<PAGE> 1
SUPPLEMENT TO THE PROSPECTUS
WARBURG PINCUS WORLDPERKS MONEY MARKET FUND
WARBURG PINCUS WORLDPERKS TAX FREE MONEY MARKET FUND
The following information supersedes the section in the funds' Prospectus
entitled "Other Information -- About the Distributor".
Provident Distributors, Inc. (PDI), located at Four Falls Corporate Center, West
Conshohocken, PA 19428-2961, is the funds' distributor and is responsible for
making the funds available to you.
As part of their business strategies, each of the funds has adopted a Rule 12b-1
shareholder servicing and distribution plan to compensate Credit Suisse Asset
Management Securities, Inc. (CSAMSI) for providing certain shareholder and other
services related to the sale of the funds' shares and for payments related to
the funds' participation in the Northwest Airlines WorldPerks program. Under the
plan, CSAMSI receives fees at an annual rate of 0.25% of average daily net
assets of the fund's shares. In the case of these funds, the distribution and
service (12b-1) fees are used primarily to pay for WorldPerks Bonus Miles.
Because the fees are paid out of a fund's assets on an ongoing basis, over time
they will increase the cost of your investment and may cost you more than paying
other types of sales charges.
CSAM or its affiliates may, out of their own resources, pay a portion of the
expense for the funds' participation in the WorldPerks program.
Dated: January 3, 2000 FFNWF-16-0100
<PAGE> 2
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1999
AS REVISED JANUARY 3, 2000
WARBURG PINCUS WORLDPERKS MONEY MARKET FUND
WARBURG PINCUS WORLDPERKS TAX FREE MONEY MARKET FUND
This combined Statement of Additional Information provides information about
Warburg Pincus WorldPerks Money Market Fund (the "Money Market Fund") and
Warburg Pincus WorldPerks Tax Free Money Market Fund (the "Tax Free Fund" and
collectively with the Money Market Fund, the "Funds") which supplements the
information that is contained in the combined Prospectus for the Funds, dated
April 30, 1999.
Each Fund's audited annual report dated December 31, 1998, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus. Copies of the Prospectus and the Annual
Report can be obtained by writing or telephoning:
Warburg Pincus WorldPerks Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
800-WARBURG
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Contents
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Page
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INVESTMENT OBJECTIVES...........................................................................1
GENERAL.........................................................................................1
Price and Portfolio Maturity...............................................................1
Portfolio Quality and Diversification......................................................1
INVESTMENT POLICIES.............................................................................2
Municipal Securities.......................................................................2
Bank Obligations...........................................................................4
Variable Rate Master Demand Notes..........................................................4
Government Securities......................................................................5
When-Issued Securities.....................................................................5
Repurchase Agreements......................................................................6
Reverse Repurchase Agreements and Borrowings...............................................6
Stand-By Commitment Agreements.............................................................6
Third Party Puts...........................................................................7
Taxable Investments........................................................................8
Other Investment Limitations...............................................................8
Money Market Fund......................................................................8
Tax Free Fund.........................................................................10
PORTFOLIO VALUATION............................................................................12
PORTFOLIO TRANSACTIONS.........................................................................12
MANAGEMENT OF THE FUNDS........................................................................13
Officers and Board of Directors...........................................................13
Directors' Total Compensation.............................................................16
Investment Advisers, Sub-Investment Adviser and Administrator and Co-
Administrator.........................................................................17
Custodian and Transfer Agent..............................................................20
Organization of the Funds.................................................................21
Distribution and Shareholder Servicing....................................................22
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................24
Automatic Cash Withdrawal Plan............................................................24
EXCHANGE PRIVILEGE.............................................................................24
ADDITIONAL INFORMATION CONCERNING TAXES........................................................25
DETERMINATION OF YIELD.........................................................................29
INDEPENDENT ACCOUNTANTS AND COUNSEL............................................................29
MISCELLANEOUS..................................................................................30
FINANCIAL STATEMENTS...........................................................................30
APPENDIX......................................................................................A-1
Description of Commercial Paper Ratings..................................................A-1
Description of Municipal Securities Ratings..............................................A-1
</TABLE>
(i)
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INVESTMENT OBJECTIVES
The following information supplements the discussion of each
Fund's investment objective and policies in the Prospectus. There are no
assurances that the Funds will achieve their 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 Free 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.
