Rule 497(c)
Securities Act File No. 2-94840
Investment Company Act No. 811-4171
<PAGE>
PROSPECTUS
July 1, 1996
WARBURG PINCUS
CASH RESERVE FUND
WARBURG PINCUS
NEW YORK TAX EXEMPT FUND
[Logo]
<PAGE>
<PAGE>
PROSPECTUS July 1, 1996
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Two money market funds are described in
this Prospectus:
WARBURG PINCUS CASH RESERVE FUND (the 'Cash Reserve Fund') is designed to
provide investors with high current income consistent with liquidity and
stability of principal.
WARBURG PINCUS NEW YORK TAX EXEMPT FUND (the 'Tax Exempt Fund') is designed to
provide investors with as high a level of current income that is exempt from
federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity.
Because of its focus on investments that distribute income that is exempt from
New York State and New York City personal income tax, the Tax Exempt Fund will
have a more limited number of investment options available to it than a fund
that does not focus on investments that distribute income that is exempt from
taxation in a particular state. Consequently, the Fund may find it necessary to
invest a significant percentage of its assets in a single issuer. Changes in the
financial condition or market assessment of such an issuer could have a
significant adverse impact on the Fund. Therefore an investment in the Tax
Exempt Fund may be riskier than an investment in a money market fund that does
not focus on investments that distribute income which is exempt from taxation in
a particular state.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. ALTHOUGH EACH FUND SEEKS TO MAINTAIN A CONSTANT NET ASSET VALUE OF
$1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT CAN DO SO ON A CONTINUING
BASIS.
NO LOAD SHARES
- --------------------------------------------------------------------------------
Fund shares are sold and redeemed at net asset value without the imposition of a
sales or redemption charge by the Fund. Fund shares are 'no-load,' which means
that there are no sales charges, commissions, 12b-1 plan or other deferred sales
charges applicable to the Fund.
LOW MINIMUM INVESTMENT
- --------------------------------------------------------------------------------
The minimum initial investment in each Fund is $1,000 ($500 for an IRA or
Uniform Gift to Minors Act account in the case of the Cash Reserve Fund) and the
minimum subsequent investment is $100. Through the Automatic Monthly Investment
Plan, subsequent investment minimums may be as low as $50. See 'How to Purchase
Shares.'
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about each
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') and is available to investors
without charge by calling Warburg Pincus Funds at (800) 927-2874. Information
regarding the status of shareholder accounts may also be obtained by calling
Warburg Pincus Funds at the same number. The Statements of Additional
Information bear the same date as this Prospectus and are incorporated by
reference in their entirety into this Prospectus.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cash Tax
Reserve Exempt
Fund Fund
------- ------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............................. 0 0
Annual Fund Operating Expenses
(as a percentage of average net assets) (after fee waivers)
Management Fees.................................................... .33% .23%
-- --
12b-1 Fees......................................................... 0 0
Other Expenses..................................................... .22 .32
Total Fund Operating Expenses...................................... .55% .55%
-- --
-- --
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 Year............................................................ $6 $6
3 Years........................................................... $18 $18
5 Years........................................................... $31 $31
10 Years........................................................... $69 $69
</TABLE>
- --------------------------------------------------------------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an investor in each Fund. Certain broker-dealers and
financial institutions also may charge their clients fees in connection with
investments in Fund shares, which fees are not reflected in the table. Absent
the waiver of certain fees payable to the Funds' investment adviser and sub-
investment adviser and administrator, the Management Fees for the Cash Reserve
Fund and the Tax Exempt Fund would have equalled .50% and the Total Fund
Operating Expenses would have equalled .72% and .82%, respectively, of average
net assets with respect to each Fund. The Example should not be considered a
representation of past or future expenses; actual Fund expenses may be greater
or less than those shown. Moreover, while the Example assumes a 5% annual
return, each Fund's actual performance will vary and may result in a return
greater or less than 5%.
2
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The information regarding each Fund for the five fiscal years ended February
29, 1996 has been derived from information audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report dated April 8, 1996 appears in the
relevant Fund's Statement of Additional Information. Further information is
contained in the Funds' annual report, dated February 29, 1996, copies of which
may be obtained without charge by calling Warburg Pincus Funds at (800)
927-2874.
CASH RESERVE FUND
<TABLE>
<CAPTION>
For the Year Ended
------------------------------------------------------------
2/29/96 2/28/95 2/28/94 2/28/93 2/29/92
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations
Net Investment Income...... .0543 .0426 .0273 .0322 .0542
Net Gains (Losses) on
securities (both realized
and unrealized)........... 0 0 0 .0010 0
-------- -------- -------- -------- --------
Total from Investment
Operations................. .0543 .0426 .0273 .0322 .0552
-------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)......... (.0543) (.0426) (.0273) (.0322) (.0542)
Distributions (from capital
gains)..................... 0 0 0 0 (.0010)
-------- -------- -------- -------- --------
Total Distributions.......... (.0543) (.0426) (.0273) (.0322) (.0552)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return.................. 5.57% 4.35% 2.76% 3.27% 5.66%
Ratios/Supplemental Data
Net Assets, End of Period
(000s)....................... $383,607 $403,211 $277,557 $287,723 $426,479
Ratios to Average Daily Net
Assets
Operating expenses........... .55% .55% .54% .50% .50%
Net investment income........ 5.43% 4.41% 2.73% 3.22% 5.45%
Decrease reflected in above
expense ratios due to
waivers/reimbursements..... .16% .19% .13% .17% .16%
<CAPTION>
2/28/91 2/28/90 2/28/89 2/29/88 2/28/87
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
Operations
Net Investment Income...... .0760 .0870 .0747 .0651 .0614
Net Gains (Losses) on
securities (both realized
and unrealized)........... 0 0 0 0 0
-------- -------- -------- -------- --------
Total from Investment
Operations................. .0760 .0870 .0747 .0651 .0614
-------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)......... (.0760) (.0870) (.0747) (.0651) (.0614)
Distributions (from capital
gains)..................... 0 0 0 0 0
-------- -------- -------- -------- --------
Total Distributions.......... (.0760) (.0870) (.0747) (.0651) (.0614)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period.......................$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return.................. 7.87% 9.05% 7.73% 6.70% 6.39%
Ratios/Supplemental Data
Net Assets, End of Period
(000s).......................$361,428 $365,008 $209,538 $259,398 $193,669
Ratios to Average Daily Net
Assets
Operating expenses........... .50% .50% .50% .46% .45%
Net investment income........ 7.59% 8.59% 7.51% 6.54% 5.92%
Decrease reflected in above
expense ratios due to
waivers/reimbursements..... .13% .12% .16% .19% .19%
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
<PAGE>
TAX EXEMPT FUND
<TABLE>
<CAPTION>
For the Year Ended
-------------------------------------------------------
2/29/96 2/28/95 2/28/94 2/28/93 2/29/92
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Total Income from Investment
Operations
Net Investment Income........ .0326 .0246 .0175 .0224 .0329
------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)......... (.0326) (.0246) (.0175) (.0224) (.0329)
------- ------- ------- ------- -------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return.................. 3.31% 2.48% 1.77% 2.26% 3.34%
Ratios/Supplemental Data
Net Assets, End of Period
(000s)....................... $96,584 $77,111 $65,984 $76,995 $65,438
Ratios to Average Daily Net
Assets
Operating expenses........... .55% .55% .54% .50% .50%
Net investment income........ 3.24% 2.46% 1.75% 2.23% 3.27%
Decrease reflected in above
expense ratios due to
waivers/reimbursements..... .27% .27% .19% .28% .23%
<CAPTION>
2/28/91 2/28/90 2/28/89 2/29/88 2/28/87
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- --------
Total Income from Investment
Operations
Net Investment Income........ .0486 .0527 .0461 .0404 .0376
-------- ------- ------- ------- --------
Less Distributions
Dividends (from net
investment income)......... (.0486) (.0527) (.0461) (.0404) (.0376)
-------- ------- ------- ------- --------
Net Asset Value, End of
Period.......................$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Total Return.................. 4.97% 5.40% 4.70% 4.10% 3.83%
Ratios/Supplemental Data
Net Assets, End of Period
(000s).......................$ 85,783 $87,283 $58,112 $87,721 $112,413
Ratios to Average Daily Net
Assets
Operating expenses........... .50% .50% .50% .46% .45%
Net investment income........ 4.84% 5.38% 4.57% 4.03% 3.72%
Decrease reflected in above
expense ratios due to
waivers/reimbursements..... .21% .21% .25% .23% .20%
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The CASH RESERVE FUND is a diversified money market mutual fund whose
investment objective is high current income consistent with liquidity and
stability of principal. The TAX EXEMPT FUND is a non-diversified money market
mutual fund whose objective is to provide investors with as high a level of
current interest income that is exempt from federal, New York State and New York
City personal income taxes as is consistent with preservation of capital and
liquidity. Each objective may be changed only with the approval of the investors
in that Fund. There can be, of course, no assurance that a Fund will achieve its
investment objective. Investors should be aware that the market value of the
obligations in each Fund's portfolio can be expected to vary inversely to
changes in prevailing interest rates. See 'Certain Investment Strategies' for
descriptions of certain types of investments the Funds may make.
CASH RESERVE FUND
The Cash Reserve Fund will attempt to achieve its investment objective by
investing in a portfolio of 'money market' instruments consisting of United
States Treasury Bills, other obligations issued or guaranteed by the United
States government, its agencies or instrumentalities ('Government Securities');
bank and bank holding company obligations such as certificates of deposit,
bankers' acceptances, time deposits, commercial paper and debt obligations;
commercial paper and notes of other corporate issuers, including those with
floating or variable rates of interest (including variable rate master demand
notes) and repurchase agreements with respect to the foregoing.
The Cash Reserve Fund will concentrate its investments in the banking
industry except during temporary defensive periods. Up to 25% of the assets of
the Cash Reserve Fund may be invested at any time in the debt obligations of
issuers conducting their principal business activities in any industry other
than banking. In addition, the Cash Reserve Fund may invest up to 25% of its
assets in the debt obligations of a single issuer for a period of up to three
business days. Securities issued by the United States or its agencies or
instrumentalities may be purchased without regard to these limits.
TAX EXEMPT FUND
At least 80% of the Tax Exempt Fund's assets will be invested in short-term
tax-exempt debt obligations issued by or on behalf of the State of New York and
other states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political subdivisions ('Municipal Securities'). Dividends paid by the Tax
Exempt Fund which are derived from interest attributable to tax-exempt
obligations of the State of New York and its political subdivisions, as well as
of certain other governmental issuers such as Puerto Rico ('New York Municipal
Securities'), will be excluded from gross income for federal income tax purposes
and exempt from New York State and New York City personal income taxes.
Dividends derived from interest on tax-exempt obligations of
5
<PAGE>
<PAGE>
other governmental issuers will be excluded from gross income for federal income
tax purposes, but will be subject to New York State and New York City personal
income taxes. The Tax Exempt Fund expects that, except during temporary
defensive periods or when acceptable securities are unavailable for investment
by the Fund, at least 65% of the Tax Exempt Fund's assets will be invested in
New York Municipal Securities.
The Tax Exempt Fund is concentrated in New York Municipal Securities. Changes
in the financial condition or market assessment of the financial condition of
the State of New York and its political subdivisions or entities located within
the State of New York could have a significant adverse impact on the Fund.
Consequently, an investment in the Tax Exempt Fund may be riskier than an
investment in a money market fund that does not concentrate in securities issued
by, or within, a single state.
Municipal Securities in which the Tax Exempt Fund may invest include
commercial paper, notes and bonds. Interest on certain bonds issued after August
7, 1986 to finance certain non-governmental activities ('Alternative Minimum Tax
Securities') is a preference item for purposes of the federal individual and
corporate alternative minimum taxes, but is exempt from regular federal income
tax. The Fund is authorized to invest up to 20% of its assets in Alternative
Minimum Tax Securities. The alternative minimum tax is a special tax that
applies to a limited number of taxpayers who have certain adjustments or tax
preference items. Available returns on Alternative Minimum Tax Securities
acquired by the Fund may be lower than those from newly issued Municipal
Securities acquired by the Fund due to the possibility of federal, state and
local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities.
The Tax Exempt Fund may for defensive or other purposes invest in certain
short-term taxable securities when the Fund's investment adviser believes that
it would be in the best interests of the Fund's investors. Taxable securities in
which the Fund may invest on a short-term basis are Government Securities,
including repurchase agreements with banks or securities dealers involving such
securities, time deposits maturing in not more than seven days, other debt
securities, commercial paper and certificates of deposit issued by United States
branches of United States banks with assets of $1 billion or more. At no time
will more than 20% of the Fund's total assets be invested in taxable short-term
securities unless the Fund's investment adviser has determined to temporarily
adopt a defensive investment policy in the face of an anticipated softening in
the market for Municipal Securities in general.
GENERAL
- --------------------------------------------------------------------------------
PRICE AND PORTFOLIO MATURITY. Each Fund invests only in securities which are
purchased with and payable in U.S. dollars and which have (or, pursuant to
regulations adopted by the Securities and Exchange Commission (the 'SEC'), are
deemed to have) remaining maturities of thirteen months or less at the date of
purchase by the Fund. For this purpose, variable rate master
6
<PAGE>
<PAGE>
demand notes (as described below), which are payable on demand, or, under
certain conditions, at specified periodic intervals not exceeding thirteen
months, in either case on not more than 30 days' notice, will be deemed to have
remaining maturities of thirteen months or less. Each Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less. Each 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 the 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. If the Cash Reserve
Fund acquires securities that are unrated or that have been rated by a single
NRSRO, the acquisition must be approved or ratified by the Board. The Tax Exempt
Fund may purchase securities that are unrated at the time of purchase that the
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 Group ('S&P'),
Moody's Investors Service, Inc. ('Moody's'), Fitch Investors Services, Inc.,
Duff and Phelps, Inc. and IBCA Limited and its affiliate, IBCA, Inc. A
discussion of the ratings categories of the NRSROs is contained in the Appendix
to each Fund's Statement of Additional Information.
