<PAGE> 1
SUPPLEMENT TO THE PROSPECTUSES
WARBURG PINCUS FUNDS
The following information supersedes certain information in the funds'
Prospectuses.
New Adviser. Effective today, Credit Suisse Asset Management, LLC (CSAM) became
the funds' investment adviser as a result of the closing of the previously
announced acquisition of Warburg Pincus Asset Management, Inc. (Warburg Pincus)
by Credit Suisse Group (Credit Suisse), and the combination of Warburg Pincus
with Credit Suisse's existing U.S. asset management business. Accordingly, all
references in the Prospectuses to Warburg Pincus are now to CSAM.
CSAM is an indirect wholly-owned U.S. subsidiary of Credit Suisse. CSAM,
together with its predecessor firms, has been engaged in the investment advisory
business for over 60 years and has assets under management of approximately
$58.7 billion. CSAM's principal business address is 153 East 53rd Street, New
York, New York 10022.
Change of Name of Distributor. Counsellors Securities Inc., the funds'
distributor, has changed its name to Credit Suisse Asset Management Securities,
Inc. to reflect its ownership by Credit Suisse.
Address Change. The following address replaces the current address provided in
the Prospectus for overnight or courier service: Boston Financial, Attn: Warburg
Pincus Funds, 66 Brooks Drive, Braintree, MA 02184.
Dated: July 6, 1999
<PAGE> 2
WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE
Common Class
December 3, 1998
As Revised July 6, 1999
This Shareholder Guide is incorporated into and legally part of each
Warburg Pincus (Common Class) prospectus.
[Warburg Pincus Funds Logo]
<PAGE> 3
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
66 Brooks Drive
Braintree, MA 02184
INTERNET WEB SITE
www.warburg.com
2
<PAGE> 4
<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> 5
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> 6
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> 7
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> 8
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> 9
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) B www.warburg.com
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC.,DISTRIBUTOR. WPCOM-31-1298Dc
<PAGE> 10
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1999
AS REVISED JULY 6, 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> 11
Contents
<TABLE>
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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........................................ 17
Investment Advisers, Sub-Investment Adviser and Administrator and
Co-Administrator.................................................. 18
Custodian and Transfer Agent......................................... 20
Organization of the Funds............................................ 21
Distribution and Shareholder Servicing............................... 22
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................... 24
Automatic Cash Withdrawal Plan....................................... 24
EXCHANGE PRIVILEGE...................................................... 25
ADDITIONAL INFORMATION CONCERNING TAXES................................. 25
DETERMINATION OF YIELD.................................................. 29
INDEPENDENT ACCOUNTANTS AND COUNSEL..................................... 30
MISCELLANEOUS........................................................... 30
FINANCIAL STATEMENTS.................................................... 31
APPENDIX................................................................ A-1
Description of Commercial Paper Ratings.............................. A-1
Description of Municipal Securities Ratings.......................... A-1
</TABLE>
(i)
<PAGE> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
The principal risk of a stand-by commitment is that the writer of a
commitment may default on its obligation to repurchase the securities acquired
with it. The Fund intends to enter into stand-by commitments only with brokers,
dealers and banks that, in the opinion of Credit Suisse Asset Management, LLC,
each Fund's investment adviser ("CSAM"), present minimal credit risks. In
evaluating the creditworthiness of the issuer of a stand-by commitment, CSAM
will periodically review relevant financial information concerning the issuer's
assets, liabilities and contingent claims.
The amount payable to the Fund upon its exercise of a stand-by
commitment is normally (i) the Fund's acquisition cost of the Municipal
Securities (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment date
during that period.
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Fund will not exceed 1/2
of 1% of the value of its total assets calculated immediately after each
stand-by commitment is acquired.
The Fund would acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a stand-by commitment would not affect the
valuation or assumed maturity of the underlying Municipal Securities which, as
noted, would continue to be valued in accordance with the amortized cost method.
Stand-by commitments acquired by the Fund would be valued at zero in determining
net asset value. Where the Fund paid any consideration directly or indirectly
for a stand-by commitment, its cost would be reflected as unrealized
depreciation for the period during which the commitment was held by the Fund.
Stand-by commitments would not affect the average weighted maturity of the
Fund's portfolio.
The Internal Revenue Service has issued a revenue ruling to the
effect that a registered investment company will be treated for federal income
tax purposes as the owner of the Municipal Securities acquired subject to a
stand-by commitment and the interest on the Municipal Securities will be
tax-exempt to the Fund.
