<PAGE> 1
As Filed with the Securities and Exchange Commission
on September 21, 1998
Securities Act File No. 333-59805
Investment Company Act File No. 811-08901
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. 1 [x]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 1 [x]
(Check appropriate box or boxes)
Warburg, Pincus Tax Free Money Market Fund, Inc.
------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
- ------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Tax Free Money Market Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
---------------------------------------
(Name and Address of Agent for Services)
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 the
effective date of this Registration Statement.
Title of Securities Being Registered: Common stock, $.001 par
value per share.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended (the "1933 Act"), or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE> 3
WARBURG, PINCUS WORLDPERKS TAX FREE MONEY MARKET FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Heading
- -------- ------------------
<S> <C>
1. Cover Page............................................. Cover Page
2. Synopsis............................................... The Funds' Expenses
3. Condensed Financial
Information....................................... Financial Highlights;
Performance
4. General Description of Registrant...................... Cover Page;
Investment Objective and
Policies; Portfolio
Investments; Risk Factors
and Special Considerations;
Certain Investment
Strategies; Investment
Guidelines; General
Information
5. Management of the Fund................................. Management of the Funds
6. Capital Stock and Other Securities..................... General Information
7. Purchase of Securities Being Offered................... How to Open an Account; How
to Purchase Shares;
Management of the Funds;
Net Asset Value
8. Redemption or Repurchase............................... How to Redeem and Exchange Shares
9. Pending Legal Proceedings.............................. Not applicable
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Part B Statement of Additional
Item No. Information Heading
- -------- -------------------
<S> <C>
10. Cover Page............................................. Cover Page
11. Table of Contents...................................... Contents
12. General Information and
History........................................... Management of the Funds;
Notes to Financial
Statements; See Prospectus-
-"General Information"
13. Investment Objectives and Policies..................... Investment Objective;
Investment Policies
14. Management of the Fund................................. Management of the Funds;
See Prospectus --
"Management of the Funds"
15. Control Persons and Principal Holders of Securities.... Management of the Funds;
Miscellaneous; See
Prospectus--"Management of
the Funds"
16. Investment Advisory and Other Services................. Management of the Funds;
See Prospectus--
"Management of the Funds"
and "Shareholder Servicing"
17. Brokerage Allocation and Other Practices............... Investment Policies; See
Prospectus-- "Portfolio
Transactions"
18. Capital Stock and Other Securities..................... Management of the Funds;--
Organization of the Funds
See Prospectus-- "General
Information"
19. Purchase, Redemption and Pricing of Securities Being
Offered........................................... Additional Purchase and
Redemption Information; See
Prospectus--"How to
Purchase Shares," "How to
Redeem and Exchange Shares"
and "Net Asset Value"
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
20. Tax Status............................................. Additional Information
Concerning Taxes; See
Prospectus--"Dividends,
Distributions and Taxes"
21. Underwriters........................................... Investment Policies;
Portfolio Transactions; See
Prospectus--"Management of
the Funds" and "Shareholder
Servicing"
22. Calculation of Performance Data........................ Determination of Yield
23. Financial Statements................................... Report of
PricewaterhouseCoopers
LLP, Independent
Accountants;
Financial Statements
</TABLE>
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
SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 1998
[NORTHWEST AIRLINES WORLDPERKS LOGO]
PROSPECTUS
October 1, 1998
WORLDPERKS(R) INVESTORMILES(SM)
WARBURG PINCUS WORLDPERKS
MONEY MARKET FUND
B
WARBURG PINCUS WORLDPERKS
TAX FREE MONEY MARKET FUND
LOGO
<PAGE> 7
SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 1998
PROSPECTUS October 1, 1998
This Prospectus offers two money market funds (the "Funds") that are available
through the WorldPerks(R) InvestorMiles(SM) Program:
WARBURG PINCUS WORLDPERKS MONEY MARKET FUND (the "Money Market Fund") is
designed to provide investors with high current income consistent with
preservation of capital and liquidity.
WARBURG PINCUS WORLDPERKS TAX FREE MONEY MARKET FUND (the "Tax Free Fund") is
designed to provide investors with high current income exempt from federal
personal income taxes consistent with preservation of capital and liquidity.
IF YOU ARE NOT INTERESTED IN OBTAINING WORLDPERKS MILES, THE FUNDS MAY NOT BE AN
APPROPRIATE INVESTMENT FOR YOU.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. ALTHOUGH EACH FUND SEEKS TO MAINTAIN A CONSTANT NET ASSET VALUE OF
$1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT CAN DO SO ON A CONTINUING
BASIS.
NORTHWEST AIRLINES WORLDPERKS(+) MILES
- --------------------------------------------------------------------------------
Investments in each Fund are eligible to accrue WorldPerks Bonus Miles in
Northwest Airlines' WorldPerks Program, based on amount and length of time of
investment. The WorldPerks Program offers free and discounted award travel on
Northwest Airlines, KLM Royal Dutch Airlines and other WorldPerks partner
airlines. If you are not a member of the WorldPerks Program, you can call
Northwest Airlines at 800-44-PERKS to enroll before you make an investment in a
Fund.
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Funds has been filed with the Securities and Exchange Commission (the "SEC").
The SEC maintains a Web site (www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference and other information
regarding the Funds. The Statement of Additional Information is also available
upon request and without charge by calling Warburg Pincus Funds at 800-WARBURG
(800-927-2874). Information regarding the status of shareholder accounts may
also be obtained by calling a Fund at the same number. Warburg Pincus Funds
maintains a Web site at www.warburg.com. The Statement of Additional Information
bears the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
(+) WorldPerks is a registered trademark of Northwest Airlines, Inc.
<PAGE> 8
THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Tax
Market Free
Fund Fund
---- ----
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price).................................... 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets) (after fee
waivers)
Management Fee.......................................... .25% .25%
12b-1 Fees*............................................. .25 .25
Other Expenses.......................................... .26 .26
---- ----
Total Fund Operating Expenses (after fee waivers and
expense reimbursements)+.............................. .76% .76%
==== ====
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................................................... $ 8 $ 8
3 Years.................................................. $24 $24
</TABLE>
- --------------------------------------------------------------------------------
* The Funds anticipate that the 12b-1 Fees charged for the coming fiscal period
will be used primarily to pay for Northwest Airlines WorldPerks miles.
+ The Funds' investment adviser and co-administrator have undertaken to limit
Total Fund Operating Expenses to the limit shown above through February 28,
1999. Absent the waiver of fees by the Funds' investment adviser and co-
administrator, Management Fees would equal .40%, Other Expenses would equal
38% and Total Fund Operating Expenses would equal 1.03%. Other Expenses for
the Fund are based on annualized estimates of expenses for the fiscal period
ending December 31, 1998, net of any fee waivers or expense reimbursements.
The investment adviser and co-administrator are under no obligation to
continue these waivers.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an investor in each Fund. The Example should not be
considered a representation of past or future expenses; actual Fund expenses may
be greater or less than those shown. Moreover, while the Example assumes a 5%
annual return, each Fund's actual performance will vary and may result in a
return greater or less than 5%. Long term shareholders of the Funds may pay more
than the economic equivalent of the maximum sales charges permitted by the
National Association of Securities Dealers, Inc.
2
<PAGE> 9
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Warburg Pincus WorldPerks Money Market Fund (the "Money Market Fund") is a
diversified money market mutual fund whose investment objective is high current
income consistent with preservation of capital and liquidity. The Warburg Pincus
WorldPerks Tax Free Money Market Fund (the "Tax Free Fund") is a diversified
money market mutual fund whose objective is to provide investors with high
current income exempt from federal personal income taxes consistent with
preservation of capital and liquidity. Each objective may be changed only with
the approval of the investors in that Fund. There can be, of course, no
assurance that a Fund will achieve its investment objective. Investors should be
aware that the market value of the obligations in each Fund's portfolio can be
expected to vary inversely to changes in prevailing interest rates. See "Certain
Investment Strategies" for descriptions of certain types of investments the
Funds may make.
MONEY MARKET FUND
The Money Market Fund will attempt to achieve its investment objective by
investing in a portfolio of high quality "money market" instruments consisting
of United States Treasury Bills, other obligations issued or guaranteed by the
United States government, its agencies or instrumentalities ("Government
Securities"); bank and bank holding company obligations such as certificates of
deposit, bankers' acceptances, time deposits, commercial paper and debt
obligations; commercial paper and notes of other corporate issuers, including
those with floating or variable rates of interest (including variable rate
master demand notes); and repurchase agreements with respect to the foregoing.
In addition to the Government Securities which the Fund may purchase, except
during temporary defensive periods the Fund will invest more than 25% of its
assets in money market investments issued by (i) commercial and industrial banks
and savings and loan associations and their holding companies and other issuers
in the banking industry and (ii) consumer and industrial finance companies,
diversified financial service companies, investment banking, securities
brokerage and investment advisory companies, leasing companies and insurance
companies and other companies in the financial services sector. Although the
Fund intends to be diversified across (i) the banking industry and (ii) each of
the industries comprising the financial services sector, to the extent that the
Fund invests a significant portion of its assets in the banking industry and the
financial services sector it is subject to the risks associated with investing
in banking and financial services issuers. Up to 25% of the assets of the Fund
may be invested at any time in the debt obligations of issuers conducting their
principal business activities in any industry other than banking. In addition,
the Fund may invest up to 25% of its assets in the debt obligations of a single
issuer for a period of up to three business days. Securities issued by the
United States or its agencies or instrumentalities may be purchased without
regard to these limits.
3
<PAGE> 10
TAX FREE FUND
The Tax Free Fund expects that, except during temporary defensive periods, at
least 80% of the Fund's assets will be invested in short-term, high-quality
tax-exempt debt obligations issued by or on behalf of the states, territories
and possessions of the United States, the District of Columbia and their
respective authorities, agencies, instrumentalities and political subdivisions
("Municipal Securities"). Dividends paid by the Fund which are derived from
interest on Municipal Securities will be excluded from gross income for federal
income tax purposes, but will be subject to state and local personal income
taxes.
Municipal Securities in which the Fund may invest include commercial paper,
notes and bonds. Interest on certain bonds issued after August 7, 1986 to
finance certain non-governmental activities ("Alternative Minimum Tax
Securities") is a preference item for purposes of the federal individual and
corporate alternative minimum taxes, but is exempt from regular federal income
tax. The Fund is authorized to invest up to 20% of its assets in Alternative
Minimum Tax Securities. The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments or tax
preference items. Available returns on Alternative Minimum Tax Securities
acquired by the Fund may be lower than those from newly issued Municipal
Securities acquired by the Fund due to the possibility of federal, state and
local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities.
The Fund may for defensive or other purposes invest without limit in certain
short-term taxable securities when the Fund's investment adviser or
sub-investment adviser believes that it would be in the best interests of the
Fund's investors. Taxable securities in which the Fund may invest on a short-
term basis are Government Securities, including repurchase agreements with banks
or securities dealers involving such securities, time deposits maturing in not
more than seven days, other debt securities, commercial paper and certificates
of deposit issued by United States branches of United States banks with assets
of $1 billion or more. At no time will more than 20% of the Fund's total assets
be invested in taxable short-term securities unless the Fund's investment
adviser has determined to temporarily adopt a defensive investment policy in the
face of an anticipated softening in the market for Municipal Securities in
general.
GENERAL
- --------------------------------------------------------------------------------
PRICE AND PORTFOLIO MATURITY. Each Fund invests only in securities which are
purchased with and payable in U.S. dollars and which have (or, pursuant to
regulations adopted by the SEC, are deemed to have) remaining maturities of 397
calendar days or less at the date of purchase by a Fund. For this purpose,
variable rate master demand notes (as described below), which are payable on
demand, or, under certain conditions, at specified periodic intervals not
exceeding 397 calendar days, in either case on not more than
4
<PAGE> 11
30 days' notice, will be deemed to have remaining maturities of 397 calendar
days or less. The Fund maintains a dollar-weighted average portfolio maturity of
90 days or less. The Fund follows these policies to maintain a constant net
asset value of $1.00 per share, although there is no assurance that it can do so
on a continuing basis.
PORTFOLIO QUALITY AND DIVERSIFICATION. Each Fund will limit its portfolio
investments to securities that its Board determines present minimal credit risks
and which are "Eligible Securities" at the time of acquisition by a Fund. The
term Eligible Securities includes securities rated by the "Requisite NRSROs" in
one of the two highest short-term rating categories, securities of issuers that
have received such ratings with respect to other short-term debt securities and
comparable unrated securities. "Requisite NRSROs" means (i) any two nationally
recognized statistical rating organizations ("NRSROs") that have issued a rating
with respect to a security or class of debt obligations of an issuer, or (ii)
one NRSRO, if only one NRSRO has issued a rating with respect to such security
or issuer at the time that the Fund acquires the security. The Funds may
purchase securities that are unrated at the time of purchase that a Fund's
investment adviser and sub-investment adviser deem to be of comparable quality
to rated securities that the Fund may purchase. The NRSROs currently designated
as such by the SEC are Standard & Poor's Ratings Services ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), FitchIBCA, Inc. and Duff and Phelps, Inc. A
discussion of the ratings categories of the NRSROs is contained in the Appendix
to the Fund's Statement of Additional Information.
The Funds have adopted certain credit quality, maturity and diversification
requirements under Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act"), as operating policies. Under these policies, there are
two tiers of Eligible Securities, first and second tier, based on their ratings
by NRSROs or, if the securities are unrated, on determinations by a Fund's
investment adviser and sub-investment adviser. These policies generally restrict
a Fund from investing more than 5% of its assets in second tier securities and
limit to 5% of assets the portion that may be invested in any one issuer. In
addition, the credit quality and diversification policies vary to some extent
between the Money Market and the Tax Free Funds because the Tax Free Fund is a
tax exempt fund.
YEAR 2000 COMPLIANCE. Many services provided to the Funds and their
shareholders by Warburg Pincus Asset Management, Inc., each Fund's investment
adviser ("Warburg"), and BlackRock Institutional Management Corporation, each
Fund's sub-investment adviser ("BIMC"), and certain of their affiliates
(collectively, the "Service Providers") and a Fund's other service providers
rely on the functioning of their respective computer systems. Many computer
systems cannot distinguish the year 2000 from the year 1900, with resulting
potential difficulty in performing various calculations (the "Year 2000 Issue").