Cash Reserve Fund. The Fund has adopted certain diversification requirements
under Rule 2a-7 under the Investment Company Act of 1940, as amended (the '1940
Act'), as operating policies. Under these policies the Cash Reserve Fund may not
invest more than 5% of its total assets in Eligible Securities that have not
received the highest rating from the Requisite NRSROs and comparable unrated
securities ('Second Tier Securities') and may not invest more than 1% of its
total assets in the Second Tier Securities of any one issuer. In addition, the
Cash Reserve Fund may invest up to 5% of the then-current value of the Fund's
total assets in the securities of a single issuer, provided that the Fund may
invest more than 5% in an issuer for a period of up to three business days,
provided that (i) the securities either are rated by the Requisite NRSROs in the
highest short-term rating category or are securities of issuers that have
received such rating with respect to other short-term debt securities or are
comparable unrated securities, and (ii) the Fund does not make more than one
such investment at any one time.
7
<PAGE>
<PAGE>
However, if Rule 2a-7 is amended to permit it, the Fund may invest, with respect
to 25% of its assets, more than 5% of its assets in any one issuer.
PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
Set forth below are descriptions of investments the Funds may make. More
detailed information concerning these investments and their related risks is
contained in each Fund's Statement of Additional Information.
BANK OBLIGATIONS. The Cash Reserve 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 Cash
Reserve 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 Cash Reserve 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, the 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.
GOVERNMENT SECURITIES. Government Securities in which the Funds may invest
include Treasury Bills, Treasury Notes and Treasury Bonds; other obligations
that are supported by the full faith and credit of the United States Treasury,
such as Government National Mortgage Association pass-through certificates;
obligations that are supported by the right of the issuer to borrow from the
Treasury, such as securities of Federal Home Loan Banks; and obligations that
are supported only by the credit of the instrumentality, such as Federal
National Mortgage Association bonds.
REPURCHASE AGREEMENTS. Each Fund may agree to purchase money market
instruments from financial institutions such as banks and broker-dealers subject
to the seller's agreement to repurchase them at an agreed-upon date and price
('repurchase agreements'). The repurchase price generally equals
8
<PAGE>
<PAGE>
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the securities
underlying the repurchase agreement). Default by a seller, if the Fund is
delayed or prevented from exercising its rights to dispose of the collateral
securities, could expose the Fund to possible loss, including the risk of a
possible decline in the value of the underlying securities during the period
while the Fund seeks to assert its rights thereto. Repurchase agreements are
considered to be loans by the Fund under the 1940 Act.
WHEN-ISSUED SECURITIES. Each Fund may purchase portfolio securities on a
'when-issued' basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. A Fund
will generally not pay for such securities or start earning interest on them
until they are received. Securities purchased on a when-issued basis are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. Each 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 Funds do
not intend to purchase when-issued securities for speculative purposes but only
in furtherance of their investment objectives.
STAND-BY COMMITMENTS. The Tax Exempt Fund may acquire 'stand-by commitments'
with respect to Municipal Securities held in its portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at the Fund's option, specified
Municipal Securities at a specified price. The principal risk of a stand-by
commitment is that the writer of a commitment may default on its obligation to
repurchase the securities acquired by it. The Fund intends to enter into
stand-by commitments only with brokers, dealers and banks that, in the opinion
of the investment adviser, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the investment adviser
and sub-investment adviser will review periodically relevant financial
information concerning the issuer's assets, liabilities and contingent claims.
The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes.
THIRD PARTY PUTS. The Tax Exempt Fund may purchase long-term fixed rate bonds
that have been coupled with an option granted by a third party financial
institution allowing the Fund at specified intervals to tender (or 'put') the
bonds to the institution and receive the face value thereof (plus accrued
interest). The Fund receives a short-term rate of interest (which is
periodically reset), and the interest rate differential between that rate and
the fixed rate on the bond is retained by the financial institution. The
financial institution does not provide credit enhancement, and in the event that
there is a default in the payment of principal or interest, or downgrading of a
bond to below investment grade, or a loss of the bond's tax-exempt status, the
put option will terminate automatically, the risk to the Fund will be that of
9
<PAGE>
<PAGE>
holding such a long-term bond and the dollar-weighted average maturity of the
Fund's portfolio would be adversely affected. See the Fund's Statement of
Additional Information, 'Investment Policies -- Additional Information and
Policies.'
SPECIAL CONSIDERATIONS AND RISK FACTORS RELATING TO THE TAX EXEMPT FUND. In
seeking to achieve its investment objective the Tax Exempt Fund may invest all
or any part of its assets in Municipal Securities which are industrial
development bonds. Moreover, although the Tax Exempt 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
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 Exempt 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.
As a non-diversified mutual fund, the Tax Exempt Fund may invest a greater
proportion of its assets in the obligations of a smaller number of issuers and,
as a result, will be subject to greater credit risk with respect to its
portfolio securities. In the opinion of the Fund's adviser, any risk to the Fund
should be limited by its intention to continue to conduct its operations so as
to qualify as a 'regulated investment company' for purposes of the Internal
Revenue Code of 1986, as amended (the 'Code'), and by its policies restricting
investments to obligations with short-term maturities and high quality credit
ratings.
The Tax Exempt Fund's ability to achieve its investment objective is
dependent upon the ability of the issuers of New York Municipal Securities to
meet their continuing obligations for the payment of principal and interest. New
York State and New York City face long-term economic problems that could
seriously affect their ability and that of other issuers of New York Municipal
Securities to meet their financial obligations.
Certain substantial issuers of New York Municipal Securities (including
issuers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. In
10
<PAGE>
<PAGE>
recent years, several different issues of municipal securities of New York State
and its agencies and instrumentalities and of New York City have been downgraded
by S&P and Moody's. On the other hand, strong demand for New York Municipal
Securities has at times had the effect of permitting New York Municipal
Securities to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated municipal
obligations issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers of New York Municipal
Securities could result in defaults or declines in the market values of those
issuers' existing obligations and, possibly, in the obligations of other issuers
of New York Municipal Securities. Although as of the date of this Prospectus, no
issuers of New York Municipal Securities are in default with respect to the
payment of their municipal securities, the occurrence of any such default could
affect adversely the market values and marketability of all New York Municipal
Securities and, consequently, the net asset value of the Fund's portfolio.
Other considerations affecting the Tax Exempt Fund's investments in New York
Municipal Securities are summarized in its Statement of Additional Information.
INVESTMENT GUIDELINES
- --------------------------------------------------------------------------------
Each Fund may invest up to an aggregate of 10% of its total assets in
illiquid securities with contractual or other restrictions on resale and other
instruments which are not readily marketable. Each Fund is also authorized to
borrow and to enter into reverse repurchase agreements in an amount of up to 10%
of its total assets for temporary or emergency purposes, but not for leverage,
and to pledge its assets to the same extent in connection with such borrowings.
Whenever borrowings exceed 5% of the value of a Fund's total assets, the Fund
will not make any additional investments (including roll-overs). A more detailed
description of these policies, together with an enumeration of additional
investment restrictions that each Fund has adopted and that cannot be changed
without the approval of the holders of a majority of the Fund's outstanding
shares, is contained in each Fund's Statement of Additional Information.
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER. Each Fund employs Warburg, Pincus Counsellors, Inc.
('Warburg') as investment adviser to the Fund. In its Advisory Agreement with
each Fund, Warburg has agreed to be responsible, subject to the supervision and
direction of the Board, for the Fund's investment program, including decisions
concerning: (i) the specific types of securities to be held by the Fund and the
proportion of the Fund's assets that should be allocated to such investments
during particular market cycles, (ii) the specific issuers whose securities will
be purchased or sold by the Fund, (iii) the maximum maturity (under one year) of
its portfolio investments, (iv) the appropriate average weighted maturity of its
portfolio in light of current
11
<PAGE>
<PAGE>
market conditions and, with respect to the Tax Exempt Fund, (v) the extent to
which taxable securities will be purchased for and held by the Tax Exempt Fund
and (vi) the extent to which securities other than New York Municipal Securities
will be purchased for and held by the Tax Exempt Fund. In addition, Warburg has
agreed to supervise the performance by the sub-investment adviser of the
functions described below.
For the services provided pursuant to the Advisory Agreement, Warburg is
entitled to receive a fee, computed daily and payable monthly, at the annual
rate of .25 of 1.00% of the value of each Fund's average daily net assets. The
advisory agreement between each Fund and Warburg provides that Warburg will
reimburse the Fund to the extent certain expenses that are described in the
Statement of Additional Information exceed applicable state expense limitations.
Warburg 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 the
Fund. For the year ended February 29, 1996, the Cash Reserve Fund and the Tax
Exempt Fund paid Warburg a fee after waivers at the rate of .18% and .14%,
respectively, of each Fund's net assets.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of May 31, 1996,
Warburg managed approximately $16.3 billion of assets, including approximately
$9.7 billion of investment company assets. Incorporated in 1970, Warburg is a
wholly owned subsidiary of Warburg, Pincus Counsellors G.P. ('Warburg G.P.'), a
New York general partnership. E.M. Warburg, Pincus & Co., Inc. ('EMW') controls
Warburg through its ownership of a class of voting preferred stock of Warburg.
Warburg G.P. has no business other than being a holding company of Warburg and
its subsidiaries. Warburg's address is 466 Lexington Avenue, New York, New York
10017-3147.
SUB-INVESTMENT ADVISER AND ADMINISTRATOR. PNC Institutional Management
Corporation ('PIMC'), a wholly owned subsidiary of PNC Bank, National
Association ('PNC'), serves as each Fund's sub-investment adviser and
administrator. PIMC was organized in 1977 by PNC to perform advisory services
for investment companies and has its principal offices at 400 Bellevue Parkway,
Wilmington, Delaware 19809. As of May 31, 1996, PIMC served as investment
adviser to 34 mutual fund portfolios and as sub-investment adviser to 9 mutual
funds, having total assets exceeding $27.0 billion.
As sub-investment adviser and administrator, PIMC has agreed to implement
each Fund's investment program as determined by the Board and Warburg. PIMC will
supervise the day-to-day operations of the 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. As
12
<PAGE>
<PAGE>
compensation therefor, each Fund has agreed to pay PIMC a fee computed daily and
payable monthly at an annual rate of .25 of 1.00% of the value of each Fund's
average daily net assets. For the year ended February 29, 1996, the Cash Reserve
Fund and the Tax Exempt Fund paid PIMC a fee after waivers at the rate of .15%
and .09%, respectively, of each Fund's net assets.
CO-ADMINISTRATOR. The Funds employ Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a
co-administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in other regulatory filings
as necessary and monitoring and developing compliance procedures for the Funds.
As compensation, each Fund pays to Counsellors Service a fee calculated at an
annual rate of .10% of that Fund's average daily net assets.
CUSTODIAN. PNC serves as the custodian of each Fund's assets. PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101.
TRANSFER AGENT. State Street Bank and Trust Company ('State Street') serves
as shareholder servicing agent, transfer agent and dividend disbursing agent for
the Funds. State Street has delegated to Boston Financial Data Services, Inc., a
50% owned subsidiary ('BFDS'), responsibility for most shareholder servicing
functions. State Street's principal business address is 225 Franklin Street,
Boston, Massachusetts 02110. BFDS's principal business address is 2 Heritage
Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities Inc. ('Counsellors Securities') serves as
distributor of the shares of the Funds. Counsellors Securities is a wholly owned
subsidiary of Warburg and is located at 466 Lexington Avenue, New York, New York
10017-3147. No compensation is payable by each Fund to Counsellors Securities
for its distribution services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Funds, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to its Board. The Boards set broad
policies for each Fund and choose its officers. A list of the Directors and
Officers of each Fund and a brief statement of their present positions and
13
<PAGE>
<PAGE>
principal occupations during the past five years is set forth in the Statement
of Additional Information of each Fund.
HOW TO OPEN AN ACCOUNT
- --------------------------------------------------------------------------------
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 927-2874. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information (i) about investing in
the Cash Reserve Fund through a tax-deferred retirement plan, such as an
Individual Retirement Account ('IRA') or a Simplified Employee Pension IRA
('SEP-IRA'), or (ii) about opening a Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act ('UGMA') account in the Cash Reserve Fund, an investor
should telephone Warburg Pincus Funds at (800) 927-2874 or write to Warburg
Pincus Funds at the address set forth above. Investors should consult their own
tax advisers about the establishment of retirement plans and UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares of each Fund may be purchased either by mail or, with special advance
instructions, by wire.
