WARBURG PINCUS WORLDPERKS MONEY MARKET FUND INC
497, 1999-05-13
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<PAGE>   1
 
      SUPPLEMENT TO THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
                              WARBURG PINCUS FUNDS
 
     On February 15, 1999, Warburg Pincus and Credit Suisse Group announced that
they reached an agreement for Credit Suisse to acquire Warburg Pincus Asset
Management, Inc., the investment adviser to these Warburg Pincus funds. Under
the terms of the arrangement, no immediate changes are planned to Warburg Pincus
investment portfolio managers and investment professionals.
 
     The funds' governing Board and fund shareholders will be asked to vote on
the "assignment" of the funds' current investment advisory agreements with
Warburg Pincus Asset Management. Shareholders will receive more information
about the advisory agreement arrangements, but until then shareholders do not
need to take any action relating to their Warburg Pincus fund shares.
 
     The transaction is expected to be complete in mid-1999 upon satisfaction of
the various conditions in the agreement.
 
Date: April 30, 1999
<PAGE>   2
 
                                   PROSPECTUS
                                 April 30, 1999
 
                                 WARBURG PINCUS
                          WORLDPERKS MONEY MARKET FUND
 
                                       -
 
                                 WARBURG PINCUS
                     WORLDPERKS TAX FREE MONEY MARKET FUND
 
                                                            ()SM
 
           As with all mutual funds, the Securities and Exchange
           Commission has not approved these funds, nor has it passed
           upon the adequacy or accuracy of this Prospectus. It is a
           criminal offense to state otherwise.
 
                          [Warburg Pincus Funds Logo]
 
LOGO
LOGO
<PAGE>   3
 
                                    CONTENTS
 
<TABLE>
<S>                                                  <C>
KEY POINTS.................... ....................           4
   Goals and Principal Strategies..................           4
   A Word About Risk...............................           5
   Investor Profile................................           6
   WorldPerks(R)InvestorMilesSM......... ..........           6
INVESTOR EXPENSES................ .................           8
   Fees and Fund Expenses..........................           8
   Example.........................................           9
NORTHWEST AIRLINES
  WORLDPERKS(R)INVESTORMILESSM.......... ..........          10
   The WorldPerks InvestorMiles Program............          10
   How Your Mileage Is Determined..................          10
   For More Information............................          10
THE FUNDS IN DETAIL............... ................          11
   The Management Firms............................          11
   Service.........................................          11
   Fund Information Key............................          12
MONEY MARKET FUND................ .................          14
TAX FREE MONEY MARKET FUND............ ............          16
MORE ABOUT RISK................. ..................          18
   Introduction....................................          18
   Types of Investment Risk........................          18
   Certain Investment Practices....................          20
ABOUT YOUR ACCOUNT................ ................          22
   Share Valuation.................................          22
   Buying and Selling Shares.......................          22
   Account Statements..............................          22
   Distributions...................................          22
   Taxes...........................................          23
OTHER INFORMATION................ .................          25
   About the Distributor...........................          25
FOR MORE INFORMATION............... ...............  back cover
</TABLE>
 
                                        3
<PAGE>   4
 
                                   KEY POINTS
                         GOALS AND PRINCIPAL STRATEGIES
 
<TABLE>
<CAPTION>
  FUND/RISK FACTORS               GOAL                         STRATEGIES
<S>                     <C>                        <C>
WORLDPERKS              High current income        - Invests in high-quality
MONEY MARKET FUND       consistent with            money-market instruments:
Risk factors:           preservation of capital    - obligations issued or guaranteed
 Credit risk            and liquidity              by the U.S. government, its
 Income risk                                         agencies or instrumentalities
 Interest-rate risk                                - bank and corporate debt
 Market risk                                         obligations
 Sector concentration                              - Concentrates its investments in
                                                   the financial-services sector
                                                   - Portfolio managers select
                                                   investments based on factors such
                                                     as yield, maturity and
                                                     liquidity, within the context of
                                                     their interest-rate outlook
                                                   - Seeks to maintain a stable share
                                                     price of $1
WORLDPERKS TAX FREE     High current income        - Invests in high-quality,
MONEY MARKET FUND       exempt from federal        short-term tax- exempt municipal
Risk factors:           personal income taxes        securities -- debt obligations
 Credit risk            consistent with              issued by states and other
 Income risk            preservation of capital      jurisdictions of the U.S. and
 Interest-rate risk     and liquidity                their authorities, agencies and
 Market risk                                         instrumentalities
                                                   - Fund dividends derived from
                                                   interest on municipal securities
                                                     will be exempt from federal
                                                     personal income taxes
                                                   - Portfolio managers select
                                                   investments based on factors such
                                                     as yield, maturity and
                                                     liquidity, within the context of
                                                     their interest-rate outlook
                                                   - Seeks to maintain a stable share
                                                     price of $1
</TABLE>
 
                                        4
<PAGE>   5
 
     A WORD ABOUT RISK
 
   All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
 
   Principal risk factors for the funds are discussed below. Before you invest,
please make sure you understand the risks that apply to your fund.
 
   Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although each fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in a fund.
 
CREDIT RISK
Both funds
 
   The issuer of a security or the counterparty to a contract may default or
otherwise become unable to honor a financial obligation. An issuer's failure to
make scheduled interest or principal payments to a fund could reduce the fund's
income level and share price.
 
INCOME RISK
Both funds
 
   A fund's income level may decline because of falling interest rates and other
market conditions. Each fund's yield will vary from day to day, generally
reflecting changes in overall short-term interest rates. This should be an
advantage when interest rates are rising, but not when rates are falling.
 
INTEREST-RATE RISK
Both funds
 
   Changes in interest rates may cause a decline in the market value of an
investment. With fixed-income securities, a rise in interest rates typically
causes a fall in values, while a fall in interest rates typically causes a rise
in values.
 
   A sharp and unexpected rise in interest rates could cause a money-market
fund's share price to drop below $1. However, the extremely short maturity of
securities held in money-market portfolios -- a means of achieving an overall
fund objective of principal safety -- reduces their potential for price
fluctuation.
 
MARKET RISK
Both funds
 
   The market value of a security may move up and down, sometimes rapidly and
unpredictably. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments -- including debt securities and the mutual funds that invest in
them.
 
SECTOR CONCENTRATION
Money Market Fund
 
   Investing more than 25% of its assets in the financial-services sector will
subject the fund to risks associated with investing in financial-services
companies. These risks may include interest-rate, market, regulatory and other
risks.
                                        5
<PAGE>   6
 
     INVESTOR PROFILE
 
   THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:
 
 - want to preserve the value of their investment
 
 - are seeking a mutual fund for the money-market portion of an asset-
  allocation portfolio
 
 - want easy access to their money through checkwriting and wire-redemption
  privileges
 
 - are investing emergency reserves or other money for which safety and
  accessibility are more important than total return
 
 - want to earn WorldPerks Bonus Miles
 
   THEY MAY NOT BE APPROPRIATE IF YOU:
 
 - are not interested in earning WorldPerks Bonus Miles
 
 - are seeking an investment for your IRA or other tax-advantaged retirement
  plan
 
 - want federal deposit insurance
 
 - desire the higher income available from longer-term fixed-income funds
 
 - are investing for capital appreciation
 
   You should base your selection of a fund on your own goals, risk preferences
and time horizon.
 
     WORLDPERKS(R) INVESTORMILES(SM)
 
   Investing in these funds makes you eligible to earn WorldPerks* Bonus Miles
in Northwest Airlines' WorldPerks(R) InvestorMilesSM Program, good for free
award travel on Northwest Airlines, Continental Airlines, KLM Royal Dutch
Airlines and other WorldPerks partner airlines. If you are not a member of the
WorldPerks program, call Northwest Airlines at 800-44-PERKS (800-447-3757) to
 
enroll before making an investment in a fund.
 
*WorldPerks is a registered trademark of Northwest Airlines, Inc.
                                        6
<PAGE>   7
 
                       This page intentionally left blank
 
                                        7
<PAGE>   8
 
                               INVESTOR EXPENSES
 
                             FEES AND FUND EXPENSES
 
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended December 31, 1998.
 
<TABLE>
<CAPTION>
 
<S>                                         <C>                       <C>
                                                                           TAX FREE
                                               MONEY MARKET              MONEY MARKET
                                                   FUND                      FUND
SHAREHOLDER FEES
 (paid directly from your investment)
Sales charge "load" on purchases                   NONE                      NONE
Deferred sales charge "load"                       NONE                      NONE
Sales charge "load" on reinvested
  distributions                                    NONE                      NONE
Redemption fees                                    NONE                      NONE
Exchange fees                                      NONE                      NONE
ANNUAL FUND OPERATING EXPENSES
 (deducted from fund assets)
Management fee                                     .40%                      .40%
Distribution and service (12b-1) fee               .25%                      .25%
Other expenses                                     1.17%                     1.24%
TOTAL ANNUAL FUND OPERATING EXPENSES*              1.82%                     1.89%
</TABLE>
 
* Actual fees and expenses for the fiscal period ended December 31, 1998 are
  shown below. Fee waivers and expense reimbursements or credits reduced some
  expenses during 1998 but may be discontinued at any time.
 
<TABLE>
<CAPTION>
                                                                           TAX FREE
          EXPENSES AFTER WAIVERS                   MONEY                 MONEY MARKET
            AND REIMBURSEMENTS                  MARKET FUND                  FUND
<S>                                         <C>                       <C>
Management fee                                     .25%                      .25%
Distribution and service (12b-1) fee               .25%                      .25%
Other expenses                                     .26%                      .26%
                                                   -----                     -----
TOTAL ANNUAL FUND OPERATING EXPENSES               .76%                      .76%
</TABLE>
 
                                        8
<PAGE>   9
 
                                    EXAMPLE
 
This example may help you compare the cost of investing in these funds with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.
 
Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed in the first table on the opposite page (before fee waivers and
expense reimbursements or credits) and you close your account at the end of each
of the time periods shown. Based on these assumptions, your cost would be:
 
<TABLE>
<CAPTION>
                                                              ONE YEAR   THREE YEARS
<S>                                                           <C>        <C>
MONEY MARKET FUND                                               $185        $573
TAX FREE MONEY MARKET FUND                                      $192        $594
</TABLE>
 
                                        9
<PAGE>   10
 
     THE WORLDPERKS INVESTORMILES PROGRAM
 
   Investing in these funds makes you eligible to earn WorldPerks Bonus Miles in
Northwest Airlines' WorldPerks InvestorMiles Program. Mileage is based on how
much and how long you invest. The WorldPerks Free Travel Program features free
award travel on Northwest Airlines, Continental Airlines, KLM Royal Dutch
Airlines and other WorldPerks partner airlines. If you are not a member of the
WorldPerks program, call Northwest Airlines at 800-44-PERKS (800-447-3757) to
enroll over the phone before investing in a fund.
 
     HOW YOUR MILEAGE IS
     DETERMINED
 
   For every $4 you invest in a fund, Bonus Miles accrue daily at the rate of
one mile per year (or 1/12-mile per month). Miles will be posted monthly to your
WorldPerks account based on your average daily fund account balance during the
previous month.
 
EXAMPLE
 
   Assume you invest $10,000 on the 16th day of a month that has 30 days and
maintain that balance through the end of the month.
 
   Your miles would accrue daily at the rate of:
 
$10,000 X 1/12 mile per month/$4 X 1 month/30 days = 6.944 MILES PER DAY
 
   Total miles for the 15-day period would be:
 
15 days X 6.944 miles per day = 105 MILES
 
   If you maintained your $10,000 balance, over the next month you would earn:
 
$10,000 X 1/12 mile per month/$4 =
  209 MILES
 
   As in the example, fractional miles are rounded up to the nearest whole mile
when credited. Reinvesting your fund dividends will add to your account balance
and increase the number of miles you earn.
 
     FOR MORE INFORMATION
 
   For information or assistance regarding the WorldPerks InvestorMiles Program,
call Warburg Pincus Funds at 800-WARBURG (800-927-2874). For information about
Northwest WorldPerks Free Travel Program features, please refer to your
WorldPerks Member's Guide. Northwest Airlines may change the WorldPerks program
rules, program partners, regulations, benefits, conditions of participation or
mileage levels at any time without notice, even though changes may affect the
value of mileage already accumulated. Award travel is subject to seat
availability. The posting of WorldPerks Bonus Miles in connection with fund
investments may be changed or discontinued at any time. Northwest Airlines
WorldPerks travel awards, mileage accrual and special offers are subject to
governmental regulations.
 
                               NORTHWEST AIRLINES
                            WORLDPERKS INVESTORMILES
 
                                       10
<PAGE>   11
 
     THE MANAGEMENT FIRMS
 
   WARBURG PINCUS ASSET
MANAGEMENT, INC.
466 Lexington Avenue
New York, NY 10017-3147
 
 - Investment adviser for the funds
 
 - Responsible for determining each fund's investment program, including the
  types, maturities and issuers of securities to be held by the fund
 
 - Supervises the activities of BlackRock
 
 - A professional investment-advisory firm providing investment services to
  individuals since 1970 and to institutions since 1973
 
 - Currently manages approximately $22 billion in assets
 
   For easier reading, Warburg Pincus Asset Management, Inc. will be referred to
as "Warburg Pincus" or "we" throughout this Prospectus.
   BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
400 Bellevue Parkway
Wilmington, DE 19809
 - Sub-investment adviser for the funds
 
 - Responsible for providing investment research and credit analysis, and
  managing the day-to-day operations of the funds
 
 - A majority owned indirect subsidiary of PNC Bank, N.A.
 
 - Currently manages approximately $50 billion in assets
     SERVICE
 
   CREDIT SUISSE ASSET MANAGEMENT LIMITED
Beaufort House
15 St. Botolph Street
London, EC 3A 7JJ
 - Provides the funds with administrative services
 
 - A subsidiary of Credit Suisse Group, one of the world's leading banks
 
                              THE FUNDS IN DETAIL
 
                                       11
<PAGE>   12
 
     FUND INFORMATION KEY
 
   Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
 
GOAL AND STRATEGIES
   The fund's particular investment goal and the strategies it intends to use in
pursuing that goal. Percentages of fund assets are based on total assets unless
indicated otherwise.
 
PORTFOLIO INVESTMENTS
   The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."
 
RISK FACTORS
   The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."
 
INVESTOR EXPENSES
   Actual fund expenses for the 1998 fiscal period. Future expenses may be
higher or lower.
 
 - MANAGEMENT FEE The fee paid to the investment adviser and sub-investment
  adviser for providing investment advice to the fund. Expressed as a percentage
  of average net assets after waivers.
 
 - DISTRIBUTION AND SERVICE (12B-1) FEES Fees paid by the fund to the
  distributor for making shares of the fund available to you. Expressed as a
  percentage of average net assets.
 
 - OTHER EXPENSES Fees paid by the fund for items such as administration,
  transfer agency, custody, auditing, legal and registration fees and
  miscellaneous expenses. Expressed as a percentage of average net assets after
  waivers, credits and reimbursements.
 
FINANCIAL HIGHLIGHTS
   A table showing the fund's audited financial performance for up to five
years.
 
 - TOTAL RETURN How much you would have earned on an investment in the fund,
  assuming you had reinvested all distributions.
 
   The Annual Report includes the auditor's report, along with the fund's
financial statements. It is available free upon request.
 
                                       12
<PAGE>   13
 
                       This page intentionally left blank
 
                                       13
<PAGE>   14
 
     GOAL AND STRATEGIES
 
   The Money Market Fund seeks high current income consistent with preservation
of capital and liquidity. To pursue this goal, it invests in high-quality, U.S.
dollar-denominated money-market instruments. The fund seeks to maintain a stable
$1 share price.
 
   In selecting securities, the portfolio managers may examine the relationships
among yields on various types and maturities of money-market securities in the
context of their outlook for interest rates. For example, commercial paper often
offers a yield advantage over Treasury bills. And if rates are expected to fall,
longer maturities may be purchased to try to preserve the fund's income level.
Conversely, shorter maturities may be favored if rates are expected to rise.
 
     PORTFOLIO INVESTMENTS
 
   This fund invests in the following types of money-market instruments:
 
 - Government securities, including U.S. Treasury bills and other obligations of
  the U.S. government, its agencies or instrumentalities
 
 - U.S. and foreign bank obligations such as certificates of deposit, bankers'
  acceptances, time deposits, commercial paper and debt obligations
 
 - commercial paper and notes of other corporate issuers, including variable-
  rate master demand notes and other variable-rate obligations
 
 - repurchase agreements
 
   No more than 5% of assets may be invested in securities rated in the second-
highest short-term rating category (or unrated equivalents). The rest of the
fund's investments must be in the highest short-term rating category. Under
normal conditions, the fund will invest at least 25% of assets in the
financial-services sector.
 
   The fund maintains an average maturity of 90 days or less, and only purchases
securities that have (as determined under SEC rules) remaining maturities of 397
days or less. To a limited extent, the fund may also engage in other investment
practices.
 
     RISK FACTORS
 
   This fund's principal risk factors are:
 
 - credit risk
 
 - income risk
 
 - interest-rate risk
 
 - market risk
 
 - sector concentration
 
   The fund's yield will vary with changes in interest rates. If interest rates
fall, your dividend income will likely decline.
 
   Since it is managed to maintain a constant $1 share price, the fund should
have little risk of principal loss. However, there is no assurance the fund will
avoid principal losses in the rare event that fund holdings default or interest
rates rise sharply in an unusually short period.
 
   Concentrating its investments in the financial-services sector will subject
the
 
                               MONEY MARKET FUND
                                       14
<PAGE>   15
 
fund to risks associated with investing in financial-services companies. These
risks are discussed in "More About Risk." That section also details other
investment practices the fund may use. Please read "More About Risk" carefully
before you invest.
 
     PORTFOLIO MANAGEMENT
 
   Under the supervision of Warburg Pincus, a portfolio-management team at
BlackRock Institutional Management
Corporation, the fund's sub-investment adviser, makes the fund's day-to-day
investment decisions.
 
     INVESTOR EXPENSES
 
   Management fee                                                        .25%
   Distribution and service
   (12b-1) fee                                                           .25%
   All other expenses                                                    .26%
 
                                                                 ------------
 
     Total expenses                                                      .76%
 
                              FINANCIAL HIGHLIGHTS
 
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
 
<TABLE>
<CAPTION>
<S>                                                           <C>     <C>
- ----------------------------------------------------------------------------
  PERIOD ENDED:                                               12/98(1)
  PER-SHARE DATA
- ----------------------------------------------------------------------------
  Net asset value, beginning of period                          $1.00
- ----------------------------------------------------------------------------
  Investment activities:
    Net investment income                                        0.01
- ----------------------------------------------------------------------------
  Distributions:
    From net investment income                                  (0.01)
- ----------------------------------------------------------------------------
  Net asset value, end of period                                $1.00
                                                              -----
                                                              -----
  Total return                                                   1.15%(2)
- ----------------------------------------------------------------------------
  RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
  Net assets, end of period (000s omitted)                    $12,926
  Ratio of expenses to average net assets                         .58%(3,4)
  Ratio of net income to average net assets                      5.13%(4)
  Decrease reflected in above operating expense ratio due to
    waivers/reimbursements                                       1.24%(4)
- ----------------------------------------------------------------------------
</TABLE>
 
(1) For the period October 1, 1998 (Commencement of Operations) through December
    31, 1998.
(2) Not annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
    the transfer agent expense. These arrangements had no effect on the fund's
    expense ratio.
(4) Annualized.
                                       15
<PAGE>   16
 
     GOAL AND STRATEGIES
 
   The Tax Free Money Market Fund seeks high current income exempt from federal
personal income taxes consistent with preservation of capital and liquidity. To
pursue this goal, it invests in short-term, high-quality municipal securities.
The fund seeks to maintain a stable $1 share price.
 