The Year 2000 Issue could potentially have an adverse
5
<PAGE> 12
impact on the handling of security trades, the payment of interest and
dividends, pricing, account services and other Fund operations.
The Service Providers recognize the importance of the Year 2000 Issue and are
taking appropriate steps necessary in preparation for the year 2000. At this
time, there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds nor can there be any assurance that the Year 2000
Issue will not have an adverse effect on a Fund's investments or on global
markets or economies, generally.
The Service Providers anticipate that their systems and those of the Funds'
other service providers will be adapted in time for the year 2000. To further
this goal, the Service Providers have coordinated a plan to repair, adapt or
replace systems that are not year 2000 compliant, and are seeking to obtain
similar representations from the Funds' other major service providers. The
Service Providers will be monitoring the Year 2000 Issue in an effort to ensure
appropriate preparation.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Set forth below are descriptions of investments the Fund may make. More
detailed information concerning these investments and their related risks is
contained in the Fund's Statement of Additional Information.
BANK OBLIGATIONS. The Money Market Fund may purchase bank obligations,
including United States dollar-denominated instruments issued or supported by
the credit of the United States or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion. While the Fund
will invest in obligations of foreign banks or foreign branches of United States
banks only if the Fund's investment adviser and sub-investment adviser deem the
instrument to present minimal credit risks, such investments may nevertheless
entail risks that are different from those of investments in domestic
obligations of United States banks due to differences in political, regulatory
and economic systems and conditions. Such risks include future political and
economic developments, the possible imposition of withholding taxes on interest
income, possible establishment of exchange controls or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. The Fund may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its assets.
VARIABLE RATE MASTER DEMAND NOTES. Each Fund may also purchase variable rate
master demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Although the notes are not normally traded and there may be no
secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time and may resell the note at any time to a third
party. In the event an issuer of a variable rate master demand note defaulted on
its payment obligation, the Fund might be unable
6
<PAGE> 13
to dispose of the note because of the absence of a secondary market and might,
for this or other reasons, suffer a loss to the extent of the default.
GOVERNMENT SECURITIES. Government Securities in which the Fund may invest
include Treasury Bills, Treasury Notes and Treasury Bonds; other obligations
that are supported by the full faith and credit of the United States Treasury,
such as Government National Mortgage Association pass-through certificates;
obligations that are supported by the right of the issuer to borrow from the
Treasury, such as securities of Federal Home Loan Banks; and obligations that
are supported only by the credit of the instrumentality, such as Federal
National Mortgage Association bonds.
REPURCHASE AGREEMENTS. Each Fund may agree to purchase money market
instruments from financial institutions such as banks and broker-dealers subject
to the seller's agreement to repurchase them at an agreed-upon date and price
("repurchase agreements"). The repurchase price generally equals the price paid
by a Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Default by a seller, if the Fund is delayed or prevented
from exercising its rights to dispose of the collateral securities, could expose
the Fund to possible loss, including the risk of a possible decline in the value
of the underlying securities during the period while the Fund seeks to assert
its rights thereto. Repurchase agreements are considered to be loans by the Fund
under the 1940 Act.
WHEN-ISSUED SECURITIES. Each Fund may purchase portfolio securities on a
"when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. A Fund
will generally not pay for such securities or start earning interest on them
until they are received. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. The Fund expects that commitments to
purchase when-issued securities will not exceed 25% of the value of its total
assets absent unusual market conditions, and that a commitment by the Fund to
purchase when-issued securities will generally not exceed 45 days. The Fund does
not intend to purchase when-issued securities for speculative purposes but only
in furtherance of its investment objectives.
STAND-BY COMMITMENTS. The Tax Free Fund may acquire "stand-by commitments"
with respect to Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at the Fund's option, specified
Municipal Securities at a specified price. The principal risk of a stand-by
commitment is that the writer of a commitment may default on its obligation to
repurchase the securities acquired by it. The Fund intends to enter into
stand-by commitments only with brokers, dealers and banks that, in the opinion
of its advisers, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the investment adviser
and sub-investment adviser will review periodically relevant financial
information concerning the issuer's assets, liabilities and contingent claims.
7
<PAGE> 14
The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
THIRD PARTY PUTS. The Tax Free Fund may purchase long-term fixed rate bonds
that have been coupled with an option granted by a third party financial
institution allowing the Fund at specified intervals to tender (or "put") the
bonds to the institution and receive the face value thereof (plus accrued
interest). The Fund receives a short-term rate of interest (which is
periodically reset), and the interest rate differential between that rate and
the fixed rate on the bond is retained by the financial institution. The
financial institution does not provide credit enhancement, and in the event that
there is a default in the payment of principal or interest, or downgrading of a
bond to below investment grade, or a loss of the bond's tax-exempt status, the
put option will terminate automatically, the risk to the Fund will be that of
holding such a long-term bond and the dollar-weighted average maturity of its
portfolio would be adversely affected. See the Fund's Statement of Additional
Information, "Investment Policies -- Additional Information and Policies."
SPECIAL CONSIDERATIONS AND RISK FACTORS RELATING TO THE MONEY MARKET FUND. To
the extent that the Money Market Fund invests a significant portion of its
assets in money market instruments issued by companies in the banking industry
and the financial services sector, the Fund is subject to the risks associated
with investing in banking and financial services issuers. The companies within
the banking industry and the financial services sector are subject to extensive
regulation, rapid business changes, volatile performance dependent upon the
availability and cost of capital and prevailing interest rates, and significant
competition. General economic conditions significantly affect these companies.
Credit and other losses resulting from the financial difficulty of borrowers or
other third parties have a potentially adverse effect on companies in this
industry. Investment banking, securities brokerage and investment advisory
companies are particularly subject to government regulation and the risks
inherent in securities trading and underwriting activities. Insurance companies
are particularly subject to government regulation and rate setting, potential
antitrust and tax law changes, and industry-wide pricing and competition cycles.
Property and casualty insurance companies may also be affected by weather and
other catastrophes. Life and health insurance companies may be affected by
mortality and morbidity rates, including the effects of epidemics. Individual
insurance companies may be exposed to reserve inadequacies, problems in
investment portfolios and failures by reinsurance carriers.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELATING TO THE TAX FREE FUND. In
seeking to achieve its investment objective the Tax Free Fund may invest all or
any part of its assets in Municipal Securities which are industrial development
bonds. Moreover, although the Fund does not currently intend to do so on a
regular basis, it may invest more than 25% of its assets in Municipal Securities
8
<PAGE> 15
the interest on which is paid solely from revenues of economically related
projects, if such investment is deemed necessary or appropriate by the Fund's
investment adviser and sub-investment adviser. To the extent that the Fund's
assets are concentrated in Municipal Securities payable from revenues on
economically related projects and facilities, the Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if the Fund's assets were not so concentrated.
The Tax Free Fund also invests in securities backed by guarantees from banks
and other financial institutions. The Fund's ability to maintain a stable share
price is largely dependent upon such guarantees, which are not supported by
federal deposit insurance. Consequently, changes in the credit quality of these
institutions could have an adverse impact on securities they have guaranteed or
backed, which could cause losses to the Fund and affect its share price.
Other considerations affecting the Tax Free Fund's investments in Municipal
Securities are summarized in the Statement of Additional Information.
INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
Each Fund may invest up to an aggregate of 10% of its net assets in illiquid
securities with contractual or other restrictions on resale and other
instruments which are not readily marketable. Each Fund is also authorized to
borrow and to enter into reverse repurchase agreements in an amount of up to 10%
of its total assets for temporary or emergency purposes, but not for leverage,
and to pledge its assets to the same extent in connection with such borrowings.
Whenever borrowings exceed 5% of the value of a Fund's total assets, the Fund
will not make any additional investments (including roll-overs). A more detailed
description of these policies, together with an enumeration of additional
investment restrictions that each Fund has adopted and that cannot be changed
without the approval of the holders of a majority of the Fund's outstanding
shares, is contained in the Fund's Statement of Additional Information.
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. Each Fund employs Warburg as investment adviser and BIMC
as sub-investment adviser. In its Advisory Agreement with each Fund, Warburg has
agreed to be responsible, subject to the supervision and direction of the Board,
for the Fund's investment program, including decisions concerning: (i) the
specific types of securities to be held by the Fund and the proportion of the
Fund's assets that should be allocated to such investments during particular
market cycles, (ii) the specific issuers whose securities will be purchased or
sold by the Fund, (iii) the maximum maturity (under one year) of its portfolio
investments, (iv) the appropriate average weighted maturity of its portfolio in
light of current market conditions and (v) with respect to the Tax Free Fund,
the extent to which taxable securities will be purchased for and held by the Tax
Free Fund and the extent to which
9
<PAGE> 16
securities other than Municipal Securities will be purchased for and held by
the Tax Free Fund. In addition, Warburg has each agreed to supervise the
performance by the sub-investment adviser of the functions described below.
For the services provided pursuant to the Advisory Agreement, Warburg is
entitled to receive a fee, computed daily and payable monthly, at the annual
rate of .40% of the value of each Fund's average daily net assets, out of which
Warburg pays BIMC for sub-investment advisory services. Warburg, BIMC and each
Fund's administrators may voluntarily waive a portion of their fees from time to
time and temporarily limit the expenses to be paid by a Fund.
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 August 31, 1998,
Warburg managed approximately $18.4 billion of assets, including approximately
$10.2 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.
SUB-INVESTMENT ADVISER. BIMC, formerly PNC Institutional Management
Corporation, a wholly owned indirect subsidiary of PNC Bank, National
Association ("PNC"), serves as each Fund's sub-investment adviser. BIMC was
organized in 1977 by PNC to perform advisory services for investment companies
and has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware
19809. As of July 31, 1998, BIMC served as investment adviser to 20 mutual fund
portfolios and as sub-investment adviser to 15 mutual funds, having total assets
exceeding $42 billion.
As sub-investment adviser, BIMC has agreed to implement each Fund's investment
program as determined by the Board and Warburg. BIMC will supervise the
day-to-day operations of the relevant Fund and perform the following services:
(i) providing investment research and credit analysis concerning the Fund's
investments, (ii) placing orders for all purchases and sales of the Fund's
portfolio investments and (iii) maintaining the books and records required to
support the Fund's operations. BIMC also calculates the Fund's net asset value,
provides accounting services for the Fund and assists in related aspects of the
Fund's operations.
CO-ADMINISTRATORS. The Funds employ Credit Suisse Asset Management Ltd., a
wholly-owned subsidiary of Credit Suisse Group ("CSAM"), as a co-administrator.
As co-administrator, CSAM provides shareholder liaison services to the Fund
including responding to shareholder inquiries and providing information on
shareholder investments. CSAM also performs a variety of other services,
including furnishing certain executive and administrative services, acting as
liaison between a Fund and its various service providers, furnishing corporate
secretarial services, which include preparing materials for meetings of the
Board, assisting in the preparation of
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<PAGE> 17
proxy statements, annual and semiannual reports, tax returns and monitoring and
developing compliance procedures for the Fund. As compensation, each Fund pays
to CSAM a fee calculated at an annual rate of .10% of the Fund's average daily
net assets, exclusive of out-of-pocket expenses. CSAM may delegate to
Counsellors Funds Service, Inc., a wholly-owned subsidiary of Warburg,
responsibility for most of its co-administrative services. CSAM's principal
offices are located at Beaufort House, 15 St. Botolph Street, GB-London EC3A
7JJ.
The Funds also employ PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary
of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
a Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Fund
pays to PFPC a fee calculated at an annual rate of .10% of the Fund's first $500
million in average daily net assets, .075% of the next $1 billion in average
daily net assets, and .05% of average daily net assets over $1.5 billion,
subject to a minimum annual fee and exclusive of out-of-pocket expenses. PFPC
has its principal offices at 400 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIAN. PNC serves as the custodian of each Fund's assets. PNC is a
subsidiary of PNC Bank Corp. and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103.
TRANSFER AGENT. State Street Bank and Trust Company ("State Street") serves as
shareholder servicing agent, transfer agent and dividend disbursing agent for
the Funds. State Street has delegated to Boston Financial Data Services, Inc.,
an affiliated company ("BFDS"), responsibility for most shareholder servicing
functions. State Street's principal business address is 225 Franklin Street,
Boston, Massachusetts 02110. BFDS's principal business address is 2 Heritage
Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities Inc. ("Counsellors Securities") serves as
distributor of the shares of the Funds. Counsellors Securities is a wholly owned
subsidiary of Warburg and is located at 466 Lexington Avenue, New York, New York
10017-3147. Counsellors Securities receives a fee at an annual rate equal to
.25% of the average daily net assets of each Fund's Common Shares for
distribution services, pursuant to a shareholder servicing and distribution plan
(the "12b-1 Plan") adopted by each Fund pursuant to Rule 12b-1 under the 1940
Act. Amounts paid to Counsellors Securities under a 12b-1 Plan may be used by
Counsellors Securities to cover expenses that are primarily intended to result
in, or that are primarily attributable to, (i) the sale of the Common Shares,
including payments in connection with the Funds' participation in the Northwest
Airlines WorldPerks program, (ii) ongoing servicing and/or maintenance of the
accounts of Common Shareholders of a Fund and (iii) sub-transfer agency
services, subaccounting services or administrative services related to the sale
of the Common Shares, all as set forth in the 12b-1 Plans. Payments under the
12b-1 Plans are not tied exclusively to the distribution expenses actually
incurred by Counsellors
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<PAGE> 18
Securities and the payments may exceed distribution expenses actually
incurred. The Board of the Funds evaluate the appropriateness of the 12b-1 Plans
on a continuing basis and in doing so consider all relevant factors, including
expenses borne by Counsellors Securities and amounts received under the 12b-1
Plans. Warburg or its affiliates may also bear a portion of the expense for the
Funds' participation in the WorldPerks program.
DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to its Board. The Board of a Fund sets
broad policies for each Fund and chooses the Fund's officers. A list of the
Directors and officers of each Fund and a brief statement of their present
positions and principal occupations during the past five years is set forth in
the Statement of Additional Information.
NORTHWEST AIRLINES WORLDPERKS(R) MILES
- --------------------------------------------------------------------------------
Investments in each Fund are eligible to accrue WorldPerks Bonus Miles in
Northwest Airlines' WorldPerks Program, based on the amount and length of time
of investment. The WorldPerks Program offers free and discounted award travel on
Northwest Airlines, KLM Royal Dutch Airlines and other WorldPerks partner
airlines. If you are not a member of the WorldPerks Program, you can call
Northwest Airlines at 800-44-PERKS to enroll before you make an investment in a
Fund. Northwest Airlines WorldPerks Bonus Miles accrue daily at an annual rate
of one mile per $4 invested in a Fund. Miles will be posted monthly in arrears
to each shareholder's WorldPerks account based on the shareholder's average
daily Fund account balance during the previous month. In addition, from November
1998 through April 1999, investors will earn 200 additional miles for each month
they have at least $5,000 invested in a Fund. Accordingly, investors can receive
up to 1,200 additional Bonus Miles by investing in a Fund by November 30, 1998.
The average daily balance is calculated by adding each day's balance and
dividing by the number of days in the month. For example, the average daily
balance on a $10,000 account funded on the 16th day of a month having 30 days
(and maintained at that balance through the end of the month) would be $5,000.
Mileage received for that month would be 105 miles. If the same balance were
maintained through the next 30-day month, the average daily balance would be
$10,000, and the mileage would be 209 miles that month and every month the
$10,000 investment was maintained in a Fund. All mileage credits of less than
one mile will be rounded up to the nearest whole mile when credited. These miles
would appear on subsequent Northwest Airlines WorldPerks Mileage Summary
statements. Investors should telephone Warburg Pincus Funds at 800-WARBURG
(800-927-2874) for information or assistance regarding the WorldPerks
InvestorMiles Program.
The posting of WorldPerks Bonus Miles in connection with Fund investments may
be terminated or the amount of miles awarded in relation to dollars invested may
be limited or changed. Investors should refer to Northwest WorldPerks member
materials for information about program
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<PAGE> 19
features. Northwest Airlines may change the WorldPerks Program rules, program
partners, regulations, benefits, conditions of participation or mileage levels,
in whole or in part, at any time, without notice to shareholders or Warburg,
even though changes may affect the value of mileage or FlyWrite(SM) certificates
already accumulated. Award travel is subject to seat availability. Northwest
Airlines WorldPerks travel awards, mileage accrual and special offers are
subject to governmental regulations.
HOW TO OPEN AN ACCOUNT
- --------------------------------------------------------------------------------
Accounts in the Funds may only be opened by WorldPerks members. If you are not
a member of the WorldPerks Program, you can call Northwest Airlines at
800-44-PERKS to enroll before you make an investment in a Fund.
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at 800-927-2874. An investor may also obtain an account application
by
writing
to:
Warburg Pincus WorldPerks Funds
P.O. Box 9030
Boston, MA 02205-9030
OR
Overnight to:
Boston Financial
Attn: Warburg Pincus WorldPerks Funds
2 Heritage Drive
North Quincy, MA 02171
Completed and signed account applications should be sent to the above.
UTMA/UGMA ACCOUNTS. For information about opening a Uniform Transfers to
Minors Act ("UTMA") or Uniform Gifts to Minors Act ("UGMA") account in a Fund,
an investor should telephone Warburg Pincus Funds at 800-927-2874 or write to
Warburg Pincus Funds at the address set forth above. Investors should consult
their own tax advisers about the establishment of UTMA or UGMA accounts.
Retirement plans, trusts, corporations, partnerships and certain other legal
entities cannot invest in the Funds.
ACCOUNT REGISTRATION AND MILEAGE AWARDS. Because of limitations applicable to
the Northwest Airlines WorldPerks Program, airline miles will be credited
exclusively to the WorldPerks account of the first-named person on a joint
account and the minor child on an UTMA/UGMA account.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration, address and/or privileges, an
investor should telephone Warburg Pincus Funds at 800-927-2874. Shareholders are
responsible for maintaining current account registrations and addresses with the
Fund. No interest will be paid on amounts represented by uncashed distribution
or redemption checks.
13
<PAGE> 20
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares of each Fund may be purchased either by mail or, with special advance
instructions, by wire and automated clearing house transactions ("ACH on
Demand"). The minimum initial investment in each Fund is $5,000 and the minimum
subsequent investment is $100. For UTMA/UGMA accounts in the Money Market Fund,
the minimum initial investment is $500. Subsequent minimum investments are $50
under the Automatic Monthly Investing Plan or by ACH on Demand, as described
below. Each Fund reserves the right to change the initial and subsequent
investment minimum requirements at any time and to charge investors a fee if
their account balance falls below the initial investment minimum due to
redemptions. In addition, a Fund may, in its sole discretion, waive the initial
and subsequent investment minimum requirements with respect to investors who are
employees of Warburg or its affiliates or persons with whom Warburg has entered
into an investment advisory agreement. Existing investors will be given 15 days'
notice by mail of any increase in minimum investment requirements or any
imposition of a fee for small accounts.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Fund
are not normally issued.
BY MAIL. If the investor desires to purchase shares by mail, a check or money
order made payable to a Fund or Warburg Pincus Funds (in U.S. currency) should
be sent along with the completed account application to the address set forth
above. Checks payable to the investor and endorsed to the order of the Fund or
Warburg Pincus Funds will not be accepted as payment and will be returned to the
sender. If payment is received in proper form prior to the close of regular
trading on The New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m.,
Eastern time) on a day that a Fund calculates its net asset value (a "business
day"), the purchase will be made at the relevant Fund's net asset value
calculated at the end of that day. If payment is received at or after the close
of regular trading on the NYSE, the purchase will be effected at the relevant
Fund's net asset value next determined after payment has been received. Checks
or money orders that are not in proper form or that are not accompanied or
preceded by a complete account application will be returned to the sender.
Shares purchased by check or money order are entitled to receive dividends and
distributions beginning on the day payment is received. Checks or money orders
in payment for shares of more than one Warburg Pincus Fund should be made
payable to Warburg Pincus Funds and should be accompanied by a breakdown of
amounts to be invested in each fund. If a check used for purchase does not
14
<PAGE> 21
clear, the Fund will cancel the purchase and the investor may be liable for
losses or fees incurred. For a description of the manner of calculating the
Fund's net asset value, see "Net Asset Value" below.
BY WIRE. Investors may also purchase shares in a Fund by wiring funds from
their banks. Telephone orders by wire will not be accepted until a completed
account application in proper form has been received and accepted and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning 800-927-2874. Federal funds may be wired using
the following wire address:
State Street Bank and Trust Company
ABA# 0110 000 28
Attn.: Mutual Funds/Custody Department
[Warburg Pincus Fund name]
DDA# 9904-649-2
F/F/C: [Account Number and Account Registration]
If a telephone order is received before 12:00 p.m. (Eastern time) and payment
by wire is received on the same day in proper form in accordance with
instructions set forth above, the purchase will be executed at noon and shares
are entitled to dividends and distributions beginning on that day. If payment by
wire is received in proper form before 12:00 p.m. without a prior telephone
order, that purchase and any telephone orders placed after 12:00 p.m. for which
payment by wire is received on the same day in proper form, will be priced at
the net asset value of the Fund as of the close of regular trading on the NYSE
on that day and is entitled to dividends and distributions beginning the next
business day. Payment for orders that are not accepted will be returned to the
prospective investor after prompt inquiry. If a telephone order is placed and
payment by wire is not received on the same day, the Fund will cancel the
purchase and the investor may be liable for losses or fees incurred.
AUTOMATIC MONTHLY INVESTMENT PLAN AND ACH ON DEMAND. The Automatic Monthly
Investment Plan allows shareholders to authorize a Fund or its agent to debit
their bank account monthly ($50 minimum) for the purchase of Fund shares on or
about either the tenth or twentieth calendar day of each month. Shareholders may
also purchase shares by calling 800-927-2874 on any business day to request
direct debit or credit (for redemptions) of their bank account through an ACH on
Demand transaction.
To establish the Automatic Monthly Investment Plan and/or ACH on Demand
option, obtain a separate application or complete the relevant section of the
account application. Only an account maintained at a financial institution which
is an automated clearing house member may be used, and one common name must
appear on both the shareholder's Fund registration and bank account
registration. Shareholders using this service must satisfy the initial
investment minimum for the Fund prior to or concurrent with the start of any
Automatic Monthly Investment Plan or ACH on Demand transaction. Please contact
Warburg Pincus Funds at 800-927-2874 for additional information. Investors
should allow a period of up to 30 days in
15
<PAGE> 22
order to implement an Automatic Monthly Investment Plan or ACH on Demand
transaction. The failure to provide complete information could result in further
delays.
If an ACH on Demand transaction request is received prior to the close of
regular trading on the NYSE, the shares will be priced according to the net
asset value of Fund shares on that day and are entitled to dividends and
distributions as described above for wire purchases. If a request is received at
or after the close of regular trading on the NYSE, the shares will be priced at
the relevant Fund's net asset value on the following business day.
TELEPHONE TRANSACTIONS. Unless otherwise indicated on the account application
or if the ACH on Demand option is elected an investor may request transactions
by telephone. Investors should realize that in conducting transactions by
telephone they may be giving up a measure of security that they might have if
they were to conduct these transactions in writing. Neither the Fund nor its
agents will be liable for following instructions communicated by telephone that
it reasonably believes to be genuine. Reasonable procedures will be employed on
behalf of the Fund designed to give reasonable assurance that instructions
communicated by telephone are genuine. Such procedures include providing written
confirmation of telephone transactions, tape recording telephone instructions
and requiring specific personal information prior to acting upon telephone
instructions.
GENERAL. Each Fund reserves the right to reject an account application or any
specific purchase order, including certain purchases made by exchange (see "How
to Redeem and Exchange Shares -- Exchange of Shares" below). For example,
purchase orders may be refused if, in Warburg's opinion, a Fund would be unable
to invest the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected. A Fund may
discontinue sales of its shares if management believes that a substantial
further increase in assets may adversely affect the Fund's ability to achieve
its investment objective. In such event, however, it is anticipated that
existing shareholders would be permitted to continue to authorize investment in
the Fund and to reinvest any dividends or capital gains distributions.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see "Net Asset Value"
below).
Shares of the Fund may either be redeemed by mail or by telephone. Investors
should realize that in using the telephone redemption and exchange option, they
may be giving up a measure of security that they may have if they were to redeem
or exchange their shares in writing. If an investor desires to redeem his shares
by mail, a written request for redemption should be sent to the address
indicated above under "How to Open an Account." An investor should be sure that
the redemption request identifies the relevant Fund, the
16
<PAGE> 23
number of shares to be redeemed and the investor's account number. Payment of
redemption proceeds may be delayed in connection with account changes. Each mail
redemption request must be signed by the registered owner(s) (or his legal
representative(s)) exactly as the shares are registered. If an investor has
applied for the telephone redemption feature on his account application, he may
redeem his shares by calling Warburg Pincus Funds at 800-927-2874. An investor
making a telephone withdrawal should state (i) the name of the Fund, (ii) the
account number of the Fund, (iii) the name of the investor(s) appearing on the
Fund's records, (iv) the amount to be withdrawn and (v) the name of the person
requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. The Funds
currently do not impose a service charge for effecting wire transfers but each
Fund reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request by mail at the address shown above
under "How to Open an Account." Although each Fund will redeem shares purchased
by check, through the Automatic Monthly Investment Plan or by ACH on Demand
before the funds or check clear, payments of the redemption proceeds will be
delayed for up to five days (for funds received through the Automatic Monthly
Investment Plan or by ACH on Demand) or up to 10 days (for check purchases) from
the date of purchase. Investors should consider purchasing shares using a
certified or bank check, money order or federal funds wire if they anticipate an
immediate need for redemption proceeds.
Shares are redeemed at the net asset value per share next determined after
receipt of a redemption order by a Fund or its agent. Except as noted above,
redemption proceeds will normally be mailed or wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect a Fund, each
Fund reserves the right to pay the redemption proceeds within seven days after
the redemption order is effected. Furthermore, each Fund may suspend the right
of redemption or postpone the date of payment upon redemption (as well as
suspend or postpone the recordation of an exchange of shares) for such periods
as are permitted under the 1940 Act.
Although each Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid upon redemption may be more or less
than the amount invested depending upon a share's net asset value at the time of
redemption. If an investor redeems all the shares in his account, all dividends
and distributions declared up to and including the date of redemption are paid
along with the proceeds of the redemption.
17
<PAGE> 24
If, due to redemptions, the value of an investor's account drops to less than
$750 ($250 in the case of an UTMA/UGMA account), each Fund reserves the right to
redeem the shares in that account at net asset value. Prior to any redemption, a
Fund will notify an investor in writing that this account has a value of less
than the minimum. The investor will then have 60 days to make an additional
investment before a redemption will be processed by the Fund.
Redemption By Check. An individual investor who is the record owner of Fund
shares may request a supply of checks. Checks may be made payable to the order
of any person in any amount not less than $500. When a check is presented to
State Street for payment, State Street, as agent for the investor, causes the
relevant Fund to redeem a sufficient number of shares in the investor's account
to cover the amount of the check. A Fund may, in its discretion, waive the
checkwriting minimum requirements with respect to investors who are employees of
Warburg or its affiliates or persons with whom Warburg has entered into an
investment advisory agreement.
Investors are entitled to receive dividends on the shares to be redeemed
through the day the check is presented to State Street for payment. If an
investor owns insufficient shares to cover a check, the check will be returned
to the investor marked "insufficient funds." Canceled checks will be returned to
the investor. Neither Fund currently assesses a charge for checks written in
amounts greater than the minimum. However each Fund reserves the right at any
time to terminate or modify the check redemption procedure, to limit the number
of checks that may be presented for payment within any given time period, to
impose a service charge or to charge for checks. A Fund may also charge an
investor's account for returned checks and for effecting stop orders.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the "Automatic Withdrawal Plan" section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the Plan, investors should contact Warburg Pincus Funds at
800-927-2874.
