC
Trust.
(ii) PFPC Trust shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or
conversion or similar communication received by it as
custodian of the Property. PFPC Trust shall be under no
other obligation to inform the Fund as to such actions
or events.
(m) Collections. All collections of monies or other property
in respect, or which are to become part, of the Property (but
not the safekeeping thereof upon receipt by PFPC Trust) shall be
at the sole risk of the Fund. If payment is not received by PFPC
Trust within a reasonable time after proper demands have been
made, PFPC Trust shall notify the Fund in writing, including
copies of all demand letters, any written responses, memoranda
of all oral responses and shall await instructions from the
Fund. PFPC Trust shall not be obliged to take legal action for
collection unless and until reasonably indemnified to its
satisfaction. PFPC Trust shall also notify the Fund as soon as
reasonably practicable whenever income due on securities is not
collected in due course and shall provide the Fund with periodic
status reports of such income collected after a reasonable time.
(n) PFPC Trust shall provide administrative support and
customer service to the Fund. These services shall include
oversight and coordination of the above-described services and
contact persons to address issues or problems experienced by
the Fund.
13. DURATION AND TERMINATION. This Agreement shall continue until terminated
by the Fund
19
<PAGE> 20
or PFPC Trust on 120 days' prior written notice to the other parties.
14. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to
PFPC Trust at Airport Business Center, 200 Stevens Drive, Lester,
Pennsylvania 19113, Attention Sam Sparhawk, (b) if to the Fund at 466
Lexington Avenue, New York, New York 10017, Attn: President or (c) at
such other address as shall have been given by like notice to the sender
of any such notice or other communication by the other party. If notice
is sent by confirming telegram, cable, telex or facsimile sending
device, it shall be deemed to have been given immediately. If notice is
sent by first-class mail, it shall be deemed to have been given five
days after it has been mailed. If notice is sent by messenger, it shall
be deemed to have been given on the day it is delivered.
18. AMENDMENTS. This Agreement, or any term hereof, may be changed or waived
only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PFPC Trust may assign its rights and delegate
its duties hereunder to any majority-owned direct or indirect subsidiary
of PFPC Trust, or PNC Bank Corp., provided that (i) PFPC Trust receives
the Fund's prior written consent to such assignment or delegation; (ii)
the assignee or delegate agrees to comply with this Agreement and with
the relevant provisions of the 1940 Act and other applicable law; and
(iii) PFPC Trust and such assignee or delegate promptly provide such
information as the Fund may reasonably request, and respond to such
questions as the Fund may reasonably
20
<PAGE> 21
ask, relative to the assignment or delegation (including, without
limitation, the capabilities of the assignee or delegate). In the event
of such delegation, PFPC Trust shall remain liable under this Agreement
for the acts of its delegate or assignee.
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. MISCELLANEOUS.
(a) Entire Agreement. This Agreement shall be deemed to constitute a
separate Agreement between each Fund and PFPC Trust, as if each
Fund had executed a separate Agreement naming only itself and
PFPC Trust as parties. No Fund shall have any liability under
this Agreement for the obligations of any other Fund.
In the case of each Fund that is a series of an investment
company organized as a Massachusetts business trust, the
declarations of trust for each such trust refer to the trustees
collectively as trustees and not as individuals personally, and
the declarations of trust provide that no shareholder, trustee,
officer, employee or agent of the trust shall be subject to
claims against or obligations of the trust to any extent
whatsoever, but that the trust estate only shall be liable.
This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior
agreements and understandings relating to the
21
<PAGE> 22
subject matter hereof, provided that the parties may embody in
one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. 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.
(c) Governing Law. This Agreement shall be deemed to be a contract
made in Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law.
(d) Partial Invalidity. 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.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution
hereof by such party.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC TRUST COMPANY
By:
-----------------
Title:
--------------
WARBURG, PINCUS BALANCED FUND, INC.
By:
-----------------
Title:
--------------
WARBURG, PINCUS CAPITAL APPRECIATION FUND
By:
-----------------
Title:
--------------
WARBURG, PINCUS CASH RESERVE FUND, INC.
By:
-----------------
Title:
--------------
23
<PAGE> 24
WARBURG, PINCUS EMERGING GROWTH FUND, INC.
By:
-----------------
Title:
--------------
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
By:
-----------------
Title:
--------------
WARBURG, PINCUS FIXED INCOME FUND
By:
-----------------
Title:
--------------
WARBURG, PINCUS GLOBAL FIXED INCOME FUND, INC.
By:
-----------------
Title:
--------------
WARBURG, PINCUS GLOBAL POST-VENTURE CAPITAL
FUND, INC.
By:
-----------------
Title:
--------------
24
<PAGE> 25
WARBURG, PINCUS GROWTH & INCOME FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS HEALTH SCIENCES FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS INTERMEDIATE MATURITY GOVERNMENT
FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS INTERNATIONAL EQUITY FUND, INC.
By:
---------------------
Title:
------------------
25
<PAGE> 26
WARBURG, PINCUS INTERNATIONAL SMALL COMPANY
FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS JAPAN GROWTH FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS JAPAN SMALL COMPANY FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS MAJOR FOREIGN MARKETS FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS NEW YORK INTERMEDIATE MUNICPAL FUND
By:
---------------------
Title:
------------------
26
<PAGE> 27
WARBURG, PINCUS NEW YORK TAX EXEMPT FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS POST-VENTURE CAPITAL FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS SMALL COMPANY GROWTH FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS SMALL COMPANY VALUE FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS TRUST
By:
---------------------
Title:
------------------
27
<PAGE> 28
WARBURG, PINCUS PINCUS TRUST II
By:
---------------------
Title:
------------------
WARBURG, PINCUS WORLDPERKS MONEY MARKET FUND, INC.