BY MAIL. If the investor desires to purchase shares by mail, a check or money
order made payable to the Fund or Warburg Pincus Funds (in U.S. currency) should
be sent along with the completed account application to Warburg Pincus Funds
through its distributor, Counsellors Securities Inc., at the address set forth
above. Checks payable to the investor and endorsed to the order of the Fund or
Warburg Pincus Funds will not be accepted as payment and will be returned to the
sender. If payment is received in proper form by the close of regular trading on
the New York Stock Exchange (the 'NYSE') (currently 4:00 p.m. Eastern time) on a
day that the Fund calculates its net asset value (a 'business day'), the
purchase will be made at the Fund's net asset value calculated at the end of
that day. If payment is received after the close of regular trading on the NYSE,
the purchase will be effected at the Fund's net asset value next determined
after payment has been received. Checks or money orders that are not in proper
form or that are not accompanied or preceded by a complete account application
will be returned to the sender. Shares purchased by check or money order are
entitled to receive dividends and distributions beginning on the day after
payment has
14
<PAGE>
<PAGE>
been received. Checks or money orders in payment for shares of more than one
Warburg Pincus Fund should be made payable to Warburg Pincus Funds and should be
accompanied by a breakdown of amounts to be invested in each fund. If a check
used for purchase does not clear, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred. For a description of the
manner of calculating the Fund's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase shares in a Fund by wiring funds from
their banks. Telephone orders by wire will not be accepted until a completed
account application in proper form has been received and an account number has
been established. Investors should place an order with the Fund prior to wiring
funds by telephoning (800) 927-2874. Federal funds may be wired to Counsellors
Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Insert Warburg Pincus fund name(s) here]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
If a telephone order is received before 12:00 p.m. (Eastern time) and
payment by wire is received on the same day in proper form in
accordance with instructions set forth above, the purchase will be executed at
noon and shares are entitled to dividends and distributions beginning on that
day. If payment by wire is received in proper form before 12:00 p.m.
without a prior telephone order, that purchase and any telephone orders
placed after 12:00 p.m. for which payment by wire is received on the same
day in proper form, will be priced at the net asset value of the Fund as of
4:00 p.m. on that day and is entitled to dividends and distributions
beginning the next business day. Payment for orders that are not accepted will
be returned to the prospective investor after prompt inquiry. If a telephone
order is placed and payment by wire is not received on the same day, the Fund
will cancel the purchase and the investor may be liable for losses or fees
incurred.
The minimum initial investment in each Fund is $1,000 and the minimum
subsequent investment is $100. For retirement plans and UGMA accounts in the
Cash Reserve Fund, the minimum initial investment is $500. Subsequent
minimum investments can be as low as $50 under the Automatic Monthly
Investing Plan described below. The Fund reserves the right to change
the initial and subsequent investment minimum requirements at any time. In
addition, the Fund may, in its sole discretion, waive the initial and
subsequent investment minimum requirements with respect to investors who
are employees of EMW or its affiliates or persons with whom Warburg has
entered into an investment advisory agreement. Existing investors will be
15
<PAGE>
<PAGE>
given 15 days' notice by mail of any increase in investment minimum
requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Funds
are not normally issued.
PURCHASES THROUGH INTERMEDIARIES. The Funds understand that some
broker-dealers (other than Counsellors Securities), financial institutions,
securities dealers and other industry professionals may impose certain
conditions on their clients or customers that invest in the Funds, which are in
addition to or different than those described in this Prospectus, and may charge
their clients direct fees. Certain features of the Funds, such as the initial
and subsequent minimums, redemption fees and certain trading restrictions, may
be modified or waived in these programs, and administrative charges may be
imposed for the services rendered. Therefore, a client or customer should
contact the organization acting on his behalf concerning the fees (if any)
charged in connection with a purchase or redemption of Fund shares and should
read this Prospectus in light of the terms governing his accounts with the
organization. These organizations will be responsible for promptly transmitting
client or customer purchase and redemption orders to the Funds in accordance
with their agreements with clients or customers. Certain organizations that have
entered into agreements with a Fund or its agent may enter confirmed purchase
orders on behalf of customers, with payment to follow no later than the Fund's
pricing on the following business day. If payment is not received by such time,
the organization could be held liable for resulting fees or losses.
For administration, subaccounting, transfer agency and/or other services,
Counsellors Securities or its affiliates may pay certain financial
institutions, broker-dealers and recordkeeping organizations ('Service
Organizations') with whom it enters into agreements up to .15% (the
'Service Fee') of the average annual value of accounts maintained by such
Service Organizations with a Fund. A portion of the Service Fee may be
borne by a Fund as a transfer agency fee. In addition, a Service
Organization may directly or indirectly pay a portion of its Service Fee to
a Fund's custodian or transfer agent for costs related to accounts of the
Service Organizations' clients or customers. The Service Fee payable to any one
Service Organization is determined based upon a number of factors, including
the nature and quality of services provided, the operations processing
requirements of the relationship and the standardized fee schedule of the
Service Organization.
16
<PAGE>
<PAGE>
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders
to authorize a Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account application and include a voided, unsigned check from the bank
account to be debited. Only an account maintained at a domestic financial
institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information, or
contact Warburg Pincus Funds at (800) 927-2874 for information or to modify or
terminate the program. Investors should allow a period of up to 30 days in order
to implement an automatic investment program. The failure to provide complete
information could result in further delays.
HOW TO REDEEM AND EXCHANGE SHARES
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Shares of the Funds may either be redeemed by mail or by telephone. Investors
should realize that in using the telephone redemption and exchange option, you
may be giving up a measure of security that you may have if you were to redeem
or exchange your shares in writing. If an investor desires to redeem his shares
by mail, a written request for redemption should be sent to Warburg Pincus Funds
at the address indicated above under 'How to Open an Account.' An investor
should be sure that the redemption request identifies the Fund, the number of
shares to be redeemed and the investor's account number. In order to change the
bank account or address designated to receive the redemption proceeds, the
investor must send a written request (with signature guarantee of all investors
listed on the account when such a change is made in conjunction with a
redemption request) to Warburg Pincus Funds. Each mail redemption request must
be signed by the registered owner(s) (or his legal representative(s)) exactly as
the shares are registered. If an investor has applied for the telephone
redemption feature on his account application, he may redeem his shares by
calling Warburg Pincus Funds at (800) 927-2874 between 9:00 a.m. and 4:00 p.m.
(Eastern time) on any business day. An investor making a telephone withdrawal
should state (i) the name of the Fund, (ii) the account number of the Fund,
(iii) the name of the investor(s) appearing on the Fund's records, (iv) the
amount to be withdrawn and (v) the name of the person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No
17
<PAGE>
<PAGE>
Fund currently imposes a service charge for effecting wire transfers but each
Fund reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although each Fund will
redeem shares purchased by check or through the Automatic Investment Program
before the funds or check clear, payments of the redemption proceeds will be
delayed for five days (for funds received through the Automatic Investment
Program) or 10 days (for check purchases). Investors should consider purchasing
shares using a certified or bank check or money order if they anticipate an
immediate need for redemption proceeds.
Shares are redeemed at the net asset value per share next determined after
receipt of a redemption order by Warburg Pincus Funds. Except as noted above,
redemption proceeds will normally be mailed or wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect a Fund, each
Fund reserves the right to pay the redemption proceeds within seven days after
the redemption order is effected. Furthermore, each Fund may suspend the right
of redemption or postpone the date of payment upon redemption (as well as
suspend or postpone the recordation of an exchange of shares) for such periods
as are permitted under the 1940 Act.
Although each Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid upon redemption may be more or less
than the amount invested depending upon a share's net asset value at the time of
redemption. If an investor redeems all the shares in his account, all dividends
and distributions declared up to and including the date of redemption are paid
along with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less than
$750 ($250 in the case of an IRA or UGMA account), each Fund reserves the right
to redeem the shares in that account at net asset value. Prior to any
redemption, the Fund will notify an investor in writing that this account has a
value of less than the minimum. The investor will then have 60 days to make an
additional investment before a redemption will be processed by the Fund.
Redemption By Check. An individual investor who is the record owner of
Fund shares may request a supply of checks by making the appropriate election
on his account application. Checks may be made payable to the order of any
person in any amount not less than $500. When a check is presented to
State Street for payment, State Street, as agent for the investor, causes the
relevant Fund to redeem a sufficient number of shares in the investor's account
to cover the amount of the check.
Investors are entitled to receive dividends on the shares to be
redeemed through the day the check is presented to State Street for
payment. If an investor owns insufficient shares to cover a check, the check
will be returned
18
<PAGE>
<PAGE>
to the investor marked 'insufficient funds.' Cancelled checks will be returned
to the investor. Each Fund reserves the right to terminate or modify the
check redemption procedure at any time, to impose a service charge or to
charge for checks. Each Fund may also charge an investor's account for
returned checks and for effecting stop orders.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither a
Fund nor its agents will be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. Reasonable procedures will
be employed on behalf of each Fund to confirm that instructions communicated by
telephone are genuine. Such procedures include providing written confirmation of
telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $250 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the Plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange shares of a Fund for shares of
the other Fund or for Common Shares of another Warburg Pincus Fund at their
respective net asset values. Exchanges may be effected by mail or by telephone
in the manner described under 'Redemption of Shares' above. If an exchange
request is received by Warburg Pincus Funds or their agent prior to the close of
regular trading on the NYSE, the exchange will be made at each Fund's net asset
value determined at the end of that business day. Exchanges may be effected
without a sales charge but must satisfy the minimum dollar amount necessary for
new purchases. Due to the costs involved in effecting exchanges, each Fund
reserves the right to refuse to honor more than three exchange requests by a
shareholder in any 30-day period. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders. Currently,
exchanges may be made between the Funds and with the following other funds:
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
WARBURG PINCUS TAX-FREE FUND -- a bond fund seeking maximum current income
exempt from federal income taxes, consistent with preservation of capital;
19
<PAGE>
<PAGE>
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income and,
secondarily, capital appreciation by investing in a diversified portfolio of
fixed-income securities;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a portfolio
consisting of investment grade fixed-income securities of governmental and
corporate issuers denominated in various currencies, including U.S. dollars;
WARBURG, PINCUS BALANCED FUND -- a fund seeking maximum total return through a
combination of long-term growth of capital and current income consistent with
preservation of capital through diversified investments in equity and debt
securities;
WARBURG PINCUS GROWTH & INCOME FUND -- an equity fund seeking long-term growth
of capital and income and a reasonable current return;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing principally in equity securities of
medium-sized domestic companies;
WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of non-United
States issuers;
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets;
WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term growth of
capital by investing primarily in equity securities of Japanese issuers; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the Japanese
over-the-counter market.
The exchange privilege is available to shareholders residing in any state in
which the shares being acquired may legally be sold. When an investor effects an
exchange of shares, the exchange is treated for federal income tax
20
<PAGE>
<PAGE>
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange shares of a
Fund for shares in another Warburg Pincus Fund should review the prospectus of
the other fund prior to making an exchange. For further information regarding
the exchange privilege or to obtain a current prospectus for another Warburg
Pincus Fund, an investor should contact Warburg Pincus Funds at (800) 927-2874.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Net investment income is declared daily and paid monthly. Net
investment income earned on weekends and when the New York Stock Exchange (the
'NYSE') is not open will be computed as of the next business day. Distributions
of long-term capital gains, if any, generally are declared and paid annually at
the end of the Fund's fiscal year in which they are earned. Distributions of
short-term capital gains, if any, are declared and paid annually, at the end of
the fiscal year in the case of the Tax Exempt Fund, and periodically, as the
Board determines, in the case of the Cash Reserve Fund. Unless an investor
instructs a Fund to pay dividends or capital gains distributions in cash,
dividends and distributions will automatically be reinvested in additional
shares of the relevant Fund at net asset value. The election to receive
dividends in cash may be made on the account application or, subsequently, by
writing to Warburg Pincus Funds at the address set forth under 'How to Open an
Account' or by calling Warburg Pincus Funds at (800) 927-2874.
A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax. As long as the Tax Exempt Fund qualifies as a regulated investment company
and meets certain other Code requirements (including the requirement that at
least 50% of its assets are invested in tax-exempt obligations at the close of
each quarter of its taxable year), distributions of tax-exempt interest income
will be excluded from an investor's income for federal income tax purposes.
Such exempt interest dividends paid by the Tax Exempt Fund may be excluded by
investors from their gross incomes for federal income tax purposes, although (i)
such exempt interest dividends will be a tax preference
21
<PAGE>
item for purposes of the federal individual and corporate alternative minimum
taxes to the extent they are derived from Alternative Minimum Tax Securities and
(ii) all exempt interest dividends will be a component of the 'current earnings'
adjustment item for purposes of the federal corporate alternative minimum tax.
In addition, corporate investors may incur a greater federal environmental tax
liability through the receipt of Fund dividends and distributions. Investors who
are 'substantial users' (or 'related persons' of substantial users) within the
meaning of the Code of facilities financed by Alternative Minimum Tax Securities
should consult their tax advisers as to whether the Tax Exempt Fund is a
desirable investment.
Dividends paid by a Fund from its taxable net investment income (if any,
in the case of the Tax Exempt Fund) and distributions of any net short-term
capital gains (whether from tax-exempt or taxable obligations) are taxable to
investors as ordinary income, whether received in cash or reinvested in
additional shares of the Fund. As a general rule, an investor's gain or
loss on a sale or redemption of his Fund shares will be a long-term capital
gain or loss if he has held his shares for more than one year and will be
short-term capital gain or loss if he has held his shares for one year or
less. Each Fund does not expect to realize long-term capital gains and,
therefore, it is unlikely that any portion of the dividends or
distributions paid by a Fund will be taxable to investors as long-term
capital gains. An investor in the Tax Exempt Fund who redeems his shares
prior to the declaration of a dividend may lose tax exempt status on
accrued income attributable to tax exempt Municipal Securities. Investors may
be proportionately liable for taxes on income and gains of the Funds, but
investors not subject to tax on their income will not be required to pay tax
on amounts distributed to them. Each Fund's dividends and distributions
will not qualify for the dividends-received deduction allowed to
corporations. The Funds' investment activities should not result in
unrelated business taxable income to a tax exempt investor.