EXCHANGE OF SHARES. An investor may exchange shares of a Fund for shares of
the other Fund or for Common Shares of any other Warburg Pincus Fund at their
respective net asset values. An investor cannot currently earn Northwest
Airlines WorldPerks mileage credit for any investments in any Warburg Pincus
Fund other than the Funds described in this Prospectus. Exchanges may be
effected by mail or by telephone in the manner described under "Redemption of
Shares" above. If an exchange request is received by Warburg Pincus Funds or
their agent prior to the close of regular trading on the NYSE, the exchange will
be made at each Fund's net asset value determined at the end of that business
day. Exchanges will be effected without a sales charge but must satisfy the
minimum dollar amount necessary for new purchases. A Fund may refuse exchange
purchases at any time without prior notice.
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<PAGE> 25
The exchange privilege is available to shareholders residing in any state in
which the shares being acquired may legally be sold. When an investor effects an
exchange of shares, the exchange is treated for federal income tax purposes as a
redemption. Therefore, the investor may realize a taxable gain or loss in
connection with the exchange. Investors wishing to exchange shares of a Fund for
shares in another Warburg Pincus Fund should review the prospectus of the other
fund prior to making an exchange. For further information regarding the exchange
privilege or to obtain a current prospectus for another Warburg Pincus Fund, an
investor should contact Warburg Pincus Funds at 800-927-2874.
The Funds reserve the right to refuse exchange purchases by any person or
group if, in an adviser's judgment, a Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. Examples of when an exchange
purchase could be refused are when the Fund receives or anticipates receiving
large exchange orders at or about the same time and/or when a pattern of
exchanges within a short period of time (often associated with a "market timing"
strategy) is discerned. Each Fund reserves the right to terminate or modify the
exchange privilege at any time upon 30 days' notice to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Net investment income is declared daily and paid monthly. Net
investment income earned on weekends and when the NYSE is not open will be
computed on the previous business day. Distributions of long-term capital gains,
if any, generally are declared and paid annually at the end of the Fund's fiscal
year in which they are earned. Distributions of short-term capital gains, if
any, are declared and paid annually, at the end of the fiscal year in the case
of the Tax Free Fund, and periodically, as the Board determines, in the case of
the Money Market Fund. Unless an investor instructs a Fund to pay dividends or
capital gains distributions in cash, dividends and distributions will
automatically be reinvested in additional shares of the relevant Fund at net
asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to the address set forth under
"How to Open an Account" or by calling Warburg Pincus Funds at 800-927-2874.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Fund intends to qualify each year as a "regulated investment
company" within the meaning of the Code. A Fund, if it qualifies as a regulated
investment company, will be subject to a 4% non-deductible excise
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<PAGE> 26
tax measured with respect to certain undistributed amounts of ordinary income
and capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax. As long as the Tax Free Fund qualifies as a regulated investment company
and meets certain other Code requirements (including the requirement that at
least 50% of its assets are invested in tax-exempt obligations at the close of
each quarter of its taxable year), distributions of tax-exempt interest income
will be excluded from an investor's income for federal income tax purposes.
Such exempt interest dividends paid by the Tax Free Fund may be excluded by
investors from their gross incomes for federal income tax purposes, although (i)
such exempt interest dividends will be a tax preference item for purposes of the
federal individual and corporate alternative minimum taxes to the extent they
are derived from Alternative Minimum Tax Securities and (ii) all exempt interest
dividends will be a component of the "current earnings" adjustment item for
purposes of the federal corporate alternative minimum tax. In addition,
corporate investors may incur a greater federal environmental tax liability
through the receipt of Fund dividends and distributions if the tax is reinstated
as currently proposed. Investors who are "substantial users" (or "related
persons" of substantial users) within the meaning of the Code of facilities
financed by Alternative Minimum Tax Securities should consult their tax advisers
as to whether the Tax Free Fund is a desirable investment.
Dividends paid by a Fund from its taxable net investment income (if any, in
the case of the Tax Free Fund) and distributions of any net short-term capital
gains (whether from tax-exempt or taxable obligations) are taxable to investors
as ordinary income, whether received in cash or reinvested in additional shares
of the Fund. As a general rule, an investor's gain or loss on a sale or
redemption of his Fund shares will be a long-term capital gain or loss if he has
held his shares for more than one year and will be short-term capital gain or
loss if he has held his shares for one year or less. Each Fund does not expect
to realize long-term capital gains and, therefore, it is unlikely that any
portion of the dividends or distributions paid by a Fund will be taxable to
investors as long-term capital gains. An investor in the Tax Free Fund who
redeems his shares prior to the declaration of a dividend may lose tax exempt
status on accrued income attributable to tax exempt Municipal Securities.
Investors may be proportionately liable for taxes on income and gains of a Fund,
but investors not subject to tax on their income will not be required to pay tax
on amounts distributed to them. Each Fund's dividends and distributions will not
qualify for the dividends-received deduction allowed to corporations. The Funds'
investment activities should not result in unrelated business taxable income to
a tax exempt investor.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. In the case of the Tax Free Fund, these
statements set forth the dollar amount of income excluded or exempt from
20
<PAGE> 27
federal income taxes, and the dollar amount, if any, subject to taxation. These
statements also designate the amount of exempt-interest dividends that is a
specific preference item for purposes of the federal individual and corporate
alternative minimum taxes. Each investor in the Money Market Fund will also
receive, if applicable, various written notices after the close of the Fund's
prior taxable year with respect to certain dividends and distributions which
were received from the Fund during the Fund's prior taxable year. Investors
should consult their own tax advisers with specific reference to their own tax
situations, including the tax consequences, if any, relating to the receipt of
Northwest Airlines WorldPerks mileage credit, and their state and local taxes
that may apply to dividends and distributions received from the Funds. In this
regard, investors should be aware that if a portion of any dividend is derived
from interest on United States government obligations, that portion may be
subject to tax by certain states, even though such interest, if received
directly by an investor, would be exempt from state income tax.
NET ASSET VALUE
- --------------------------------------------------------------------------------
Each Fund's net asset value per share is calculated at noon and as of the
close of regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each
business day, Monday through Friday, except on days when the NYSE is closed. The
NYSE is currently scheduled to be closed on New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday,
respectively.
The net asset value per share of each Fund is computed by adding the value of
the Fund's assets, deducting liabilities and dividing the result by the number
of outstanding shares. Fund securities are valued on the basis of amortized
cost, which involves valuing a portfolio instrument at its cost initially and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, a Fund may advertise its yield and effective yield and, in
the case of the Tax Free Fund, its tax equivalent yield. The yield of a Fund
refers to the income generated by an investment in the shares over a seven-day
period, which is then annualized. That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, assumes that income earned by an
investment in the Fund is reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax equivalent yield shows the taxable yield an investor in
the highest applicable tax bracket would have to earn to equal the
21
<PAGE> 28
Tax Free Fund's tax-free yield after the imposition of federal, state and local
personal income taxes. The Tax Free Fund's tax equivalent yield is calculated by
dividing the Fund's tax-exempt yield by one minus the highest level of the
combined federal, state and local tax rates. Yield, effective yield and tax
equivalent yield may be shown by means of schedules, charts or graphs.
Investors should note that yield, effective yield and tax equivalent yield
figures are based on historical earnings and are not intended to indicate future
performance. The Fund's Statement of Additional Information describes the method
used to determine the Fund's yield. Current yield figures may be obtained by
calling Warburg Pincus Funds at 800-927-2874.
A Fund may compare its 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 (ii) in the
case of the Tax Free Fund, an average of the yields of similar tax-exempt money
market funds based on information contained in Donoghue's Money Market Fund
Report, which is published weekly by the Donoghue Organization or (iii) in the
case of the Money Market Fund, the Donoghue's Money Market Fund Average, which
is an average of all major taxable money market fund yields published weekly by
the Donoghue Organization or (iv) in each case, other appropriate indexes of
investment securities. Each Fund may also include evaluations of the Fund
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 Funds Magazine, SmartMoney, The Wall
Street Journal and Worth. Morningstar, Inc. rates funds in broad categories
based on risk/reward analyses over various time periods. In addition, the Fund
may from time to time compare its expense ratio to that of investment companies
with similar objectives and policies, based on data generated by Lipper
Analytical Services, Inc. or similar investment services that monitor mutual
funds.
In reports or other communications to investors or in advertising, a Fund may
discuss relevant economic and market conditions affecting the Fund. In addition,
the Fund may render periodic updates of Fund investment activity, which may
include, among other things, discussion or quantitative statistical or
comparative analysis of portfolio composition and significant portfolio
holdings. The Fund may also describe the Fund's investment objective, approaches
taken in managing the Fund's investments or the methodology underlined in the
Fund's portfolios. The Fund may also discuss measures of risk and the continuum
of risk and return relating to different investments.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. The Money Market Fund and the Tax Free Fund were incorporated on
July 24, 1998 under the laws of the State of Maryland as "Warburg, Pincus Money
Market Fund, Inc." and "Warburg, Pincus Tax Free Money Market Fund, Inc.,"
respectively. On September , 1998, the Money
22
<PAGE> 29
Market Fund and the Tax Free Fund amended their respective charters and changed
the Funds' names to "Warburg, Pincus WorldPerks Money Market Fund, Inc." and
"Warburg, Pincus WorldPerks Tax Free Money Market Fund, Inc.," respectively.
Each Fund's charter authorizes the Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which two
billion shares are designated Advisor Shares. Under a Fund's charter documents,
the Board has the power to classify or reclassify any unissued shares of the
Fund into one or more additional classes by setting or changing in any one or
more respects their relative rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption. The Board
may similarly classify or reclassify any class of shares into one or more series
and, without shareholder approval, may increase the number of authorized shares
of the Fund. Since no Advisor Shares are outstanding for the Fund, references to
"shares" in this prospectus refer solely to the common shares of the Fund unless
the context otherwise requires.
MULTI-CLASS STRUCTURE. Although neither Fund currently does so, each Fund is
authorized to offer a separate class of shares, the Advisor Shares, pursuant to
a separate prospectus. Individual investors could only purchase Advisor Shares
through institutional shareholders of record, broker-dealers, financial
institutions, depository institutions, retirement plans and other financial
intermediaries. Shares of each class would represent equal pro rata interests in
the relevant Fund and accrue dividends and calculate net asset value and
performance quotations in the same manner. Because of the higher fees paid by
the Advisor Shares, the total return on such shares can be expected to be lower
than the total return on common shares.
VOTING RIGHTS. Investors in a Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of a
Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of a Fund may be removed from office
upon the vote of shareholders holding at least a majority of the relevant Fund's
outstanding shares at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). Each Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the
23
<PAGE> 30
performance of the Fund. Periodic listings of the investment securities held by
a Fund, as well as certain statistical characteristics of the Fund, may be
obtained by calling Warburg Pincus Funds at 800-927-2874 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 FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
24
<PAGE> 31
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses...................................... 2
Investment Objectives and Policies....................... 3
General.................................................. 4
Portfolio Investments.................................... 6
Investment Guidelines.................................... 9
Management of the Funds.................................. 9
Northwest Airlines WorldPerks(R) MILES................... 12
HOW TO OPEN AN ACCOUNT................................... 13
HOW TO PURCHASE SHARES................................... 14
HOW TO REDEEM AND EXCHANGE SHARES........................ 16
DIVIDENDS, DISTRIBUTIONS AND TAXES....................... 19
NET ASSET VALUE.......................................... 21
PERFORMANCE.............................................. 21
GENERAL INFORMATION...................................... 22
</TABLE>
[WARBURG PINCUS FUNDS LOGO]
WARBURG PINCUS WORLDPERKS FUNDS
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. FFNWF-1-1098
<PAGE> 32
SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 1998
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.
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
------------------------------
WARBURG PINCUS WORLDPERKS MONEY MARKET FUND
WARBURG PINCUS WORLDPERKS TAX FREE MONEY MARKET FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information call: 800-WARBURG
------------------------------
Contents
Page
----
Investment Objectives ................................................... 2
Municipal Securities .................................................... 2
Investment Policies ..................................................... 3
Management of the Funds ................................................. 11
Additional Purchase and Redemption Information .......................... 18
Exchange Privilege ...................................................... 18
Additional Information Concerning Taxes ................................. 19
Determination of Yield .................................................. 22
Independent Accountants and Counsel ..................................... 22
Financial Statements .................................................... 23
Appendix
Description of Commercial Paper and Municipal Securities Ratings..... A-1
This Statement of Additional Information is meant to be read
in conjunction with the combined Prospectus of Warburg Pincus WorldPerks Money
Market Fund (the "Money Market Fund") and Warburg Pincus WorldPerks Tax Free
Money Market Fund (the "Tax Free Fund"), dated October 1, 1998, as amended or
supplemented from time to time (the "Prospectus"), and is incorporated by
reference in its entirety into that Prospectus. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
the Funds should be made solely upon the information contained herein. Copies of
the Funds' Prospectus and information regarding each Fund's current yield may be
obtained by calling the Fund at (800) 927-2874. Information regarding the status
of shareholder accounts may also be obtained by calling the Fund at the same
number or by writing to the Fund, P.O. Box 9030, Boston, Massachusetts
02205-9030.
<PAGE> 33
INVESTMENT OBJECTIVES
The investment objective of the Money Market Fund is to
provide investors with high current income consistent with liquidity and
stability of principal.
The investment objective of the Tax Exempt Fund is to provide
investors with as high a level of current income that is exempt from federal
personal income taxes as is consistent with preservation of capital and
liquidity.
MUNICIPAL SECURITIES
Under normal circumstances, at least 80% of the Tax Exempt
Fund's assets will be invested in Municipal Securities. Municipal Securities
include short-term debt obligations issued by governmental entities to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public institutions and
facilities. Private activity securities that are issued by or on behalf of
public authorities to finance various privately-operated facilities are included
within the term Municipal Securities if the interest paid thereon is exempt from
federal income tax.