Unless otherwise indicated, each Fund is permitted to engage
in the following investment strategies. The Funds are not obligated to pursue
any of the following strategies and do not represent that these techniques are
available now or will be available at any time in the future.
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 Securities and Exchange Commission
(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 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
<PAGE> 5
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.
INVESTMENT POLICIES
Municipal Securities. Under normal circumstances, at least 80%
of the Tax Free 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 Free 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
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have the same yield. Subsequent to its purchase by the Tax Free 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 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 Free 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.
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 the interest on which is paid solely from revenues of
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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.
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 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.
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
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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 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.
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.
When-Issued Securities. 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-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.
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
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<PAGE> 9
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.
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. 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.
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 1940 Act.
Stand-By Commitment Agreements (Tax Free 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 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.
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<PAGE> 10
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 Credit Suisse Asset
Management, LLC, each Fund's investment adviser ("CSAM"), present minimal credit
risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, CSAM 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 Free 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 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
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<PAGE> 11
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, CSAM intends to manage the Fund in a
manner designed to minimize any adverse impact from these investments.
Taxable Investments (Tax Free 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.
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
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<PAGE> 12
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.
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.
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<PAGE> 13
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 Free 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 Free 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 Free 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 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
-10-
<PAGE> 14
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 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.
-11-
<PAGE> 15
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
CSAM 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 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
-12-
<PAGE> 16
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 CSAM, Credit Suisse Asset Management Securities, Inc. ("CSAMSI") or
Credit Suisse First Boston ("CS First Boston") or any affiliated person of such
companies, except pursuant to an exemption received from the SEC. In addition, a
Fund will not give preference to any institutions with whom the Fund enters into
distribution or shareholder servicing agreements concerning the provision of
distribution services or support services.
The Tax Free 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 CSAM 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.
Richard H. Francis (67) Director/Trustee
40 Grosvenor Road Currently retired; Executive Vice
Short Hills, New Jersey 07078 President and Chief Financial
Officer of Pan Am Corporation and
Pan American World Airways, Inc.
from 1988 to 1991; Director of The
Infinity Mutual Funds, BISYS Group
Incorporated; Director/Trustee of
other Warburg Pincus Funds and
other CSAM-advised investment
companies.
-13-
<PAGE> 17
Jack W. Fritz (72) Director/Trustee
2425 North Fish Creek Road Private investor; Consultant and
P.O. Box 483 Director of Fritz Broadcasting,
Wilson, Wyoming 83014 Inc. and Fritz Communications
(developers and operators of radio
stations); Director of Advo, Inc.
(direct mail advertising);
Director/Trustee of other Warburg
Pincus Funds.
Jeffrey E. Garten (53) Director/Trustee
Box 208200 Dean of Yale School of Management
New Haven, Connecticut 06520-8200 and 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
Warburg Pincus Funds.
James S. Pasman, Jr. (69) Director/Trustee
29 The Trillium Currently retired; President and
Pittsburgh, Pennsylvania 15238 Chief Operating Officer of National
InterGroup, Inc. from April 1989 to
March 1991; Chairman of Permian Oil
Co. from April 1989 to March 1991;
Director of Education Management
Corp., Tyco International Ltd.;
Trustee, BT Insurance Funds Trust;
Director/Trustee of other Warburg
Pincus Funds and other CSAM-advised
investment companies.