Third Party Puts (Tax Free Fund only). The Fund may purchase
long-term fixed rate bonds that have been coupled with an option granted by a
third party financial institution allowing the Fund at specified intervals to
tender (or "put") the bonds to the institution and receive the face value
thereof (plus accrued interest). These third party puts are available in several
different forms, may be represented by custodial receipts or trust certificates
and may be combined with other features such as interest rate swaps. The Fund
receives a short-term rate of interest (which is periodically reset), and the
interest rate
-7-
<PAGE> 19
differential between that rate and the fixed rate on the bond is retained by the
financial institution. The financial institution granting the option does not
provide credit enhancement, and in the event that there is a default in the
payment of principal or interest, or downgrading of a bond to below investment
grade, or a loss of the bond's tax-exempt status, the put option will terminate
automatically, the risk to the Fund will be that of holding such a long-term
bond and the dollar-weighted average maturity of the Fund's portfolio would be
adversely affected.
These bonds coupled with puts may present the same tax issues as are
associated with stand-by commitments. As with any stand-by commitment, the Fund
intends to take the position that it is the owner of any municipal obligation
acquired subject to a third party put, and that tax-exempt interest earned with
respect to such municipal obligations will be tax-exempt in its hands. There is
no assurance that the Internal Revenue Service will agree with such position in
any particular case. Additionally, the federal income tax treatment of certain
other aspects of these investments, including the treatment of tender fees and
swap payments, in relation to various regulated investment company tax
provisions is unclear. However, CSAM intends to manage the Fund in a manner
designed to minimize any adverse impact from these investments.
Taxable Investments (Tax Free Fund only). Because the Fund's purpose
is to provide income excluded from gross income for federal income tax purposes,
the Fund generally will invest in taxable obligations only if and when the
investment adviser believes it would be in the best interests of the Fund's
investors to do so. Situations in which the Fund may invest up to 20% of its
total assets in taxable securities include: (i) pending investment of proceeds
of sales of Fund shares or the sale of its portfolio securities or (ii) when the
Fund requires highly liquid securities in order to meet anticipated redemptions.
The Fund may temporarily invest more than 20% of its total assets in taxable
securities to maintain a "defensive" posture when the Fund's investment adviser
determines that it is advisable to do so because of adverse market conditions
affecting the market for Municipal Securities generally.
Among the taxable investments in which the Fund may invest are
repurchase agreements and time deposits maturing in not more than seven days.
The Fund may agree to purchase money market instruments from financial
institutions such as banks and broker-dealers subject to the seller's agreement
to repurchase them at an agreed-upon date and price ("repurchase agreements").
The seller under a repurchase agreement will be required to maintain the value
of the securities subject to the agreement at not less than the repurchase price
(including accrued interest). Securities subject to repurchase agreements will
be held by the Fund's custodian or in the Federal Reserve/Treasury book-entry
system or another authorized securities depository.
Other Investment Limitations
Money Market Fund. The investment limitations numbered 1 through 6
may not be changed without the affirmative vote of the holders of a majority of
the Money Market Fund's outstanding shares. Such majority is defined as the
lesser of (i) 67% or more of the shares present at a meeting, if the holders of
more than 50% of the outstanding shares of the
-8-
<PAGE> 20
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> 21
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> 22
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> 23
If a percentage restriction (other than the percentage limitation
set forth in No. 2 and No. 10 above) is adhered to at the time of an investment,
a later increase or decrease in the percentage of assets resulting from a change
in the values of portfolio securities or in the amount of the Fund's assets will
not constitute a violation of such restriction.
PORTFOLIO VALUATION
Each Fund's securities are valued on the basis of amortized cost.
Under this method, a Fund values a portfolio security at cost on the date of
purchase and thereafter assumes a constant value of the security for purposes of
determining net asset value, which normally does not change in response to
fluctuating interest rates. Although the amortized cost method seems to provide
certainty in portfolio valuation, it may result in periods during which values,
as determined by amortized cost, are higher or lower than the amount the Fund
would receive if it sold the securities. In connection with amortized cost
valuation, the Board has established procedures that are intended to stabilize
the Fund's net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Board, at such intervals as it
deems appropriate, to determine the extent, if any, to which the Fund's net
asset value per share calculated by using available market quotations deviates
from $1.00 per share. In the event such deviation exceeds 1/2 of 1%, the Board
will promptly consider what action, if any, should be initiated. If the Board
believes that the amount of any deviations from the Fund's $1.00 amortized cost
price per share may result in material dilution or other unfair results to
investors or existing shareholders, it will take such steps as it considers
appropriate to eliminate or reduce to the extent reasonably practicable any such
dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the Fund's average portfolio maturity;
withholding or reducing dividends; redeeming shares in kind; reducing the number
of the Fund's outstanding shares without monetary consideration; or utilizing a
net asset value per share determined by using available market quotations.