Exempt interest dividends derived from interest on qualifying New York
Municipal Securities will also be exempt from New York State and New York City
personal (but not corporate franchise) income taxes. The exclusion or exemption
of interest income for federal income tax purposes, or New York State or New
York City personal income tax purposes, in most cases does not result in an
exemption under the tax laws of any other state or local authority. Investors
who are subject to tax in other states or localities should consult their own
tax advisers about the taxation of dividends and distributions from the Tax
Exempt Fund by such states and localities.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. In the case of the Tax Exempt Fund, these
statements set forth the dollar amount of income excluded or exempt from federal
income taxes and exempt from New York State and New York City personal income
taxes, and the dollar amount, if any, subject to taxation. These statements also
designate the amount of exempt-interest dividends that is a specific preference
item for purposes of the federal individual and
22
<PAGE>
<PAGE>
corporate alternative minimum taxes. Each investor in the Cash Reserve Fund will
also receive, if applicable, various written notices after the close of the
Fund's prior taxable year with respect to certain dividends and distributions
which were received from the Fund during the Fund's prior taxable year.
Investors should consult their own tax advisers with specific reference to their
own tax situations, including their state and local taxes that may apply to
dividends and distributions received from the Cash Reserve Fund. In this regard,
investors should be aware that if a portion of any dividend is derived from
interest on United States government obligations, that portion may be subject to
tax by certain states, even though such interest, if received directly by an
investor, would be exempt from state income tax.
NET ASSET VALUE
- --------------------------------------------------------------------------------
Each Fund's net asset value per share is calculated at noon and as of the
close of regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each
business day, Monday through Friday, except on days when the NYSE is closed. The
NYSE is currently scheduled to be closed on New Year's Day, Washington's
Birthday, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of each Fund is computed by adding the value of
the Fund's assets, deducting liabilities and dividing the result by the number
of outstanding shares. Portfolio securities are valued on the basis of amortized
cost, which involves valuing a portfolio instrument at its cost initially and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time, a Fund may advertise its yield and effective yield and, in
the case of the Tax Exempt Fund, its tax equivalent yield. The yield of the Fund
refers to the income generated by an investment in the shares over a seven-day
period, which is then annualized. That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, assumes that income earned by an
investment in the Fund is reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax equivalent yield shows the taxable yield an investor in
the highest applicable tax bracket would have to earn to equal the Tax Exempt
Fund's tax-free yield after the imposition of federal, New York State and New
York City personal income taxes. The Tax Exempt Fund's tax equivalent yield is
calculated by dividing the Fund's tax-exempt yield by one minus the highest
level of the combined
23
<PAGE>
<PAGE>
federal, New York State and New York City tax rates. Yield, effective yield and
tax equivalent yield may be shown by means of schedules, charts or graphs.
Investors should note that yield, effective yield and tax equivalent yield
figures are based on historical earnings and are not intended to indicate future
performance. Each Fund's Statement of Additional Information describes the
method used to determine the Fund's yield. Current yield figures may be obtained
by calling Warburg Pincus Funds at (800) 927-2874.
In reports or other communications to investors or in advertising material, a
Fund may describe general economic and market conditions affecting the Fund. The
Fund may compare its performance with (i) that of other mutual funds as listed
in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or (ii) in the
case of the Tax Exempt Fund, an average of the yields of similar New York
tax-exempt money market funds based on information contained in Donoghue's Money
Market Fund Report, which is published weekly by the Donoghue Organization or
(iii) in the case of the Cash Reserve Fund, the Donoghue's Money Market Fund
Average, which is an average of all major taxable money market fund yields
published weekly by the Donoghue Organization or (iv) in each case, other
appropriate indexes of investment securities. Each Fund may also include
evaluations of the Fund published by nationally recognized ranking services and
by financial publications that are nationally recognized, such as The Wall
Street Journal, Investor's Daily, Money, Inc., Institutional Investor, Barron's,
Fortune, Forbes, Morningstar, Inc. and Business Week. In addition, each Fund may
from time to time compare its expense ratio to that of investment companies with
similar objectives and policies, based on data generated by Lipper Analytical
Services, Inc. or similar investment services that monitor mutual funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION. Each Fund was incorporated on November 15, 1984 under the laws
of the State of Maryland as 'Counsellors Cash Reserve Fund, Inc.' and as
'Counsellors New York Tax Exempt Fund, Inc.' On October 27, 1995,
the Cash Reserve Fund and the Tax Exempt Fund each filed an amendment to
its charter in order to change its name to 'Warburg, Pincus Cash Reserve
Fund, Inc.' and 'Warburg, Pincus New York Tax Exempt 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 one billion shares are designated Advisor Shares. Under
each Fund's charter documents, the Board has the power to classify or
reclassify any unissued shares of the Fund into one or more additional classes
by setting or changing in any one or more respects their relative rights,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption. The Board may similarly classify or
reclassify any class of shares into one or more series and, without shareholder
approval, may increase the number of authorized shares of the Fund. Since no
Advisor
24
<PAGE>
<PAGE>
Shares are outstanding for either of the Funds, references to 'shares' in this
prospectus refer solely to the common shares of a Fund unless the context
otherwise requires.
MULTI-CLASS STRUCTURE. Although neither Fund currently does so, each Fund is
authorized to offer a separate class of shares, the Advisor Shares, pursuant to
a separate prospectus. Individual investors could only purchase Advisor Shares
through institutional shareholders of record, broker-dealers, financial
institutions, depository institutions, retirement plans and other financial
intermediaries. Shares of each class would represent equal pro rata interests in
the 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 a Fund. Lionel I. Pincus
may be deemed to be a controlling person of each Fund because he may be deemed
to possess or share investment power over shares owned by clients of Warburg and
certain other entities.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). Each Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by a Fund may be obtained by
calling Warburg Pincus Funds at (800) 927-2874.
The prospectuses of the Funds are combined in this Prospectus. Each Fund
offers only its own shares, yet it is possible that a Fund might become liable
for a misstatement, inaccuracy or omission in this Prospectus with regard to the
other Fund.
25
<PAGE>
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY EACH FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
26
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses..................................................... 2
Financial Highlights.................................................... 3
Investment Objectives and Policies...................................... 5
General................................................................. 6
Portfolio Investments................................................... 8
Investment Guidelines................................................... 11
Management of the Funds................................................. 11
How to Open an Account.................................................. 14
How to Purchase Shares.................................................. 14
How to Redeem and Exchange Shares....................................... 17
Dividends, Distributions and Taxes...................................... 21
Net Asset Value......................................................... 23
Performance............................................................. 23
General Information..................................................... 24
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
WPCRNY-1-0796
<PAGE>1
STATEMENT OF ADDITIONAL INFORMATION
July 1, 1996
WARBURG PINCUS CASH RESERVE FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information call: (800) WARBURG
Contents
Investment Objective....................................................1
Investment Policies.....................................................1
Management of the Fund..................................................6
Additional Purchase and Redemption Information..........................13
Exchange Privilege......................................................13
Additional Information Concerning Taxes.................................14
Determination of Yield..................................................16
Independent Accountants and Counsel.....................................16
Miscellaneous...........................................................17
Financial Statements....................................................17
Appendix Description of Commercial Paper Ratings.......................1
Report of Coopers & Lybrand L.L.P., Independent
Accountants....................................................A-2
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus of Warburg Pincus Cash Reserve Fund (the "Fund")
and Warburg Pincus New York Tax Exempt Fund dated July 1, 1996 and is
incorporated by reference in its entirety into that Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment in
shares of the Fund should be made solely upon the information contained herein.
Copies of the Fund's Prospectus and information regarding the Fund's current
yield may be obtained by calling Warburg Pincus Funds at (800) 927-2874.
Information regarding the status of shareholder accounts may be obtained by
calling Warburg Pincus Funds at (800) 927-2874 or by writing to Warburg Pincus
Funds, P.O. Box 9030, Boston, Massachusetts 02205-9030.
<PAGE>2
0126955.03
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide investors
with high current income consistent with liquidity and stability of principal.
INVESTMENT POLICIES
The following policies supplement the descriptions of the
Fund's investment objective and policies in the Prospectus.
U.S. Government Obligations. Examples of the types of United
States government obligations that may be held by the Fund include, in addition
to United States Treasury Bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks and the Maritime
Administration.
For purposes of the Fund's investment policies with respect to
bank obligations, the assets of a bank or savings institution will be deemed to
include the assets of its domestic and foreign branches. Obligations of foreign
branches of United States banks and of foreign banks may be general obligations
of the parent bank in addition to the issuing bank, or may be limited by the
terms of a specific obligation and by government regulation. The Fund's
investments in the obligations of foreign branches of United States banks and of
foreign banks may subject the Fund to investment risks that are different in
some respects from those of investments in obligations of United States domestic
issuers. Such risks include future political and economic developments, the
possible imposition of foreign withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the 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. In addition, foreign branches of United States banks and foreign
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of United States banks. The Fund will acquire
securities issued by foreign branches of United States banks or foreign banks
only when the Fund's investment adviser and sub-investment adviser believe that
the risks associated with such investments are minimal.
Variable Rate Master Demand Notes. When purchasing variable
rate master demand notes, the Fund's investment adviser and sub-investment
adviser will consider the assets, credit support, earning power, cash flows
and other liquidity ratios of the issuers of such notes and will continuously
monitor their financial status to meet payment on demand. In
<PAGE>3
the event an issuer of a variable rate master demand note defaults 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. 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.
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.
Borrowings. The 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, United States government securities or other high-grade
debt obligations having a value equal to the repurchase price (including accrued
interest) and will subsequently monitor the account to ensure that such
equivalent value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Fund may decline below the
repurchase price of those securities. Reverse repurchase agreements are
considered to be borrowings by the Fund under the Investment Company Act of
1940, as amended (the "1940 Act").
When-Issued Securities. As stated in the Prospectus, the Fund
may purchase portfolio securities on a "when-issued" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When the Fund
agrees to purchase when-issued securities, its custodian will set aside cash or
certain liquid, high-grade debt obligations in a segregated account equal to the
amount of the commitment. Normally, the custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case the Fund may be
required subsequently to place additional assets in the segregated account in
order to ensure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that the Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash. Because the Fund will set
aside cash and liquid assets to satisfy its purchase commitments in the manner
described, the Fund's liquidity and ability to manage its portfolio might be
affected in the event its commitments to purchase when-issued securities ever
exceeded 25% of the value of its assets.
When the 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.
<PAGE>4
Other Investment Limitations
The investment limitations numbered 1 through 10 may not be
changed without the affirmative vote of the holders of a majority of the 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 11, 12 and 13 may be
changed by a vote of the Fund's Board of Directors (the "Board") at any time.
The Fund may not:
1. Invest in common stocks, preferred stocks, warrants, other
equity securities, corporate bonds or indentures, state bonds, municipal bonds
or industrial revenue bonds.
2. 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.
3. 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.
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.
<PAGE>5
7. Purchase securities on margin, make short sales of
securities or maintain a short position.
8. Write or sell puts, calls, straddles, spreads or
combinations thereof.
9. 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.
10. Purchase securities of other investment companies
except in connection with a merger, consolidation, acquisition or
reorganization.
11. Invest more than 5% of the value of its total assets in
the securities of issuers having a record, including predecessors, of fewer
than three years of continual operations, except obligations issued or
guaranteed by the United States government, its agencies or instrumentalities.
12. Invest more than 10% of the value of the Fund's total
assets in securities which may be illiquid because of legal or contractual
restrictions on resale or securities for which there are no readily available
market quotations. For purposes of this limitation, repurchase agreements
providing for settlement in more 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.
13. Invest in oil, gas or mineral leases.
The Fund has agreed, for purposes of compliance with certain
state securities regulations, that so long as its shares are registered and
are being offered in such states, it will not (i) purchase commercial paper,
including variable rate amount master demand notes, of any one issuer if
immediately after such purchase more than 5% of the value of its total assets
would be invested in the commercial paper of such issuer or (ii) invest more
than 5% of the value of its total assets in securities which may be illiquid
or for which there are no readily available market quotations. These policies
are subject to change without the affirmative vote of the holders of a
majority of the Fund's outstanding shares.
Certain non-fundamental investment limitations are currently
required by one or more states in which shares of the Fund are sold. These may
be more restrictive than the limitations set forth above. Should the Fund
determine that any such commitment is no longer in the best interest of the
Fund and its shareholders, the Fund will revoke the commitment by terminating
the sale of Fund shares in the state involved. In addition, the relevant state
may change or eliminate its policy regarding such investments.
If a percentage restriction (other than the percentage
limitation set forth in No. 3 above) is adhered to at the time of an
investment, a later increase or decrease in the
<PAGE>6
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
The Fund's portfolio securities are valued on the basis of
amortized cost. Under this method, the Fund values a portfolio security at cost
on the date of purchase and thereafter assumes a constant value of the security
for purposes of determining net asset value, which normally does not change in
response to fluctuating interest rates. Although the amortized cost method seems
to provide certainty in portfolio valuation, it may result in periods during
which values, as determined by amortized cost, are higher or lower than the
amount the Fund would receive if it sold the securities. In connection with
amortized cost valuation, the Board has established procedures that are intended
to stabilize the Fund's net asset value per share for purposes of sales and
redemptions at $1.00. These procedures include review by the Board, at such
intervals as it deems appropriate, to determine the extent, if any, to which the
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1%,
the Board will promptly consider what action, if any, should be initiated. If
the Board believes that the amount of any deviations from the Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to investors or existing shareholders, it will take such steps as it
considers appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include selling
portfolio instruments prior to maturity; shortening the Fund's average portfolio
maturity; withholding or reducing dividends; redeeming shares in kind; reducing
the number of the Fund's outstanding shares without monetary consideration; or
utilizing a net asset value per share determined by using available market
quotations.