William W. Priest* (58) Chairman of the Board
153 East 53rd Street Chairman- Management Committee,
New York, New York 10022 Chief Executive Officer and
Managing Director of CSAM (U.S.)
since 1990; Director of TIG
Holdings, Inc.; Director/Trustee of
other Warburg Pincus Funds and
other CSAM-advised investment
companies.
- ----------
* Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
-14-
<PAGE> 18
Steven N. Rappaport (51) Director/Trustee
40 East 52nd Street President of Loanet, Inc. since
New York, New York 10022 1997; Executive Vice President of
Loanet, Inc. from 1994 to 1997;
Director, President, North American
Operations, and former Executive
Vice President from 1992 to 1993 of
Worldwide Operations of Metallurg
Inc.; Executive Vice President,
Telerate, Inc. from 1987 to 1992;
Partner in the law firm of Hartman
& Craven until 1987;
Director/Trustee of other Warburg
Pincus Funds and other CSAM-advised
investment companies.
Alexander B. Trowbridge (70) Director/Trustee
1317 F Street, N.W., 5th Floor Currently retired; President of
Washington, DC 20004 Trowbridge Partners, Inc. (business
consulting) from January 1990 to
November 1996; Director or Trustee
of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), IRI
International (energy services),
The Rouse Company (real estate
development), Harris Corp.
(electronics and communications
equipment), The Gillette Co.
(personal care products) and
Sunoco, Inc. (petroleum refining
and marketing); Director/Trustee of
other Warburg Pincus Funds.
Eugene L. Podsiadlo (42) President
466 Lexington Avenue Managing Director of CSAM;
New York, New York 10017-3147 Associated with CSAM since CSAM
acquired the Funds' predecessor
adviser in July 1999; with the
predecessor adviser since 1991;
Vice President of Citibank, N.A.
from 1987 to 1991; Officer of
CSAMSI and of other Warburg Pincus
Funds.
Hal Liebes, Esq. (35) Vice President and Secretary
153 East 53rd Street Managing Director and General
New York, New York 10022 Counsel of CSAM; Associated with
Lehman Brothers, Inc. from 1996 to
1997; Associated with CSAM from
1995 to 1996; Associated with CS
First Boston Investment Management
from 1994 to 1995; Associated with
Division of Enforcement, U.S.
Securities and Exchange Commission
from 1991 to 1994; Officer of
CSAMSI, other Warburg Pincus Funds
and other CSAM-advised investment
companies.
-15-
<PAGE> 19
Michael A. Pignataro (40) Treasurer and Chief Financial
153 East 53rd Street Officer
New York, New York 10022 Vice President and Director of Fund
Administration of CSAM; Associated
with CSAM since 1984; Officer of
other Warburg Pincus Funds and
other CSAM-advised investment
companies.
Stuart J. Cohen, Esq. (31) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of
New York, New York 10017-3147 CSAM; Associated with CSAM since
CSAM acquired the Funds'
predecessor adviser in July 1999;
with the predecessor adviser since
1997; Associated with the law firm
of Gordon Altman Butowsky Weitzen
Shalov & Wein from 1995 to 1997;
Officer of other Warburg Pincus
Funds.
Rocco A. DelGuercio (36) Assistant Treasurer
153 East 53rd Street Assistant Vice President and
New York, New York 10022 Administrative Officer of CSAM;
Associated with CSAM since June
1996; Assistant Treasurer, Bankers
Trust Corp. -- Fund Administration
from March 1994 to June 1996;
Mutual Fund Accounting Supervisor,
Dreyfus Corporation from April 1987
to March 1994; Officer of other
Warburg Pincus Funds and other
CSAM-advised investment companies.
No employee of CSAM, PFPC Inc., the Funds' co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Funds
for acting as an officer or director/trustee of a Fund. Each Director who is not
a director, trustee, officer or employee of CSAM, PFPC or any of their
affiliates receives an annual fee of $2,000, and $500 for each meeting of the
Board and $250 for each Audit Committee Meeting, as applicable, attended by him
for his services as Director and is reimbursed for expenses incurred in
connection with his attendance at Board meetings.