   In selecting securities, the portfolio managers may examine the relationships
among yields on various types and maturities of municipal securities in the
context of their outlook for interest rates. For example, if rates are expected
to fall, longer maturities may be purchased to try to preserve the fund's income
level. Conversely, shorter maturities may be favored if rates are expected to
rise.
 
     PORTFOLIO INVESTMENTS
 
   This fund invests at least 80% of assets in short-term, high-quality tax-
exempt municipal securities. These include:
 
 - tax-exempt commercial paper
 
 - variable-rate demand notes
 
 - bonds
 
 - municipal put bonds
 
 - bond-anticipation notes
 
 - revenue-anticipation notes
 
   No more than 5% of assets may be invested in securities rated in the second-
highest short-term rating category (or unrated equivalents). The rest of the
fund's investments must be in the highest short-term rating category.
 
   The fund maintains an average maturity of 90 days or less, and only purchases
securities that have (as determined under SEC rules) remaining maturities of 397
days or less. To a limited extent, the fund may also engage in other investment
practices.
 
     RISK FACTORS
 
   This fund's principal risk factors are:
 
 - credit risk
 
 - income risk
 
 - interest-rate risk
 
 - market risk
 
   The fund's yield will vary with changes in interest rates. If interest rates
fall, your dividend income will likely decline.
 
   Since it is managed to maintain a constant $1 share price, the fund should
have little risk of principal loss. However, there is no assurance the fund will
avoid principal losses in the rare event that fund holdings default or interest
rates rise sharply in an unusually short period.
 
   The fund's ability to maintain a stable share price also depends upon
guarantees from banks and other financial institutions that back certain
securities the fund invests in. Changes in the credit quality of these
institutions could cause losses to the fund and affect its share price.
 
   "More About Risk" details certain investment practices the fund may use.
Please read that section carefully before you invest.
 
                           TAX FREE MONEY MARKET FUND
                                       16
<PAGE>   17
 
     PORTFOLIO MANAGEMENT
 
   Under the supervision of Warburg Pincus, a portfolio-management team at
BlackRock Institutional Management Corporation, the fund's sub-investment
adviser, makes the fund's day-to-day investment decisions.
 
     INVESTOR EXPENSES
 
   Management fee                                                        .25%
   Distribution and service
   (12b-1) fee                                                           .25%
   All other expenses                                                    .26%
 
                                                                 ------------
 
     Total expenses                                                      .76%
 
                              FINANCIAL HIGHLIGHTS
 
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
 
<TABLE>
<CAPTION>
<S>                                                           <C>     <C>
- ----------------------------------------------------------------------------
  PERIOD ENDED:                                               12/98(1)
  PER-SHARE DATA
- ----------------------------------------------------------------------------
  Net asset value, beginning of period                          $1.00
- ----------------------------------------------------------------------------
  Investment activities:
    Net investment income                                        0.01
- ----------------------------------------------------------------------------
  Distributions:
    From net investment income                                  (0.01)
- ----------------------------------------------------------------------------
  Net asset value, end of period                                $1.00
                                                              -----
                                                              -----
  Total return                                                    .66%(2)
- ----------------------------------------------------------------------------
  RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
  Net assets, end of period (000s omitted)                    $10,589
  Ratio of expenses to average net assets                         .58%(3,4)
  Ratio of net income to average net assets                      2.91%(4)
  Decrease reflected in above operating expense ratio due to
    waivers/reimbursements                                       1.31%(4)
- ----------------------------------------------------------------------------
</TABLE>
 
(1) For the period October 1, 1998 (Commencement of Operations) through December
    31, 1998.
(2) Not annualized.
(3) Interest earned on uninvested cash balances is used to offset portions of
    the transfer agent expense. These arrangements had no effect on the fund's
    expense ratio.
(4) Annualized.
 
                                       17
<PAGE>   18
 
     INTRODUCTION
 
   A fund's goal and principal strategies largely determine its risk profile.
You will find a concise description of each fund's risk profile in "Key Points."
The fund-by-fund discussions contain more detailed information. This section
discusses other risks that may affect the funds.
 
   The "Certain Investment Practices" table in this section takes a more
detailed look at certain investment practices the funds may use. Some of these
practices may have higher risks associated with them. However, each fund has
limitations and policies designed to reduce many of the risks.
 
     TYPES OF INVESTMENT RISK
 
   The following risks are referred to throughout this Prospectus.
 
   CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation. An issuer's
failure to make scheduled interest or principal payments to a fund could reduce
the fund's income level and share price.
 
   EXPOSURE RISK The risk associated with investments or practices that increase
the amount of money a fund could gain or lose on an investment.
 
    - HEDGED Exposure risk could multiply losses generated by a practice used
     for hedging purposes. Such losses should be substantially offset by gains
     on the hedged investment. However, while hedging can reduce or eliminate
     losses, it can also reduce or eliminate gains.
 
    - SPECULATIVE To the extent that a derivative or practice is not used as a
     hedge, the fund is directly exposed to its risks.
 
   EXTENSION RISK An unexpected rise in interest rates may extend the life of a
mortgage-backed security beyond the expected prepayment time, typically reducing
the security's value.
 
   INCOME RISK A fund's income level may decline because of falling interest
rates.
 
   INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.
 
   LIQUIDITY RISK Certain fund securities may be difficult or impossible to sell
at the time and the price that the fund would like. A fund may have to lower the
price, sell other securities instead or forego an investment opportunity. Any of
these could have a negative effect on fund management or performance.
 
   MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. Market risk may affect a single issuer, industry,
sector of the economy, or the market as a whole. Market risk is common to most
investments --
 
                                MORE ABOUT RISK
                                       18
<PAGE>   19
 
including debt securities and the mutual funds that invest in them.
 
   NATURAL-EVENT RISK The risk of losses attributable to natural disasters, crop
failures and similar events. These losses could affect financial-services
companies such as insurers, and hurt issuers of portfolio investments.
 
   POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair a
fund's ability to bring its capital or income back to the U.S. Other political
risks include economic policy changes, social and political instability,
military action and war.
 
   PREPAYMENT RISK Securities with
high stated interest rates may be prepaid prior to maturity. During periods of
falling interest rates, a fund would generally have to reinvest the proceeds at
lower rates.
 
   REGULATORY RISK Governments, agencies or other regulatory bodies may adopt or
change laws or regulations that could adversely affect the issuer, the market
value of the security, or a fund's performance.
 
   VALUATION RISK The lack of an
active trading market may make it difficult to obtain an accurate price for a
fund security.
 
   YEAR 2000 PROCESSING RISK The funds' investment adviser is working to address
the Year 2000 issue relating to the change from "99" to "00" on January 1, 2000,
and has obtained assurances from major service providers that they are taking
similar steps. The adviser is working on the Year 2000 issue pursuant to a plan
designed to address potential problems, and progress is proceeding according to
the plan. The adviser anticipates the completion of testing of internal systems
in the first part of 1999, and is developing contingency plans intended to
address any unexpected service problems.
 
   The funds' operations are dependent upon interactions among many participants
in the financial-services and other related industries. There is no assurance
that preparations by the adviser and other industry participants will be
sufficient, and any noncompliant computer systems could hurt key fund
operations, such as shareholder servicing, pricing and trading.
 
   The Year 2000 issue affects practically all companies, organizations,
governments, markets and economies throughout the world -- including companies
or governmental entities in which the funds invest and markets in which they
trade. However, at this time no one knows precisely what the degree of impact
will be. To the extent that the impact on a fund holding or on markets or
economies is negative, it could seriously affect a fund's performance.
 
                                       19
<PAGE>   20
 
                                                                       LOGO
 
                          CERTAIN INVESTMENT PRACTICES
 
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
 
KEY TO TABLE:
 
<TABLE>
<S>    <C>
[-]    Permitted without limitation; does not indicate
       actual use
20%    Italic type (e.g., 20%) represents an investment
       limitation as a percentage of NET fund assets; does
       not indicate actual use
20%    Roman type (e.g., 20%) represents an investment
       limitation as a percentage of TOTAL fund assets; does
       not indicate actual use
[ ]    Permitted, but not expected to be used to a
       significant extent
- --     Not permitted
</TABLE>
 
<TABLE>
<S>                                                           <C>     <C>
 INVESTMENT PRACTICE                                              LIMIT
AMT SECURITIES Municipal securities whose interest is a
tax-preference item for purposes of the federal alternative
minimum tax. Credit, liquidity, market, interest-rate,
regulatory risks.                                              [ ]     20%
- ----------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS U.S. dollar-denominated
certificates of deposit issued or backed by foreign banks
and foreign branches of U.S. banks. Credit, income,
interest-rate, market, political risks.                        [ ]     [ ]
- ----------------------------------------------------------------------------
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES Debt securities
backed by pools of mortgages, including passthrough
certificates and other senior classes of collateralized
mortgage obligations (CMOs), or other receivables. Credit,
extension, interest-rate, liquidity, prepayment risks.         [ ]     [ ]
- ----------------------------------------------------------------------------
MUNICIPAL SECURITIES Debt obligations issued by or on behalf
of a state or other jurisdiction of the U.S. and their
authorities, agencies and instrumentalities. May include
tax-exempt commercial paper, variable-rate demand notes,
bonds, municipal put bonds, bond-anticipation notes and
revenue-anticipation notes. Credit, interest-rate, market
risks.                                                         [ ]     [ ]
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS The purchase of a security with a
commitment to resell the security back to the counterparty
at the same price plus interest. Credit risk                   [ ]     [ ]
- ----------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with
restrictions on trading, or those not actively traded. May
include private placements. Liquidity, market, valuation
risks.                                                         10%     10%
- ----------------------------------------------------------------------------
SECTOR CONCENTRATION -- FINANCIAL SERVICES Investing more
than 25% of a fund's assets in money-market instruments
issued by commercial and industrial banks, savings and loans
and their holding companies; consumer and industrial finance
companies; diversified financial-services companies;
investment banking, securities brokerage and investment-
advisory companies; leasing companies; insurance companies;
and other companies in the financial-services sector.
Credit, interest-rate, market, regulatory and (in the case
of insurance companies) natural-event risks.                   [ ]      --
- ----------------------------------------------------------------------------
</TABLE>
 