Portfolio Transactions
Warburg, Pincus Counsellors, Inc. ("Warburg") is responsible
for establishing, reviewing, and, where necessary, modifying the Fund's
investment program to achieve its investment objective. PNC Institutional
Management Corporation ("PIMC") generally will select specific portfolio
investments and effect transactions for the 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. PIMC 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, PIMC may, in its discretion,
effect transactions in portfolio securities with dealers who provide the Fund
with research advice or other services.
Investment decisions for the Fund concerning specific
portfolio securities are made independently from those for other clients advised
by PIMC. Such other investment clients may invest in the same securities as the
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions are averaged as to
price, and available investments allocated as to amount, in a manner which PIMC
believes to be equitable to each client, including the Fund. In some instances,
this
<PAGE>7
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, PIMC may aggregate the securities to be sold or purchased
for the Fund with those to be sold or purchased for such other investment
clients in order to obtain best execution.
In no instance will portfolio securities be purchased from or
sold to Warburg, PIMC, PNC Bank, National Association ("PNC") or Counsellors
Securities Inc. ("Counsellors Securities") or any affiliated person of such
companies, except pursuant to an exemption received from the Securities and
Exchange Commission (the "SEC").
The Fund does not intend to seek profits through short-term
trading. The Fund's annual portfolio turnover will be relatively high but the
Fund's portfolio turnover is not expected to have a material effect on its net
income. The Fund's portfolio turnover is expected to be zero for regulatory
reporting purposes.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers,
their addresses, present positions and principal occupations during the past
five years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard N. Cooper(62).....................................Director
Harvard University National Intelligence Counsel; Professor
1737 Cambridge Street at Harvard University; Director or
Cambridge, Massachusetts 02138 Trustee of Circuit City Stores, Inc. (retail
electronics and appliances) and Phoenix Home Life
Insurance Co.
Donald J. Donahue (71)....................................Director
99 Indian Field Road Chairman of Magma Copper Company
Greenwich, Connecticut 06830 since January 1987; Director or Trustee of Northeast
Utilities, GEV Corporation and Signet Star Reinsurance
Company; Chairman and Director of NAC Holdings from
September 1990-June 1993.
</TABLE>
<PAGE>8
<TABLE>
<S> <C>
Jack W. Fritz (69)........................................Director
2425 North Fish Creek Road Private investor; Consultant and Director of Fritz Broadcasting,
P.O. Box 483 Inc. and Fritz Communications (developers and operators of radio
Wilson, Wyoming 83014 stations); Director of Advo, Inc. (direct mail advertising).
John L. Furth* (65).......................................Director
466 Lexington Avenue Vice Chairman and Director of E.M. Warburg, Pincus & Co., Inc.
New York, New York 10017-3147 ("EMW"); Associated with EMW since 1970; Chief Executive Officer
of other investment companies advised by Warburg.
Thomas A. Melfe (64)......................................Director
30 Rockefeller Plaza Partner in the law firm of Donovan Leisure Newton & Irvine;
New York, New York 10112 Director of Municipal Fund for New York Investors, Inc.
Arnold M. Reichman* (48)..................................Director; Executive Vice President
466 Lexington Avenue Managing Director and Assistant Secretary of EMW; Associated with
New York, New York 10017-3147 EMW since 1984; Senior Vice President, Secretary and Chief
Operating Officer of Counsellors Securities; Officer of other
investment companies advised by Warburg.
Alexander B. Trowbridge (66)..............................Director
1155 Connecticut Avenue, N.W. President of Trowbridge
Suite 700 Partners, Inc. (business consulting) from January 1990-January
Washington, DC 20036 1994; President of the National Association of Manufacturers from
1980-1990; Director or Trustee of New England Mutual Life Insurance
Co., ICOS Corporation (biopharmaceuticals), P.H.H. Corporation
(fleet auto management; housing and plant relocation service), WMX
Technologies Inc. (solid and hazardous waste collection and disposal),
The Rouse Company (real estate development), SunResorts International
Ltd. (hotel and real estate management), Harris Corp. (electronics and
communications equipment), The Gillette Co. (personal care products)
and Sun Company Inc. (petroleum refining and marketing).
</TABLE>
- -----------------------
* Indicates a Director who is an "interested person" of the Fund as defined
in the 1940 Act.
<PAGE>9
<TABLE>
<S> <C>
Dale C. Christensen (49)..................................President
466 Lexington Avenue Co-Portfolio Manager of other
New York, New York 10017-3147 Warburg Pincus Funds; Managing Director of EMW;
Associated with EMW since 1989; Vice President at Citibank,
N.A. from 1985-1989; Vice President of Counsellors
Securities; President of other investment companies advised by
Warburg.
Eugene L. Podsiadlo (39)..................................Senior Vice President
466 Lexington Avenue Managing Director of EMW;
New York, New York 10017-3147 Associated with EMW since 1991; Vice President of
Citibank, N.A. from 1987-1991; Senior Vice President of
Counsellors Securities and officer of other investment companies
advised by Warburg.
Eugene P. Grace (43)......................................Vice President and Secretary
466 Lexington Avenue Associated with EMW since April
New York, New York 10017-3147 1994; Attorney-at-law from September 1989-April 1994;
life insurance agent, New York Life Insurance Company
from 1993-1994; General Counsel and Secretary, Home
Unity Savings Bank from 1991-1992; Vice President and
Chief Compliance Officer of Counsellors Securities;
Vice President and Secretary of other investment
companies advised by Warburg.
Stephen Distler (42)......................................Vice President and Chief
466 Lexington Avenue Financial Officer, Managing Director, Controller
New York, New York 10017-3147 and Assistant Secretary of EMW; Associated with EMW
since 1984; Treasurer of Counsellors Securities; Vice
President, Treasurer and Chief Accounting Officer or Vice
President and Chief Financial Officer of other investment
companies advised by Warburg.
</TABLE>
<PAGE>10
<TABLE>
<S> <C>
Howard Conroy (42)........................................Vice President, Treasurer and
466 Lexington Avenue Chief Accounting Officer
New York, New York 10017-3147 Associated with EMW since 1992,
Associated with Martin Geller, C.P.A. from
1990-1992, Vice President, Finance
with Gabelli/Rosenthal & Partners, L.P. until
1990; Vice President, Treasurer and Chief
Accounting Officer of other investment
companies advised by Warburg.
Janna Manes, Esq. (29)....................................Assistant Secretary
466 Lexington Avenue Associated with EMW since 1996; Associated
New York, New York 10017 with the law firm of Willkie Farr &
Gallagher from 1993-1996; Assistant
Secretary of other investment companies
advised by Warburg.
</TABLE>
No employee of Warburg, PIMC, PNC or PFPC Inc. ("PFPC") or any
of their affiliates receives any compensation from the Fund for acting as an
officer or Director of the Fund. Each Director who is not a director, officer or
employee of Warburg, PFPC or any of their affiliates receives an annual fee of
$2,000, and $500 for each meeting of the Board attended by him for his services
as Director and is reimbursed for expenses incurred in connection with his
attendance at Board meetings.
Directors' Compensation
- -----------------------
(for the fiscal year ended February 29, 1996)
<TABLE>
<CAPTION>
Total Total Annual Compensation from
Compensation from all Investment Companies
Name of Director* Fund Managed by Warburg
- ----------------- ----------------- -----------------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $4,000 $47,000
Donald J. Donahue $4,000 $47,000
Jack W. Fritz $4,000 $47,000
Arnold M. Reichman* None** None**
Thomas A. Melfe $4,000 $47,000
Alexander B. Trowbridge $4,000 $47,000
- --------------------
* Each Director also serves as a Director or Trustee of 19 other
investment companies advised by Warburg.
** Mr. Furth and Mr. Reichman are considered to be interested persons of
the Fund and Warburg, as defined under Section 2(a)19) of the 1940
Act, and, accordingly, receive no compensation from the Fund or any
other investment company managed by Warburg.
<PAGE>11
As of May 31, 1996, Directors and officers of the Fund as a
group owned of record less than 1% of the shares of the Fund's outstanding
common stock.
Investment Adviser, Sub-Investment Adviser and Administrator and
Co-Administrator
Warburg serves as investment adviser to the Fund, PIMC serves
as sub-investment adviser and administrator to the Fund and Counsellors Funds
Service, Inc. ("Counsellors Service") serves as co-administrator to the Fund
pursuant to written agreements (the "Advisory Agreement," the "Sub-Advisory
Agreement" and the "Co-Administration Agreement," respectively, and,
collectively, the "Agreements"). The services provided by and the fees payable
by the Fund to Warburg, PIMC and Counsellors Service under the respective
Agreements are described in the Prospectus. Prior to June 29, 1994, Counsellors
Service served as administrative services agent to the Fund pursuant to a
written agreement (the "Administrative Services Agreement").
Warburg and PIMC have agreed that if, in any fiscal year, the
expenses borne by the Fund exceed the applicable expense limitations imposed by
the securities regulations of any state in which shares of the Fund are
registered or qualified for sale to the public, they will each reimburse the
Fund for one-half of any excess to the extent required by such regulations.
Unless otherwise required by law, such reimbursement would be accrued and paid
on a monthly basis. The most stringent state expense limitation applicable to
the Fund currently requires reimbursement of expenses in any year that such
expenses exceed the lesser of 2.5% of the first $30 million of average net
assets, 2% of the next $70 million and 1.5% of the remaining average net assets.
During the fiscal years ended February 28, 1994, February 28,
1995 and February 29, 1996, the Fund incurred $733,302, $795,255 and $772,648,
respectively, in fees to each of Warburg and PIMC for services under the
Advisory Agreement and Sub-Advisory Agreement, respectively. For the same
periods, Warburg and PIMC voluntarily waived fees aggregating $357,204, $438,940
and $513,054, respectively, of which Warburg voluntarily waived $66,705, $73,215
and $205,222, respectively, and PIMC voluntarily waived $290,499, $365,725 and
$307,832, respectively. Under the Administrative Services Agreement or the
Co-Administration Agreement, as the case may be, $39,214, $316,605 and $309,059
was payable to Counsellors Service during the fiscal years ended February 28,
1994, February 28, 1995 and February 29, 1996, respectively, of which $159,051
was waived by Counsellors Service in 1995.
<PAGE>12
Banking Laws
Banking laws and regulations presently (i) prohibit a bank
holding company registered under the Federal Bank Holding Company Act of 1956
(the "Holding Company Act") or any bank or non-bank affiliate thereof from
sponsoring, organizing, controlling or distributing the shares of a registered,
open-end investment company continuously engaged in the issuance of its shares,
but (ii) do not prohibit such a holding company or affiliate from acting as
investment adviser, transfer agent or custodian to such an investment company.
PNC and PIMC are subject to such banking laws and regulations.
PIMC, PNC and the Fund have been advised by Messrs. Ballard,
Spahr, Andrews & Ingersoll that PIMC and PNC may perform the services for the
Fund contemplated by their respective agreements with the Fund and the
Prospectus without violation of applicable banking laws or regulations. Such
counsel have pointed out, however, that future changes in legal requirements
relating to the permissible activities of banks and their affiliates, as well as
future interpretations of present requirements, could prevent one or more of
them from continuing to perform services for the Fund. If PIMC or PNC were
prohibited from providing services to the Fund, the Board would select another
qualified firm. Any new sub-investment advisory agreement would be subject to
shareholder approval.
Custodian and Transfer Agent
PNC is custodian of the Fund's assets pursuant to a custodian
agreement (the "Custodian Agreement"). Under the Custodian Agreement, PNC (i)
maintains a separate account or accounts in the name of the Fund, (ii) holds and
transfers portfolio securities on account of the Fund, (iii) makes receipts and
disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities and (v) makes periodic reports to the Board concerning the Fund's
custodial arrangements. PNC is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
remains responsible for the performance of all its duties under the Custodian
Agreement and holds the Fund harmless from the acts and omissions of any
sub-custodian. PNC is an indirect wholly owned subsidiary of PNC Bank Corp., and
its principal business address is Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19101.
State Street Bank and Trust Company ("State Street") has
agreed to serve as the 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., a 50% owned
subsidiary ("BFDS"), responsibility for most shareholder servicing functions.
The principal business address of State Street is 225 Franklin Street,
<PAGE>13
Boston, Massachusetts 02110. BFDS's principal business address is 2 Heritage
Drive, Boston, Massachusetts 02171.
Distribution and Shareholder Servicing
The Fund may in the future enter into agreements
("Agreements") with institutions ("Institutions") to perform certain
distribution, shareholder servicing, administrative and accounting services
would be provided to the holders ("Customers") who are beneficial owners of
the Fund's Series 2 class of shares (the "Series 2 Shares"). See the
Prospectus, "Shareholder Servicing." The Fund's agreements with Institutions
with respect to Series 2 Shares will be governed by a Distribution Plan. The
Distribution Plan would require the Board, at least quarterly, to receive and
review written reports of amounts expended under the Distribution Plan and the
purposes for which such expenditures were made.
An Institution with which the Fund has entered into an
Agreement with respect to either its Common Shares or Series 2 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 Service Organization: (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 Statement of Additional Information in conjunction with the
Agreement and other literature describing the services and related fees that
would be provided by the an 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 portfolio
investments for the instruments of Institutions.