Directors' Total Compensation
(for the fiscal period ended December 31, 1998)
<TABLE>
<CAPTION>
Total Compensation from
Compensation from all Investment Companies
Name of Director each Fund in Warburg Pincus Fund Complex*
- ---------------- ----------------- -------------------------------
<S> <C> <C>
William W. Priest** None None
Richard N. Cooper*** $2,000 $56,600
</TABLE>
-16-
<PAGE> 20
<TABLE>
<CAPTION>
Total Compensation from
Compensation from all Investment Companies
Name of Director each Fund in Warburg Pincus Fund Complex*
- ---------------- ----------------- -------------------------------
<S> <C> <C>
Donald J. Donahue*** $2,000 $13,525
Richard H. Francis**** None None
Jack W. Fritz $2,000 $63,100
Jeffrey E. Garten**** $2,000 $49,325
Thomas A. Melfe*** $2,000 $60,700
James S. Pasman, Jr.**** None None
Steven N. Rappaport**** None None
Arnold M. Reichman** None None
Alexander B. Trowbridge $2,000 $64,000
</TABLE>
- --------------------
* Each Director serves as a Director or Trustee of 51 investment
companies and portfolios in the Warburg Pincus family of funds.
** Mr. Priest receives compensation as an affiliate of CSAM, and,
accordingly, receives no compensation from any Fund or any other
investment company advised by CSAM. Mr. Reichman resigned as a Director
of each Fund effective August 18, 1999.
*** Mr. Donahue resigned as a Director of each Fund effective February 6,
1998. Messrs. Cooper and Melfe resigned as a Director of each Fund
effective July 6, 1999.
**** Mr. Garten became a Director of each Fund effective February 6, 1998.
Messrs. Francis, Pasman and Rappaport became Directors of the Funds
effective July 6, 1999.
As of April 1, 1999, Directors and officers of a Fund as a
group owned of record less than 1% of the relevant Fund's outstanding common
stock.
Investment Advisers, Sub-Investment Adviser and Administrator
and Co-Administrator
CSAM, located at 153 East 53rd Street, New York, New York
10022, serves as investment adviser to each Fund pursuant to a written agreement
(the "Advisory Agreement"). CSAM is an indirect wholly-owned U.S. subsidiary of
Credit Suisse Group ("Credit Suisse"). Credit Suisse is a global financial
services company, providing a comprehensive range of banking and insurance
products. Active on every continent and in all major financial centers, Credit
Suisse comprises five business units -- Credit Suisse Asset Management (asset
management); Credit Suisse First Boston (investment banking); Credit Suisse
Private Banking (private banking); Credit Suisse (retail banking); and
Winterthur (insurance). Credit Suisse has approximately $680 billion of global
assets under management and employs approximately
-17-
<PAGE> 21
62,000 people worldwide. The principal business address of Credit Suisse is
Paradeplatz 8, CH 8070, Zurich, Switzerland.
Prior to July 6, 1999, Warburg Pincus Asset Management, Inc.
("Warburg") served as investment adviser to each Fund. On that date, Credit
Suisse acquired Warburg and combined Warburg with Credit Suisse's existing
U.S.-based asset management business ("Credit Suisse Asset Management").
Consequently, the combined entity, CSAM, became the Funds' investment adviser.
Credit Suisse Asset Management, formerly known as BEA Associates, together with
its predecessor firms, has been engaged in the investment advisory business for
over 60 years.
BIMC serves as sub-investment adviser to each Fund, and CSAMSI
and PFPC Inc. ("PFPC") serve as co-administrators to the Funds pursuant to
written agreements (the "Sub-Advisory Agreements" and the "Co-Administration
Agreement," respectively, and collectively, the "Agreements"). CSAMSI became
co-administrator to each Fund on November 1, 1999. Prior to that, Credit Suisse
Asset Management Ltd. ("CSAM Ltd.") served as co-administrator to the Funds.