By:
---------------------
Title:
------------------
WARBURG, PINCUS WORLDPERKS TAX FREE MONEY MARKET
FUND, INC.
By:
---------------------
Title:
------------------
28
<PAGE> 29
AUTHORIZED PERSONS APPENDIX
<TABLE>
<CAPTION>
NAME (TYPE) SIGNATURE
<S> <C>
- ------------------------ -------------------------
- ------------------------ -------------------------
- ------------------------ -------------------------
- ------------------------ -------------------------
- ------------------------ -------------------------
- ------------------------ -------------------------
</TABLE>
29
<PAGE> 30
SCHEDULE A
- - Warburg, Pincus Balanced Fund, Inc.
- - Warburg, Pincus Capital Appreciation Fund
- - Warburg, Pincus Cash Reserve Fund, Inc.
- - Warburg, Pincus Emerging Growth Fund, Inc.
- - Warburg, Pincus Emerging Markets Fund, Inc.
- - Warburg, Pincus Fixed Income Fund
- - Warburg, Pincus Global Fixed Income Fund, Inc.
- - Warburg, Pincus Global Post-Venture Capital Fund, Inc.
- - Warburg, Pincus Growth & Income Fund, Inc.
- - Warburg, Pincus Health Sciences Fund, Inc.
- - Warburg, Pincus Institutional Fund, Inc.:
Emerging Markets Portfolio
International Equity Portfolio
Japan Growth Portfolio
Post-Venture Capital Portfolio
Small Company Growth Portfolio
Small Company Value Portfolio
Value Portfolio
- - Warburg, Pincus Intermediate Maturity Government Fund, Inc.
- - Warburg, Pincus International Equity Fund, Inc.
- - Warburg, Pincus International Small Company Fund, Inc.
- - Warburg, Pincus Japan Growth Fund, Inc.
- - Warburg, Pincus Japan Small Company Fund, Inc.
- - Warburg, Pincus Major Foreign Markets Fund, Inc.
- - Warburg, Pincus New York Intermediate Municipal Fund
- - Warburg, Pincus New York Tax Exempt Fund, Inc.
- - Warburg, Pincus Post-Venture Capital Fund, Inc.
- - Warburg, Pincus Small Company Growth Fund, Inc.
- - Warburg, Pincus Small Company Value Fund, Inc.
- - Warburg, Pincus Trust:
Emerging Markets Portfolio
Growth & Income Portfolio
International Equity Portfolio
Small Company Growth Portfolio
- - Warburg, Pincus Trust II:
Fixed Income Portfolio
Global Fixed Income Portfolio
- - Warburg, Pincus WorldPerks Money Market Fund, Inc.
- - Warburg, Pincus WorldPerks Tax Free Money Market Fund, Inc.
<PAGE> 1
EXHIBIT 8(c)
SUB-CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of ____________, 1999 by and between PFPC
TRUST COMPANY, a limited purpose trust company organized under the laws of
Delaware ("Custodian"), PNC Bank, National Association, a national banking
association ("PNC Bank") and each investment company or series thereof listed on
Schedule A (each such investment company or portfolio referred to herein as the
"Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, PFPC Trust Company serves as custodian for the Fund pursuant
to a Custody Agreement with the Fund; and
WHEREAS, the Custodian and the Fund wish to retain PNC Bank to provide
sub-custodian services, and PNC Bank wishes to furnish sub-custodian services,
either directly or through an affiliate, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Fund, the Custodian
and any other person duly authorized by the Fund's Board of
Directors to give Oral Instructions
<PAGE> 2
and Written Instructions on behalf of the Fund and listed on the
Authorized Persons Appendix attached hereto and made a part hereof or
any amendment thereto as may be received by PNC Bank. An Authorized
Person's scope of authority may be limited by the Fund by setting forth
such limitation in the Authorized Persons Appendix.
(d) "Book-Entry System" means Federal Reserve Treasury book-entry
system for United States and federal agency securities, its successor or
successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "Oral Instructions" mean oral instructions received by PNC Bank from an
Authorized Person or from a person reasonably believed by PNC Bank to be
an Authorized Person.
(g) "PNC Bank" means PNC Bank, National Association or a subsidiary or
affiliate of PNC Bank, National Association.
(h) "SEC" means the Securities and Exchange Commission.
(i) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act and the
CEA.
(j) "Shares" mean the shares of common stock or beneficial interest of any
series or class of the Fund.
(k) "Property" means:
(i) any and all securities and other investment items which the
Custodian may from time to time deposit, or cause to be deposited,
with PNC Bank or which PNC Bank may from time to time hold for the
Fund;
(ii) all income in respect of any of such securities or other
investment items;
<PAGE> 3
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PNC Bank from time to time, from or
on behalf of the Fund.
(m) "Written Instructions" mean written instructions signed by two
Authorized Persons and received by PNC Bank. The instructions
may be delivered by hand, mail, tested telegram, cable, telex
or facsimile sending device.