The two principal types of Municipal Securities consist of
"general obligation" and "revenue" issues, and the Tax Exempt Fund's portfolio
may include "moral obligation" issues, which are normally issued by special
purpose authorities. General obligation bonds are secured by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity securities held by the Fund are in
most cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity securities
is usually directly related to the credit standing of the corporate user of the
facility involved.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of rating agencies represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and Municipal Securities with the
same maturity, interest rate and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the Tax Exempt
Fund, an issue of Municipal Securities may cease to be rated or its rating may
be reduced below the minimum rating required for purchase by the Fund. The
Fund's investment adviser and sub-investment adviser will consider such an event
in determining whether the Fund should continue to hold
2
<PAGE> 34
the obligation. See the Appendix attached hereto for further information
concerning ratings and their significance.
An issuer's obligations under its Municipal Securities are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the Federal Bankruptcy Code, and laws,
if any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. There is also the possibility that as a result of litigation or
other conditions, the power or ability of any one or more issuers to pay, when
due, principal of and interest on its, or their, Municipal Securities may be
materially adversely affected.
Among other instruments, the Tax Exempt Fund may purchase
short-term Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation
Notes and other forms of short-term loans. Such notes are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues.
INVESTMENT POLICIES
The following policies supplement the descriptions of each
Fund's investment objective and policies in the Prospectus.
Additional Information on Investment Practices
Variable Rate Master Demand Notes. Variable rate master demand
notes held by a Fund may have maturities of more than thirteen months, provided:
(i) the Fund is entitled to payment of principal and accrued interest upon not
more than seven days' notice and (ii) the rate of interest on such notes is
adjusted automatically at periodic intervals which may extend up to thirteen
months. In determining the Fund's average weighted portfolio maturity and
whether a variable rate master demand note has a remaining maturity of thirteen
months or less, each note will be deemed by the Fund to have a maturity equal to
the longer of the period remaining until its next interest rate adjustment or
the period remaining until the principal amount owed can be recovered through
demand. In determining whether an unrated variable rate master demand note is of
comparable quality at the time of purchase to instruments rated "high quality"
by any major rating service or when purchasing variable rate master demand
notes, the Fund's investment adviser and sub-investment adviser will consider
the earning power, cash flow and other liquidity ratios of the issuer of the
note and will continuously monitor its financial condition. In addition, when
necessary to ensure that a note is of "high quality," the Fund will require that
the issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter of line of credit, guarantee or commitment to lend.
In the event an issuer of a variable rate master demand note
defaults on its payment obligation, a Fund might be unable to dispose of the
note because of the absence of a secondary market and might, for this or other
reasons, suffer a loss to the extent of the default. However, the Fund will
invest in such instruments only where its investment adviser and
3
<PAGE> 35
sub-investment adviser believe that the risk of such loss is minimal. In
determining average weighted portfolio maturity, a variable rate master demand
note will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand note period.
When-Issued Securities. As stated in the Prospectus, a Fund
may purchase Municipal Securities or portfolio securities, as the case may be,
on a "when-issued" basis (i.e., for delivery beyond the normal settlement date
at a stated price and yield). When the Fund agrees to purchase when-issued
securities, its custodian will set aside cash or liquid securities in a
segregated account equal to the amount of the commitment. Normally, the
custodian will set aside portfolio securities to satisfy a purchase commitment,
and in such a case the Fund 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 Fund's commitment. It may be expected
that the Fund'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. Because the Fund will set aside cash and liquid assets to satisfy its
purchase commitments in the manner described, the Fund's liquidity and ability
to manage its portfolio might be affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its assets.
When a Fund engages in when-issued transactions, it relies on
the seller to consummate the trade. Failure of the seller to do so may result in
the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Reverse Repurchase Agreements and Borrowings. A Fund may
borrow funds for temporary purposes and not for leverage by agreeing to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed-upon date and price. At the time the
Fund enters into such an arrangement (a "reverse repurchase agreement"), it will
place in a segregated custodial account cash or liquid securities having a value
equal to the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
Reverse repurchase agreements are considered to be borrowings by the Fund under
the Investment Company Act of 1940, as amended (the "1940 Act").
Repurchase Agreements (Money Market Fund only). The seller
under a repurchase agreement will be required to maintain the value of the
securities subject to the agreement at not less than the repurchase price
(including accrued interest). Securities subject to repurchase agreements will
be held by the Fund's custodian or in the Federal Reserve/Treasury book-entry
system or another authorized securities depository.
Stand-By Commitment Agreements (Tax Exempt Fund only). The
Fund may acquire "stand-by commitments" with respect to Municipal Securities
held in its portfolio. Under a stand-by commitment, a dealer agrees to purchase
at the Fund's option specified
4
<PAGE> 36
Municipal Securities at a specified price. Stand-by commitments acquired by the
Fund may also be referred to as "put" options. The Fund's right to exercise
stand-by commitments is unconditional and unqualified. A stand-by commitment is
not transferable by the Fund, although the Fund can sell the underlying
securities to a third party at any time.
The principal risk of a stand-by commitment is that the writer
of a commitment may default on its obligation to repurchase the securities
acquired with it. The Fund intends to enter into stand-by commitments only with
brokers, dealers and banks that, in the opinion of Warburg Pincus Asset
Management, Inc., each Fund's investment adviser ("Warburg"), present minimal
credit risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, Warburg will periodically review relevant financial information
concerning the issuer's assets, liabilities and contingent claims.
The amount payable to the Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the Municipal
Securities (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment date
during that period.
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Fund will not exceed 1/2
of 1% of the value of its total assets calculated immediately after each
stand-by commitment is acquired.
The Fund would acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a stand-by commitment would
not affect the valuation or assumed maturity of the underlying Municipal
Securities which, as noted, would continue to be valued in accordance with the
amortized cost method. Stand-by commitments acquired by the Fund would be valued
at zero in determining net asset value. Where the Fund paid any consideration
directly or indirectly for a stand-by commitment, its cost would be reflected as
unrealized depreciation for the period during which the commitment was held by
the Fund. Stand-by commitments would not affect the average weighted maturity of
the Fund's portfolio.
The Internal Revenue Service has issued a revenue ruling to
the effect that a registered investment company will be treated for federal
income tax purposes as the owner of the Municipal Securities acquired subject to
a stand-by commitment and the interest on the Municipal Securities will be
tax-exempt to the Fund.
Third Party Puts (Tax Exempt Fund only). The Fund may purchase
long-term fixed rate bonds that have been coupled with an option granted by a
third party financial institution allowing the Fund at specified intervals to
tender (or "put") the bonds to the
5
<PAGE> 37
institution and receive the face value thereof (plus accrued interest). These
third party puts are available in several different forms, may be represented by
custodial receipts or trust certificates and may be combined with other features
such as interest rate swaps. The Fund receives a short-term rate of interest
(which is periodically reset), and the interest rate differential between that
rate and the fixed rate on the bond is retained by the financial institution.
The financial institution granting the option does not provide credit
enhancement, and in the event that there is a default in the payment of
principal or interest, or downgrading of a bond to below investment grade, or a
loss of the bond's tax-exempt status, the put option will terminate
automatically, the risk to the Fund will be that of holding such a long-term
bond and the dollar-weighted average maturity of the Fund's portfolio would be
adversely affected.
These bonds coupled with puts may present the same tax issues
as are associated with stand-by commitments. As with any stand-by commitment,
the Fund intends to take the position that it is the owner of any municipal
obligation acquired subject to a third party put, and that tax-exempt interest
earned with respect to such municipal obligations will be tax-exempt in its
hands. There is no assurance that the Internal Revenue Service will agree with
such position in any particular case. Additionally, the federal income tax
treatment of certain other aspects of these investments, including the treatment
of tender fees and swap payments, in relation to various regulated investment
company tax provisions is unclear. However, Warburg intends to manage the Fund
in a manner designed to minimize any adverse impact from these investments.
Taxable Investments (Tax Exempt Fund only). Because the Fund's
purpose is to provide income excluded from gross income for federal income tax
purposes, the Fund generally will invest in taxable obligations only if and when
the investment adviser believes it would be in the best interests of the Fund's
investors to do so. Situations in which the Fund may invest up to 20% of its
total assets in taxable securities include: (i) pending investment of proceeds
of sales of Fund shares or the sale of its portfolio securities or (ii) when the
Fund requires highly liquid securities in order to meet anticipated redemptions.
The Fund may temporarily invest more than 20% of its total assets in taxable
securities to maintain a "defensive" posture when the Fund's investment adviser
determines that it is advisable to do so because of adverse market conditions
affecting the market for Municipal Securities generally.
Among the taxable investments in which the Fund may invest are
repurchase agreements and time deposits maturing in not more than seven days.
The Fund may agree to purchase money market instruments from financial
institutions such as banks and broker-dealers subject to the seller's agreement
to repurchase them at an agreed-upon date and price ("repurchase agreements").
The seller under a repurchase agreement will be required to maintain the value
of the securities subject to the agreement at not less than the repurchase price
(including accrued interest). Securities subject to repurchase agreements will
be held by the Fund's custodian or in the Federal Reserve/Treasury book-entry
system or another authorized securities depository.
6
<PAGE> 38
Other Investment Limitations
Money Market Fund. The investment limitations numbered 1
through 6 may not be changed without the affirmative vote of the holders of a
majority of the Money Market Fund's outstanding shares. Such majority is defined
as the lesser of (i) 67% or more of the shares present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares.
Investment limitations 7 and 12 may be changed by a vote of the Fund's Board of
Directors (the "Board") at any time.
The Money Market Fund may not:
1. Borrow money, issue senior securities or enter into
reverse repurchase agreements except for temporary or emergency purposes and not
for leveraging, and then in amounts not in excess of 10% of the value of the
Fund's assets at the time of such borrowing; or mortgage, pledge or hypothecate
any assets except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of the
Fund's assets at the time of such borrowing. The Fund does not currently intend
to enter into reverse repurchase agreements in amounts in excess of 5% of its
assets at the time the agreement is entered into. Whenever borrowings exceed 5%
of the value of the Fund's total assets, the Fund will not make any additional
investments.
2. Purchase or sell real estate, real estate investment
trust securities, commodities or commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Fund may purchase
commercial paper issued by companies that invest in real estate or interests
therein.
3. Purchase the securities of any issuer if as a result
more than 5% of the value of the Fund's assets would be invested in the
securities of such issuer, except that this 5% limitation does not apply to
securities issued or guaranteed by the United States government, its agencies or
instrumentalities, and except that up to 25% of the value of the Fund's assets
may be invested without regard to this 5% limitation.
4. Purchase any securities which would cause more than
25% of the value of the Fund'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 obligations issued or guaranteed by the United States, any state,
territory or possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political sub-divisions or
certificates of deposit, time deposits, savings deposits and bankers'
acceptances.
5. Make loans except that the Fund may purchase or hold
debt obligations in accordance with its investment objective, policies and
limitations and enter into repurchase agreements.
7
<PAGE> 39
6. Underwrite any issue of securities except to the
extent that the purchase of debt obligations directly from the issuer thereof in
accordance with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
7. Purchase securities on margin, make short sales of
securities or maintain a short position.
8. Write or sell puts, calls, straddles, spreads or
combinations thereof.
9. Invest in common stocks, preferred stocks, warrants,
other equity securities, corporate bonds or indentures, state bonds, municipal
bonds or industrial revenue bonds.
10. Purchase securities of other investment companies
except in connection with a merger, consolidation, acquisition or
reorganization.
11. Invest more than 10% of the value of the Fund's net
assets in securities which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available
market quotations. For purposes of this limitation, repurchase agreements with
maturities greater than seven days after notice by the Fund, variable rate
master demand notes providing for settlement upon maturities longer than seven
days and savings accounts which require more than seven days' notice prior to
withdrawal shall be considered illiquid securities.
12. Invest in oil, gas or mineral leases.
If a percentage restriction (other than the percentage
limitation set forth in No. 1 and No. 11 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
Fund's assets will not constitute a violation of such restriction.
Tax Exempt Fund. The investment limitations numbered 1 through
6 may not be changed without the affirmative vote of the holders of a majority
of the Tax Exempt Fund's outstanding shares. Such majority is defined as the
lesser of (i) 67% or more of the shares present at a meeting, if the holders of
more than 50% of the outstanding shares of the Fund are present or represented
by proxy, or (ii) more than 50% of the outstanding shares. Investment
limitations 7 and 11 may be changed by a vote of the Fund's Board of Directors
at any time.
The Tax Exempt Fund may not:
1. Invest less than 80% of its assets in securities the
interest on which is exempt from federal income tax, except during temporary
defensive periods or under unusual market conditions, as determined by the
Fund's investment adviser.
2. Borrow money, issue senior securities or enter into
reverse repurchase agreements except for temporary or emergency purposes, and
not for leveraging, and then in
8
<PAGE> 40
amounts not in excess of 10% of the value of the Fund's assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's assets at the time
of such borrowing. The Fund does not currently intend to enter into reverse
repurchase agreements in amounts in excess of 5% of its assets at the time the
agreement is entered into. Whenever borrowings exceed 5% of the value of the
Fund's total assets, the Fund will not make any additional investments.
3. Purchase any securities which would cause more than
25% of the value of the Fund'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 (i) obligations issued by the United States, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political sub-divisions, (ii)
certificates of deposit issued by United States branches of United States banks
or (iii) Municipal Securities the interest on which is paid solely from revenues
of economically related projects. For purposes of this restriction, private
activity securities ultimately payable by companies within the same industry are
treated as if they were issued by issuers in the same industry.
4. Make loans except that the Fund may purchase or hold
debt obligations and enter into repurchase agreements in accordance with its
investment objective, policies and limitations.
5. Underwrite any issue of securities except to the
extent that the purchase of debt obligations directly from the issuer thereof in
accordance with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
6. Purchase or sell real estate, real estate investment
trust securities, commodities or commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Fund may invest in
debt obligations secured by real estate, mortgages or interests therein.
7. Purchase securities on margin, make short sales of
securities or maintain short positions.