For the services provided pursuant to the Advisory Agreement,
CSAM 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 CSAM pays BIMC for sub-investment advisory services. CSAM, 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.
As sub-investment adviser, BIMC has agreed to implement each
Fund's investment program as determined by the Board and CSAM. 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.
As co-administrator, CSAMSI provides shareholder liaison
services to the Fund including responding to shareholder inquiries and providing
information on shareholder investments. CSAMSI 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 proxy statements, annual and
semiannual reports, tax returns and monitoring and developing compliance
procedures for the Fund. As compensation, each Fund pays to CSAMSI a fee
calculated at an annual rate of .10% of the Fund's average daily net assets,
exclusive of out-of-pocket expenses.
The Funds also employ 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
-18-
<PAGE> 22
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.
MONEY MARKET FUND
Net Advisory Fees paid to CSAM's Predecessor, Warburg
2-month period ended
December 31, 1998
$0
For the same period, Warburg voluntarily waived $11,885 of the Fund's fees and
reimbursed expenses in the amount of $19,002.
Administrative Services/Co-Administration Fees paid to CSAM Ltd.(1)
2-month period ended
December 31, 1998
$0
- --------------------
(1) The Fund's predecessor co-administrator.
For the same period, CSAM Ltd. voluntarily waived $2,971 of the Fund's fees.
Administrative Services/Co-Administration Fees paid to PFPC
2-month period ended
December 31, 1998
$184
For the same period, PFPC voluntarily waived $2,971 of the Fund's fees.
TAX FREE FUND
Advisory Fees paid to CSAM's Predecessor, Warburg
2-month period ended
December 31, 1998
$0
For the same period, Warburg voluntarily waived $11,091 of the Fund's fees and
reimbursed expenses in the amount of $19,593.
-19-
<PAGE> 23
Administrative Services/Co-Administration Fees paid to CSAM Ltd.(1)
2-month period ended
December 31, 1998
$0
- --------------------
(1) The Fund's predecessor co-administrator.
For the same period, CSAM Ltd. voluntarily waived $2,773 of the Fund's fees.
Administrative Services/Co-Administration Fees paid to PFPC
2-month period ended
December 31, 1998
$184
For the same period, PFPC voluntarily waived $2,773 of the Fund's fees.
Custodian and Transfer Agent
PFPC Trust Company ("PFPC Trust") is custodian of each Fund's
assets pursuant to a custodian agreement (the "Custodian Agreement"). Under the
Custodian Agreement, PFPC Trust (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. PFPC Trust is authorized
to select one or more banks or trust companies to serve as sub-custodian on
behalf of a Fund, provided that PFPC Trust 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. PFPC Trust has
entered into a sub-custodian agreement with PNC Bank, National Association
("PNC"), pursuant to which PNC provides asset safekeeping and securities
clearing services. PFPC Trust and PNC are indirect, wholly owned subsidiaries of
PNC Bank Corp. and their principal business address is 200 Stevens Drive,
Lester, Pennsylvania 19113.
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
-20-
<PAGE> 24
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 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 25, 1998, the Money 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. All shareholders of a
Fund, upon liquidation, will participate ratably in the Fund's net assets.
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. 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
-21-
<PAGE> 25
elect all Directors. Shares are transferable but have no preemptive, conversion
or subscription rights.
Distribution and Shareholder Servicing
Provident Distributors, Inc. ("PDI") serves as distributor of
the Funds' shares. PDI offers each Fund's shares on a continuous basis. No
compensation is payable by the Funds to PDI for distribution services; however,
pursuant to a separate agreement with CSAM, PDI is compensated for the services
provided to the Funds. PDI's principal business address is Four Falls Corporate
Center, West Conshohocken, Pennsylvania 19428-2961.