2. APPOINTMENT. The Custodian and the Fund hereby appoint PNC Bank to
provide sub-custodian services to the Fund, and PNC Bank accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Directors, approving the appointment of PNC
Bank to provide sub-custodian services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of the Fund's advisory agreements;
(d) a copy of the distribution agreement with respect to each
class of Shares;
(e) copies of any shareholder servicing agreements made in respect
of the Fund; and
(f) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be
performed by PNC Bank hereunder. Except as specifically set
<PAGE> 4
forth herein, PNC Bank assumes no responsibility for such compliance by
the Fund.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank shall act
only upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by PNC Bank to be an Authorized
Person) pursuant to this Agreement. PNC Bank may assume that any
Oral Instructions or Written Instructions received hereunder are
not in any way inconsistent with the provisions of organizational
documents of the Fund or of any vote, resolution or proceeding of
the Fund's Board of Directors or of the Fund's shareholders,
unless and until PNC Bank receives Written Instructions to the
contrary.
(c) The Custodian and the Fund, as applicable, agree to forward to PNC
Bank Written Instructions confirming Oral Instructions (except
where such Oral Instructions are given by PNC Bank or its
affiliates) so that PNC Bank receives the Written Instructions by
the close of business on the same day that such Oral Instructions
are received. The fact that such confirming Written Instructions
are not received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions authorized by
the Oral Instructions. Where Oral Instructions or Written
Instructions reasonably appear to have been received from an
Authorized
<PAGE> 5
Person, PNC Bank shall incur no liability to the Fund in acting
upon such Oral Instructions or Written Instructions provided that
PNC Bank's actions comply with the other provisions of this
Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request directions or
advice, including Oral Instructions or Written Instructions, from
the Custodian or the Fund as applicable.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any
question of law pertaining to any action it should or should not
take, PNC Bank may request advice at its own cost from such
counsel of its own choosing (who may be counsel for the Custodian,
the Fund, the Fund's investment adviser or PNC Bank, at the option
of PNC Bank).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PNC Bank
receives, and the advice it receives from counsel, PNC Bank shall
be entitled to rely upon and, after notice to Custodian and the
Fund, follow the advice of counsel. In the event PNC Bank so
relies on the advice of counsel, PNC Bank remains liable for any
action or omission on the part of PNC Bank which constitutes
willful misfeasance, bad faith, gross negligence or reckless
disregard by PNC Bank of any duties, obligations or
responsibilities set forth in this Agreement.
(d) Protection of PNC Bank. PNC Bank shall be protected in any action
it takes or does not take in reliance upon directions, advice or
Oral Instructions or Written
<PAGE> 6
Instructions it receives from the Fund or from counsel and which
PNC Bank believes, in good faith, to be consistent with those
directions, advice or Oral Instructions or Written Instructions.
Nothing in this section shall be construed so as to impose an
obligation upon PNC Bank (i) to seek such directions, advice or
Oral Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other provisions
of this Agreement, the same is a condition of PNC Bank's properly
taking or not taking such action. Nothing in this subsection shall
excuse PNC Bank when an action or omission on the part of PNC Bank
constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PNC Bank of any duties, obligations or
responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to Custodian and the
Fund which are in the possession or under the control of PNC Bank, shall
be the property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities
laws, rules and regulations. The Custodian, the Fund and Authorized
Persons shall have access to such books and records at all times during
PNC Bank's normal business hours. Upon the reasonable request of the
Custodian or the Fund, copies of any such books and records shall be
provided by PNC Bank to the Custodian, the Fund or to an authorized
representative of the Fund, at the Fund's expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all records of the
Custodian, the Fund and information relating to the Custodian, the Fund
and its shareholders, unless the release of such records or information
is otherwise consented to, in writing, by the
<PAGE> 7
Custodian or the Fund, as the case may be. The Custodian and the Fund
agree that such consent shall not be unreasonably withheld and may not be
withheld where PNC Bank may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to
duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the
Custodian's and the Fund's independent public accountants and shall take
all reasonable action in the performance of its obligations under this
Agreement to ensure that the necessary information is made available to
such accountants for the expression of their opinion, as required by the
Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to
the extent appropriate equipment is available. In the event of equipment
failures, PNC Bank shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions. PNC Bank shall have
no liability with respect to the loss of data or service interruptions
caused by equipment failure provided such loss or interruption is not
caused by PNC Bank's own willful misfeasance, bad faith, negligence or
reckless disregard of its duties or obligations under this Agreement.
11. YEAR 2000 READINESS DISCLOSURE. PNC Bank (a) has reviewed its business
and operations as they relate to the services provided hereunder, (b) has
developed or is developing a program to remediate or replace computer
applications and systems, and (c) has developed a testing plan to test
the remediation or replacement of computer
<PAGE> 8
applications/systems, in each case, to address on a timely basis the risk
that certain computer applications/systems used by PNC Bank may be unable
to recognize and perform properly date sensitive functions involving
dates prior to, including and after December 31, 1999, including dates
such as February 29, 2000 (the "Year 2000 Challenge"). To the best of PNC
Bank's knowledge and belief, the reasonably foreseeable consequences of
the Year 2000 Challenge will not adversely effect PNC Bank's ability to
perform its duties and obligations under this Agreement.
12. COMPENSATION. As compensation for sub-custody services rendered by PNC
Bank during the term of this Agreement, the Custodian will pay to PNC
Bank a fee or fees as may be agreed to in writing from time to time by
the Custodian and PNC Bank.