8. Write or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may acquire stand-by commitments.
9. Purchase securities of other investment companies
except in connection with a merger, consolidation, acquisition or
reorganization.
10. Invest more than 10% of the value of the Fund's
net assets in securities which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are not readily available
market quotations. For purposes of this limitation, repurchase agreements with
maturities greater than seven days and variable rate master demand
9
<PAGE> 41
notes providing for settlement upon more than seven days notice by the Fund and
time deposits maturing in more than seven calendar days shall be considered
illiquid securities.
11. Invest in oil, gas or mineral leases.
If a percentage restriction (other than the percentage
limitation set forth in No. 2 and No. 10 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
Fund's assets will not constitute a violation of such restriction.
Portfolio Valuation
Each Fund's securities are valued on the basis of amortized
cost. Under this method, a Fund values a portfolio security at cost on the date
of purchase and thereafter assumes a constant value of the security for purposes
of determining net asset value, which normally does not change in response to
fluctuating interest rates. Although the amortized cost method seems to provide
certainty in portfolio valuation, it may result in periods during which values,
as determined by amortized cost, are higher or lower than the amount the Fund
would receive if it sold the securities. In connection with amortized cost
valuation, the Board has established procedures that are intended to stabilize
the Fund's net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Board, at such intervals as it
deems appropriate, to determine the extent, if any, to which the Fund's net
asset value per share calculated by using available market quotations deviates
from $1.00 per share. In the event such deviation exceeds 1/2 of 1%, the Board
will promptly consider what action, if any, should be initiated. If the Board
believes that the amount of any deviations from the Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to
investors or existing shareholders, it will take such steps as it considers
appropriate to eliminate or reduce to the extent reasonably practicable any such
dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the Fund's average portfolio maturity;
withholding or reducing dividends; redeeming shares in kind; reducing the number
of the Fund's outstanding shares without monetary consideration; or utilizing a
net asset value per share determined by using available market quotations.
Portfolio Transactions
Warburg is responsible for establishing, reviewing, and, where
necessary, modifying a Fund's investment program to achieve its investment
objective. BlackRock Institutional Management Corporation ("BIMC") generally
will select specific portfolio investments and effect transactions for each
Fund. Purchases and sales of portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer or
with dealers who specialize in money market instruments. BIMC seeks to obtain
the best net price and the most favorable execution of orders. To the extent
that the execution and price offered by more than one dealer are comparable,
BIMC may, in its discretion, effect
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<PAGE> 42
transactions in portfolio securities with dealers who provide the relevant Fund
with research advice or other services.
Investment decisions for a Fund concerning specific portfolio
securities are made independently from those for other clients advised by BIMC.
Such other investment clients may invest in the same securities as the Fund.
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 BIMC believes to
be equitable to each client, including the Fund. In some instances, this
investment procedure may adversely affect the price paid or received by the Fund
or the size of the position obtained or sold for the Fund. To the extent
permitted by law, BIMC may aggregate the securities to be sold or purchased for
each Fund with those to be sold or purchased for such other investment clients
in order to obtain best execution.
In no instance will portfolio securities be purchased from or
sold to Warburg, BIMC, PNC Bank, National Association ("PNC") or Counsellors
Securities Inc. ("Counsellors Securities") or any affiliated person of such
companies, except pursuant to an exemption received from the Securities and
Exchange Commission (the "SEC").
The Tax Exempt Fund may participate, if and when practicable,
in bidding for the purchase of Municipal Securities directly from an issuer for
its portfolio in order to take advantage of the lower purchase price available
to members of such a group. The Fund will engage in this practice, however, only
when Warburg or BIMC, in their sole discretion, believes such practice to be
otherwise in the Fund's interest.
Each Fund does not intend to seek profits through short-term
trading. A Fund's annual portfolio turnover will be relatively high but is not
expected to have a material effect on its net income. Each Fund's turnover is
expected to be zero for regulatory reporting purposes.
MANAGEMENT OF THE FUNDS
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below.
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<PAGE> 43
Richard N. Cooper* (64) ............... Director
Harvard University Professor at Harvard University;
1737 Cambridge Street National Intelligence Council from
Cambridge, Massachusetts 02138 June 1995 until January 1997; Director
or Trustee of Circuit City Stores,
Inc. (retail electronics and
appliances) and Phoenix Home Life
Insurance Company; Director/Trustee of
other investment companies advised by
Warburg.
Jack W. Fritz (71) .................... Director
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting, Inc.
Wilson, Wyoming 83014 and Fritz Communications (developers
and operators of radio stations);
Director of Advo, Inc. (direct mail
advertising); Director/Trustee of
other investment companies advised by
Warburg.
John L. Furth* (67) ................... Chairman of the Board
466 Lexington Avenue Vice Chairman, Managing Director and
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 advised by Warburg.
Jeffrey E. Garten (51) ................ Director
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 advised by Warburg.
Arnold M. Reichman* (50) .............. Director
466 Lexington Avenue Managing Director, Chief Operating
New York, New York 10017-3147 Officer and Assistant Secretary of
Warburg; Director of The RBB Fund,
Inc.; Associated with Warburg since
1984; Director and officer of
Counsellors Securities;
Director/Trustee of other investment
companies advised by Warburg.
- ---------------------
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
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<PAGE> 44
Alexander B. Trowbridge (68) .......... Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January
1990 to November 1996; Director or
Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), Waste
Management, Inc. (solid and hazardous
waste collection and disposal), IRI
International (energy services), The
Rouse Company (real estate
development), Harris Corp.
(electronics and communications
equipment), The Gillette Co. (personal
care products) and Sun Company Inc.
(petroleum refining and marketing);
Director/Trustee of other investment
companies advised by Warburg.
Eugene L. Podsiadlo (41) .............. President
466 Lexington Avenue Managing Director of Warburg;
New York 10017-3147 Associated with Warburg since 1991;
Vice President of Citibank, N.A. from
1987-1991; Officer of Counsellors
Securities and other investment
companies advised by Warburg.
Eugene P. Grace (47) .................. Vice President and Secretary
466 Lexington Avenue Senior Vice President of Warburg;
New York, New York 10017-3147 Associated with Warburg since April
1994; Attorney-at-law from September
1989-April 1994; life insurance agent,
New York Life Insurance Company from
1993-1994; Officer of Counsellors
Securities and other investment
companies advised by Warburg.
Stephen Distler (45) .................. Vice President
466 Lexington Avenue Managing Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1984;
Treasurer of Counsellors Securities;
Officer of other investment companies
advised by Warburg.
Howard Conroy, CPA (44) ............... 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
advised by Warburg.
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<PAGE> 45
Daniel S. Madden, CPA (32) ............ 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
1995; Associated with BEA Associates
from April 1993 to September 1994;
Associated with Ernst & Young LLP from
1990 to 1993; Officer of other
investment companies advised by
Warburg.
Janna Manes, Esq. (30) ................ Assistant Secretary
466 Lexington Avenue Vice President of Warburg; Associated
New York, New York 10017 with Warburg since 1996; Associated
with the law firm of Willkie Farr &
Gallagher from 1993-1996; Officer of
other investment companies advised by
Warburg.
No employee of Warburg, BIMC, PNC or PFPC Inc., the Fund's
co-administrator ("PFPC"), or any of their affiliates receives any compensation
from the Fund for acting as an officer or Director of the Fund. Each Director
who is not a director, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and $250 for each meeting of the
Board attended by him for his services as Director and is reimbursed for
expenses incurred in connection with his attendance at Board meetings. Each
member of the Audit Committee receives an annual fee of $250, and the chairman
of the Audit Committee receives an annual fee of $325.
Directors' Total Compensation
Total Compensation from
Compensation from all Investment Companies
Name of Director each Fund+ Managed by Warburg*
- ---------------- --------------- ------------------
John L. Furth None** None**
Richard N. Cooper $1,750 $73,250
Jack W. Fritz $1,750 $73,250
Jeffrey E. Garten $1,750 $73,250
Arnold M. Reichman None** None**
Alexander B. Trowbridge $1,825 $76,025
- --------------------
+ Amounts shown are estimates of payments to be made for the remaining
period of the fiscal year ending August 31, 1999 pursuant to existing
arrangements.
* Each Director also serves as a Director or Trustee of 40 other
investment companies advised by Warburg.
** Mr. Furth and Mr. Reichman receive compensation as affiliates of Warburg
and, accordingly, receive no compensation from a Fund or any other
investment company advised by Warburg.
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<PAGE> 46
Investment Advisers, Sub-Investment Adviser and Administrator
and Co-Administrator
Warburg serves as investment to the Money Market Fund and Tax
Exempt Fund, BIMC serves as sub-investment adviser and administrator to each
Fund, and Counsellors Funds Service, Inc. ("Counsellors Service") serves as
co-administrator to the Funds pursuant to written agreements (the "Advisory
Agreement," the "Sub-Advisory Agreements" and the "Co-Administration Agreement,"
respectively, and collectively, the "Agreements"). The services provided by and
the fees payable by a Fund to Warburg, BIMC and Counsellors Service under the
respective Agreements are described in the Prospectus.
Banking Laws
Banking laws and regulations presently (i) prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956
(the "Holding Company Act") or any bank or non-bank affiliate thereof from
sponsoring, organizing, controlling, or distributing the shares of a registered,
open-end investment company continuously engaged in the issuance of its shares,
but (ii) do not prohibit such a holding company or affiliate from acting as
investment adviser, transfer agent or custodian to such an investment company.
PNC and BIMC are subject to such banking laws and regulations.
BIMC, PNC and the Funds have been advised by Messrs. Ballard,
Spahr, Andrews & Ingersoll that BIMC and PNC may perform the services for the
Fund contemplated by their respective agreements with the Fund and the
Prospectus without violation of applicable banking laws or regulations. Such
counsel have pointed out, however, that future changes in legal requirements
relating to the permissible activities of banks and their affiliates, as well as
future interpretations of present requirements, could prevent one or more of
them from continuing to perform services for the Fund. If BIMC or PNC were
prohibited from providing services to the Fund, the Board would select another
qualified firm. Any new investment or sub-investment advisory agreement would be
subject to shareholder approval.
Custodian and Transfer Agent
PNC is custodian of each Fund's assets pursuant to a custodian
agreement (the "Custodian Agreement"). Under the Custodian Agreement, PNC (i)
maintains a separate account or accounts in the name of the Fund, (ii) holds and
transfers portfolio securities on account of the Fund, (iii) makes receipts and
disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities and (v) makes periodic reports to the Board concerning the Fund's
custodial arrangements. PNC is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of a Fund, provided that PNC
remains responsible for the performance of all its duties under the Custodian
Agreement and holds the Fund harmless from the acts and omissions of any
sub-custodian. PNC is an indirect wholly owned subsidiary of PNC Bank Corp., and
its principal business address is 1600 Market Street, Philadelphia, Pennsylvania
19103.
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<PAGE> 47
State Street Bank and Trust Company ("State Street") has
agreed to serve as each Fund's shareholder servicing, transfer and dividend
disbursing agent pursuant to a Transfer Agency and Service Agreement, under
which State Street (i) issues and redeems shares of the Fund, (ii) addresses and
mails all communications by the Fund to record owners of the Fund 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 Fund. State
Street has delegated to Boston Financial Data Services, Inc. ("BFDS"), an
affiliated company, responsibility for most shareholder servicing functions. The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
Boston, Massachusetts 02171.
Organization of the Funds
The Funds are incorporated in Maryland. See the Prospectus,
"General Information." All shareholders of a Fund, upon liquidation, will
participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
Common Shares. Each Fund has entered into a Shareholder
Servicing and Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under
the 1940 Act, pursuant to which a Fund will pay Counsellors Securities, in
consideration for Services (as defined below), a fee calculated at an annual
rate of .25% of the average daily net assets of the Common Shares of the Fund.
Services performed by Counsellors Securities include (i) the sale of the Common
Shares, as set forth in the 12b-1 Plan ("Selling Services"), (ii) ongoing
servicing and/or maintenance of the accounts of Common Shareholders of the Fund,
as set forth in the 12b-1 Plan ("Shareholder Services"), and (iii) sub-transfer
agency services, subaccounting services or administrative services related to
the sale of the Common Shares, as set forth in the 12b-1 Plan ("Administrative
Services" and collectively with Selling Services and Administrative Services,
"Services") including, without limitation, (a) payments reflecting an allocation
of overhead and other office expenses of Counsellors Securities related to
providing Services; (b) payments made to, and reimbursement of expenses of,
persons who provide support services in connection with the distribution of the
Common Shares including, but not limited to, office space and equipment,
telephone facilities, answering routine inquiries regarding the Fund, and
providing any other Shareholder Services; (c) payments made to compensate
selected dealers or other authorized persons for providing any Services; (d)
costs relating to the formulation and implementation of marketing and
promotional activities for the Common Shares, including, but not limited to,
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, and related travel and entertainment expenses; (e) costs of
printing and distributing prospectuses, statements of additional information and
reports of the Fund to prospective shareholders of the Fund; (f) costs
16
<PAGE> 48
involved in obtaining whatever information, analyses and reports with respect
to marketing and promotional activities that the Fund may, from time to time,
deem advisable; and (g) costs and expenses relating to the Fund's participation
in the Northwest Airlines WorldPerks(TM) program.
Pursuant to the 12b-1 Plan, Counsellors Securities will
provide the Fund's Board with periodic reports of amounts expended under the
12b-1 Plan and the purpose for which the expenditures were made.
Advisor Shares. Each Fund may, in the future, enter into
agreements ("Agreements") with institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries ("Institutions") to provide certain
distribution, shareholder servicing, administrative and/or accounting services
for their clients or customers (or participants in the case of retirement plans)
("Customers") who are beneficial owners of Advisor Shares. Agreements will be
governed by a distribution plan (the "Distribution Plan") pursuant to Rule 12b-1
under the 1940 Act. The Distribution Plan requires the Board, at least
quarterly, to receive and review written reports of amounts expended under the
Distribution Plan and the purpose for which such expenditures were made.