The Distribution Plan and 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 Service Plans ("Independent Directors"). Any material amendment
of the Distribution Plan or the 12b-1 Plan would require the approval of the
Board in the manner described above. The Distribution Plan may be amended to
increase materially the amount to be spent under the Plan without shareholder
approval of the relevant class of shares. The Distribution Plan or the 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.
Organization of the Fund
The Fund is incorporated in Maryland. See the Prospectus,
"General Information." All shareholders of the Fund, upon liquidation, will
participate ratably in the
<PAGE>14
Fund's net assets. Shares do not have cumulative voting rights, which means
that holders of more than 50% of the shares voting for the election of
Directors can elect all Directors. Shares are transferable but have no
preemptive, conversion or subscription rights.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Information on how to purchase and redeem Fund shares and how
such shares are priced is included in the Prospectus.
Under the 1940 Act, the 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 (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.
(The 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, the 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 intends to 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 the Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in the Fund, there
will be a reduction in the value of the shareholder's investment and continued
withdrawal payments may reduce the shareholder's investment and ultimately
exhaust it. Withdrawal payments should not be considered as income from
investment in the Fund. All dividends and distributions on shares in the Plan
are automatically reinvested at net asset value in additional shares of the
Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by
Warburg is available to investors in the Fund. The funds into which exchanges of
Common Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares
in a fund with a different investment objective when they believe that a shift
between funds is an appropriate
<PAGE>15
investment decision. This privilege is available to shareholders residing in
any state in which the Common Shares or Advisor Shares being acquired, as
relevant, may legally be sold. Prior to any exchange, the investor should
obtain and review a copy of the current prospectus of the relevant class of
each fund into which an exchange is being considered. Shareholders may obtain
a prospectus of the relevant class of the fund into which they are
contemplating an exchange from Counsellors Securities.
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. Warburg reserves the right to reject more than three
exchange requests by a shareholder in any 30-day period. The exchange privilege
may be modified or terminated at any time upon 60 days' notice to shareholders.
ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
The Fund has qualified and 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, the 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, the Fund must, among other things: (i) distribute to its
shareholders at least 90% of its taxable net investment income (for this purpose
consisting of taxable net investment income and net realized short-term capital
gains); (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; (iii) derive less than 30% of its annual
gross income from the sale or other disposition of securities, options, futures
or forward contracts held for less than three months; and (iv) 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. In
meeting these requirements, the Fund may be restricted in the selling of
securities held by the Fund for less
<PAGE>16
than three months and in the utilization of certain of the investment
techniques described above and in the Prospectus. 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 October 31 during
such year, together with any undistributed, untaxed amounts of ordinary income
and capital gains from the previous calendar year. The Fund expects to pay the
dividends and make the distributions necessary to avoid the application of
this excise tax.
Although the 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 the Fund's income
which is treated as earned in any such state or locality could be subject to
state and local tax. Any taxes paid by the Fund would reduce the amount of
income and gains available for distribution to shareholders.
Investors should be aware that it is possible that some
portion of the Fund's income from investment in obligations of foreign banks
could become subject to foreign taxes.
While the 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 the Fund to shareholders after the close of the Fund's
taxable year. Gain or loss, if any, recognized on the sale or other disposition
of shares of the Fund will be taxed as capital gain or loss if the shares are
capital assets in the shareholder's hands. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the shares have been held for more than
one year. If a shareholder sells or otherwise disposes of a share of the Fund
before holding it for more than six months, any loss on the sale or other
disposition of such share shall be treated as a long-term capital loss to the
extent of any capital gain dividends received by the shareholder with respect to
such share.
A shareholder of the 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 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.
<PAGE>17
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 (i) dividends and
distributions and (ii) the proceeds of any redemptions of Fund shares. 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.
DETERMINATION OF YIELD
From time to time, the Fund may quote its yield and effective
yield in advertisements or in reports and other communications to shareholders.
The Fund's yield and effective yield for the seven-day periods ended on February
29, 1996 were 4.89% and 5.01%, respectively. In the absence of waivers these
yields would have been 4.74% and 4.85%, respectively. The 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 Fund's yield will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio and operating
expenses allocable to it. Yield information may be useful in reviewing the
Fund's performance and for providing a basis for comparison with other
investment alternatives. However, the Fund's yield will fluctuate, unlike
certain bank deposits or other investments which pay a fixed yield for a stated
period of time. In comparing the Fund's yield with that of other money market
funds, investors should give consideration to the quality and maturity of the
portfolio securities of the respective funds.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Fund. The financial statements that appear in
this Statement of Additional Information have been audited by Coopers & Lybrand,
whose report thereon appears elsewhere herein, and have been included herein in
reliance upon the report of such firm of independent accountants given upon
their authority as experts in accounting and auditing.
<PAGE>18
Willkie Farr & Gallagher serves as counsel for the Fund as
well as counsel to Warburg, Counsellors Service and Counsellors Securities.
MISCELLANEOUS
As of June 25, 1996, the name, address and percentage of
ownership of other persons that control the 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: Fiduciary Trust Company
International, P.O. Box 3199, New York, NY 10008-3199 -- 24.17% and Neuberger
and Berman, 11 Broadway, New York, NY 10004 -- 27.60%. To the knowledge of the
Fund, these entities are not the beneficial owners of a majority of the shares
held by them of record. Mr. Lionel I. Pincus may be deemed to have beneficially
owned 86.36% of Fund shares outstanding, including shares owned by clients for
which Warburg has investment discretion and by companies that EMW may be deemed
to control. Mr. Pincus disclaims ownership of these shares and does not intend
to exercise voting rights with respect to these shares.
FINANCIAL STATEMENTS
The Fund's financial statements for the fiscal year ended
February 29, 1996 follow the Report of Independent Accountants.
<PAGE>A-1
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard and Poor's Ratings
Group 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.
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE AND NEW YORK TAX EXEMPT FUNDS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
WARBURG PINCUS CASH RESERVE AND NEW YORK TAX EXEMPT FUNDS:
We have audited the accompanying statements of net assets of Warburg Pincus Cash
Reserve Fund and Warburg Pincus New York Tax Exempt Fund as of February 29,
1996, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 29, 1996. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Warburg Pincus Cash Reserve Fund and Warburg Pincus New York Tax Exempt Fund as
of February 29, 1996, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 8, 1996
28
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
- --------------------------------------------------------------------------------
April 18, 1996
Dear Shareholder:
Short-term interest rates declined during the year ended February 29, 1996,
helped by three 25-basis-point easings of the federal-funds rate by the Federal
Reserve. The first easing was in July, followed by an easing in December and a
final easing in January. The easings were in response to a slowing economy and
very little inflationary pressure. As a result of the Fed's easing, annualized
yields on 3-month Treasury bills decreased from 5.93% at the end of February
1995 to 4.99% at the end of February 1996. The nation's gross domestic product
grew by 0.5% in the final quarter of 1995, with the first quarter of 1996 also
under the Fed's long-term target of 2.5% annualized growth. As 1996 continues, a
resumption of moderate growth should develop with low inflation, placing the
Federal Reserve on hold.
For the seven-day period ended February 29, 1996, the annualized yield was
4.89%, down from 5.65% on February 28, 1995.* Net assets of Warburg Pincus Cash
Reserve Fund (the 'Fund') were $383.5 million, down from $403.2 million on
February 28, 1995. The Fund's average weighted maturity on February 29, 1996,
was 50 days, three days longer than at the end of 1995.
With employment beginning to increase and the inventory correction ending,
resumption of real gross domestic product growth is apt to keep Federal Reserve
policy on hold until the end of 1996. At that time, the Federal Reserve could
make a small increase in the federal-funds rate if inflation begins to increase.
In response, the Fund will continue to purchase only the highest-quality
securities in order to provide competitive returns without compromising
stability of principal. We appreciate your continued support and investment in
the Fund.
- ------------
* From time to time, the Fund's investment adviser and co-administrators may
waive some fees and/or reimburse some expenses, without which performance
would be lower. Waivers and/or reimbursements are subject to change. All
figures listed here represent past performance and do not guarantee future
results. Although the Fund seeks to maintain a constant value of $1.00 per
share, investments in Warburg Pincus Funds are neither insured or guaranteed
by the U.S. government and there can be no assurance that the Fund will be
able to maintain a constant value of $1.00 per share.
1
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
STATEMENT OF NET ASSETS
February 29, 1996
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE% VALUE
- ----------- ----------------------------------------- ------------- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
AGENCY OBLIGATIONS (5.6%)
Federal Farm Credit Bank (5.6%)
$ 5,000,000 Federal Farm Credit Bank N/R 05/01/96 5.2500 $ 5,000,000
3,500,000 Federal Farm Credit Bank N/R 05/01/96 5.5800 3,500,000
5,000,000 Federal Farm Credit Bank N/R 06/03/96 5.1250 5,000,000
3,000,000 Federal Farm Credit Bank N/R 06/03/96 5.5200 3,000,000
3,000,000 Federal Farm Credit Bank N/R 08/01/96 5.1000 3,000,000
2,000,000 Federal Farm Credit Bank N/R 09/03/96 4.9800 2,000,000
------------
TOTAL AGENCY OBLIGATIONS (Cost $21,500,000) 21,500,000
------------
BANKERS' ACCEPTANCES (22.9%)
Domestic Bankers' Acceptances (21.3%)
2,000,000 Bank of America National Trust & Savings
Association (P-1, A-1) 03/04/96 5.6000 1,999,067
4,000,000 Bank of America National Trust & Savings
Association (P-1, A-1) 04/08/96 5.3500 3,977,411
1,000,000 Bank of America National Trust & Savings
Association (P-1, A-1) 04/11/96 5.4700 993,770
4,000,000 Bank of America National Trust & Savings
Association (P-1, A-1) 05/29/96 5.2400 3,948,182
2,000,000 Bank of America National Trust & Savings
Association (P-1, A-1) 07/10/96 5.1200 1,962,738
800,000 Chase Manhattan Bank (P-1, A-1) 03/11/96 5.6000 798,756
300,000 Chase Manhattan Bank (P-1, A-1) 03/13/96 5.6000 299,440
800,000 Chase Manhattan Bank (P-1, A-1) 03/15/96 5.6000 798,258
1,700,000 Chase Manhattan Bank (P-1, A-1) 03/19/96 5.6000 1,695,240
2,300,000 Chase Manhattan Bank (P-1, A-1) 03/20/96 5.6000 2,293,202
2,300,000 Chase Manhattan Bank (P-1, A-1) 03/25/96 5.5800 2,291,444
1,000,000 Chase Manhattan Bank (P-1, A-1) 03/27/96 5.2500 996,208
500,000 Chase Manhattan Bank (P-1, A-1) 03/27/96 5.6000 497,978
500,000 Chase Manhattan Bank (P-1, A-1) 03/29/96 5.5800 497,830
2,000,000 Chase Manhattan Bank (P-1, A-1) 04/03/96 5.3000 1,990,283
700,000 Chase Manhattan Bank (P-1, A-1) 04/30/96 5.0800 694,073
1,500,000 Chase Manhattan Bank (P-1, A-1) 05/15/96 5.0800 1,484,125
1,000,000 Citibank, N.A. (P-1, A-1) 03/06/96 5.1700 999,282
1,000,000 Citibank, N.A. (P-1, A-1) 04/19/96 5.1000 993,058
268,431 Citibank, N.A. (P-1, A-1) 04/26/96 5.4800 266,141
552,135 Citibank, N.A. (P-1, A-1) 04/29/96 5.4500 547,203
</TABLE>
See Accompanying Notes to Financial Statements.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
STATEMENT OF NET ASSETS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE% VALUE
- ----------- ----------------------------------------- ------------- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
BANKERS' ACCEPTANCES (CONT'D)
$ 1,023,175 CoreStates Bank N.A. (P-1, A-1) 03/15/96 5.6100 $ 1,020,943
5,000,000 CoreStates Bank N.A. (P-1, A-1) 04/04/96 5.6000 4,973,556
1,000,000 CoreStates Bank N.A. (P-1, A-1) 04/09/96 5.1300 994,443
1,000,000 First National Bank of Chicago (P-1, A-1) 03/05/96 5.5500 999,383
1,000,000 First National Bank of Chicago (P-1, A-1) 05/17/96 5.4300 988,386
1,000,000 First National Bank of Chicago (P-1, A-1) 06/25/96 5.2100 983,212
500,000 First National Bank of Chicago (P-1, A-1) 08/02/96 4.8600 489,605
500,000 First National Bank of Chicago (P-1, A-1) 08/06/96 4.8600 489,335
500,000 First National Bank of Chicago (P-1, A-1) 08/13/96 4.8600 488,863
1,075,000 First Union National Bank of NC (P-1, A-1) 04/16/96 5.5100 1,067,431
1,000,000 First Union National Bank of NC (P-1, A-1) 04/19/96 5.2700 992,827
5,000,000 First Union National Bank of NC (P-1, A-1) 04/24/96 5.5200 4,958,600
1,539,364 First Union National Bank of NC (P-1, A-1) 05/28/96 5.4500 1,518,856
2,000,000 First Union National Bank of NC (P-1, A-1) 06/17/96 5.2100 1,968,740
1,000,000 First Union National Bank of NC (P-1, A-1) 06/18/96 5.2100 984,225
1,000,000 Mellon Bank N.A. (P-1, A-1) 05/03/96 5.5000 990,375
1,000,000 Mellon Bank N.A. (P-1, A-1) 05/31/96 5.4500 986,224
5,220,000 Mellon Bank N.A. (P-1, A-1) 06/07/96 5.4000 5,143,266
2,000,000 Mellon Bank N.A. (P-1, A-1) 07/26/96 4.9600 1,959,493
1,000,000 Mellon Bank N.A. (P-1, A-1) 08/02/96 4.8700 979,167
5,000,000 NationsBank of North Carolina (P-1, A-1) 08/05/96 4.8700 4,893,807
1,458,484 State Street Bank & Trust Co. (P-1, A-1+) 03/11/96 5.4500 1,456,276
2,246,608 State Street Bank & Trust Co. (P-1, A-1+) 03/25/96 5.5700 2,238,266
1,973,585 State Street Bank & Trust Co. (P-1, A-1+) 03/27/96 5.5700 1,965,646
2,455,450 State Street Bank & Trust Co. (P-1, A-1+) 04/16/96 5.5400 2,438,068
1,719,993 State Street Bank & Trust Co. (P-1, A-1+) 04/17/96 5.2000 1,708,316
3,191,865 State Street Bank & Trust Co. (P-1, A-1+) 05/17/96 5.2700 3,155,887
1,000,000 Suntrust Bank (P-1, A-1) 06/03/96 5.1900 986,448
------------
Total Domestic Bankers' Acceptances 81,843,333
------------
</TABLE>
See Accompanying Notes to Financial Statements.