13. INDEMNIFICATION. The Fund agrees to indemnify and hold harmless PNC Bank
and its affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under
the Securities Laws and any state and foreign securities and blue sky
laws, and amendments thereto, and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action or omission to act which PNC Bank takes (i) at
the request or on the direction of or in reliance on the advice of the
Fund or Custodian or (ii) upon Oral Instructions or Written Instructions.
Neither PNC Bank, nor any of its affiliates, shall be indemnified against
any liability (or any expenses incident to such liability) arising out of
PNC Bank's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties under this Agreement.
14. RESPONSIBILITY OF PNC BANK.
<PAGE> 9
(a) PNC Bank shall be under no duty to take any action on behalf of Custodian
or the Fund except as specifically set forth herein or as are reasonably
incidental to those set forth herein or as may be specifically agreed to
by PNC Bank in writing. PNC Bank shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in good
faith and to use its best efforts, within reasonable limits, in
performing services provided for under this Agreement. PNC Bank shall be
liable for any damages arising out of PNC Bank's failure to perform its
duties under this Agreement to the extent such damages arise out of PNC
Bank's willful misfeasance, bad faith, negligence or reckless disregard
of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC Bank shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity
or invalidity or authority or lack thereof of any Oral Instruction or
Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PNC Bank reasonably
believes to be genuine; or (B) subject to section 10, delays or errors or
loss of data occurring by reason of circumstances beyond PNC Bank's
control, including acts of civil or military authority, national
emergencies, fire, flood, catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power
supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither PNC
Bank nor its affiliates shall be liable to the Custodian or the Fund for
any consequential,
<PAGE> 10
special or indirect losses or damages which the Fund may incur or
suffer, including by or as a consequence of PNC Bank's or its
affiliates' performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was known
by PNC Bank or its affiliates.
15. DESCRIPTION OF SERVICES.
(a) Delivery of the Property. The Custodian, for the account of the
Fund, will deliver or arrange for delivery to PNC Bank, certain
Property owned by the Fund, including cash received as a result of
the distribution of Shares, during the period that is set forth in
this Agreement. PNC Bank will not be responsible for such Property
until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon Written
Instructions, shall open and maintain separate accounts in
Custodian's name for the benefit of the Fund using all cash
received from or for the account of the Fund, subject to the terms
of this Agreement. In addition, upon Written Instructions, PNC
Bank shall open separate custodial accounts for each separate
series or portfolio of the Fund (collectively, the "Accounts") and
shall hold in the Accounts all cash received from or for the
Accounts of the Fund specifically designated to each separate
series or portfolio.
PNC Bank shall make cash payments from or for the Accounts of the
Fund only for:
(i) purchases of securities in the name of the Fund or PNC Bank
or PNC Bank's nominee as provided in sub-section (j) and
for which PNC Bank has received a copy of the broker's or
dealer's confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund;
<PAGE> 11
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne
by the Fund;
(iv) payment to, subject to receipt of Written Instructions, the
Fund's transfer agent, as agent for the shareholders, an
amount equal to the amount of dividends and distributions
stated in the Written Instructions to be distributed in
cash by the transfer agent to shareholders, or, in lieu of
paying the Fund's transfer agent, PNC Bank may arrange for
the direct payment of cash dividends and distributions to
shareholders in accordance with procedures mutually agreed
upon from time to time by and among the Fund, PNC Bank and
the Fund's transfer agent.
(v) payments, upon receipt Written Instructions, in connection
with the conversion, exchange or surrender of securities
owned or subscribed to by the Fund and held by or delivered
to PNC Bank;
(vi) payments of the amounts of dividends received with respect
to securities sold short; and
(vii) payments, upon Written Instructions, made for other Fund
purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts
or other orders for the payment of money received as sub-custodian for
the Accounts.
(c) Receipt of Securities; Subcustodians.
(i) PNC Bank shall hold all securities received by it for the
Accounts in a separate account that segregates such
securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry
System. All such securities shall be held or disposed of
only upon Written Instructions of the Custodian or Fund
pursuant to the terms of this Agreement. PNC Bank shall
have no power or authority to assign, hypothecate, pledge
or otherwise dispose of any such securities or investment,
except upon the express terms of this Agreement and upon
Written Instructions, accompanied by a certified resolution
of the Fund's Board of Directors, authorizing the
transaction. In no case may any member of the Fund's Board
of Directors, or any officer, employee or agent of the Fund
withdraw any securities.
At PNC Bank's own expense and for its own convenience, PNC
Bank may enter into sub-custodian agreements with other
United States banks or trust companies to perform duties
described in this sub-section (c). Such
<PAGE> 12
bank or trust company shall have an aggregate capital, surplus and
undivided profits, according to its last published report, of at
least twenty million dollars ($20,000,000), and be a subsidiary or
affiliate of PNC Bank. In addition, such bank or trust company
must be qualified to act as custodian and agree to comply with
this Agreement and with the relevant provisions of the 1940 Act
and other applicable rules and regulations. Any such arrangement
will not be entered into without prior written consent of the
Fund.
PNC Bank shall remain responsible for the performance of all of its
duties as described in this Agreement and shall hold the Custodian and
the Fund harmless from its own acts or omissions, under the standards of
care provided for herein, or the acts and omissions of any sub-custodian
retained by PNC Bank under the terms of this sub-section (c).