PORTFOLIO TRANSACTIONS
CSAM is responsible for establishing, reviewing, and, where
necessary, modifying a Fund's investment program to achieve its investment
objective. BlackRock Institutional Management Corporation ("BIMC") generally
will select specific portfolio investments and effect transactions for each
Fund. Purchases and sales of portfolio securities are usually principal
transactions without brokerage commissions effected directly with the issuer or
with dealers who specialize in money market instruments. BIMC seeks to obtain
the best net price and the most favorable execution of orders. To the extent
that the execution and price offered by more than one dealer are comparable,
BIMC may, in its discretion, effect transactions in portfolio securities with
dealers who provide the relevant Fund with research advice or other services.
Investment decisions for a Fund concerning specific portfolio
securities are made independently from those for other clients advised by BIMC.
Such other investment clients may invest in the same securities as the Fund.
When purchases or sales of the same
-12-
<PAGE> 24
security are made at substantially the same time on behalf of such other
clients, transactions are averaged as to price, and available investments
allocated as to amount, in a manner which BIMC believes to be equitable to each
client, including the Fund. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold for the Fund. To the extent permitted by law, BIMC may
aggregate the securities to be sold or purchased for each Fund with those to be
sold or purchased for such other investment clients in order to obtain best
execution.
In no instance will portfolio securities be purchased from or sold
to CSAM, Credit Suisse Asset Management Securities, Inc. ("CSAMSI") or Credit
Suisse First Boston ("CS First Boston") or any affiliated person of such
companies, except pursuant to an exemption received from the SEC. In addition, a
Fund will not give preference to any institutions with whom the Fund enters into
distribution or shareholder servicing agreements concerning the provision of
distribution services or support services.
The Tax Free Fund may participate, if and when practicable, in
bidding for the purchase of Municipal Securities directly from an issuer for its
portfolio in order to take advantage of the lower purchase price available to
members of such a group. The Fund will engage in this practice, however, only
when CSAM or BIMC, in their sole discretion, believes such practice to be
otherwise in the Fund's interest.
Each Fund does not intend to seek profits through short-term
trading. A Fund's annual portfolio turnover will be relatively high but is not
expected to have a material effect on its net income. Each Fund's turnover is
expected to be zero for regulatory reporting purposes.
MANAGEMENT OF THE FUNDS
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
Richard H. Francis (65) Director/Trustee
40 Grosvenor Road Currently retired; Executive Vice
Short Hills, New Jersey 07078 President and Chief Financial Officer of
Pan Am Corporation and Pan American World
Airways, Inc. from 1988 to 1991; Director
of The Infinity Mutual Funds, BISYS Group
Incorporated; Director/Trustee of other
Warburg Pincus Funds and other CSAM-advised
investment companies.
-13-
<PAGE> 25
Jack W. Fritz (72) Director/Trustee
2425 North Fish Creek Road Private investor; Consultant and Director
P.O. Box 483 of Fritz Broadcasting, Inc. and Fritz
Wilson, Wyoming 83014 Communications (developers and operators
of radio stations); Director of Advo, Inc.
(direct mail advertising); Director/Trustee
of other Warburg Pincus Funds.
Jeffrey E. Garten (52) Director/Trustee
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and
Finance; Undersecretary of Commerce for
International Trade from November 1993 to
October 1995; Professor at Columbia
University from September 1992 to November
1993; Director/Trustee of other Warburg
Pincus Funds.
James S. Pasman, Jr. (68) Director/Trustee
29 The Trillium Currently retired; President and Chief
Pittsburgh, Pennsylvania 15238 Operating Officer of National InterGroup,
Inc. from April 1989 to March 1991;
Chairman of Permian Oil Co. from April
1989 to March 1991; Director of Education
Management Corp., Tyco International Ltd.;
Trustee, BT Insurance Funds Trust;
Director/Trustee of other Warburg Pincus
Funds and other CSAM-advised investment
companies.
William W. Priest* (56) Chairman of the Board
153 East 53rd Street Chairman- Management Committee, Chief
New York, New York 10022 Executive Officer and Managing Director
of CSAM (U.S.) since 1990; Director of TIG
Holdings, Inc.; Director/Trustee of other
Warburg Pincus Funds and other
CSAM-advised investment companies.
- ----------
* Indicates a Director/Trustee who is an "interested person" of the Fund as
defined in the 1940 Act.