                                       20
<PAGE>   21
 
                                                                       LOGO
 
<TABLE>
<S>                                                           <C>     <C>
 
 INVESTMENT PRACTICE                                              LIMIT
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's
assets in defensive investments when the investment adviser
or sub-investment adviser believes that doing so would be in
the best interests of fund shareholders. For the Tax Free
Money Market Fund, these investments may include taxable
securities. Although intended to avoid losses in unusual
market conditions, defensive tactics might prevent a fund
from achieving its goal.                                       [ ]     [ ]
- ----------------------------------------------------------------------------
VARIABLE-RATE MASTER DEMAND NOTES Unsecured instruments that
provide for periodic adjustments in their interest rate and
permit the indebtedness of the issuer to vary. Credit,
interest-rate, liquidity, market risks.                        [ ]     [ ]
- ----------------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Liquidity, market,
speculative exposure risks.                                    20%     20%
- ----------------------------------------------------------------------------
</TABLE>
 
                                       21
<PAGE>   22
 
     SHARE VALUATION
 
   The price of your shares is also referred to as their net asset value (NAV).
 
   The NAV is determined at 12:00 noon and at the close of regular trading on
the New York Stock Exchange (NYSE) (usually 4 p.m. Eastern Time) each day the
NYSE is open for business. It is calculated by dividing the fund's total assets,
less its liabilities, by the number of shares outstanding.
 
   Each fund values its securities using amortized cost. This method values a
fund holding initially at its cost and then assumes a constant amortization to
maturity of any discount or premium. The amortized cost method ignores any
impact of fluctuating interest rates.
 
     BUYING AND
     SELLING SHARES
 
   The accompanying Shareholder
Guide explains how to invest directly with the funds. You will find additional
information about purchases, redemptions, exchanges and services.
 
   Each fund is open on those days when the NYSE is open, typically Monday
through Friday. Your transaction will be priced at the NAV next computed after
we receive your request in proper form.
 
   Retirement plans, trusts, corporations, partnerships and certain other legal
entities generally cannot invest in the funds. For Uniform Transfers-to-Minors
Act (UTMA) and Uniform Gifts-to-Minors Act (UGMA) accounts, WorldPerks Bonus
Miles will be credited only to the WorldPerks account of the minor child.
Currently, the Money Market Fund and the Tax Free Money Market Fund are the only
Warburg Pincus funds offering Northwest Airlines WorldPerks mileage credit. Each
fund reserves the right to:
 
 - limit the number of fund accounts having the same registration
 
 - modify or terminate the check-redemption privilege
 
 - limit the number of check redemptions
 
 - begin charging a fee for checks
 
     ACCOUNT STATEMENTS
 
   In general, you will receive account statements as follows:
 
 - after every transaction that affects your account balance (except for
  distribution reinvestments and automatic transactions)
 
 - after any changes of name or address of the registered owner(s)
 
 - otherwise, every quarter
 
   You will also receive annual and semiannual financial reports.
 
     DISTRIBUTIONS
 
   As a fund investor, you are entitled to your share of the fund's net income
and gains on its investments. The fund passes these earnings along to its
shareholders as distributions.
 
   Each fund earns interest from its investments. These are passed along as
 
                               ABOUT YOUR ACCOUNT
                                       22
<PAGE>   23
 
dividend distributions. The fund may realize capital gains if it sells
securities for a higher price than it paid for them. These are passed along as
capital-gain distributions. Money-market funds usually do not make capital-gain
distributions.
 
   The funds declare dividend distributions daily and pay them monthly. Each of
the funds typically distributes long-term capital gains (if any) to shareholders
annually, at the end of its fiscal year. The Tax Free Money Market Fund
distributes short-term capital gains (if any) at the end of its fiscal year; the
Money Market Fund distributes them periodically as determined by the Board of
Directors.
 
   Most investors have their distributions reinvested in additional shares of
the same fund. Alternatively, you can choose to have a check for your
distributions mailed to you or sent by electronic transfer. Distributions will
be reinvested unless you select another option on your account application.
 
     TAXES
 
   As with any investment, you should consider how your investment in a fund
will be taxed. Please consult your tax professional concerning your own tax
situation.
 
   Each fund intends to meet the requirements for being a tax-qualified
regulated investment company. As long as a fund continues to qualify, it pays no
federal income tax on the earnings it distributes to shareholders.
 
   Any time you sell or exchange shares, it is considered a taxable event for
you. Because each fund seeks to maintain a stable $1 share price, you should not
realize a taxable gain or loss when you sell shares. However, you should consult
your tax advisor regarding whether the crediting of WorldPerks miles as a result
of your fund investment could reduce the tax basis of your shares and cause a
taxable gain when you sell them.
 
   The Form 1099 that is mailed to you every January details your distributions
and their federal-tax category.
 
MONEY MARKET FUND
 
   Distributions you receive from the Money Market Fund, whether reinvested or
taken in cash, are generally considered taxable. The fund does not expect to
realize long-term capital gains or make capital-gain distributions.
Distributions from other sources are generally taxed as ordinary income.
 
   Depending on provisions in your state's tax law, the portion of the fund's
income derived from "full faith and credit" U.S. Treasury obligations may be
exempt from state and local taxes. The fund will indicate each year the portion
of its income, if any, that may qualify for this exemption.
 
TAX FREE MONEY MARKET FUND
 
   Interest income that the fund earns is distributed to shareholders as income
dividends. Interest that is federally tax-
 
                                       23
<PAGE>   24
 
free when received by the fund remains tax-free when it is distributed.
 
   However, gain on the sale of tax-free securities results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are distributed as dividends and taxed as ordinary
income. Although the fund does not expect to make them, long-term capital-gain
distributions would be taxed as long-term capital gains. Distributions of
capital gains are taxable whether you take them in cash or reinvest them.
 
   The interest from some municipal securities is subject to the federal
alternative minimum tax. The fund may invest up to 100% of its assets in these
securities during temporary defensive periods. Individuals who are subject to
the tax must report this interest on their tax returns. In addition, the fund
may invest a portion of its assets in securities that generate income that is
not exempt from federal income tax.
 
   A portion of the fund's dividends may be free from state or local taxes.
Income from investments in your state is often tax-free to you. The fund will
indicate each year a breakdown of the fund's income from each state to help you
calculate your taxes.
 
                                       24
<PAGE>   25
                               OTHER INFORMATION
 
     ABOUT THE DISTRIBUTOR
 
   Counsellors Securities Inc., a wholly owned subsidiary of Warburg Pincus, is
responsible for:
 
 - making the funds available to you
 
 - payments related to the funds' participation in the Northwest Airlines
  WorldPerks program
 
 - account servicing and maintenance
 
 - other administrative services related to the sale of fund shares
 
   As part of their business strategies, each of the funds has adopted a Rule
12b-1 shareholder servicing and distribution plan to compensate Counsellors
Securities for the above services. Under the plan, Counsellors Securities
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.
 
   Warburg Pincus or its affiliates may, out of their own resources, pay a
portion of the expense for the funds' participation in the WorldPerks program.
 

 
                                       25
<PAGE>   26
 
                       This page intentionally left blank
 
                                       26
<PAGE>   27
                              FOR MORE INFORMATION
 
   More information about these funds is available free upon request, including
the following:
 
     SHAREHOLDER GUIDE
 
   Explains how to buy and sell shares. The Shareholder Guide is incorporated by
reference into (is legally part of )
this Prospectus.
 
     ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS
 
   Includes financial statements, portfolio investments and detailed performance
information.
 
   The Annual Report also contains a letter from the fund's manager discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.
 
     OTHER INFORMATION
 
   A current Statement of Additional Information (SAI), which provides more
details about the funds, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
   You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference, and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
800-SEC-0330) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009.
 
   Please contact Warburg Pincus WorldPerks Funds to obtain information, without
charge, the SAI and Annual and Semiannual Reports and to make shareholder
inquiries:
 
BY TELEPHONE:
   800-WARBURG
   (800-927-2874)
 
BY MAIL:
   Warburg Pincus WorldPerks Funds
   P.O. Box 9030
   Boston, MA 02205-9030
 
BY OVERNIGHT OR COURIER SERVICE:
   Boston Financial
   Attn: Warburg Pincus WorldPerks   Funds
   2 Heritage Drive
   North Quincy, MA 02171
 
ON THE INTERNET:
   www.warburg.com
 
SEC FILE NUMBERS:
 
Warburg Pincus WorldPerks Money
Market Fund                                                            811-08899
 
Warburg Pincus WorldPerks Tax Free
Money Market Fund                                                      811-08901
 

                          [Warburg Pincus Funds Logo]
 
     WARBURG PINCUS WORLDPERKS FUNDS, P.O. BOX 9030, BOSTON, MA 02205-9030
                 800-WARBURG (800-927-2874)  - www.warburg.com

COUNSELLORS SECURITIES INC., DISTRIBUTOR.                           FFNWF-1-0499
<PAGE>   28
 
                              WARBURG PINCUS FUNDS
                                  SHAREHOLDER
                                     GUIDE
 
                                  Common Class
                                December 3, 1998
 
      This Shareholder Guide is incorporated into and legally part of each
                   Warburg Pincus (Common Class) prospectus.
 