4
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
STATEMENT OF NET ASSETS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE% VALUE
- ----------- ----------------------------------------- ------------- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
BANKERS' ACCEPTANCES (CONT'D)
Foreign Bankers' Acceptances (1.6%)
$ 3,000,000 Bank of Montreal (P-1, A-1+) 04/15/96 5.5000 $ 2,979,375
1,000,000 Societe Generale (P-1, A-1+) 03/01/96 5.6000 1,000,000
1,000,000 Societe Generale (P-1, A-1+) 03/04/96 5.6000 999,533
1,000,000 Societe Generale (P-1, A-1+) 03/11/96 5.6000 998,444
------------
Total Foreign Bankers' Acceptances 5,977,352
------------
TOTAL BANKERS' ACCEPTANCES (Cost $87,820,685) 87,820,685
------------
BANK NOTES (1.3%)
5,000,000 Mellon Bank (P-1, A-1) 05/01/96 5.7000 5,000,000
------------
TOTAL BANK NOTES (Cost $5,000,000) 5,000,000
------------
CERTIFICATES OF DEPOSIT (2.6%)
Domestic Certificates Of Deposit (1.3%)
5,000,000 Wilmington Trust Company (P-1, A-1) 05/15/96 5.1600 5,000,000
------------
Yankee Dollar Certificates Of Deposit (1.3%)
5,000,000 Societe Generale (P-1, A-1+) 05/01/96 5.2500 5,000,412
------------
TOTAL CERTIFICATES OF DEPOSIT (Cost $10,000,412) 10,000,412
------------
COMMERCIAL PAPER (47.9%)
Asset Backed Securities (0.6%)
2,500,000 Beta Finance Inc. (P-1, A-1+) 03/25/96 5.6300 2,490,617
------------
Banks (3.6%)
5,000,000 Morgan (J.P.) & Co. (P-1, A-1+) 08/20/96 4.8800 4,883,422
4,000,000 National City Corp. (P-1, A-1+) 04/01/96 5.4500 3,981,228
5,000,000 NationsBank Corp. (P-1, A-1) 04/11/96 5.3700 4,969,421
------------
13,834,071
------------
Books: Publishing & Printing (0.5%)
2,000,000 McGraw-Hill, Inc. (P-1, A-1) 04/22/96 5.5000 1,984,111
------------
Chemicals & Allied Products (5.4%)
14,000,000 Dow Chemical Co. (P-1, A-1) 03/01/96 5.5500 14,000,000
4,580,000 Monsanto Co. (P-1, A-1) 03/01/96 5.6500 4,580,000
2,000,000 Monsanto Co. (P-1, A-1) 06/11/96 5.2200 1,970,420
------------
20,550,420
------------
</TABLE>
See Accompanying Notes to Financial Statements.
5
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
STATEMENT OF NET ASSETS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE% VALUE
- ----------- ----------------------------------------- ------------- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER (CONT'D)
Cigarettes (2.7%)
$10,400,000 Philip Morris Capital Corp. (P-1, A-1) 03/01/96 5.6500 $ 10,400,000
------------
Electric Services (1.1%)
4,450,000 Allegheny Power System (P-1, A-1) 03/27/96 5.3800 4,432,709
------------
Finance Lessors (3.6%)
2,000,000 General Electric Capital Corp. (P-1, A-1+) 03/28/96 5.6000 1,991,600
2,000,000 General Electric Capital Corp. (P-1, A-1+) 05/08/96 5.3000 1,979,978
2,000,000 General Electric Capital Corp. (P-1, A-1+) 05/09/96 5.3200 1,979,607
2,000,000 General Electric Capital Corp. (P-1, A-1+) 05/15/96 5.2700 1,978,042
5,000,000 General Electric Capital Corp. (P-1, A-1+) 07/09/96 5.1900 4,906,292
1,000,000 General Electric Capital Corp. (P-1, A-1+) 08/26/96 5.0300 975,129
------------
13,810,648
------------
Inorganic Chemicals (0.8%)
1,000,000 Air Products & Chemicals Inc. (P-1, A-1) 03/15/96 5.2500 997,958
2,000,000 Air Products & Chemicals Inc. (P-1, A-1) 04/17/96 5.3300 1,986,083
------------
2,984,041
------------
Life Insurance (0.3%)
1,000,000 Metlife Funding, Inc. (P-1, A-1+) 04/11/96 5.1500 994,135
------------
Metal Working Machine & Equipment (1.1%)
4,335,000 Vermont American Corp. (P-1, A-1+) 03/01/96 5.6500 4,335,000
------------
Motor Vehicles & Car Bodies (0.8%)
3,000,000 Daimler-Benz North America Corp. (P-1, A-1+) 03/15/96 5.5800 2,993,490
------------
National Commercial Banks (3.9%)
5,000,000 Citicorp (P-1, A-1) 03/01/96 5.4500 5,000,000
5,000,000 Citicorp (P-1, A-1) 03/01/96 5.5000 5,000,000
5,000,000 Royal Bank of Canada (P-1, A-1+) 08/26/96 5.0300 4,875,647
------------
14,875,647
------------
</TABLE>
See Accompanying Notes to Financial Statements.
6
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
STATEMENT OF NET ASSETS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE% VALUE
- ----------- ----------------------------------------- ------------- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER (CONT'D)
Newspaper: Publishing & Printing (0.5%)
$ 2,000,000 Tribune Company (P-1, A-1) 03/01/96 5.3000 $ 2,000,000
------------
Personal Credit Institutions (3.6%)
1,000,000 Associates Corp. of North America (P-1, A-1+) 04/10/96 5.6000 993,778
2,000,000 Associates Corp. of North America (P-1, A-1+) 06/17/96 5.1500 1,969,100
3,000,000 Beneficial Corp. (P-1, A-1) 03/18/96 5.2300 2,992,591
3,000,000 Beneficial Corp. (P-1, A-1) 06/05/96 5.2200 2,958,240
5,000,000 Ford Motor Credit Corp. (P-1, A-1) 04/12/96 5.3700 4,968,675
------------
13,882,384
------------
Photographic Equipment & Supply (0.3%)
1,200,000 Xerox Corp. (P-1, A-1) 04/26/96 5.1500 1,190,387
------------
Plastic Syth. Resin/Rubber (1.3%)
5,000,000 Du Pont (E.I.) de Nemours & Co. (P-1, A-1+) 07/23/96 5.5300 4,889,400
------------
Printing & Publishing (0.5%)
2,000,000 Knight-Ridder, Inc. (P-1, A-1+) 05/13/96 5.0500 1,979,519
------------
Security Brokers & Dealers (8.8%)
5,000,000 Bear Stearns Companies, Inc. (P-1, A-1) 04/15/96 5.3500 4,966,563
5,000,000 CS First Boston Inc. (P-1, A-1) 06/18/96 5.0600 4,923,397
3,000,000 Goldman Sachs Group L.P. (P-1, A-1+) 04/09/96 5.6000 2,981,800
5,000,000 Goldman Sachs Group L.P. (P-1, A-1+) 04/16/96 5.6000 4,964,222
2,000,000 Goldman Sachs Group L.P. (P-1, A-1+) 06/10/96 5.2200 1,970,710
2,000,000 Merrill Lynch & Co. (P-1, A-1+) 03/04/96 5.6000 1,999,067
2,000,000 Merrill Lynch & Co. (P-1, A-1+) 03/29/96 5.6200 1,991,258
3,000,000 Merrill Lynch & Co. (P-1, A-1+) 06/28/96 5.2500 2,947,938
5,000,000 Merrill Lynch & Co. (P-1, A-1+) 07/25/96 5.1800 4,894,961
2,000,000 Morgan Stanley Group, Inc. (P-1, A-1+) 04/30/96 5.3200 1,982,267
------------
33,622,183
------------
Services -- Auto Rent & Lease (0.7%)
315,000 PHH Corp. (P-1, A-1) 04/04/96 5.1500 313,468
750,000 PHH Corp. (P-1, A-1) 04/08/96 5.1500 745,923
780,000 PHH Corp. (P-1, A-1) 04/10/96 5.1500 775,537
730,000 PHH Corp. (P-1, A-1) 04/12/96 5.1500 725,614
------------
2,560,542
------------
</TABLE>
See Accompanying Notes to Financial Statements.
7
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
STATEMENT OF NET ASSETS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE% VALUE
- ----------- ----------------------------------------- ------------- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER (CONT'D)
Short-Term Business Credit Institutions (7.3%)
$ 3,000,000 American Express Credit Corp. (P-1, A-1) 03/04/96 5.6000 $ 2,998,600
1,000,000 American Express Credit Corp. (P-1, A-1) 03/13/96 5.6400 998,120
1,000,000 American Express Credit Corp. (P-1, A-1) 03/22/96 5.6300 996,716
2,000,000 American Express Credit Corp. (P-1, A-1) 03/29/96 5.5500 1,991,367
1,200,000 American Express Credit Corp. (P-1, A-1) 03/29/96 5.6400 1,194,736
2,000,000 American Express Credit Corp. (P-1, A-1) 05/15/96 5.2500 1,978,125
1,000,000 American Express Credit Corp. (P-1, A-1) 06/07/96 5.2200 985,790
1,000,000 American Express Credit Corp. (P-1, A-1) 08/12/96 4.8800 977,769
2,000,000 American Express Credit Corp. (P-1, A-1) 08/26/96 5.0200 1,950,358
5,000,000 Corporate Receivables Corp. (P-1, A-1) 03/13/96 5.5800 4,990,700
5,000,000 CXC, Inc. (P-1, A-1+) 04/08/96 5.3750 4,971,632
1,120,000 McKena Triangle National Corp. (P-1, A-1+) 03/12/96 5.2300 1,118,210
2,000,000 Xerox Credit Corp. (P-1, A-1) 04/04/96 5.2000 1,990,178
814,000 Xerox Credit Corp. (P-1, A-1) 05/10/96 5.1500 805,849
------------
27,948,150
------------
Telephone Communications (0.5%)
2,000,000 American Telephone & Telegraph Co. (P-1, A-1+) 05/30/96 5.4400 1,972,800
------------
TOTAL COMMERCIAL PAPER (Cost $183,730,254) 183,730,254
------------
TIME DEPOSITS (2.5%)
Time Deposits (2.5%)
4,715,000 Bank of Hawaii (P-1, A-1) 03/01/96 5.9375 4,715,000
5,000,000 Banque Paribas (P-1, A-1) 03/11/96 5.2500 5,000,000
------------
TOTAL TIME DEPOSITS (Cost $9,715,000) 9,715,000
------------
VARIABLE RATE OBLIGATIONS (19.3%)
Banks (5.2%)
5,000,000 Boatmen's National Bank + (P-1, A-1+) 03/12/96 5.2925 5,000,000
10,000,000 Morgan Guaranty Trust Co. + (P-1, A-1+) 03/01/96 6.2000 9,997,673
5,000,000 Northwest Corp. + (P-1, A-1+) 03/28/96 5.3125 5,000,000
------------
19,997,673
------------
Security Brokers & Dealers (1.3%)
5,000,000 Bear Stearns & Co. Inc.+ (P-1, A-1) 05/16/96 5.3000 5,000,000
------------
</TABLE>
See Accompanying Notes to Financial Statements.
8
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
STATEMENT OF NET ASSETS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS=
PAR SECURITY DESCRIPTION (MOODY'S/S&P) MATURITY RATE% VALUE
- ----------- ----------------------------------------- ------------- --------- ------ ------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE OBLIGATIONS (CONT'D)
Student Loan Marketing Association (12.8%)
$15,000,000 Student Loan Marketing Association + 03/05/96 5.1700 $ 15,000,000
5,000,000 Student Loan Marketing Association + 03/05/96 5.3100 5,001,176
29,000,000 Student Loan Marketing Association + 03/05/96 5.3400 29,012,201
------------
49,013,377
------------
TOTAL VARIABLE RATE OBLIGATIONS (Cost $74,011,050) 74,011,050
------------
TOTAL INVESTMENTS AT VALUE (102.1%) (Cost $391,777,401*) 391,777,401
LIABILITIES IN EXCESS OF OTHER ASSETS (2.1%) (8,169,691)
------------
NET ASSETS (100.0%) (applicable to 383,608,358 shares) $383,607,710
------------
------------
NET ASSETS VALUE, offering and redemption price per share ($383,607,710[div]383,608,358)
$1.00
=====
</TABLE>
N/R Not rated.
= Credit ratings given by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group are unaudited.