-14-
<PAGE> 26
Steven N. Rappaport (49) Director/Trustee
c/o Loanet, Inc. President of Loanet, Inc. since 1997;
153 East 53rd Street, Executive Vice President of Loanet, Inc.
Suite 5500 from 1994 to 1997; Director, President,
New York, New York 10022 North American Operations, and former
Executive Vice President from 1992 to 1993
of Worldwide Operations of Metallurg Inc.;
Executive Vice President, Telerate, Inc.
from 1987 to 1992; Partner in the law firm
of Hartman & Craven until 1987; Director/
Trustee of other Warburg Pincus Funds and
other CSAM-advised investment companies.
Arnold M. Reichman* (51) Vice Chairman of the Board
466 Lexington Avenue Managing Director and Chief Operating
New York, New York 10017-3147 Officer of CSAM; Inc.; Associated with CSAM
since CSAM acquired the Funds' predecessor
adviser in July 1999; with the predecessor
adviser since 1984; Officer of CSAMSI;
Director of The RBB Fund, Inc.
Director/Trustee of other Warburg Pincus
Funds.
Alexander B. Trowbridge (69) Director/Trustee
1317 F Street, N.W., 5th Floor Currently retired; President of Trowbridge
Washington, DC 20004 Partners, Inc. (business consulting) from
January 1990 to November 1996; Director or
Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), IRI International
(energy services), The Rouse Company (real
estate development), Harris Corp.
(electronics and communications equipment),
The Gillette Co. (personal care products)
and Sunoco, Inc. (petroleum refining and
marketing); Director/Trustee of other
Warburg Pincus Funds.
Eugene L. Podsiadlo (42) President
466 Lexington Avenue Managing Director of CSAM; Associated
New York, New York 10017-3147 with CSAM since CSAM acquired the Funds'
predecessor adviser in July 1999; with the
predecessor adviser since 1991; Vice
President of Citibank, N.A. from 1987 to
1991; Officer of CSAMSI and of other
Warburg Pincus Funds.
-15-
<PAGE> 27
Hal Liebes, Esq. (34) Vice President and Secretary
153 East 53rd Street Director and General Counsel of CSAM;
New York, New York 10022 Associated with CSAM since 1995;
Associated with CS First Boston Investment
Management from 1994 to 1995; Associated
with Division of Enforcement, U.S.
Securities and Exchange Commission from
1991 to 1994; Officer of CSAMSI and
other Warburg Pincus Funds.
Michael A. Pignataro (39) Treasurer and Chief Financial Officer
153 East 53rd Street Vice President and Director of Fund
New York, New York 10022 Administration of CSAM; Associated with
CSAM since 1986; Officer of other
Warburg Pincus Funds.
Janna Manes, Esq. (31) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of CSAM;
New York, New York 10017-3147 Associated with CSAM since CSAM acquired
the Funds' predecessor adviser in July
1999; with the predecessor adviser since
1996; Associated with the law firm of
Willkie Farr & Gallagher from 1993 to 1996;
Officer of other Warburg Pincus Funds.
Stuart J. Cohen, Esq. (30) Assistant Secretary
466 Lexington Avenue Vice President and Legal Counsel of CSAM;
New York, New York 10017-3147 Associated with CSAM since CSAM acquired
the Funds' predecessor adviser in July
1999; with the predecessor adviser since
1997; Associated with the law firm of
Gordon Altman Butowsky Weitzen Shalov &
Wein from 1995 to 1997; Officer of other
Warburg Pincus Funds.
-16-
<PAGE> 28
Rocco A. DelGuercio (36) Assistant Treasurer
153 East 53rd Street Assistant Vice President and
New York, New York 10022 Administrative Officer of CSAM; Associated
with CSAM since June 1996; Assistant
Treasurer, Bankers Trust Corp. -- Fund
Administration from March 1994 to June
1996; Mutual Fund Accounting Supervisor,
Dreyfus Corporation from April 1987 to
March 1994; Officer of other Warburg
Pincus Funds.
No employee of CSAM, PFPC Inc., the Funds' co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Funds
for acting as an officer or director/trustee of a Fund. Each Director who is not
a director, trustee, officer or employee of CSAM, PFPC or any of their
affiliates receives an annual fee of $2,000, and $500 for each meeting of the
Board and $250 for each Audit Committee Meeting, as applicable, attended by him
for his services as Director and is reimbursed for expenses incurred in
connection with his attendance at Board meetings.