(d) Transactions Requiring Instructions. Upon receipt of Oral
Instructions or Written Instructions and not otherwise, PNC Bank,
directly or through the use of the Book-Entry System, shall:
(i) deliver any securities held for the Fund against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral Instructions or Written
Instructions, proxies, consents, authorizations, and any
other instruments whereby the authority of the Fund as
owner of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or
its agent, when such securities are called, redeemed,
retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be
delivered to PNC Bank;
(iv) deliver any securities held for the Fund against receipt of
other securities or cash issued or paid in connection with
the liquidation, reorganization, refinancing, tender offer,
merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
<PAGE> 13
Agreement such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the Fund
and take such other steps as shall be stated in said Oral
Instructions or Written Instructions to be for the purpose
of effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization
of the Fund;
(vii) release securities belonging to the Fund to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Fund; provided, however,
that securities shall be released only upon payment to PNC
Bank of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made subject to proper prior authorization, further
securities may be released for that purpose; and repay such
loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in connection with
such repurchase agreements, but only upon the delivery of
the securities;
(ix) release and deliver or exchange securities owned by the
Fund in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by the Fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof; and
(xi) release and deliver or exchange securities owned by the
Fund for other corporate purposes.
PNC Bank must also receive a certified resolution
describing the nature of the corporate purpose and the name
and address of the person(s) to whom delivery shall be made
when such action is pursuant to sub-paragraph (d)(xi).
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Board of Directors approving,
authorizing and instructing
<PAGE> 14
PNC Bank on a continuous basis, to deposit in the Book-Entry System all
securities belonging to the Fund eligible for deposit therein and to
utilize the Book-Entry System to the extent possible in connection with
settlements of purchases and sales of securities by the Fund, and
deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. PNC Bank
shall continue to perform such duties until it receives Written
Instructions or Oral Instructions authorizing contrary actions.
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of the Fund which are maintained in the
Book-Entry System, the records of PNC Bank shall identify by
Book-Entry or otherwise those securities belonging to the Fund.
PNC Bank shall furnish to the Custodian and Fund a detailed
statement of the Property held for the Fund under this Agreement
at least monthly and from time to time and upon written request.
(ii) Securities and any cash of the Fund deposited in the Book-Entry
System will at all times be segregated from any assets and cash
controlled by PNC Bank in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such
capacities. PNC Bank and its sub-custodian, if any, will pay out
money only upon receipt of securities and will deliver securities
only upon the receipt of money.
(iii) All books and records maintained by PNC Bank which relate to the
Fund's participation in the Book-Entry System will at all times
during PNC Bank's regular business hours be open to the inspection
of Authorized Persons, and PNC Bank will furnish to the Custodian
and the Fund all information in respect of the services rendered
as it may require.
PNC Bank will also provide the Custodian and the Fund with such reports
on its own system of internal control as the Custodian and the Fund may
reasonably request from time to time.
<PAGE> 15
(f) Registration of Securities. All Securities held for the Fund which
are issued or issuable only in bearer form, except such securities
held in the Book-Entry System, shall be held by PNC Bank in bearer
form; all other securities held for the Fund may be registered in
the name of the Custodian on behalf of the Fund, PNC Bank, the
Book-Entry System, a sub-custodian, or any duly appointed nominees
of the Custodian, Fund, PNC Bank, Book-Entry System or
sub-custodian. The Custodian and the Fund reserves the right to
instruct PNC Bank as to the method of registration and safekeeping
of the securities of the Fund. The Fund agrees to furnish to PNC
Bank appropriate instruments to enable PNC Bank to hold or deliver
in proper form for transfer, or to register in the name of its
nominee or in the name of the Book-Entry System, any securities
which it may hold for the Accounts and which may from time to time
be registered in the name of the Fund.
(g) Voting and Other Action. Neither PNC Bank nor its nominee shall
vote any of the securities held pursuant to this Agreement by or
for the account of the Fund, except in accordance with Written
Instructions. PNC Bank, directly or through the use of the
Book-Entry System, shall execute in blank and promptly deliver all
notices, proxies and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not the
Fund, then Written Instructions or Oral Instructions must
designate the person who owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the
following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund, all
income,
<PAGE> 16
dividends, distributions, coupons, option premiums,
other payments and similar items, included or to be
included in the Property, and, in addition, promptly
advise the Fund of such receipt and credit such
income, as collected, to the Fund's account;
(B) endorse and deposit for collection, in the name of
the Fund, checks, drafts, or other orders for the
payment of money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the Fund's
securities as a result of a stock dividend, share
split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution
of rights or similar securities issued with respect
to any securities belonging to the Fund and held by
PNC Bank hereunder;
(D) present for payment and collect the amount payable
upon all securities which may mature or be called,
redeemed, or retired, or otherwise become payable on
the date such securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) deliver or cause to be delivered Property against
payment or other consideration or written receipt
therefor in the following cases:
(1) for examination by a broker or dealer selling
for the account of the Fund in accordance
with street delivery custom;
(2) for the exchange of interim receipts or
temporary securities for definitive
securities; and
(3) for transfer of securities into the name of
the Fund or PNC Bank or nominee of either, or
for exchange of securities for a different
number of bonds, certificates, or other
evidence, representing the same aggregate
face amount or number of units bearing the
same interest rate, maturity date and call
provisions, if any; provided that, in any
such case, the new securities are to be
delivered to PNC Bank.