                          [Warburg Pincus Funds Logo]
<PAGE>   29
                                 BUYING SHARES
 
     OPENING AN ACCOUNT
 
   Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
 
   If you need an application, call our Shareholder Service Center to receive
one by mail or fax. Or you can download it from our Internet Web site:
www.warburg.com.
 
   You can make your initial investment by check or wire. The "By Wire" method
in the table enables you to buy shares on a particular day at that day's closing
NAV.
 
     ADDING TO AN ACCOUNT
 
   You can add to your account in a variety of ways, as shown in the table. If
you want to use ACH transfer, be sure to complete the "ACH on Demand" section of
the account application.
 
     INVESTMENT CHECKS
 
   Please use either a personal or bank check payable in U.S. dollars to Warburg
Pincus Funds. Unfortunately, we cannot accept "starter" checks that do not have
your name preprinted on them. We also cannot accept checks payable to you or to
another party and endorsed to the order of Warburg Pincus Funds. These types of
checks may be returned to you and your purchase order may not be processed.
Limited exceptions include properly endorsed IRA Rollover and government checks.
 
                           MINIMUM INITIAL INVESTMENT
 
<TABLE>
<S>                       <C>
Cash Reserve Fund:        $  1,000
New York Tax Exempt
  Fund:                   $  1,000
Balanced Fund:            $  1,000
Growth & Income Fund:     $  1,000
WorldPerks(R) Funds:      $  5,000
Long-Short Funds          $ 25,000
All other funds:          $  2,500
IRAs:                     $    500*
Transfers/Gifts to
  Minors:                 $    500*
 
* $25,000 minimum for Long-Short
  Funds.
</TABLE>
 
                               WIRE INSTRUCTIONS
 
  State Street Bank and Trust Company
  ABA# 0110 000 28
  Attn: Mutual Funds/Custody Dept.
  [Warburg Pincus Fund Name]
  DDA# 9904-649-2
  F/F/C: [Account Number and Registration]
 
                                HOW TO REACH US
 
  SHAREHOLDER SERVICE CENTER
  Toll free: 800 -WARBURG
             (800 -927-2874)
  Fax:      212-370-9833
 
  MAIL
  Warburg Pincus Funds
  P.O. Box 9030
  Boston, MA 02205-9030
 
  OVERNIGHT/COURIER SERVICE
  Boston Financial
  Attn: Warburg Pincus Funds
  2 Heritage Drive
  North Quincy, MA 02171
 
  INTERNET WEB SITE
  www.warburg.com
                                        2
 
                                 
<PAGE>   30
 
<TABLE>
<CAPTION>
           OPENING AN ACCOUNT                            ADDING TO AN ACCOUNT
<S>                                            <C>
BY CHECK
- - Complete the New Account Application.        - Make your check payable to Warburg
 For IRAs use the Universal IRA                Pincus Funds.
  Application.                                 - Write the account number and the fund
- - Make your check payable to Warburg           name on your check.
  Pincus Funds.                                - Mail to Warburg Pincus Funds.
- - Mail to Warburg Pincus Funds.                - Minimum amount is $100.
BY EXCHANGE
- - Call our Shareholder Service Center to       - Call our Shareholder Service Center to
  request an exchange. Be sure to read         request an exchange.
  the current prospectus for the new           - Minimum amount is $250.
  fund. Also please observe the minimum        If you do not have telephone privileges,
initial investment.                            mail or fax a signed letter of
 If you do not have telephone privileges,      instruction.
mail or fax a signed letter of
instruction.
BY WIRE
 
- - Complete and sign the New Account            - Call our Shareholder Service Center by
  Application.                                 4 p.m. ET to inform us of the incoming
- - Call our Shareholder Service Center and        wire. Please be sure to specify your
  fax the signed New Account Application         name, the account number and the fund
  by 4 p.m. ET.                                  name on your wire advice.
- - Shareholder Services will telephone you      - Wire the money for receipt that day.
  with your account number. Please be          - Minimum amount is $500.
  sure to specify your name, the account
number and the fund name on your wire
advice.
- - Wire your initial investment for
receipt that day.
- - Mail the original, signed application
  to Warburg Pincus Funds.
This method is not available for IRAs.
BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER
 
- - Cannot be used to open an account.           - Call our Shareholder Service Center to
                                               request an ACH transfer from your bank.
                                               - Your purchase will be effective at the
                                               next NAV calculated after we receive your
                                                 order in proper form.
                                               - Minimum amount is $50.
                                               Requires ACH on Demand privileges.
</TABLE>
 
                           800-WARBURG (800-927-2874)
       MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET  SATURDAY, 8 A.M. - 4 P.M. ET
                                        3
<PAGE>   31
                               SELLING SHARES(*)
 
<TABLE>
<CAPTION>
   SELLING SOME OR ALL OF YOUR SHARES                       CAN BE USED FOR
<S>                                            <C>
BY MAIL
 
Write us a letter of instruction that          - Accounts of any type.
includes:                                      - Sales of any amount.
- - your name(s) and signature(s)                For IRAs please use the IRA Distribution
- - the fund name and account number             Request Form.
- - the dollar amount you want to sell
- - how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling
Shares
in Writing").
Mail the materials to Warburg Pincus
Funds.
If only a letter of instruction is
required, you can fax it to the
Shareholder Service Center.
BY EXCHANGE
- - Call our Shareholder Service Center to       - Accounts with telephone privileges.
  request an exchange. Be sure to read         If you do not have telephone privileges,
the current prospectus for the new fund.       mail or fax a letter of instruction to
Also please observe the minimum initial        exchange shares.
investment.
BY PHONE
 
Call our Shareholder Service Center to         - Non-IRA accounts with telephone
request a redemption. You can receive the      privileges.
proceeds as:
- - a check mailed to the address of record
- - an ACH transfer to your bank ($50
minimum)
- - a wire to your bank ($500 minimum)
See "By Wire or ACH Transfer" for
details.
BY WIRE OR ACH TRANSFER
- - Complete the "Wire Instructions" or          - Non-IRA accounts with wire-redemption
  "ACH on Demand" section of your New          or ACH on Demand privileges.
  Account Application.                         - Requests by phone or mail.
- - For federal-funds wires, proceeds will
  be wired on the next business day. For
  ACH transfers, proceeds will be
  delivered within two business days.
</TABLE>
 
()* For the Central & Eastern Europe Fund only: A short-term trading fee of 1.0%
of the amount redeemed will be deducted from the redemption proceeds if you sell
shares of the fund after holding them less than six months. This fee, which is
currently being waived, does not apply to shares acquired through reinvestment
of distributions. For purposes of computing the short-term trading fee, any
shares bought through reinvestment of distributions will be redeemed first
without charging the fees, followed by the shares held longest.
 
                                        4
 
                               
<PAGE>   32
 
     SELLING SHARES IN WRITING
 
   Some circumstances require a written sell order, along with a signature
guarantee. These include:
 
 - accounts whose address of record has been changed within the past 30 days
 
 - redemption in certain large amounts (other than by exchange)
 
 - requests to send the proceeds to a different payee or address
 
 - shares represented by certificates, which must be returned with your sell
  order
 
   A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
 
     RECENTLY PURCHASED SHARES
 
   If the fund has not yet collected payment for the shares you are selling, it
will delay sending you the proceeds until your purchase payment clears. This may
take up to 10 calendar days after the purchase. To avoid the collection period,
consider buying shares by bank wire, bank check, certified check or money order.
 
     LOW-BALANCE ACCOUNTS
 
   If your account balance falls below the minimum required to keep it open due
to redemptions or exchanges, the fund may ask you to increase your balance. If
it is still below the minimum after 60 days, the fund may close your account and
mail you the proceeds.
 
                        MINIMUM TO KEEP AN ACCOUNT OPEN
 
<TABLE>
<S>                        <C>
Cash Reserve Fund:           $ 750
New York Tax Exempt Fund:    $ 750
Balanced Fund:               $ 500
Growth & Income Fund:        $ 500
WorldPerks Funds:            $ 750
All other funds:            $2,000
IRAs:                        $ 250
Transfers/Gifts to
  Minors:                    $ 250
</TABLE>
 
                           800-WARBURG (800-927-2874)
       MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET  SATURDAY, 8 A.M. - 4 P.M. ET
                                        5
<PAGE>   33
                              SHAREHOLDER SERVICES
 
     AUTOMATIC SERVICES
 
   Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Shareholder Service Center.
 
AUTOMATIC MONTHLY INVESTMENT PLAN
 
   For making automatic investments ($50 minimum) from a designated bank
account.
 
AUTOMATIC WITHDRAWAL PLAN
 
   For making automatic monthly, quarterly, semiannual or annual withdrawals of
$250 or more.
 
DISTRIBUTION SWEEP
 
   For automatically reinvesting your dividend and capital-gain distributions
into another identically registered Warburg Pincus fund. Not available for IRAs.
     RETIREMENT PLANS
 
   Warburg Pincus offers a range of tax-advantaged retirement accounts,
including:
 
 - Traditional IRAs
 
 - Roth IRAs
 
 - Roth Conversion IRAs
 
 - Spousal IRAs
 
 - Rollover IRAs
 
 - SEP IRAs
 
   To transfer your IRA to Warburg Pincus, use the IRA Transfer/Direct Rollover
Form. If you are opening a new IRA, you will also need to complete the Universal
IRA Application. Please consult your tax professional concerning your IRA
eligibility and tax situation.
 
     TRANSFERS/GIFTS TO MINORS
 
   Depending on state laws, you can set up a custodial account under the Uniform
Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act (UGMA). Please
consult your tax professional about these types of accounts.
 