+ The interest rate shown is the rate as of February 29, 1996 and the
maturity date shown is the next interest readjustment date.
* Also cost for Federal income tax purposes.
See Accompanying Notes to Financial Statements.
9
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
MATURITY SCHEDULE OF PORTFOLIO
February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE OF PORTFOLIO
MATURITY SCHEDULE -----------------------------
(DAYS) PAR AMOUNT (CUMULATIVE)
- ----------------- ------------
<S> <C> <C> <C>
1-7 $120,030,000 30.5% 30.5%
8-14 20,678,484 5.2 35.7
15-30 41,493,368 10.5 46.2
31-60 72,846,008 18.5 64.7
61-90 54,245,230 13.8 78.5
91-120 39,220,000 10.0 88.5
121-150 19,000,000 4.8 93.3
Over 150 26,500,000 6.7 100.0
------------
$394,013,090
------------
------------
</TABLE>
Average Weighted Maturity -- 50 days
See Accompanying Notes to Financial Statements.
10
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE AND NEW YORK TAX EXEMPT FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended February 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Cash Reserve New York Tax
Fund Exempt Fund
-------------- --------------
<S> <C> <C>
INTEREST INCOME $ 18,471,546 $3,402,663
-------------- --------------
EXPENSES:
Investment advisory 772,648 224,129
Sub-investment advisory and administration 772,648 224,129
Administrative services 309,059 89,652
Audit 32,135 31,210
Custodian 77,846 22,792
Directors' 19,500 19,500
Distribution 0 10,080
Insurance 14,987 5,480
Legal 51,866 55,571
Printing 16,489 (1,192)
Registration 9,338 15,529
Transfer agent 113,004 32,503
Miscellaneous 23,354 14,565
-------------- --------------
2,212,874 743,948
Less: fees waived (513,054) (240,784)
-------------- --------------
Total expenses 1,699,820 503,164
-------------- --------------
Net investment income 16,771,726 2,899,499
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized gain (loss) from security transactions (507) 645
-------------- --------------
Net increase in net assets resulting from operations $ 16,771,219 $2,900,144
-------------- --------------
-------------- --------------
</TABLE>
See Accompanying Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE AND NEW YORK TAX EXEMPT FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Warburg Pincus Warburg Pincus
Cash Reserve New York Tax
Fund Exempt Fund
---------------------------------- ------------------------------
For the Year Ended February 28 For the Year Ended February 28
or 29, or 29,
1996 1995 1996 1995
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 16,771,726 $ 14,018,197 $ 2,899,499 $ 2,138,667
Net realized gain (loss) from
security transactions (507) 9,641 645 (189)
Net decrease in unrealized market
discount 0 0 0 (6)
--------------- --------------- ------------- -------------
Net increase in net
assets resulting from
operations 16,771,219 14,027,838 2,900,144 2,138,472
--------------- --------------- ------------- -------------
FROM DISTRIBUTIONS:
Dividends from net investment
income:
Common Shares (16,771,726) (14,018,197) (2,810,063) (1,892,371)
Series 2 Shares 0 0 (89,436) (246,296)
--------------- --------------- ------------- -------------
Net decrease from
distributions (16,771,726) (14,018,197) (2,899,499) (2,138,667)
--------------- --------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
(AT $1 PER SHARE):
Proceeds from sale of shares 1,883,249,803 1,886,500,990 314,824,220 246,396,767
Reinvested dividends 10,583,684 8,456,201 1,142,300 1,066,251
Net asset value of shares redeemed (1,913,436,052) (1,769,313,517) (307,102,780) (237,850,988)
--------------- --------------- ------------- -------------
Net increase (decrease)
in net assets from
capital share
transactions (19,602,565) 125,643,674 8,863,740 9,612,030
--------------- --------------- ------------- -------------
Net increase (decrease)
in net assets (19,603,072) 125,653,315 8,864,385 9,611,835
NET ASSETS:
Beginning of year 403,210,782 277,557,467 87,719,364 78,107,529
--------------- --------------- ------------- -------------
End of year $ 383,607,710 $ 403,210,782 $ 96,583,749 $ 87,719,364
--------------- --------------- ------------- -------------
--------------- --------------- ------------- -------------
</TABLE>
See Accompanying Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE FUND
FINANCIAL HIGHLIGHTS
(For a Share of the Fund Outstanding Throughout Each Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended February 28 or 29,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income .0543 .0426 .0273 .0322 .0542
Net Realized Gain on Securities 0 0 0 0 .0010
-------- -------- -------- -------- --------
Total from Investment Operations .0543 .0426 .0273 .0322 .0552
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income (.0543) (.0426) (.0273) (.0322) (.0542)
Distributions from capital gains 0 0 0 0 (.0010 )
-------- -------- -------- -------- --------
Total Distributions (.0543) (.0426) (.0273) (.0322) (.0552)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 5.57 % 4.35 % 2.76 % 3.27 % 5.66 %
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (000s) $383,607 $403,211 $277,557 $287,723 $426,479
Ratios to average daily net assets:
Operating expenses .55 % .55 % .54 % .50 % .50 %
Net investment income 5.43 % 4.41 % 2.73 % 3.22 % 5.45 %
Decrease reflected in above operating expense
ratios due to waivers/reimbursements .16 % .19 % .13 % .17 % .16 %
</TABLE>
See Accompanying Notes to Financial Statements.
TAX STATUS OF 1996 DIVIDENDS (Unaudited)
Dividends paid by the Fund are taxable as ordinary income.
21
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE AND NEW YORK TAX EXEMPT FUNDS
NOTES TO FINANCIAL STATEMENTS
February 29, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Cash Reserve Fund (the 'Cash Reserve Fund') and the
Warburg Pincus New York Tax Exempt Fund (the 'New York Tax Exempt Fund') are
registered under the Investment Company Act of 1940, as amended (the '1940
Act'), as diversified and non-diversified, open-end management investment
companies, respectively.
Investment objectives for each Fund are as follows: the Cash Reserve Fund
is designed to provide investors with high current income consistent with
liquidity and stability of principal; the New York Tax Exempt Fund is designed
to provide investors with as high a level of current income that is exempt from
Federal, New York State, and New York City personal income taxes as is
consistent with preservation of capital and liquidity.
Issuers of New York tax-exempt securities (including issuers whose
obligations may be acquired by the New York Tax Exempt Fund) have experienced
serious financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. During the
recent past, several different issuers of Municipal Securities of New York State
and its agencies and instrumentalities and of New York City have been downgraded
by Standard & Poor's Ratings Group and Moody's Investors Service, Inc. A
recurrence of the financial difficulties experienced by certain issuers of New
York tax-exempt securities could result in defaults or declines in the market
values of their existing obligations and, possibly, in the obligations of other
issuers of New York tax-exempt securities.
The net asset value of each Fund is determined as of noon and the close of
regular trading on the New York Stock Exchange on each day, except on days when
the Exchange is closed. Each Fund's investments are valued under the amortized
cost method which approximates current market value. Under this method,
investments are valued at cost when purchased and thereafter a constant
proportionate amortization of any discount or premium is recorded until maturity
of the investment.
Security transactions are accounted for on a trade date basis. Interest
income is recorded on the accrual basis. Income, expenses and
realized/unrealized gains/losses are allocated proportionately to each class of
shares based upon the relative net asset value of outstanding shares. The cost
of investments sold is determined by use of the specific identification method
for both financial reporting and income tax purposes.
Dividends from net investment income are declared daily and paid monthly.
Distributions of net capital gains, if any, are declared and paid annually,
although the Cash Reserve Fund may declare and pay short-term capital gains, if
any, periodically as the Board of Directors determines. To the extent that a net
realized capital gain can be reduced by a capital loss carryover, such gain will
not be distributed. Income and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
24
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE AND NEW YORK TAX EXEMPT FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession. At February 29, 1996, no repurchase agreements were
held by either Fund.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. INVESTMENT ADVISER AND SUB-ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ('Warburg'), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ('Counsellors G.P.'), serves as each Fund's
investment adviser. For its investment advisory services, Warburg receives a fee
calculated at an annual rate of .25% of each Fund's average daily net assets.
For the year ended February 29, 1996, investment advisory fees and waivers were
as follows:
<TABLE>
<CAPTION>
GROSS NET
FUND ADVISORY FEE WAIVER ADVISORY FEE
- -------------------------------------------------- ------------------ --------- ------------------
<S> <C> <C> <C>
Cash Reserve $772,648 $(205,222) $567,426
New York Tax Exempt 224,129 (96,389) 127,740
</TABLE>
PNC Institutional Management Corporation ('PIMC'), a wholly owned
subsidiary of PNC Bank, N.A., serves as each Fund's sub-investment adviser and
administrator. For its sub-investment advisory and administrative services, PIMC
receives a fee calculated at an annual rate of .25% of each Fund's average daily
net assets. For the year ended February 29, 1996, sub-investment advisory and
administration fees and waivers were as follows:
<TABLE>
<CAPTION>
GROSS SUB-ADVISORY NET SUB-ADVISORY
AND AND
FUND ADMINISTRATION FEE WAIVER ADMINISTRATION FEE
- -------------------------------------------------- ------------------ --------- ------------------
<S> <C> <C> <C>
Cash Reserve $772,648 $(307,832) $464,816
New York Tax Exempt 224,129 (144,395) 79,734
</TABLE>
Counsellors Funds Service, Inc. ('CFSI'), a wholly owned subsidiary of
Warburg, serves as each Fund's co-administrator. For its administrative
services, CFSI currently receives a fee calculated at an
25
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE AND NEW YORK TAX EXEMPT FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
annual rate of .10% of each Fund's average daily net assets. For the year ended
February 29, 1996, administrative services fees earned by CFSI were as follows:
<TABLE>
<CAPTION>
FUND CO-ADMINISTRATION FEE
- ------------------------------------------------------------- ---------------------
<S> <C>
Cash Reserve $ 309,059
New York Tax Exempt 89,652
</TABLE>
Counsellors Securities Inc. ('CSI'), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. No compensation is payable by the
Funds to CSI for distribution services.
3. CAPITAL SHARE TRANSACTIONS
Each Fund is authorized to issue three billion full and fractional shares
of capital stock, $.001 par value per share, of which one billion shares of New
York Tax Exempt Fund are designated as Series 2 Shares. Series 2 Shares are
identical to Common Shares in all respects except that Series 2 Shares are sold
to institutions ('Service Organizations') that perform certain distribution,
shareholder servicing, accounting and/or administrative services for their
customers who are beneficial owners of Series 2 Shares. Series 2 Shares bear the
fees paid pursuant to a distribution plan adopted by each Fund in an amount not
to exceed .75 of 1.00% (on an annualized basis) of the average daily net asset
value of the shares held by the institutions for the benefit of their customers
and enjoy certain exclusive voting rights on matters relating to those fees.
Series 2 Shares ceased being offered on June 9, 1995.
With respect to Series 2 Shares, Service Organizations earned the following
distribution fees for the period March 1, 1995 through June 8, 1995:
<TABLE>
<CAPTION>
FUND DISTRIBUTION FEE
- ------------------------------------------------------------------- ----------------
<S> <C>
New York Tax Exempt $ 10,080
</TABLE>
Transactions in shares of each Fund were as follows:
<TABLE>
<CAPTION>
NEW YORK TAX NEW YORK TAX
CASH RESERVE FUND EXEMPT FUND EXEMPT FUND
------------------------------- --------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Series 2 Shares
Common Shares Common Shares For the Period
For the Year Ended For the Year Ended March 1, 1995 For the Year
February 28 or 29, February 28 or 29, through June Ended February
1996 1995 1996 1995 8, 1995 28, 1995
-------------- -------------- ------------ ------------ -------------- ---------------
Shares sold 1,883,249,027 1,886,500,990 300,237,798 204,764,017 14,586,422 41,632,750
Shares issued to shareholders on
reinvestment of dividends 10,583,684 8,456,201 1,048,655 822,241 93,645 244,010
Shares redeemed (1,913,436,052) (1,769,313,517) (281,813,622) (194,459,365) (25,289,158) (43,391,623)
-------------- -------------- ------------ ------------ -------------- ---------------
Net increase (decrease) in shares (19,603,341) 125,643,674 19,472,831 11,126,893 (10,609,091) (1,514,863)
-------------- -------------- ------------ ------------ -------------- ---------------
-------------- -------------- ------------ ------------ -------------- ---------------
</TABLE>
26
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
WARBURG PINCUS CASH RESERVE AND NEW YORK TAX EXEMPT FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 29, 1996
- --------------------------------------------------------------------------------
4. NET ASSETS
Net Assets at February 29, 1996, consisted of the following:
<TABLE>
<CAPTION>
CASH RESERVE FUND NEW YORK TAX EXEMPT FUND
----------------- ------------------------
<S> <C> <C>
Capital contributed, net $ 383,608,146 $ 96,596,875
Accumulated net realized loss from security
transactions (436) (13,126)
----------------- ------------
Net assets $ 383,607,710 $ 96,583,749
----------------- ------------
----------------- ------------
</TABLE>
5. CAPITAL LOSS CARRYOVER
At February 29, 1996, the Cash Reserve Fund and the New York Tax Exempt
Fund have capital loss carryovers of $507 and $13,126, respectively, to offset
possible future capital gains of each Fund. These carryovers expire as follows:
<TABLE>
<CAPTION>
FUND YEAR AMOUNT
- -------------------------------------------- ---- ------
<S> <C> <C>
Cash Reserve 2004 $ 507
New York Tax Exempt 1997 4,822
1998 4,026
2000 4,089
2002 189
</TABLE>
27
- --------------------------------------------------------------------------------