<PAGE> 17
(B) Unless and until PNC Bank receives Oral Instructions
or Written Instructions to the contrary, PNC Bank
shall:
(1) pay all income items held by it which call
for payment upon presentation and hold the
cash received by it upon such payment for
the account of the Fund;
(2) collect interest and cash dividends
received, with notice to the Fund, to the
account of the Fund;
(3) hold for the account of the Fund all stock
dividends, rights and similar securities
issued with respect to any securities held
by PNC Bank; and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by
the Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or under the laws of any state
now or hereafter in effect, inserting the
Fund's name on such certificate as the owner
of the securities covered thereby, to the
extent it may lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written Instructions or Oral
Instructions establish and maintain a segregated accounts on
its records for and on behalf of the Fund. Such accounts may
be used to transfer cash and securities, including securities
in the Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option
exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered
investment companies; and
(B) Upon receipt of Written Instructions, for other
proper corporate purposes.
(j) Purchases of Securities. PNC Bank shall settle purchased
securities upon receipt of Oral Instructions or Written Instructions
from the Fund or its investment advisers that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
<PAGE> 18
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Fund involved; and
(vii) the name of the person from whom or the broker through whom
the purchase was made. PNC Bank shall upon receipt of
securities purchased by or for the Fund pay out of the moneys
held for the account of the Fund the total amount payable to
the person from whom or the broker through whom the purchase
was made, provided that the same conforms to the total amount
payable as set forth in such Oral Instructions or Written
Instructions.
(k) Sales of Securities. PNC Bank shall settle sold securities upon receipt
of Oral Instructions or Written Instructions from the Fund that
specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the
sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any.
PNC Bank shall deliver the securities upon receipt of the total amount payable
to the Fund upon such sale, provided that the total amount payable is the same
as was set forth in the
<PAGE> 19
Oral Instructions or Written Instructions. Subject to the foregoing, PNC Bank
may accept payment in such form as shall be satisfactory to it, and may deliver
securities and arrange for payment in accordance with the customs prevailing
among dealers in securities.
(l) Reports; Proxy Materials.
(i) PNC Bank shall furnish to the Custodian and the Fund the following
reports:
(A) such periodic and special reports as the Custodian and/or
the Fund may reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of the Fund, listing securities
belonging to the Fund with the adjusted average cost of
each issue and the market value at the end of such month
and stating the cash account of the Fund including
disbursements;
(C) the reports required to be furnished to the Fund pursuant
to Rule 17f-4; and
(D) such other information as may be agreed upon from time to
time between the Custodian or the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy statement,
proxy material, notice of a call or conversion or similar
communication received by it as sub-custodian of the Property. PNC
Bank shall be under no other obligation to inform the Fund as to
such actions or events.
(m) Collections. All collections of monies or other property in
respect, or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by PNC Bank) shall be at the sole risk
of the Fund. If payment is not received by PNC Bank within a reasonable
time after proper demands have been made, PNC Bank shall notify the Fund
in writing, including copies of all demand
<PAGE> 20
letters, any written responses, memoranda of all oral responses
and shall await instructions from the Fund. PNC Bank shall not be
obliged to take legal action for collection unless and until
reasonably indemnified to its satisfaction. PNC Bank shall also
notify the Custodian and the Fund as soon as reasonably
practicable whenever income due on securities is not collected in
due course and shall provide the Custodian and the Fund with
periodic status reports of such income collected after a
reasonable time.
16. DURATION AND TERMINATION. This Agreement shall continue until terminated
by the Custodian, the Fund or PNC Bank on 120 days' prior written notice
to the other parties.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. Notice shall be addressed (a) if to PNC Bank
at Airport Business Center, 200 Stevens Drive, Lester, Pennsylvania
19113, Attention: Brian Burns, (b) if to the Custodian, at Airport
Business Center, 200 Stevens Drive, Lester, Pennsylvania 19113, Attn: Sam
Sparhawk (c) if to the Fund at 466 Lexington Avenue, New York, New York
10017, Attn: President or (d) at such other address as shall have been
given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to
have been given immediately. If notice is sent by first-class mail, it
shall be deemed to have been given five days after it has been mailed. If
notice is sent by messenger, it shall be deemed to have been given on the
day it is delivered.
<PAGE> 21
19. AMENDMENTS. This Agreement, or any term hereof, may be changed or waived
only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
20. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and delegate its
duties hereunder to any majority-owned direct or indirect subsidiary of
PNC Bank, or PNC Bank Corp., provided that (i) PNC Bank receives the
Fund's prior written consent to such assignment or delegation; (ii) the
assignee or delegate agrees to comply with this Agreement and with the
relevant provisions of the 1940 Act and other applicable law; and (iii)
PNC Bank and such assignee or delegate promptly provide such information
as the Fund may reasonably request, and respond to such questions as the
Fund may reasonably ask, relative to the assignment or delegation
(including, without limitation, the capabilities of the assignee or
delegate). In the event of such delegation, PNC Bank shall remain liable
under this Agreement for the acts of its delegate or assignee.
21. 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.
22. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof.
23. MISCELLANEOUS.
(a) Entire Agreement. This Agreement shall be deemed to constitute a
separate Agreement between each Fund, PNC Bank and PFPC Trust, as
if each Fund had executed a separate Agreement naming only itself,
PNC Bank and PFPC Trust as
<PAGE> 22
parties. No Fund shall have any liability under this Agreement for the
obligations of any other Fund.