     ACCOUNT CHANGES
 
   Call our Shareholder Service Center to update your account records whenever
you change your address. Shareholder Services can also help you change your
account information or privileges.
 
                                        6
 
                             
<PAGE>   34
                                 OTHER POLICIES
 
     TRANSACTION DETAILS
 
   You are entitled to capital-gain and earned dividend distributions as soon as
your purchase order is executed. For the Intermediate Maturity Government, New
York Intermediate Municipal and Fixed Income Funds and the Money Market Funds,
you begin to earn dividend distributions the business day after your purchase
order is executed. However, if we receive your purchase order and payment to
purchase shares of a Money Market Fund before 12 p.m. (noon), you begin to earn
dividend distributions on that day.
   Your purchase order will be canceled and you may be liable for losses or fees
incurred by the fund if:
 
 - your investment check or ACH transfer does not clear
 
 - you place a telephone order by 4 p.m. ET and we do not receive your wire that
  day
   If you wire money without first calling Shareholder Services to place an
order, and your wire arrives after the close of regular trading on the NYSE,
then your order will not be executed until the end of the next business day. In
the meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
   While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
   Uncashed redemption or distribution checks do not earn interest.
     SPECIAL SITUATIONS
 
   A fund reserves the right to:
 
 - refuse any purchase or exchange request, including those from any person or
  group who, in the fund's view, is likely to engage in excessive trading
 
 - change or discontinue its exchange privilege after 30 days' notice to current
  investors, or temporarily suspend this privilege during unusual market
  conditions
 
 - change its minimum investment amounts after 15 days' notice to current
  investors of any increases
 
 - charge a wire-redemption fee
 
 - make a "redemption in kind"--payment in portfolio securities rather than
  cash--for certain large redemption amounts that could hurt fund operations
 
 - suspend redemptions or postpone payment dates as permitted by the Investment
  Company Act of 1940 (such as during periods other than weekends or holidays
  when the NYSE is closed or trading on the NYSE is restricted, or any other
  time that the SEC permits)
 
 - modify or waive its minimum investment requirements for employees and clients
  of its adviser, sub-adviser, distributor and their affiliates and, for the
  Long-Short Funds, investments through certain financial-services firms
  ($10,000 minimum) and through retirement plan programs (no minimum)
 
 - stop offering its shares for a period of time (such as when management
  believes that a substantial increase in assets could adversely affect it)
 
                           800-WARBURG (800-927-2874)
       MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET  SATURDAY, 8 A.M. - 4 P.M. ET
 
                                        7
 
                                 
<PAGE>   35
 
                          [WARBURG PINCUS FUNDS LOGO]
 
                      P.O. BOX 9030, BOSTON, MA 02205-9030
                 800-WARBURG (800-927-2874)  - www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR.                  WPCOM-31-1298C
<PAGE>   36
                       STATEMENT OF ADDITIONAL INFORMATION

                                                 APRIL  30, 1999

                   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


<PAGE>   37
                                    Contents


<TABLE>
<CAPTION>
                                                                                                                  Page
<S>                                                                                                               <C>
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..............................................................................   19  
     Organization of the Funds..................................................................................   20  
     Distribution and Shareholder Servicing.....................................................................   21  
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................................................   22  
     Automatic Cash Withdrawal Plan.............................................................................   23  
EXCHANGE PRIVILEGE..............................................................................................   23  
ADDITIONAL INFORMATION CONCERNING TAXES.........................................................................   24  
DETERMINATION OF YIELD..........................................................................................   27  
INDEPENDENT ACCOUNTANTS AND COUNSEL.............................................................................   28  
MISCELLANEOUS...................................................................................................   28  
FINANCIAL STATEMENTS............................................................................................   29  
APPENDIX........................................................................................................  A-1  
      DESCRIPTION OF COMMERCIAL PAPER RATINGS...................................................................  A-1  
      DESCRIPTION OF MUNICIPAL SECURITIES RATINGS...............................................................  A-1  
</TABLE>

                                       (i)

<PAGE>   38

                              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>   39

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 



                                      -2-
<PAGE>   40

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

                                      -3-
<PAGE>   41

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 


                                      -4-
<PAGE>   42

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 


                                      -5-
<PAGE>   43

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.

                                      -6-
<PAGE>   44

                  The principal risk of a stand-by commitment is that the writer
of a commitment may default on its obligation to repurchase the securities
acquired with it. The Fund intends to enter into stand-by commitments only with
brokers, dealers and banks that, in the opinion of Warburg Pincus Asset
Management, Inc., each Fund's investment adviser ("Warburg"), present minimal
credit risks. In evaluating the creditworthiness of the issuer of a stand-by
commitment, Warburg will periodically review relevant financial information
concerning the issuer's assets, liabilities and contingent claims.

                  The amount payable to the Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the Municipal
Securities (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment date
during that period.

                  The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Fund will not exceed 1/2
of 1% of the value of its total assets calculated immediately after each
stand-by commitment is acquired.

                  The Fund would acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a stand-by commitment would
not affect the valuation or assumed maturity of the underlying Municipal
Securities which, as noted, would continue to be valued in accordance with the
amortized cost method. Stand-by commitments acquired by the Fund would be valued
at zero in determining net asset value. Where the Fund paid any consideration
directly or indirectly for a stand-by commitment, its cost would be reflected as
unrealized depreciation for the period during which the commitment was held by
the Fund. Stand-by commitments would not affect the average weighted maturity of
the Fund's portfolio.

                  The Internal Revenue Service has issued a revenue ruling to
the effect that a registered investment company will be treated for federal
income tax purposes as the owner of the Municipal Securities acquired subject to
a stand-by commitment and the interest on the Municipal Securities will be
tax-exempt to the Fund.

                  Third Party Puts (Tax 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 


                                      -7-
<PAGE>   45

differential between that rate and the fixed rate on the bond is retained by the
financial institution. The financial institution granting the option does not
provide credit enhancement, and in the event that there is a default in the
payment of principal or interest, or downgrading of a bond to below investment
grade, or a loss of the bond's tax-exempt status, the put option will terminate
automatically, the risk to the Fund will be that of holding such a long-term
bond and the dollar-weighted average maturity of the Fund's portfolio would be
adversely affected.

                  These bonds coupled with puts may present the same tax issues
as are associated with stand-by commitments. As with any stand-by commitment,
the Fund intends to take the position that it is the owner of any municipal
obligation acquired subject to a third party put, and that tax-exempt interest
earned with respect to such municipal obligations will be tax-exempt in its
hands. There is no assurance that the Internal Revenue Service will agree with
such position in any particular case. Additionally, the federal income tax
treatment of certain other aspects of these investments, including the treatment
of tender fees and swap payments, in relation to various regulated investment
company tax provisions is unclear. However, Warburg intends to manage the Fund
in a manner designed to minimize any adverse impact from these investments.

                  Taxable Investments (Tax 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 


                                      -8-
<PAGE>   46

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.

                                      -9-
<PAGE>   47

                  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>   48
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>   49

                  If a percentage restriction (other than the percentage
limitation set forth in No. 2 and No. 10 above) is adhered to at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction.

                               PORTFOLIO VALUATION

                  Each Fund's securities are valued on the basis of amortized
cost. Under this method, a Fund values a portfolio security at cost on the date
of purchase and thereafter assumes a constant value of the security for purposes
of determining net asset value, which normally does not change in response to
fluctuating interest rates. Although the amortized cost method seems to provide
certainty in portfolio valuation, it may result in periods during which values,
as determined by amortized cost, are higher or lower than the amount the Fund
would receive if it sold the securities. In connection with amortized cost
valuation, the Board has established procedures that are intended to stabilize
the Fund's net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Board, at such intervals as it
deems appropriate, to determine the extent, if any, to which the Fund's net
asset value per share calculated by using available market quotations deviates
from $1.00 per share. In the event such deviation exceeds 1/2 of 1%, the Board
will promptly consider what action, if any, should be initiated. If the Board
believes that the amount of any deviations from the Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to
investors or existing shareholders, it will take such steps as it considers
appropriate to eliminate or reduce to the extent reasonably practicable any such
dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the Fund's average portfolio maturity;
withholding or reducing dividends; redeeming shares in kind; reducing the number
of the Fund's outstanding shares without monetary consideration; or utilizing a
net asset value per share determined by using available market quotations.

                             PORTFOLIO TRANSACTIONS

                  Warburg is responsible for establishing, reviewing, and, where
necessary, modifying a Fund's investment program to achieve its investment
objective. BlackRock Institutional Management Corporation ("BIMC") generally
will select specific portfolio investments and effect transactions for each
Fund. Purchases and sales of portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer or
with dealers who specialize in money market instruments. BIMC seeks to obtain
the best net price and the most favorable execution of orders. To the extent
that the execution and price offered by more than one dealer are comparable,
BIMC may, in its discretion, effect 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>   50

security are made at substantially the same time on behalf of such other
clients, transactions are averaged as to price, and available investments
allocated as to amount, in a manner which BIMC believes to be equitable to each
client, including the Fund. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold for the Fund. To the extent permitted by law, BIMC may
aggregate the securities to be sold or purchased for each Fund with those to be
sold or purchased for such other investment clients in order to obtain best
execution.

                  In no instance will portfolio securities be purchased from or
sold to Warburg, BIMC, PNC Bank, National Association ("PNC") or Counsellors
Securities Inc. ("Counsellors Securities") or any affiliated person of such
companies, except pursuant to an exemption received from the SEC.

                  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 Warburg or BIMC, in their sole discretion, believes such practice to be
otherwise in the Fund's interest.

                  Each Fund does not intend to seek profits through short-term
trading. A Fund's annual portfolio turnover will be relatively high but is not
expected to have a material effect on its net income. Each Fund's turnover is
expected to be zero for regulatory reporting purposes.


                             MANAGEMENT OF THE FUNDS

Officers and Board of Directors

                  The names (and ages) of the Fund's Directors and officers,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below.