Common Shares. Each Fund has adopted 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 CSAMSI a fee calculated at an annual rate
of .25% of the average daily net assets of the Common Shares of the Fund. The
fee is intended to compensate CSAMSI, or to enable CSAMSI to compensate other
persons ("Service Providers"), for providing Services (as defined below) to the
Funds. Services performed by CSAMSI or Service Providers include (i) services
that are primarily intended to result in, or that are primarily attributable to,
the sale of the Common Shares, as set forth in the Common Shares 12b-1 Plan
("Selling Services") and (ii) ongoing servicing and/or maintenance of the
accounts of Common Shareholders of the Fund, as set forth in the Common Shares
12b-1 Plan ("Shareholder Services", together with Selling Services, "Services").
Shareholder Services may include, without limitation, responding to Fund
shareholder inquiries and providing services to shareholders not otherwise
provided by the Funds' distributor or transfer agent. Selling Services may
include, without limitation, (a) the printing and distribution to prospective
investors in Common Shares of prospectuses and statements of additional
information describing the Funds; (b) the preparation, including printing, and
distribution of sales literature, advertisements and other informational
materials relating to the Common Shares; (c) providing telephone services
relating to the Funds, including responding to inquiries of prospective Fund
investors; (d) formulating and implementing marketing and promotional
activities, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising and
obtaining whatever information, analyses and reports with respect to marketing
and promotional activities that the Funds may, from time to time, deem
advisable. In providing compensation for Services in accordance with this Plan,
CSAMSI is expressly authorized (i) to make, or cause to be made, payments to
Service Providers reflecting an allocation of overhead and other office expenses
related to providing Services; (ii) to make, or cause to be made, payments to
compensate selected dealers or other authorized persons for providing any
Services; and (iii) to make, or cause to be made, payments to cover any costs
and expenses relating to the Fund's participation in the Northwest Airlines
WorldPerks(TM) program.
Payments under the 12b-1 Plan are not tied exclusively to the
distribution expenses actually incurred by CSAMSI and the payments may exceed
distribution expenses actually incurred.
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<PAGE> 26
Pursuant to the 12b-1 Plan, CSAMSI 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. The Common Shares 12b-1 Plan was
adopted on November 1, 1999. Prior to that date, a substantially similar plan
was in place with respect to the Common Shares (the "Prior Common Shares 12b-1
Plan"). For the period ended December 31, 1998, the Money Market Fund and the
Tax Free Fund paid $7,419 and $6,932, respectively, in 12b-1 fees pursuant to
the Prior Common Shares 12b-1 Plan, which were used primarily for expenses
related to each Fund's participation in the Northwest Airlines WorldPerks(TM)
program.
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. Pursuant to such Distribution Plan, payments may be made to
Institutions directly by a Fund or by CSAMSI on behalf of the Fund. The
Distribution Plan would require 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
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<PAGE> 27
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Fund shares and how
such shares are priced is included in the Shareholder Guide.
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 CSAM
is available to investors in a Fund. Exchanges may also be made between certain
Warburg Pincus Advisor Funds.
-24-
<PAGE> 28
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
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
CSAMSI.
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 a Fund.
As described above and in the Fund's Prospectus, the Tax Free
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
-25-
<PAGE> 29
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 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.
If for any taxable year the Fund does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions, including amounts derived from interest
on tax-exempt obligations, would be taxable to shareholders to the extent of
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations in the case of corporate
shareholders.
If, in any taxable year, a Fund fails to qualify as a
regulated investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary corporation and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income. In addition, in the event of a failure to qualify,
the Fund's distributions, to the extent derived from the Fund's current or
accumulated earnings and profits, would constitute dividends (eligible for the
corporate dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at least in
part) have been treated in the shareholders' hands as long-term capital gains or
tax-exempt interest income. If a Fund fails
-26-
<PAGE> 30
to qualify as a regulated investment company in any year, it must pay out its
earnings and profits accumulated in that year in order to qualify again as a
regulated investment company. In addition, if the Fund failed to qualify as a
regulated investment company for a period greater than one taxable year, the
Fund may be required to recognize any net built-in gains (the excess of the
aggregate gains, including items of income, over aggregate losses that would
have been realized if it had been liquidated) in order to qualify as a regulated
investment company in a subsequent year.