In the case of each Fund that is a series of an investment company
organized as a Massachusetts business trust, the declarations of trust
for each such trust refer to the trustees collectively as trustees and
not as individuals personally, and the declarations of trust provide that
no shareholder, trustee, officer, employee or agent of the trust shall be
subject to claims against or obligations of the trust to any extent
whatsoever, but that the trust estate only shall be liable.
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 duties and Oral Instructions.
(b) Captions. 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.
(c) Governing Law. This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. 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.
<PAGE> 23
(e) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof
by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC TRUST COMPANY
By:
------------------------
Title:
---------------------
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------
Title:
---------------------
<PAGE> 24
WARBURG, PINCUS BALANCED FUND, INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS CAPITAL APPRECIATION FUND
By:
------------------------
Title:
---------------------
WARBURG, PINCUS CASH RESERVE FUND, INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS EMERGING GROWTH FUND, INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS EMERGING MARKETS FUND, INC.
By:
------------------------
Title:
---------------------
<PAGE> 25
WARBURG, PINCUS FIXED INCOME FUND
By:
------------------------
Title:
---------------------
WARBURG, PINCUS GLOBAL FIXED INCOME FUND,
INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS GLOBAL POST-VENTURE CAPITAL
FUND, INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS GROWTH & INCOME FUND, INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS HEALTH SCIENCES FUND, INC.
By:
------------------------
Title:
---------------------
<PAGE> 26
WARBURG, PINCUS INSTITUTIONAL FUND, INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS INTERMEDIATE MATURITY
GOVERNMENT FUND, INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS INTERNATIONAL EQUITY FUND,
INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS INTERNATIONAL SMALL COMPANY
FUND, INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS JAPAN GROWTH FUND, INC.
By:
------------------------
<PAGE> 27
Title:
---------------------
WARBURG, PINCUS JAPAN SMALL COMPANY FUND,
INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS MAJOR FOREIGN MARKETS FUND,
INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS NEW YORK INTERMEDIATE
MUNICPAL FUND
By:
------------------------
Title:
---------------------
WARBURG, PINCUS NEW YORK TAX EXEMPT FUND,
INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS POST-VENTURE CAPITAL FUND,
INC.
By:
------------------------
<PAGE> 28
Title:
---------------------
WARBURG, PINCUS SMALL COMPANY GROWTH FUND,
INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS SMALL COMPANY VALUE FUND,
INC.
By:
------------------------
Title:
---------------------
WARBURG, PINCUS TRUST
By:
------------------------
Title:
---------------------
WARBURG, PINCUS PINCUS TRUST II
By:
------------------------
Title:
---------------------
WARBURG, PINCUS WORLDPERKS MONEY MARKET
FUND, INC.
By:
------------------------
<PAGE> 29
Title:
---------------------
WARBURG, PINCUS WORLDPERKS TAX FREE MONEY
MARKET FUND, INC.
By:
------------------------
Title:
---------------------
<PAGE> 30
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ---------------------------- -------------------------------
- ---------------------------- -------------------------------
- ---------------------------- -------------------------------
- ---------------------------- -------------------------------
- ---------------------------- -------------------------------
- ---------------------------- -------------------------------
<PAGE> 31
SCHEDULE A
- - Warburg, Pincus Balanced Fund, Inc.
- - Warburg, Pincus Capital Appreciation Fund
- - Warburg, Pincus Cash Reserve Fund, Inc.
- - Warburg, Pincus Emerging Growth Fund, Inc.
- - Warburg, Pincus Emerging Markets Fund, Inc.
- - Warburg, Pincus Fixed Income Fund
- - Warburg, Pincus Global Fixed Income Fund, Inc.
- - Warburg, Pincus Global Post-Venture Capital Fund, Inc.
- - Warburg, Pincus Growth & Income Fund, Inc.
- - Warburg, Pincus Health Sciences Fund, Inc.
- - Warburg, Pincus Institutional Fund, Inc.:
Emerging Markets Portfolio
International Equity Portfolio
Japan Growth Portfolio
Post-Venture Capital Portfolio
Small Company Growth Portfolio
Small Company Value Portfolio
Value Portfolio
- - Warburg, Pincus Intermediate Maturity Government Fund, Inc.
- - Warburg, Pincus International Equity Fund, Inc.
- - Warburg, Pincus International Small Company Fund, Inc.
- - Warburg, Pincus Japan Growth Fund, Inc.
- - Warburg, Pincus Japan Small Company Fund, Inc.
- - Warburg, Pincus Major Foreign Markets Fund, Inc.
- - Warburg, Pincus New York Intermediate Municipal Fund
- - Warburg, Pincus New York Tax Exempt Fund, Inc.
- - Warburg, Pincus Post-Venture Capital Fund, Inc.
- - Warburg, Pincus Small Company Growth Fund, Inc.
- - Warburg, Pincus Small Company Value Fund, Inc.
- - Warburg, Pincus Trust:
Emerging Markets Portfolio
Growth & Income Portfolio
International Equity Portfolio
Small Company Growth Portfolio
- - Warburg, Pincus Trust II:
Fixed Income Portfolio
Global Fixed Income Portfolio
- - Warburg, Pincus WorldPerks Money Market Fund, Inc.
- - Warburg, Pincus WorldPerks Tax Free Money Market Fund, Inc.