<TABLE>
<S>                                                            <C>                                                 
Richard N. Cooper* (64) ...........................            Director
Harvard University                                             Professor at Harvard University; National            
1737 Cambridge Street                                          Intelligence Council from June 1995 until January    
Cambridge, Massachusetts   02777                               1997; Director or Trustee of Circuit City Stores,    
                                                               Inc. (retail electronics and appliances) and Phoenix 
                                                               Home Life Insurance Company; Director/Trustee of     
                                                               other investment companies in the Warburg Pincus     
                                                               family of funds.                                     
</TABLE>


______________________
* Indicates a Director who is an "interested person" of the Fund as defined in
  the 1940 Act.

                                      -13-
<PAGE>   51

<TABLE>
<S>                                                            <C>                                                      
Jack W. Fritz (71).................................            Director
2425 North Fish Creek Road                                     Private investor; Consultant and Director of Fritz   
P.O. Box 483                                                   Broadcasting, Inc. and Fritz Communications          
Wilson, Wyoming  83014                                         (developers and operators of radio stations);        
                                                               Director of Advo, Inc. (direct mail advertising);    
                                                               Director/Trustee of other investment companies in the
                                                               Warburg Pincus family of funds.                      

John L. Furth* (68)...............................            Director
466 Lexington Avenue                                          Chairman of the Board of the Funds and Warburg and    
New York, New York 10017-3147                                 Managing Director of Warburg; Associated with Warburg 
                                                              since 1970; Director of other companies affiliated    
                                                              with Warburg; Chairman of the Board of                
                                                              Directors/Trustees of other investment companies in   
                                                              the Warburg Pincus family of funds.                   

Jeffrey E. Garten (52)............................            Director
Box 208200                                                    Dean of Yale School of Management and William S.      
New Haven, Connecticut  06520-8200                            Beinecke Professor in the Practice of International   
                                                              Trade and Finance; Undersecretary of Commerce for    
                                                              International Trade from November 1993 to October    
                                                              1995; Director/Trustee of other investment companies 
                                                              in the Warburg Pincus family of funds.               

Thomas A. Melfe (66)...............................            Director
30 Rockefeller Plaza                                           Partner in the law firm of Piper & Marbury L.L.P.;    
New York, New York 10112                                       Partner in the law firm of Donovan Leisure Newton &   
                                                               Irvine from April 1984 to April 1998; Chairman of the 
                                                               Board, Municipal Fund for New York Investors, Inc.;   
                                                               Director/Trustee of other investment companies in the 
                                                               Warburg Pincus family of funds.                       
                                                               
Arnold M. Reichman* (50)...........................            Director
466 Lexington Avenue                                           Managing Director and Chief Operating Officer of      
New York, New York 10017-3147                                  Warburg; Associated with Warburg since 1984; Director 
                                                               of The RBB Fund, Inc. since July 1991; Officer of     
                                                               Counsellors Securities and other companies affiliated 
</TABLE>

                                      -14-

<PAGE>   52

<TABLE>
<S>                                                            <C>                                            
Alexander B. Trowbridge (69)......................             Director
1317 F Street, N.W., 5th Floor                                 Currently retired; President of Trowbridge Partners,  
Washington, DC  20004                                          Inc. (business consulting) from January 1990 to       
                                                               November 1996; Director or Trustee of New England     
                                                               Mutual Life Insurance Co., ICOS Corporation           
                                                               (biopharmaceuticals), The Rouse Company (real estate  
                                                               development), Harris Corp. (electronics and           
                                                               communications equipment), The Gillette Co. (personal 
                                                               care products) , Sunoco, Inc. (petroleum refining and 
                                                               marketing) and IRI International, Inc. (energy        
                                                               services); Director/Trustee of other investment       
                                                               companies in the Warburg Pincus family of funds.      
                                                               
Eugene L. Podsiadlo (42)..........................             President
466 Lexington Avenue                                           Managing Director of Warburg; Associated with Warburg 
New York 10017-3147                                            since 1991; Officer of Counsellors Securities and of  
                                                               other companies affiliated with Warburg and investment 
                                                               companies in the Warburg Pincus family of funds.

Steven B. Plump (40)...............................            Executive Vice President
466 Lexington Avenue                                           Senior Vice President of Warburg; Associated with     
New York, New York 10017-3147                                  Warburg since 1995; Associated with Chemical          
                                                               Investment Services and its affiliates from 1993      
                                                               until 1995. Officer of other investment companies in  
                                                               the Warburg Pincus family of funds.                   

Stephen Distler (45)...............................            Vice President
466 Lexington Avenue                                           Managing Director of Warburg; Associated with Warburg   
New York, New York 10017-3147                                  since 1984; Officer of Counsellors Securities and of    
                                                               other companies affiliated with Warburg and             
                                                               investment companies in the Warburg Pincus family of    
                                                               funds.                                                  

Janna Manes, Esq. (31).............................            Vice President and Secretary
466 Lexington Avenue                                           Vice President, Secretary and General Counsel of     
New York, New York 10017-3147                                  Warburg; Associated with Warburg since 1996;         
                                                               Associated with the law firm of Willkie Farr &       
                                                               Gallagher from 1993 to 1996; Officer of Counsellors  
                                                               Securities and of other companies affiliated with    
                                                               Warburg and investment companies in the Warburg      
                                                               Pincus family of funds.                              
</TABLE>

                                      -15-
<PAGE>   53

<TABLE>
<S>                                                           <C> 
Howard Conroy, CPA (45)...........................            Vice President  and Chief Financial Officer
466 Lexington Avenue                                          Vice President of Warburg; Associated with Warburg    
New York, New York  10017-3147                                since 1992; Officer of Counsellors Securities and of   
                                                              other companies affiliated with Warburg and           
                                                              investment companies in the Warburg Pincus family of  
                                                              funds.                                                

Daniel S. Madden, CPA (33)........................            Treasurer and Chief Accounting Officer
466 Lexington Avenue                                          Vice President of Warburg; Associated with Warburg     
New York, New York 10017-3147                                 since 1995; Associated with BlackRock Financial        
                                                              Management, Inc. from September 1994 to October 1995; 
                                                              Associated with Credit Suisse Asset Management from   
                                                              April 1993 to September 1994; Officer of other        
                                                              investment companies in the Warburg Pincus family of  
                                                              funds.                                                

Stuart J. Cohen, Esq. (30).........................            Assistant Secretary
466 Lexington Avenue                                           Vice President and Associate General Counsel of      
New York, New York 10017-3147                                  Warburg; Associated with Warburg since 1997;         
                                                               Associated with the law firm of Gordon Altman        
                                                               Butowsky Weitzen Shalov & Wein from 1995 to 1997;    
                                                               Officer of other investment companies in the Warburg 
                                                               Pincus family of funds.                              
</TABLE>

                  No employee of Warburg, BIMC, PNC or PFPC Inc., the Fund's
co-administrator ("PFPC"), or any of their affiliates receives any compensation
from the Fund for acting as an officer or Director of the Fund. Each Director
who is not a director, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and $250 for each meeting of the
Board attended by him for his services as Director and is reimbursed for
expenses incurred in connection with his attendance at Board meetings. Each
member of the Audit Committee receives an annual fee of $250, and the chairman
of the Audit Committee receives an annual fee of $325.

Directors' Total Compensation
(for the fiscal period ended December 31, 1998)

<TABLE>
<CAPTION>
                                                                                   Total Compensation from
                                                      Compensation from            all Investment Companies
Name of Director                                          each Fund                  Managed by Warburg*
- ----------------                                          ---------                  ------------------ 
<S>                                                   <C>                          <C>
John L. Furth                                             None**                            None**
Richard N. Cooper                                         $1,750                           $56,600
Jack W. Fritz                                             $1,750                           $63,100
Jeffrey E. Garten                                         $1,750                           $49,325
Arnold M. Reichman                                        None**                            None**
</TABLE>

                                      -16-
<PAGE>   54
<TABLE>
<CAPTION>
                                                                                   Total Compensation from
                                                      Compensation from            all Investment Companies
Name of Director                                          each Fund                  Managed by Warburg*
- ----------------                                          ---------                  ------------------ 
<S>                                                   <C>                          <C>
Thomas A. Melfe                                           $1,750                           $60,700
Alexander B. Trowbridge                                   $1,825                           $64,000
</TABLE>

- --------------------

*        Each Director also serves as a Director or Trustee of 39 investment
         companies in the Warburg Pincus family of funds except for Mr. Melfe,
         who serves as a Director/Trustee of 22 investment companies in the
         Warburg Pincus family of funds.

**       Mr. Furth and Mr. Reichman receive compensation as affiliates of
         Warburg, and, accordingly, receive no compensation from a Fund or any
         other investment company advised by Warburg.

                   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                                                         

                  Warburg serves as investment adviser to the Money Market Fund
and Tax Free Fund, BIMC serves as sub-investment adviser to each Fund, and
Credit Suisse Asset Management Ltd. ("CSAM") and PFPC Inc. ("PFPC") serve as
co-administrators to the Funds pursuant to written agreements (the "Advisory
Agreement," the "Sub-Advisory Agreements" and the "Co-Administration Agreement,"
respectively, and collectively, the "Agreements").

                  For the services provided pursuant to the Advisory Agreement,
Warburg is entitled to receive a fee, computed daily and payable monthly, at the
annual rate of .40% of the value of each Fund's average daily net assets, out of
which Warburg pays BIMC for sub-investment advisory services. Warburg, BIMC and
each Fund's administrators may voluntarily waive a portion of their fees from
time to time and temporarily limit the expenses to be paid by a Fund.