An Institution with which a Fund has entered into an Agreement
with respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensation
balance requirements (a minimum dollar amount a Customer must maintain in order
to obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are in
addition to, and not duplicative of, the services to be provided under the
Fund's co-administration and distribution and shareholder servicing
arrangements. A Customer of an Institution should read the Prospectus and this
Statement of Additional Information in conjunction with the Agreement and other
literature describing the services and related fees that would be provided by
the Institution to its Customers prior to any purchase of Fund shares.
Prospectuses are available from the Fund's distributor upon request. No
preference will be shown in the selection of Fund investments for the
instruments of Institutions.
General. The Distribution Plan and the 12b-1 Plan will
continue in effect for so long as their continuance is specifically approved at
least annually by the Board, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plans or the 12b-1 Plans, as the
case may be ("Independent Directors"). Any material amendment of the
Distribution Plan or 12b-1 Plan would require the approval of the Board in the
same manner. Neither the Distribution Plan nor the 12b-1 Plan may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. The Distribution Plan or 12b-1 Plan
may be terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of the Fund.
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<PAGE> 49
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Fund shares and how
such shares are priced is included in the Prospectus.
Under the 1940 Act, each Fund may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which The New York Stock Exchange, Inc. (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 by rule or regulation) an
emergency exists as a result of which disposal or fair valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Fund may also suspend or postpone the recordation of an exchange
of its shares upon the occurrence of any of the foregoing conditions.)
If the Board determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, a Fund may
make payment wholly or partly in securities or other investment instruments
which may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. The Fund will comply with Rule 18f-1 promulgated under the
1940 Act with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal
plan (the "Plan") is available to shareholders who wish to receive specific
amounts of cash periodically. Withdrawals may be made under the Plan by
redeeming as many shares of a Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in the Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by
Warburg is available to investors in a Fund. The funds into which exchanges of
Common Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares
in a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. Subject to the restrictions
on exchange purchases contained in the Prospectus and any other applicable
restrictions, this privilege is available to shareholders residing in any state
in which the Common Shares or Advisor Shares being acquired, as relevant, may
legally be sold. Prior to any exchange, the investor should obtain and review a
18
<PAGE> 50
copy of the current prospectus of the relevant class of each fund into which an
exchange is being considered. Shareholders may obtain a prospectus of the
relevant class of the fund into which they are contemplating an exchange from
Counsellors Securities.
Subject to the restrictions described above, upon receipt of
proper instructions and all necessary supporting documents, shares submitted for
exchange are redeemed at the then-current net asset value of the relevant class
and the proceeds are invested on the same day, at a price as described above, in
shares of the relevant class of the fund being acquired. The exchange privilege
may be modified or terminated at any time upon 30 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
As described above and in the Fund's Prospectus, the Tax
Exempt Fund is designed to provide investors with current income which is
excluded from gross income for federal income tax purposes. The Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital gains or maximum tax-exempt income irrespective of
fluctuations in principal. Investment in the Fund would not be suitable for
tax-exempt institutions, individual retirement plans, employee benefit plans and
individual retirement accounts since such investors would not gain any
additional tax benefit from the receipt of tax-exempt income.
Each Fund intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If it qualifies as a regulated investment company, a Fund
will pay no federal income taxes on its taxable net investment income (that is,
taxable income other than net realized capital gains) and its net realized
capital gains that are distributed to shareholders. To qualify under Subchapter
M, each Fund must, among other things: (i) distribute to its shareholders at
least the sum of 90% of its taxable net investment income (for this purpose
consisting of taxable net investment income and net realized short-term capital
gains) plus 90% of its net tax-exempt interest income; (ii) derive at least 90%
of its gross income from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of securities, or other
income (including, but not limited to, gains from options, futures, and forward
contracts) derived with respect to the Fund's business of investing in
securities; and (iii) diversify its holdings so that, at the end of each fiscal
quarter of the Fund (a) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. government securities and other securities, with those
other securities limited, with respect to any one issuer, to an amount no
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of the issuer, and (b) not more than 25% of
the market value of
19
<PAGE> 51
the Fund's assets is invested in the securities of any one issuer (other than
U.S. government securities or securities of other regulated investment
companies) or of two or more issuers that the Fund controls and that are
determined to be in the same or similar trades or businesses or related trades
or businesses. As a regulated investment company, the Fund will be subject to a
4% non-deductible excise tax measured with respect to certain undistributed
amounts of ordinary income and capital gain required to be but not distributed
under a prescribed formula. The formula requires payment to shareholders during
a calendar year of distributions representing at least 98% of the Fund's taxable
ordinary income for the calendar year and at least 98% of the excess of its
capital gains over capital losses realized during the one-year period ending
December 31 during such year, together with any undistributed, untaxed amounts
of ordinary income and capital gains from the previous calendar year. The Funds
expect to pay the dividends and make the distributions necessary to avoid the
application of this excise tax.
Although each Fund expects to be relieved of all or
substantially all federal income taxes, depending upon the extent of its
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, that portion of a Fund's income
which is treated as earned in any such state or locality could be subject to
state and local tax. Any taxes paid by the Fund would reduce the amount of
income and gains available for distribution to shareholders.
Investors in the Money Market Fund should be aware that it is
possible that some portion of the Fund's income from investments in obligations
of foreign banks could become subject to foreign taxes.
Because the Tax Exempt Fund will distribute exempt interest
dividends, interest on indebtedness incurred by a shareholder to purchase or
carry Fund shares is not deductible for federal income tax purposes. In
addition, the Code may require a shareholder, if he or she receives exempt
interest dividends, to treat as taxable income a portion of certain otherwise
non-taxable social security and railroad retirement benefit payments.
Furthermore, that portion of any dividend paid by the Fund which represents
income derived from private activity securities held by the Fund may not retain
its tax-exempt status in the hands of a shareholder who is a "substantial user"
of a facility financed by such bonds, or a "related person" thereof. Moreover,
as noted in the Prospectus, (i) some of the Fund's dividends may be a tax
preference item, or a component of an adjustment item, for purposes of the
federal individual and corporate alternative minimum taxes and (ii) the receipt
of Fund dividends and distributions may affect a corporate shareholder's federal
"environmental" tax liability if that tax is reinstated as proposed by President
Clinton. In addition, the receipt of Fund dividends and distributions may affect
a foreign corporate shareholder's federal "branch profits" tax liability and a
Subchapter S corporation shareholder's federal "excess net passive income" tax
liability. Shareholders should consult their own tax advisers as to whether they
(i) may be "substantial users" with respect to a facility or "related" to such
users within the meaning of the Code and (ii) are subject to a federal
alternative minimum tax, the federal environmental tax, the federal "branch
profits" tax, or the federal "excess net passive income" tax.
20
<PAGE> 52
While each Fund does not expect to realize net long-term
capital gains, any such realized gains will be distributed as described in the
Prospectus. Such distributions ("capital gain dividends") will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares, and will be designated as capital gain dividends in a
written notice mailed by a Fund to shareholders after the close of the Fund's
taxable year. Gain or loss, if any, recognized on the sale or other disposition
of shares of the Fund will be taxed as capital gain or loss if the shares are
capital assets in the shareholder's hands. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the shares have been held for more than
one year. If a shareholder sells or otherwise disposes of a share of the Fund
before holding it for more than six months, any loss on the sale or other
disposition of such share shall be treated as a long-term capital loss to the
extent of any capital gain dividends received by the shareholder with respect to
such share.
A shareholder of a Fund receiving dividends or distributions
in additional shares should be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives, and should have
a cost basis in the shares received equal to that amount.
Each shareholder of the Money Market Fund will receive an
annual statement as to the federal income tax status of his dividends and
distributions from the Fund for the prior calendar year. Furthermore,
shareholders will also receive, if appropriate, various written notices after
the close of the Fund's taxable year regarding the federal income tax status of
certain dividends and distributions that were paid (or that are treated as
having been paid) by the Fund to its shareholders during the preceding year.
Each shareholder of the Tax Exempt Fund will receive an annual
statement as to the federal personal income tax status of his dividends and
distributions from the Fund for the prior calendar year. Furthermore,
shareholders will also receive, if appropriate, various written notices after
the close of the Fund's taxable year regarding the federal income tax status of
certain dividends and distributions that were paid (or that are treated as
having been paid) by the Fund to its shareholders during the preceding year.
Shareholders should consult their tax advisers as to any other state and local
taxes that may apply to the Fund's dividends and distributions. The dollar
amount of dividends excluded from federal income taxation and the dollar amounts
subject to federal income taxation, if any, will vary for each shareholder
depending upon the size and duration of each shareholder's investment in the
Fund. In the event that the Fund derives taxable net investment income, it
intends to designate as taxable dividends the same percentage of each day's
dividend as its actual taxable net investment income bears to its total net
investment income earned on that day. Therefore, the percentage of each day's
dividend designated as taxable, if any, may vary from day to day.
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he has provided a correct taxpayer identification number
and that he is not subject to withholding, then the shareholder may be subject
to a 31% "backup withholding" tax with respect to (a) taxable dividends and
distributions and (b) the proceeds of any redemptions of Fund shares. An
individual's
21
<PAGE> 53
taxpayer identification number is his social security number. Corporate
shareholders and other shareholders specified in the Code are or may be exempt
from backup withholding. The backup withholding tax is not an additional tax and
may be credited against a taxpayer's federal income tax liability.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING A FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF AN INVESTMENT
IN THE FUND.
DETERMINATION OF YIELD
From time to time, each Fund may quote its yield, effective
yield and tax equivalent yield, as applicable, in advertisements or in reports
and other communications to shareholders. A Fund's seven-day yield is calculated
by (i) determining the net change in the value of a hypothetical pre-existing
account in the Fund having a balance of one share at the beginning of a seven
calendar day period for which yield is to be quoted, (ii) dividing the net
change by the value of the account at the beginning of the period to obtain the
base period return and (iii) annualizing the results (i.e., multiplying the base
period return by 365/7). The net change in the value of the account reflects the
value of additional shares purchased with dividends declared on the original
share and any such additional shares, but does not include realized gains and
losses or unrealized appreciation and depreciation. The Fund's seven-day
compound effective annualized yield is calculated by adding 1 to the base period
return (calculated as described above), raising the sum to a power equal to
365/7 and subtracting 1. The Tax Exempt Fund's tax equivalent yield is
calculated by dividing that portion of the base period return which is exempt
from federal personal income taxes by 1 minus the highest marginal federal
individual income tax rate and adding the quotient to that portion, if any, of
the yield which is not exempt from those taxes.
Each Fund's yield will vary from time to time depending upon
market conditions, the composition of its portfolio and operating expenses
allocable to it. Yield information may be useful in reviewing a Fund's
performance and for providing a basis for comparison with other investment
alternatives. However, the Fund's yield will fluctuate, unlike certain bank
deposits or other investments which pay a fixed yield for a stated period of
time. In comparing the Fund's yield with that of other money market funds,
investors should give consideration to the quality and maturity of the portfolio
securities of the respective funds.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PWC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for each Fund. The statement of assets and liabilities of each Fund,
as of SEPTEMBER 17, 1998, that appears in this Statement of Additional
Information has been audited by PWC, whose report thereon appears elsewhere
herein and has been included herein by reference in reliance upon
22
<PAGE> 54
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 Fund as
well as counsel to Warburg, Counsellors Service and Counsellors Securities.
FINANCIAL STATEMENTS
The Fund's financial statement follows the Report of Independent Accountants.
23
<PAGE> 55
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted 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 Investor 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.
Short term obligations, including commercial paper, rated A1 + by
IBCA are obligations supported by the highest capacity for timely repayment.
Obligations rated A1 have a very strong capacity for timely repayment.
Obligations rated A2 have a strong capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.
Duff & Phelps, Inc. employs the designation of Duff 1 with
respect to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: short-term liquidity is
clearly outstanding and safety is just below risk-free U.S. Treasury
short-term obligations. Duff 1- indicates high certainty of timely payment.
Duff 2 indicates good certainty of timely payment: liquidity factors and
company fundamentals are sound.
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
The following summarizes the highest two ratings used by S&P for
Municipal Securities:
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.
<PAGE> 56
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
To provide more detailed indications of credit quality, the "AA"
rating 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 highest two ratings used by Moody's for
bonds:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds that are rated As are judged to be of high quality by all
standards. Together with the Aaa group 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.
Moody's applies numerical modifiers (1,2 and 3) with respect to the
bonds rated Aa. 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.
The following summarizes the two highest ratings used by S&P for
short-term notes:
SP-1 - Loans bearing this designation evidence a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a (+) designation.
SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest.
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1 - Obligations bearing these designations are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of high
quality with margins of protection ample although not so large as in the
preceding group.
A-2
<PAGE> 57
Commercial paper rated A-1 by 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. 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.
Short term obligations, including commercial paper, rated A1 + by
IBCA are obligations supported by the highest capacity for timely repayment.
Obligations rated A1 have a very strong capacity for timely repayment.
Obligations rated A2 have a strong capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.
Duff & Phelps, Inc. employs the designation of Duff 1 with
respect to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: short-term liquidity is
clearly outstanding and safety is just below risk-free U.S. Treasury
short-term obligations. Duff 1- indicates high certainty of timely payment.
Duff 2 indicates good certainty of timely payment: liquidity factors and
company fundamentals are sound.
A-3
<PAGE> 58
WARBURG, PINCUS MONEY MARKET FUND, INC.
WARBURG, PINCUS TAX FREE MONEY MARKET FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
AS OF SEPTEMBER 17, 1998
MONEY MARKET TAX FREE MONEY
FUND MARKET FUND
------------ --------------
ASSETS:
Cash $100,000 $100,000
Deferred Offering Costs 93,500 93,500
-------- --------
TOTAL ASSETS 193,500 193,500
-------- --------
LIABILITIES:
Accrued Offering Costs 93,500 93,500
-------- --------
TOTAL LIABILITIES 93,500 93,500
-------- --------
NET ASSETS $100,000 $100,000
======== ========
NET ASSET VALUE, Redemption and
Offering Price per Share (three billion
shares authorized, consisting of 1
billion Common Shares and 2 billion
Advisor Shares - $.001 par value per
share designated) applicable to 100,000
Common Shares issued and
outstanding for each fund, respectively. $1.00 $1.00
----- -----
See Accompanying Notes to Financial Statements
<PAGE> 59
WARBURG, PINCUS MONEY MARKET FUND, INC.