Directors' Total Compensation
(for the fiscal period ended December 31, 1998)
<TABLE>
<CAPTION>
Total Compensation from
Compensation from all Investment Companies
Name of Director each Fund in Warburg Pincus Fund
- ---------------- --------- Complex*
--------
<S> <C> <C>
William W. Priest** None None
Richard N. Cooper*** $2,000 $56,600
Donald J. Donahue*** $2,000 $13,525
Richard H. Francis**** None None
Jack W. Fritz $2,000 $63,100
Jeffrey E. Garten**** $2,000 $49,325
Thomas A. Melfe*** $2,000 $60,700
James S. Pasman, Jr.**** None None
Steven N. Rappaport**** None None
Arnold M. Reichman** None None
Alexander B. Trowbridge $2,000 $64,000
</TABLE>
- ----------
* Each Director serves as a Director or Trustee of 39 investment companies
in the Warburg Pincus family of funds.
-17-
<PAGE> 29
** Mr. Priest and Mr. Reichman receive compensation as affiliates of CSAM,
and, accordingly, receive no compensation from any Fund or any other
investment company advised by CSAM.
*** Mr. Donahue resigned as a Director of each Fund effective February 6,
1998. Messrs. Cooper and Melfe resigned as a Director of each Fund
effective July 6, 1999.
**** Mr. Garten became a Director of each Fund effective February 6, 1998.
Messrs. Francis, Pasman and Rappaport became Directors of the Funds
effective July 6, 1999.
As of April 6, 1999, Directors and officers of a Fund as a group
owned of record less than 1% of the relevant Fund's outstanding common stock.
Investment Advisers, Sub-Investment Adviser and Administrator
and Co-Administrator
CSAM, located at 153 East 53rd Street, New York, New York 10022,
serves as investment adviser to each Fund pursuant to a written agreement (the
"Advisory Agreement"). CSAM is an indirect wholly-owned U.S. subsidiary of
Credit Suisse Group ("Credit Suisse"). Credit Suisse is a global financial
services company, providing a comprehensive range of banking and insurance
products. Active on every continent and in all major financial centers, Credit
Suisse comprises five business units -- Credit Suisse Asset Management (asset
management); Credit Suisse First Boston (investment banking); Credit Suisse
Private Banking (private banking); Credit Suisse (retail banking); and
Winterthur (insurance). Credit Suisse has approximately $680 billion of global
assets under management and employs approximately 62,000 people worldwide. The
principal business address of Credit Suisse is Paradeplatz 8, CH 8070, Zurich,
Switzerland.
Prior to July 6, 1999, Warburg Pincus Asset Management, Inc.
("Warburg") served as investment adviser to each Fund. On that date, Credit
Suisse acquired Warburg and combined Warburg with Credit Suisse's existing
U.S.-based asset management business ("Credit Suisse Asset Management").
Consequently, the combined entity, CSAM, became the Funds' investment adviser.
Credit Suisse Asset Management, formerly known as BEA Associates, together with
its predecessor firms, has been engaged in the investment advisory business for
over 60 years.
BIMC serves as sub-investment adviser to each Fund, and Credit
Suisse Asset Management Ltd. ("CSAM Ltd.") and PFPC Inc. ("PFPC") serve as
co-administrators to the Funds pursuant to written agreements (the "Sub-Advisory
Agreements" and the "Co-Administration Agreement," respectively, and
collectively, the "Agreements").
For the services provided pursuant to the Advisory Agreement, CSAM
is entitled to receive a fee, computed daily and payable monthly, at the annual
rate of .40% of the value of each Fund's average daily net assets, out of which
CSAM pays BIMC for sub-investment advisory services. CSAM, BIMC and each Fund's
administrators may voluntarily waive a portion of their fees from time to time
and temporarily limit the expenses to be paid by a Fund.
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<PAGE> 30
As sub-investment adviser, BIMC has agreed to implement each Fund's
investment program as determined by the Board and CSAM. BIMC will supervise the
day-to-day operations of the relevant Fund and perform the following services:
(i) providing investment research and credit analysis concerning the Fund's
investments, (ii) placing orders for all purchases and sales of the Fund's
portfolio investments and (iii) maintaining the books and records required to
support the Fund's operations. BIMC also calculates the Fund's net asset value,
provides accounting services for the Fund and assists in related aspects of the
Fund's operations.
As co-administrator, CSAM Ltd. provides shareholder liaison services
to the Fund including responding to shareholder inquiries and providing
information on shareholder investments. CSAM Ltd. 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 Ltd. a fee
calculated at an annual rate of .10% of the Fund's average daily net assets,
exclusive of out-of-pocket expenses. CSAM Ltd. may delegate to Counsellors Funds
Service, Inc. responsibility for most of its co-administrative services. CSAM
Ltd.'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 CSAM's Predecessor, Warburg
2-month period ended
December 31, 1998
-----------------
$0
For the same period, Warburg voluntarily waived $11,885 of the Fund's fees and
reimbursed expenses in the amount of $19,002.