                  As sub-investment adviser, BIMC has agreed to implement each
Fund's investment program as determined by the Board and Warburg. BIMC will
supervise the day-to-day operations of the relevant Fund and perform the
following services: (i) providing investment research and credit analysis
concerning the Fund's investments, (ii) placing orders for all purchases and
sales of the Fund's portfolio investments and (iii) maintaining the books and
records required to support the Fund's operations. BIMC also calculates the
Fund's net asset value, provides accounting services for the Fund and assists in
related aspects of the Fund's operations.

                  The Funds employ CSAM, a wholly-owned subsidiary of Credit
Suisse Group, as a co-administrator. As co-administrator, CSAM provides
shareholder liaison services to the Fund including responding to shareholder
inquiries and providing information 

                                      -17-
<PAGE>   55

on shareholder investments. CSAM also performs a variety of other services,
including furnishing certain executive and administrative services, acting as
liaison between a Fund and its various service providers, furnishing corporate
secretarial services, which include preparing materials for meetings of the
Board, assisting in the preparation of proxy statements, annual and semiannual
reports, tax returns and monitoring and developing compliance procedures for the
Fund. As compensation, each Fund pays to CSAM a fee calculated at an annual rate
of .10% of the Fund's average daily net assets, exclusive of out-of-pocket
expenses. CSAM may delegate to Counsellors Funds Service, Inc., a wholly-owned
subsidiary of Warburg, responsibility for most of its co-administrative
services. CSAM's principal offices are located at Beaufort House, 15 St. Botolph
Street, GB-London EC3A 7JJ.


                  The Funds also employ PFPC, an indirect, wholly owned
subsidiary of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC
calculates a Fund's net asset value, provides all accounting services for the
Fund and assists in related aspects of the Fund's operations. As compensation,
the Fund pays to PFPC a fee calculated at an annual rate of .10% of the Fund's
first $500 million in average daily net assets, .075% of the next $1 billion in
average daily net assets, and .05% of average daily net assets over $1.5
billion, subject to a minimum annual fee and exclusive of out-of-pocket
expenses. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809.

Money Market Fund
 Net Advisory Fees paid to  Warburg 

<TABLE>
<CAPTION>
        2-month period ended
          December 31, 1998
<S>     <C>
                 $0
</TABLE>

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

<TABLE>
<CAPTION>
        2-month period ended
          December 31, 1998
<S>     <C>
                 $0
</TABLE>


For the same period, CSAM voluntarily waived $2,971 of the Fund's fees.

Administrative Services/Co-Administration Fees paid to PFPC

<TABLE>
<CAPTION>
        2-month period ended
          December 31, 1998
<S>     <C> 
                $184
</TABLE>

For the same period, PFPC voluntarily waived $2,971 of the Fund's fees.


                                      -18-
<PAGE>   56
Tax Free Fund

<TABLE>
<CAPTION>
Advisory Fees paid to  Warburg 
       2-month period ended
          December 31, 1998
<S>              <C>
                 $0
</TABLE>

For the same period, Warburg voluntarily waived $11,091 of the Fund's fees and
reimbursed expenses in the amount of $19,593.

Administrative Services/Co-Administration Fees paid to  CSAM

<TABLE>
<CAPTION>
        2-month period ended
          December 31, 1998
<S>              <C>
                 $0
</TABLE>

For the same period, CSAM 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 is custodian of each Fund's assets pursuant
to a custodian agreement (the "Custodian Agreement"). Under the Custodian
Agreement, PFPC Trust Company (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 Company 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 Company 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 Company's principal business address is 200 Stevens Drive, Lester,
Pennsylvania 19103.

                  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 

                                      -19-
<PAGE>   57

proxy material for its meetings of shareholders, (iii) maintains shareholder
accounts and, if requested, sub-accounts, and (iv) makes periodic reports to the
Board concerning the transfer agent's operations with respect to the Fund. State
Street has delegated to Boston Financial Data Services, Inc. ("BFDS"), an
affiliated company, responsibility for most shareholder servicing functions. The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
Boston, Massachusetts 02171.

Organization of the Funds

                  The 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 


                                      -20-
<PAGE>   58

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 elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.

Distribution and Shareholder Servicing

                  Common Shares. Each Fund has entered into a Shareholder
Servicing and Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under
the 1940 Act, pursuant to which a Fund will pay Counsellors Securities, in
consideration for Services (as defined below), a fee calculated at an annual
rate of .25% of the average daily net assets of the Common Shares of the Fund.
Services performed by Counsellors Securities include (i) the sale of the Common
Shares, as set forth in the 12b-1 Plan ("Selling Services"), (ii) ongoing
servicing and/or maintenance of the accounts of Common Shareholders of the Fund,
as set forth in the 12b-1 Plan ("Shareholder Services"), and (iii) sub-transfer
agency services, subaccounting services or administrative services related to
the sale of the Common Shares, as set forth in the 12b-1 Plan ("Administrative
Services" and collectively with Selling Services and Administrative Services,
"Services") including, without limitation, (a) payments reflecting an allocation
of overhead and other office expenses of Counsellors Securities related to
providing Services; (b) payments made to, and reimbursement of expenses of,
persons who provide support services in connection with the distribution of the
Common Shares including, but not limited to, office space and equipment,
telephone facilities, answering routine inquiries regarding the Fund, and
providing any other Shareholder Services; (c) payments made to compensate
selected dealers or other authorized persons for providing any Services; (d)
costs relating to the formulation and implementation of marketing and
promotional activities for the Common Shares, including, but not limited to,
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, and related travel and entertainment expenses; (e) costs of
printing and distributing prospectuses, statements of additional information and
reports of the Fund to prospective shareholders of the Fund; (f) costs involved
in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities that the Fund may, from time to time, deem
advisable; and (g) costs and expenses relating to the Fund's participation in
the Northwest Airlines WorldPerks(TM) program.

                  Pursuant to the 12b-1 Plan, Counsellors Securities will
provide the Fund's Board with periodic reports of amounts expended under the
12b-1 Plan and the purpose for which the expenditures were made. 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, 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 



                                      -21-
<PAGE>   59

clients or customers (or participants in the case of retirement plans)
("Customers") who are beneficial owners of Advisor Shares. Agreements will be
governed by a distribution plan (the "Distribution Plan") pursuant to Rule 12b-1
under the 1940 Act. The Distribution Plan requires the Board, at least
quarterly, to receive and review written reports of amounts expended under the
Distribution Plan and the purpose for which such expenditures were made.

                  An Institution with which a Fund has entered into an Agreement
with respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensation
balance requirements (a minimum dollar amount a Customer must maintain in order
to obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are in
addition to, and not duplicative of, the services to be provided under the
Fund's co-administration and distribution and shareholder servicing
arrangements. A Customer of an Institution should read the Prospectus and this
Statement of Additional Information in conjunction with the Agreement and other
literature describing the services and related fees that would be provided by
the Institution to its Customers prior to any purchase of Fund shares.
Prospectuses are available from the Fund's distributor upon request. No
preference will be shown in the selection of Fund investments for the
instruments of Institutions.

                  General. The Distribution Plan and the 12b-1 Plan will
continue in effect for so long as their continuance is specifically approved at
least annually by the Board, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plans or the 12b-1 Plans, as the
case may be ("Independent Directors"). Any material amendment of the
Distribution Plan or 12b-1 Plan would require the approval of the Board in the
same manner. Neither the Distribution Plan nor the 12b-1 Plan may be amended to
increase materially the amount to be spent thereunder without shareholder
approval of the relevant class of shares. The Distribution Plan or 12b-1 Plan
may be terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of the Fund.

                 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 


                                      -22-
<PAGE>   60

valuation of portfolio securities is not reasonably practicable, or for such
other periods as the SEC may permit. (A Fund may also suspend or postpone the
recordation of an exchange of its shares upon the occurrence of any of the
foregoing conditions.)

                  If the Board determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, a Fund may
make payment wholly or partly in securities or other investment instruments
which may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. The Fund will comply with Rule 18f-1 promulgated under the
1940 Act with respect to redemptions in kind.

                  Automatic Cash Withdrawal Plan. An automatic cash withdrawal
plan (the "Plan") is available to shareholders who wish to receive specific
amounts of cash periodically. Withdrawals may be made under the Plan by
redeeming as many shares of a Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in the Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.

                               EXCHANGE PRIVILEGE

                  An exchange privilege with certain other funds advised by
Warburg is available to investors in a Fund. Exchanges may also be made between
certain Warburg Pincus Advisor Funds.

                  The exchange privilege enables shareholders to acquire shares
in a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. Subject to the restrictions
on exchange purchases contained in the Prospectus and any other applicable
restrictions, this privilege is available to shareholders residing in any state
in which the Common Shares or Advisor Shares being acquired, as relevant, may
legally be sold. Prior to any exchange, the investor should obtain and review a
copy of the current prospectus of the relevant class of each fund into which an
exchange is being considered. Shareholders may obtain a prospectus of the
relevant class of the fund into which they are contemplating an exchange from
Counsellors Securities.

                  Subject to the restrictions described above, upon receipt of
proper instructions and all necessary supporting documents, shares submitted for
exchange are redeemed at the then-current net asset value of the relevant class
and the proceeds are invested on the same day, at a price as described above, in
shares of the relevant class of the fund being acquired. The exchange privilege
may be modified or terminated at any time upon 30 days' notice to shareholders.

                                      -23-
<PAGE>   61

                     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
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 


                                      -24-
<PAGE>   62

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 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 those 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 


                                      -25-
<PAGE>   63

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. This rule will apply to a sale of shares of the Tax Free Fund only
to the extent the loss 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 


                                      -26-
<PAGE>   64

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.

      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.

                                      -27-
<PAGE>   65

                  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 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 as
well as counsel to Warburg, Counsellors Service and Counsellors Securities.

                                  MISCELLANEOUS

                  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>

                                      -28-
<PAGE>   66

              * 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 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.


                                      -29-
<PAGE>   67

                                    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>   68

                  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>   69

                  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



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