WARBURG, PINCUS TAX FREE MONEY MARKET FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 17, 1998
1. ORGANIZATION:
Warburg, Pincus Money Market Fund, Inc. and Warburg, Pincus Tax Free Money
Market Fund, Inc. (collectively referred to as the "Funds") were incorporated
on July 24, 1998 under the laws of the State of Maryland. The Funds are
registered under the Investment Company Act of 1940, as amended, as
diversified, open-end management investment companies. The Funds' charter
authorizes its Board of Directors to issue three billion full and fractional
shares of capital stock, $.001 par value per share, of which one billion shares
are designated Common Shares and two billion are designated Advisor Shares.
Common Shares bear fees at .25% of average daily net asset value pursuant to a
12b-1 distribution plan. The Funds have not commenced operations except those
related to organizational matters and the sale of 100,000 Common Shares of each
Fund (the "Initial Shares") to Warburg Pincus Asset Management, Inc., the
Funds' investment adviser (the "Adviser") on September 17, 1998.
2. ORGANIZATION COSTS, OFFERING COSTS AND TRANSACTIONS WITH AFFILIATES:
Certain organizational costs incurred by the Funds have been paid for by the
Funds' Adviser. These costs amounted to $10,650 per Fund. Offering costs,
including initial registration costs, have been deferred and will be charged
to expense during the Funds' first year of operation.
Certain officers and directors of the Funds are also officers and a
director of the Adviser. These officers and directors are paid no fees by the
Funds for serving as an officer or director.
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors and Shareholder of
WARBURG, PINCUS MONEY MARKET FUND, INC. AND
WARBURG, PINCUS TAX FREE MONEY MARKET FUND, INC.:
In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of Warburg, Pincus
Money Market Fund, Inc. and Warburg, Pincus Tax Free Money Market Fund, Inc.
(collectively referred to as the "Funds") at September 17, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 21, 1998
<PAGE> 61
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Statements included in Part B:
(a) Report of PricewaterhouseCoopers
LLP, Independent Accountants.
(b) Statement of Net Assets and
Liabilities.
(b) Exhibits:
1(a) Articles of Incorporation.1
(b) Articles of Amendment to the Articles of Incorporation.2
2(a) By-Laws.1
(b) Amended and Restated By-Laws.2
3 Not applicable.
4 Registrant's Forms of Stock Certificates.
5(a) Form of Investment Advisory Agreement.3
5(b) Form of Sub-Investment Advisory and Administration Agreement.3
6 Form of Distribution Agreement.3
7 Not applicable.
8 Custodian Agreement with PNC Bank, National Association.3
9(a) Transfer Agency and Service Agreement.3
(b) Form of Co-Administration Agreement with Credit Suisse
Asset Management Ltd.3
(c) Form of Co-Administration Agreement with PFPC Inc.3
(d) Form of Co-Administration Delegation Agreement between
Credit Suisse Asset Management Ltd. and Counsellors Funds
Service, Inc.3
10(a) Opinion and Consent of Willkie Farr & Gallagher.
(b) Opinion and Consent of Venable, Baetjer and Howard,
LLP, Maryland counsel to the Fund.
11 Consent of PricewaterhouseCoopers LLP
- -------------
1 Incorporated by reference to Registrant's Registration Statement on Form N-1A
filed on July 24, 1998 (Securities Act File No. 333-59805).
2 To be filed by amendment.
3 Incorporated by reference; material provisions of this exhibit substantially
similar to those of the corresponding exhibit to Pre-Effective Amendment No. 1
to Registration Statement on Form N-1A of Warburg, Pincus WorldPerks Money
Market Fund, Inc. filed on September 21, 1998 (Securities Act File No.
333-59801; Investment Company Act File No. 811-08899).
<PAGE> 62
12 Not applicable.
13 Form of Purchase Agreement.3
14 Not applicable.
15(a) Form of Shareholder Servicing and Distribution Plan.3
(b) Form of Distribution Plan.3
16 Not applicable.
17 Not applicable.
18 Form of 18f-3 Plan.3
Item 25. Persons Controlled by or Under Common Control with Registrant
From time to time, Warburg Pincus Asset Management, Inc. ("Warburg"),
may be deemed to control the Fund and other registered investment companies 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
It is anticipated that Warburg will hold all Registrant's shares of
common stock, par value $.001 per share, on the date Registrant's Registration
Statement becomes effective.
Item 27. Indemnification
Registrant, officers and directors of Warburg, of Counsellors
Securities Inc. ("Counsellors Securities") and of Registrant are covered by
insurance policies indemnifying them for liability incurred in connection with
the operation of Registrant. Discussion of this coverage is incorporated by
reference to Item 27 of Part C of the Fund's initial Registration Statement on
Form N-1A filed on July 24, 1998.
<PAGE> 63
Item 28. (a) 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
<PAGE> 64
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. 801-28-496).
(b) Business and Other Connections of
Sub-Investment Adviser and Administrator
Blackrock Institutional Management Corporation ("BIMC"), a wholly owned
indirect subsidiary of PNC Bank, National Association ("PNC"), performs
sub-investment advisory services for Registrant and advisory services for
certain other investment companies. PNC and its predecessors have been in the
business of managing the investments of fiduciary and other accounts in the
Philadelphia area since 1847. In addition to its trust business, PNC provides
commercial banking services. The list required by this Item 28 of officers and
directors of BIMC, together with information as to their other business,
profession, vocation or employment of a substantial nature during the past two
years, is by BIMC (SEC File No. 801-13-304).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for Registrant, as
well as 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 Money Market Fund; Warburg Pincus Municipal
Bond Fund; Warburg Pincus Municipal Money Market Mileage 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; Warburg Pincus Trust II;
Warburg Pincus U.S. Core Equity Fund; Warburg Pincus U.S. Core Fixed Income
Fund; and Warburg Pincus WorldPerks Money Market Fund.
(b) For information relating to each director, officer or partner of
Counsellors Securities, reference is made to Form
<PAGE> 65
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 WorldPerks Tax Free Money Market Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Fund's articles of incorporation, by-laws and minute books)
(2) Blackrock Institutional Management Corporation
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as sub-investment adviser
and administrator)
(3) Credit Suisse Asset Management Ltd.
Beaufort House
15 St. Botolph Street
GB - London EC3A 7JJ
(records relating to its functions as co-administrator)
(4) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as co-administrator, transfer
and dividend disbursing agent)
(5) PNC Bank, National Association
1600 Market Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)
(6) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(7) Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment adviser)
(8) State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as transfer agent and dividend
disbursing agent)
<PAGE> 66
(9) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02177
(records relating to its functions as transfer agent and dividend
disbursing agent)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York and the
State of New York, on the 21st day of September, 1998.
WARBURG, PINCUS TAX FREE MONEY MARKET
FUND, INC.
By:/s/Eugene L. Podsiadlo
----------------------------
Eugene L. Podsiadlo
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed below by the following persons in the capacities
and on the date indicated:
Signature Title Date
- --------- ----- ----
/s/ John L. Furth Chairman of the September 21, 1998
- ---------------------------- Board of Directors
John L. Furth
/s/ Eugene L. Podsiadlo President September 21, 1998
- ----------------------------
Eugene L. Podsiadlo
/s/ Howard Conroy Vice President and September 21, 1998
- ---------------------------- Chief Financial
Howard Conroy Officer
/s/ Daniel S. Madden Treasurer and September 21, 1998
- ---------------------------- Chief Accounting
Daniel S. Madden Officer
/s/ Richard N. Cooper Director September 21, 1998
- ----------------------------
Richard N. Cooper
/s/ Jack W. Fritz Director September 21, 1998
- ----------------------------
Jack W. Fritz
/s/ Jeffrey E. Garten Director September 21, 1998
- ----------------------------
Jeffrey E. Garten
/s/ Arnold M. Reichman Director September 21, 1998
- ----------------------------
Arnold M. Reichman
/s/ Alexander B. Trowbridge Director September 21, 1998
- ----------------------------
Alexander B. Trowbridge
<PAGE> 68
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
4 Registrant's Forms of Stock Certificates.
10(a) Opinion and Consent of Willkie Farr & Gallagher.
(b) Opinion and Consent of Venable, Baetjer and Howard,
LLP, Maryland counsel to the Fund.
11 Consent of PricewaterhouseCoopers LLP
<PAGE> 1
Exhibit 4
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
WARBURG, PINCUS WORLDPERKS TAX FREE MONEY MARKET FUND, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE THREE BILLION SHARES, PAR VALUE $.001.
SPECIMEN
<PAGE> 2
The Corporation is authorized to issue two or more classes of stock. The
Corporation will furnish to any stockholder on request and without charge a full
statement of the designation and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the stock of each class which the
Corporation is authorized to issue and, if the Corporation is authorized to
issue any preferred or special class in series, of the differences in the
relative rights and preferences between the shares of each series to the extent
they have been set and the authority of the Board of Directors to set the
relative rights and preferences of subsequent series.
<PAGE> 1
Exhibit 10(a)
[Willkie Farr & Gallagher Letterhead]
September 21, 1998
Warburg, Pincus WorldPerks Tax Free Money Market Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Ladies and Gentlemen:
We have acted as counsel to Warburg, Pincus WorldPerks Tax Free Money Market
Fund, Inc. (the "Fund"), a corporation organized under the laws of the State of
Maryland, in connection with the preparation of a registration statement on Form
N-1A covering the offer and sale of an indefinite number of shares of Common
Stock of the Fund (the "Common Stock"), one billion of which are designated
"Common Shares," and two billion of which are designated "Advisor Shares," par
value $.001 per share (collectively, the "Shares").
We have examined copies of the Charter and By-Laws of the Fund, the Fund's
prospectuses and statement of additional information (the "Statement of
Additional Information") included in its Registration Statement on Form N-1A,
Securities Act File No. 333-59805 and Investment Company Act File No. 811-08901
(the "Registration Statement"), all resolutions adopted by the Fund's Board of
Directors (the "Board") at its organizational meeting held on July 20, 1998,
consents of the Board and other records, documents and papers that we have
deemed necessary for the purpose of this opinion. We have also examined such
other statutes and authorities as we have deemed necessary to form a basis for
the opinion hereinafter expressed.
In our examination of the above material, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
<PAGE> 2
Warburg, Pincus WorldPerks Tax Free Money Market Fund, Inc.
September 21, 1998
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Fund is duly organized and validly existing as a
corporation in good standing under the laws of the State of
Maryland.
2. The 100,000 presently issued and outstanding shares of Common
Stock, all of which are designated Common Shares, of the Fund
have been validly and legally issued and are fully paid and
nonassessable.
3. The Shares of the Fund to be offered for sale pursuant to the
Registration Statement are, to the extent of the number of
Shares authorized to be issued by the Fund in its Charter,
duly authorized and, when sold, issued and paid for as
contemplated by the Registration Statement, will have been
validly and legally issued and will be fully paid and
nonassessable.
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 and to the filing of this opinion as an exhibit to any application
made by or on behalf of the Fund or any distributor or dealer in connection with
the registration or qualification of the Fund or the Shares under the
securities laws of any state or other jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions. As to matters
involving the application of the laws of the State of Maryland, we have relied
on the opinion of Messrs. Venable, Baetjer and Howard, LLP.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE> 1
Exhibit 10(b)
VENABLE, BAETJER AND HOWARD, LLP
1800 MERCANTILE BANK AND TRUST BUILDING
TWO HOPKINS PLAZA
BALTIMORE, MARYLAND 21201
September 21, 1998
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Re: Warburg, Pincus Tax Free Money Market Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Warburg, Pincus
Tax Free Money Market Fund, Inc., a Maryland corporation (the "Fund"), in
connection with the organization of the Fund and the issuance of shares of its
common stock, par value $.001 per share, including the Common Shares and the
Advisor Shares (the "Common Stock").
As Maryland counsel for the Fund, we are familiar with its
Charter and Bylaws. We have examined its Registration Statement on Form N-1A,
Securities Act File No. 333-59805 and Investment Company Act File No. 811-08901,
including the prospectus and statement of additional information contained
therein, substantially in the form in which it is to become effective (the
"Registration Statement"). We have further examined and relied upon a
certificate of the Maryland State Department of Assessments and Taxation to the
effect that the Fund is duly incorporated and existing under the laws of the
State of Maryland and is in good standing and duly authorized to transact
business in the State of Maryland.
We have also examined and relied upon such corporate records
of the Fund and other documents and certificates with respect to factual matters
as we have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with originals of all documents submitted to us as copies.
<PAGE> 2
Willkie Farr & Gallagher
September 21, 1998
Page 2
Based on such examination, we are of the opinion and so advise
you that:
1. The Fund is a corporation duly organized and validly
existing in good standing under the laws of the State
of Maryland.
2. The 100,000 presently issued and outstanding Common
Shares of the Fund have been duly authorized and are
validly issued, fully paid and nonassessable.
3. The Common Stock of the Fund to be offered for sale
pursuant to the Registration Statement is, to the
extent of the number of shares authorized to be
issued by the Fund in its Charter, duly authorized
and, when sold, issued and paid for as contemplated
by the Registration Statement, will have been validly
and legally issued and will be fully paid and
nonassessable.
This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as due organization and the
authorization and issuance of stock. It does not extend to the securities or
"blue sky" laws of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your
opinion to the Fund that is to be filed as an exhibit to the Registration
Statement. We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ VENABLE, BAETJER AND HOWARD, LLP
2
<PAGE> 1
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated September 21, 1998 on our
audit of the financial statement of Warburg, Pincus Tax Free Money Market Fund,
Inc. in the Statement of Additional Information with respect to Pre-Effective
Amendment No. 1 to the Registration Statement (No. 333-59805) on Form N-1A under
the Securities Act of 1933 of Warburg, Pincus Tax Free Money Market Fund, Inc.
We also consent to the reference to our Firm under the heading "Independent
Accountants and Counsel" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 21, 1998