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<PAGE> 31
Administrative Services/Co-Administration Fees paid to CSAM Ltd.
2-month period ended
December 31, 1998
-----------------
$0
For the same period, CSAM Ltd. voluntarily waived $2,971 of the Fund's fees.
Administrative Services/Co-Administration Fees paid to PFPC
2-month period ended
December 31, 1998
-----------------
$184
For the same period, PFPC voluntarily waived $2,971 of the Fund's fees.
TAX FREE FUND
Advisory Fees paid to CSAM's Predecessor, Warburg
2-month period ended
December 31, 1998
-----------------
$0
For the same period, Warburg voluntarily waived $11,091 of the Fund's fees and
reimbursed expenses in the amount of $19,593.
Administrative Services/Co-Administration Fees paid to CSAM Ltd.
2-month period ended
December 31, 1998
-----------------
$0
For the same period, CSAM Ltd. voluntarily waived $2,773 of the Fund's fees.
Administrative Services/Co-Administration Fees paid to PFPC
2-month period ended
December 31, 1998
-----------------
$184
For the same period, PFPC voluntarily waived $2,773 of the Fund's fees.
Custodian and Transfer Agent
PFPC Trust Company ("PFPC Trust") is custodian of each Fund's assets
pursuant to a custodian agreement (the "Custodian Agreement"). Under the
Custodian
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<PAGE> 32
Agreement, PFPC Trust (i) maintains a separate account or accounts in the name
of the Fund, (ii) holds and transfers portfolio securities on account of the
Fund, (iii) makes receipts and disbursements of money on behalf of the Fund,
(iv) collects and receives all income and other payments and distributions on
account of the Fund's portfolio securities and (v) makes periodic reports to the
Board concerning the Fund's custodial arrangements. PFPC Trust is authorized to
select one or more banks or trust companies to serve as sub-custodian on behalf
of a Fund, provided that PFPC Trust remains responsible for the performance of
all its duties under the Custodian Agreement and holds the Fund harmless from
the acts and omissions of any sub-custodian. PFPC Trust has entered into a
sub-custodian agreement with PNC Bank, National Association ("PNC"), pursuant to
which PNC provides asset safekeeping and securities clearing services. PFPC
Trust and PNC are indirect, wholly owned subsidiaries of PNC Bank Corp. and
their principal business address is 200 Stevens Drive, Lester, Pennsylvania
19113.
State Street Bank and Trust Company ("State Street") has agreed to
serve as each Fund's shareholder servicing, transfer and dividend disbursing
agent pursuant to a Transfer Agency and Service Agreement, under which State
Street (i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to record owners of the Fund shares, including
reports to shareholders, dividend and distribution notices and proxy material
for its meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts, and (iv) makes periodic reports to the Board concerning
the transfer agent's operations with respect to the Fund. State Street has
delegated to Boston Financial Data Services, Inc. ("BFDS"), an affiliated
company, responsibility for most shareholder 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.
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<PAGE> 33
Multi-Class Structure. Although neither Fund currently does so, each
Fund is authorized to offer a separate class of shares, the Advisor Shares,
pursuant to a separate prospectus. Individual investors could only purchase
Advisor Shares through institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and other
financial intermediaries. Shares of each class would represent equal pro rata
interests in the relevant Fund and accrue dividends and calculate net asset
value and performance quotations in the same manner. Because of the higher fees
paid by the Advisor Shares, the total return on such shares can be expected to
be lower than the total return on common shares.
Voting Rights. Investors in a Fund are entitled to one vote for each
full share held and fractional votes for fractional shares held. Shareholders of
a Fund will vote in the aggregate except where otherwise required by law and
except that each class will vote separately on certain matters pertaining to its
distribution and shareholder servicing arrangements. There will normally be no
meetings of investors for the purpose of electing members of the Board unless
and until such time as less than a majority of the members holding office have
been elected by investors. Any Director of a Fund may be removed from office
upon the vote of shareholders holding at least a majority of the relevant Fund's
outstanding shares at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund. Shares do not
have cumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Directors can elect all Directors. Shares are
transferable but have no preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
CSAMSI serves as the Funds' distributor. CSAMSI's principal business
address is 466 Lexington Avenue, New York, New York 10017-3147.
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 CSAMSI, 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 CSAMSI
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
CSAMSI 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
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<PAGE> 34
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, CSAMSI will provide the Fund's Board
with periodic reports of amounts expended under the 12b-1 Plan and the purpose
for which the expenditures were made. 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 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.
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<PAGE> 35
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 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.