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 Free 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, if a shareholder of the Tax Free Fund holds shares for six months or
less, any loss on the sale or exchange of these shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. 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, 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. 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 "branch profits" tax, or the federal "excess net passive income" tax.
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. The rule will apply to a sale
-27-
<PAGE> 31
of shares of the Tax Free Fund only to the extent the rate is not disallowed
under the provision described above.
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 Free 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 taxable dividends and
distributions. An individual's 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.
You should consult your tax advisor regarding possible tax
effects of the crediting of WorldPerks miles as a result of your fund
investment, which could include a reduction in the tax basis in your shares that
could cause a taxable gain when you sell them.
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<PAGE> 32
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. The Money Market Fund's yield and
effective yield for the seven-day period ended on December 31, 1998 were 4.41%
and 4.51%, respectively. In the absence of waivers, these yields would have been
3.38% and 3.44%, respectively. The Tax Free Fund's yield, effective yield and
tax equivalent yield for the seven-day period ended on December 31, 1998 was
3.13%, 3.18% and 5.18% (based on a 39.6% federal tax rate), respectively. In the
absence of waivers these yields would have been 1.95%, 1.97% and 3.23%,
respectively. 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 Free 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 Funds' financial statements for the fiscal period
ended December 31, 1998, that is incorporated by reference in this Statement of
Additional Information have been audited by
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<PAGE> 33
PwC, and have been included herein by reference in reliance upon the report of
such firm of independent accountants given upon their authority as experts in
accounting and auditing.
Willkie Farr & Gallagher serves as counsel for the Fund and
provides legal services from time to time for CSAM and CSAMSI.
MISCELLANEOUS
The Funds are not sponsored, endorsed, sold or promoted by
Warburg, Pincus & Co. Warburg, Pincus & Co. makes no representation or warranty,
express or implied, to the owners of the Funds or any member of the public
regarding the advisability of investing in securities generally or in the Funds
particularly. Warburg, Pincus & Co. licenses certain trademarks and trade names
of Warburg, Pincus & Co., and is not responsible for and has not participated in
the calculation of the Funds' net asset value, nor is Warburg, Pincus & Co. a
distributor of the Funds. Warburg, Pincus & Co. has no obligation or liability
in connection with the administration, marketing or trading of the Funds.
As of March 31, 1999, the name, address and percentage of
ownership of other persons that control a Fund (within the meaning of the rules
and regulations under the 1940 Act) or own of record 5% or more of the Fund's
outstanding shares were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MONEY MARKET FUND COMMON STOCK
- --------------------------------------------------------------------------------
<S> <C>
Louis Bluver* 11.57%
1901 Walnut St. Apt 1901
Philadelphia, PA 19103-4645
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TAX FREE FUND COMMON STOCK
- --------------------------------------------------------------------------------
<S> <C>
Credit Suisse Asset Management* 47.75%
Fund Holding (Luxembourg) S.A.
5 Rue Jean Monnet
B P 369
L-2013 Luxembourg
- --------------------------------------------------------------------------------
</TABLE>
* To the knowledge of each Fund, these entities are not the beneficial owners of
a majority of the shares held by them of record.
FINANCIAL STATEMENTS
Each Fund's audited annual report, dated December 31, 1998,
which either accompanies this Statement of Additional Information or has
previously been provided to the investor to whom this Statement of Additional
Information is being sent, is incorporated herein
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<PAGE> 34
by reference. A Fund will furnish without charge a copy of its annual report
upon request by calling Warburg Pincus Funds at (800) 927-2874.
-31-
<PAGE> 35
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> 36
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> 37
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
