WARBURG PINCUS CASH RESERVE FUND, 485APOS, 1999-02-26

WARBURG PINCUS CASH RESERVE FUND
485APOS, 1999-02-26

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<PAGE> 1

As Filed with the Securities and Exchange Commission
on February 26, 1999

Securities Act File No. 2-94840
Investment Company Act File No. 811-4171

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 16 [x]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]

Amendment No. 17 [x]

(Check appropriate box or boxes)

Warburg, Pincus Cash Reserve Fund, Inc.
(formerly Counsellors Cash Reserve Fund, Inc.)
. . . . . . . . . . . . . . . . . . . . . . . . .
(Exact Name of Registrant as Specified in Charter)

466 Lexington Avenue
New York, New York 10017-3147
. . . . . . . . . . . . . . . . . . . .
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 878-0600

Janna Manes, Esq.

Warburg, Pincus Cash Reserve Fund
466 Lexington Avenue
New York, New York 10017-3147
. . . . . . . . . . . . . . . . . .
(Name and Address of Agent for Services)

Copy to:

Rose F. DiMartino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099

<PAGE> 2

Approximate Date of Proposed Public Offering: April 30, 1999

It is proposed that this filing will become effective (check appropriate box):

[ ] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[x] on April 30, 1999 pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.

<PAGE> 3

SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1999

PROSPECTUS
April , 1999

WARBURG PINCUS
CASH RESERVE FUND

WARBURG PINCUS
NEW YORK TAX EXEMPT FUND

As with all mutual funds, the Securities and Exchange
Commission has not approved these funds, nor has it passed
upon the adequacy or accuracy of this Prospectus. It is a
criminal offense to state otherwise.

[Warburg Pincus Funds Logo]

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

<PAGE> 4

CONTENTS

<TABLE>
<S> <C>
KEY POINTS.................... .................... 5
Goals and Principal Strategies.................. 5
Investor Profile................................ 7
A Word About Risk............................... 5
PERFORMANCE SUMMARY............... ................ 8
Year-by-Year Total Returns...................... 8
Average Annual Total Returns.................... 9
INVESTOR EXPENSES................ ................. 10
Fees and Fund Expenses.......................... 10
Example......................................... 11
THE FUNDS IN DETAIL............... ................ 12
The Management Firms............................ 12
Fund Information Key............................ 13
CASH RESERVE FUND................ ................. 14
NEW YORK TAX EXEMPT FUND............. ............. 16
MORE ABOUT RISK................. .................. 18
Introduction.................................... 18
Types of Investment Risk........................ 18
Certain Investment Practices.................... 20
ABOUT YOUR ACCOUNT................ ................ 22
Share Valuation................................. 22
Buying and Selling Shares....................... 22
Account Statements.............................. 22
Distributions................................... 22
Taxes........................................... 23
OTHER INFORMATION................ ................. 24
About the Distributor........................... 24
FOR MORE INFORMATION............... ............... back cover
</TABLE>

<PAGE> 5

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4
<PAGE> 6

KEY POINTS
GOALS AND PRINCIPAL STRATEGIES

<TABLE>
<CAPTION>
FUND/RISK FACTORS GOAL STRATEGIES
<S> <C> <C>
CASH RESERVE FUND High current income - Invests in high-quality
Risk factors: consistent with liquidity money-market instruments:
Credit risk and stability of - obligations issued or
Income risk principal guaranteed by the U.S.
Industry government, its agencies
concentration or instrumentalities
Interest-rate risk - bank and corporate debt
Market risk obligations
- Concentrates its invest-
ments in the banking
industry
- Portfolio managers select
investments based on
factors such as yield,
maturity and liquidity,
within the context of
their interest-rate outlook
- Seeks to maintain a stable
share price of $1
NEW YORK TAX EXEMPT As high a level of - Invests in high-quality,
FUND current interest income short-term
Risk factors: exempt from federal, New tax-exempt New York
Credit risk York State and New York municipal securities --
Income risk City personal income debt obligations whose
Interest-rate risk taxes as is consistent interest is exempt from
Market risk with preservation of federal, New York state and
New York municipal capital and liquidity New York City income taxes
securities - Fund dividends derived from
Non-diversified interest on New York
status municipal securities remain
tax-exempt when distributed
- Portfolio managers select
investments based on
factors such as yield,
maturity and liquidity,
within the context of their
interest-rate outlook
- Seeks to maintain a stable
share price of $1
</TABLE>

A WORD ABOUT RISK

All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.

Principal risk factors for the funds are discussed below. Before you invest,
please make sure you understand the risks that apply to your fund.

Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although each fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in a fund.

CREDIT RISK
Both funds

The issuer of a security or the counterparty to a contract may default or
otherwise become unable to honor a financial obligation. An issuer's failure to
make scheduled interest or principal payments to a fund could reduce the fund's
income level and share price.

<PAGE> 7

INCOME RISK
Both funds

A fund's income level may decline because of falling interest rates and other
market conditions. Each fund's yield will vary from day to day, generally
reflecting changes in overall short-term interest rates. This should be an
advantage when interest rates are rising but not when rates are falling.