<PAGE> 1
EXHIBIT 9(i)
May __, 1999
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 Emerging Growth 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 .10% of the Portfolio's first $500 million in average daily
net assets, .075% of the Portfolio's next $1 billion in average daily net assets
and .05% of the Portfolio's average daily net assets over $1.5 billion,
exclusive of out-of-pocket expenses.
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> 1
EXHIBIT 9(j)
TRANSFER AGENCY AND SERVICE AGREEMENT
May __, 1999
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 Emerging
Growth 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> 1
EXHIBIT 10(a)
[WILLKIE FARR & GALLAGHER LETTERHEAD]
April 16, 1999
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 Emerging Growth
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 a telephonic meeting held on
November 20, 1998. 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.
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
<PAGE> 2
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 LLP, special Massachusetts counsel to the Trust, as to all matters of
Massachusetts law, which opinion is attached hereto.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
EXHIBIT 10(b)
[SULLIVAN & WORCESTER LLP LETTERHEAD]
Boston
April 16, 1999
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Re: Warburg Pincus Trust-Emerging Growth Portfolio
Post-Effective Amendment on Form N-1A
Ladies and Gentlemen:
You have requested our opinion as to certain matters of Massachusetts
law in connection with the filing by Warburg Pincus Trust, a Massachusetts trust
with transferable shares (the "Trust"), of Post-Effective Amendment No. 10 to
the Trust's Registration Statement on Form N-1A (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"),
Registration No. 33-58125, and Amendment No. 11 to the Trust's Registration
Statement under the Investment Company Act of 1940, as amended, Registration
No. 811-07261 (collectively, the "Amendment"), which is being filed for the
purpose of registering shares of beneficial interest, par value $.001 per
share (the "Portfolio Shares") of the Emerging Growth Portfolio, a newly
established series of the Trust (the "Portfolio").
We have acted as Massachusetts counsel to the Trust in connection with
the preparation of the Amendment and the authorization by the Trustees of the
Trust of the issuance and sale of the Portfolio Shares. In this connection we
have examined and are familiar with the Trust's Declaration of Trust filed with
the Secretary of the Commonwealth of Massachusetts on March 15, 1995, as amended
by a Certificate of Amendment filed April 4, 1995 and supplemented by
Certificates of Establishment and Designation filed April 18, 1996 and August 8,
1997, respectively, and further supplemented by a Certificate of Establishment
and Designation of the Emerging Growth Portfolio filed November 24, 1998 (as so
amended and supplemented, the "Declaration"), the Bylaws of the Trust, the forms
of the Prospectus (the "Prospectus") and the Statement of Additional
Information (the "SAI") relating to the Portfolio and included the Amendment,
substantially in the form in which they are to be filed with the Securities and
Exchange Commission (the "SEC"), the actions of the Trustees to organize the
Trust, to establish the Portfolio and to authorize the issuance of the
Portfolio Shares, certificates of Trustees and officers of the Trust and of
public officials as to matters of fact, and such other documents and
instruments, certified or otherwise identified to our satisfaction, and such
questions of law and fact, as we have considered necessary or appropriate for
purposes of the opinions expressed herein. We have assumed the genuineness of
the signatures on, and the authenticity of, all documents furnished to
<PAGE> 2
WILLKIE FARR & GALLAGHER -2- April 16, 1999
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:
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
Portfolio Shares; the Portfolio Shares to be offered for sale
by the Prospectus and SAI 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 Portfolio Shares, when duly sold, issued and paid for as
contemplated by the Registration Statement, 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 with the Amendment 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> 1
EXHIBIT 12(d)
PURCHASE AGREEMENT
Warburg, Pincus Trust (the "Trust"), a business trust organized under
the laws of the Commonwealth of Massachusetts, with respect to the Emerging
Growth Portfolio (the "Portfolio"), and Warburg, Pincus Asset Management, Inc.
("Warburg") hereby agree as follows:
1. The Trust offers Warburg and Warburg 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"). Warburg hereby acknowledges
receipt of a certificate representing the Initial Share, and the Trust hereby
acknowledges receipt from Warburg of $10.00 in full payment for the Initial
Share.
2. Warburg represents and warrants to the Trust that the Initial Share
is being acquired for investment purposes and not for the purpose of
distribution.
3. Warburg 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 Warburg
other than the Initial Share have not been acquired to fulfill the requirements
of Section 14 of the Investment Company Act of 1940, as amended, and, if
redeemed, their redemption proceeds will not be subject to reduction based on
the unamortized organizational expenses of the Portfolio.
4. The Trust and Warburg agree that the obligations of the Trust under
this Agreement will not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or future, of the
Trust, individually, but are binding only upon the assets and property of the
Trust, as provided in the Declaration of Trust. The execution and delivery of
this Agreement have been authorized by the Trustees of the Trust, and signed by
an authorized officer of the Trust, acting as such, and neither the
authorization by the Trustees nor the execution and delivery by the officer will
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but will bind only the trust property of
the Trust as provided in the Declaration of Trust. No series of the Trust,
including the Portfolio, will be liable for any claims against any other series.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the __ day of May, 1999.
WARBURG, PINCUS TRUST
By:
--------------------------
Name:
Title:
ATTEST:
----------------------------
WARBURG, PINCUS ASSET MANAGEMENT, INC.
By:
--------------------------
Name:
Title:
ATTEST:
----------------------------