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<PAGE> 36
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by CSAM is
available to investors in a Fund. Exchanges may also be made between certain
Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares in a
fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. Subject to the restrictions
on exchange purchases contained in the Prospectus and any other applicable
restrictions, this privilege is available to shareholders residing in any state
in which the Common Shares or Advisor Shares being acquired, as relevant, may
legally be sold. Prior to any exchange, the investor should obtain and review a
copy of the current prospectus of the relevant class of each fund into which an
exchange is being considered. Shareholders may obtain a prospectus of the
relevant class of the fund into which they are contemplating an exchange from
CSAMSI.
Subject to the restrictions described above, upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange are redeemed at the then-current net asset value of the relevant class
and the proceeds are invested on the same day, at a price as described above, in
shares of the relevant class of the fund being acquired. The exchange privilege
may be modified or terminated at any time upon 30 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
As described above and in the Fund's Prospectus, the Tax Free Fund
is designed to provide investors with current income which is excluded from
gross income for federal income tax purposes. The Fund is not intended to
constitute a balanced investment program and is not designed for investors
seeking capital gains or maximum tax-exempt income irrespective of fluctuations
in principal. Investment in the Fund would not be suitable for tax-exempt
institutions, individual retirement plans, employee benefit plans and individual
retirement accounts since such investors would not gain any additional tax
benefit from the receipt of tax-exempt income.
Each Fund intends to continue to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). If it qualifies as a regulated investment company, a Fund will pay
no federal income taxes on its taxable net investment income (that is, taxable
income other than net realized capital gains) and its net realized capital gains
that are distributed to shareholders. To qualify under Subchapter M, each Fund
must, among other things: (i) distribute to its shareholders at least
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<PAGE> 37
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 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
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<PAGE> 38
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 these shares will be disallowed to the extent of the
amount of exempt-interest dividends received with respect to the shares. The
Code may require a shareholder, if he or she receives exempt interest dividends,
to treat as taxable income a portion of certain otherwise non-taxable social
security and railroad retirement benefit payments. Furthermore, that portion of
any dividend paid by the Fund which represents income derived from private
activity securities held by the Fund may not retain its tax-exempt status in the
hands of a shareholder who is a "substantial user" of a facility financed by
such bonds, or a "related person" thereof. Moreover, as noted in the Prospectus,
some of the Fund's dividends may be a tax preference item, or a component of an
adjustment item, for purposes of the federal individual and corporate
alternative minimum taxes. In addition, the receipt of Fund dividends and
distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporation shareholder's federal
"excess net passive income" tax liability. Shareholders should consult their own
tax advisers as to whether they (i) may be "substantial users" with respect to a
facility or "related" to such users within the meaning of the Code and (ii) are
subject to a federal alternative minimum tax, the federal "branch profits" tax,
or the federal "excess net passive income" tax.
While each Fund does not expect to realize net long-term capital
gains, any such realized gains will be distributed as described in the
Prospectus. Such distributions ("capital gain dividends") will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares, and will be designated as capital gain dividends in a
written notice mailed by a Fund to shareholders after the close of the Fund's
taxable year. Gain or loss, if any, recognized on the sale or other disposition
of shares of the Fund will be taxed as capital gain or loss if the shares are
capital assets in the shareholder's hands.
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<PAGE> 39
Generally, a shareholder's gain or loss will be a long-term gain or loss if the
shares have been held for more than one year. If a shareholder sells or
otherwise disposes of a share of the Fund before holding it for more than six
months, any loss on the sale or other disposition of such share shall be treated
as a long-term capital loss to the extent of any capital gain dividends received
by the shareholder with respect to such share. The rule will apply to a sale of
shares of the Tax Free Fund only to the extent the rate is not disallowed under
the provision described above.
A shareholder of a Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as receiving
a distribution in an amount equal to the amount of money that a shareholder
receiving cash dividends or distributions receives, and should have a cost basis
in the shares received equal to that amount.
Each shareholder of the Money Market Fund will receive an annual
statement as to the federal income tax status of his dividends and distributions
from the Fund for the prior calendar year. Furthermore, shareholders will also
receive, if appropriate, various written notices after the close of the Fund's
taxable year regarding the federal income tax status of certain dividends and
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding year.
Each shareholder of the Tax Free Fund will receive an annual
statement as to the federal personal income tax status of his dividends and
distributions from the Fund for the prior calendar year. Furthermore,
shareholders will also receive, if appropriate, various written notices after
the close of the Fund's taxable year regarding the federal income tax status of
certain dividends and distributions that were paid (or that are treated as
having been paid) by the Fund to its shareholders during the preceding year.
Shareholders should consult their tax advisers as to any other state and local
taxes that may apply to the Fund's dividends and distributions. The dollar
amount of dividends excluded from federal income taxation and the dollar amounts
subject to federal income taxation, if any, will vary for each shareholder
depending upon the size and duration of each shareholder's investment in the
Fund. In the event that the Fund derives taxable net investment income, it
intends to designate as taxable dividends the same percentage of each day's
dividend as its actual taxable net investment income bears to its total net
investment income earned on that day. Therefore, the percentage of each day's
dividend designated as taxable, if any, may vary from day to day.
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is not
subject to withholding, then the shareholder may be subject to a 31% "backup
withholding" tax with respect to taxable dividends and distributions. An
individual's taxpayer identification number is his social security number.
Corporate shareholders and other shareholders specified in the Code are or may
be exempt from backup withholding. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's federal income tax
liability.
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<PAGE> 40
You should consult your tax advisor regarding possible tax effects
of the crediting of WorldPerks miles as a result of your fund investment, which
could include a reduction in the tax basis in your shares that could cause a
taxable gain when you sell them.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING A FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.
DETERMINATION OF YIELD
From time to time, each Fund may quote its yield, effective yield
and tax equivalent yield, as applicable, in advertisements or in reports and
other communications to shareholders. The Money Market Fund's yield and
effective yield for the seven-day period ended on December 31, 1998 were 4.41%
and 4.51%, respectively. In the absence of waivers, these yields would have been
3.38% and 3.44%, respectively. The Tax Free Fund's yield, effective yield and
tax equivalent yield for the seven-day period ended on December 31, 1998 was
3.13%, 3.18% and 5.18% (based on a 39.6% federal tax rate), respectively. In the
absence of waivers these yields would have been 1.95%, 1.97% and 3.23%,
respectively. A Fund's seven-day yield is calculated by (i) determining the net
change in the value of a hypothetical pre-existing account in the Fund having a
balance of one share at the beginning of a seven calendar day period for which
yield is to be quoted, (ii) dividing the net change by the value of the account
at the beginning of the period to obtain the base period return and (iii)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such additional
shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. The Fund's seven-day compound effective
annualized yield is calculated by adding 1 to the base period return (calculated
as described above), raising the sum to a power equal to 365/7 and subtracting
1. The Tax Free Fund's tax equivalent yield is calculated by dividing that
portion of the base period return which is exempt from federal personal income
taxes by 1 minus the highest marginal federal individual income tax rate and
adding the quotient to that portion, if any, of the yield which is not exempt
from those taxes.
Each Fund's yield will vary from time to time depending upon market
conditions, the composition of its portfolio and operating expenses allocable to
it. Yield information may be useful in reviewing a Fund's performance and for
providing a basis for comparison with other investment alternatives. However,
the Fund's yield will fluctuate, unlike certain bank deposits or other
investments which pay a fixed yield for a stated period of time. In comparing
the Fund's yield with that of other money market funds, investors should give
consideration to the quality and maturity of the portfolio securities of the
respective funds.
-29-
<PAGE> 41
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 and provides
legal services from time to time for CSAM, Counsellors Service and CSAMSI.
MISCELLANEOUS
The Funds are not sponsored, endorsed, sold or promoted by
Warburg, Pincus & Co. Warburg, Pincus & Co. makes no representation or
warranty, express or implied, to the owners of the Funds or any member of the
public regarding the advisability of investing in securities generally or in
the Funds particularly. Warburg, Pincus & Co. licenses certain trademarks
and trade names of Warburg, Pincus & Co., and is not responsible for and has
not participated in the calculation of the Funds' net asset value, nor is
Warburg, Pincus & Co. a distributor of the Funds. Warburg, Pincus & Co. has
no obligation or liability in connection with the administration, marketing
or trading of the Funds.
As of March 31, 1999, the name, address and percentage of ownership
of other persons that control a Fund (within the meaning of the rules and
regulations under the 1940 Act) or own of record 5% or more of the Fund's
outstanding shares were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------
MONEY MARKET FUND COMMON STOCK
-------------------------------------------------------------
<S> <C>
Louis Bluver* 11.57%
1901 Walnut St. Apt 1901
Philadelphia, PA 19103-4645
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------
TAX FREE FUND COMMON STOCK
-------------------------------------------------------------
<S> <C>
Credit Suisse Asset Management* 47.75%
Fund Holding (Luxembourg) S.A.
5 Rue Jean Monnet
B P 369
L-2013 Luxembourg
-------------------------------------------------------------
</TABLE>
* To the knowledge of each Fund, these entities are not the beneficial
owners of a majority of the shares held by them of record.
-30-
<PAGE> 42
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.
-31-
<PAGE> 43
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> 44
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> 45
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