INDUSTRY CONCENTRATION
Cash Reserve Fund

Investing more than 25% of its assets in the banking industry will subject
the fund to risks associated with investing in banks and banking-related
companies. These risks include interest-rate, market and regulatory risks.

INTEREST-RATE RISK
Both funds

Changes in interest rates may cause a decline in the market value of an
investment. With fixed-income securities, a rise in interest rates typically
causes a fall in values, while a fall in interest rates typically causes a rise
in values.

A sharp and unexpected rise in interest rates could cause a money market
fund's price to drop below a dollar. However, the extremely short maturity of
securities held in money market portfolios -- a means of achieving an overall
fund objective of principal safety -- reduces their potential for price
fluctuation.

MARKET RISK
Both funds

The market value of a security may move up and down, sometimes rapidly and
unpredictably. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments -- including debt securities and the mutual funds that invest in
them.

NEW YORK MUNICIPAL SECURITIES
New York Tax Exempt Fund

The default or credit-rating downgrade of a New York state or New York City
issuer could affect the market values and marketability of all New York
municipal securities and hurt the fund's yield or share price.

NON-DIVERSIFIED STATUS
New York Tax Exempt Fund

The fund is considered a non-diversified investment company under the
Investment Company Act of 1940 and is permitted to invest a greater proportion
of its assets in the securities of a smaller number of issuers. As a result, the
fund may be subject to greater volatility with respect to its portfolio
securities than a fund that is more broadly diversified.

6
<PAGE> 8

INVESTOR PROFILE

THESE FUNDS ARE DESIGNED FOR INVESTORS WHO:

- want to preserve the value of their investment

- are seeking a mutual fund for the money-market portion of an asset-
allocation portfolio

- want easy access to their money through checkwriting and wire-redemption
privileges

- are investing emergency reserves or other money for which safety and
accessibility are more important than total return

THESE FUNDS MAY NOT BE APPROPRIATE IF YOU:

- want federal deposit insurance

- desire the higher income available from longer-term fixed-income funds

- are investing for capital appreciation

In addition, the New York Tax Exempt Fund is not appropriate for IRAs or
other retirement plans. You should base your selection of a fund on your own
goals, risk preferences and time horizon.

7
<PAGE> 9

PERFORMANCE SUMMARY
The bar chart below and the table on the next page provide an indication of the
risks of investing in these funds. The bar chart shows you how each fund's
performance has varied from year to year for up to 10 years. As with all mutual
funds, past performance is not a prediction of the future.

YEAR-BY-YEAR TOTAL RETURNS

[BAR CHART]

<TABLE>
<CAPTION>
CASH RESERVE FUND
-----------------
<S> <C>
'1989' 9.23
'1990' 8.02
'1991' 6.00
'1992' 3.57
'1993' 2.77
'1994' 3.88
'1995' 5.63
'1996' 5.05
'1997' 5.19
'1998' 5.17
</TABLE>

[BAR CHART]

<TABLE>
<CAPTION>
NEW YORK TAX EXEMPT FUND
------------------------
<S> <C>
'1989' 5.61
'1990' 5.14
'1991' 3.62
'1992' 2.36
'1993' 1.78
'1994' 2.25
'1995' 3.32
'1996' 2.92
'1997' 3.10
'1998' 2.96
</TABLE>

CASH RESERVE FUND
Best quarter: 2.37%(Q2 89)
Worst quarter: 0.67%(Q2 93)
Inception date: 4/16/85

NEW YORK TAX EXEMPT FUND
Best quarter: 1.47%(Q2 89)
Worst quarter: 0.91%(Q1 94)
Inception date: 4/18/85

<PAGE> 10

AVERAGE ANNUAL TOTAL RETURNS

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS 10 YEARS LIFE OF INCEPTION
PERIOD ENDED 12/31/98: 1998 1994-1998 1989-1998 FUND DATE
<S> <C> <C> <C> <C> <C>
CASH RESERVE FUND 5.17% 4.98% 5.43% 5.86% 4/16/85
NEW YORK TAX EXEMPT FUND 2.96% 2.91% 3.30% 3.57% 4/18/85
</TABLE>

The total returns shown above are not the funds' yields. A fund's yield more
closely reflects the fund's current earnings.

YIELD

To obtain a fund's current 7-day yield, call toll-free 800-WARBURG.

UNDERSTANDING PERFORMANCE
- TOTAL RETURN tells you how much an investment in a fund has changed in
value over a given time period. It assumes that all dividends and capital
gains (if any) were reinvested in additional shares. The change in value
can be stated either as a cumulative return or as an average annual rate
of return.

- A CUMULATIVE TOTAL RETURN is the actual return of an investment for a
specified period. The year-by-year total returns in the bar chart are
examples of one-year cumulative total returns.

- An AVERAGE ANNUAL TOTAL RETURN applies to periods longer than one year.
It smoothes out the variations in year-by-year performance to tell you
what constant annual return would have produced the investment's actual
cumulative return. This gives you an idea of an investment's annual
contribution to your portfolio, assuming you held it for the entire
period.

- Because of compounding, the average annual total returns in the table
cannot be computed by averaging the returns in the bar chart.

9
<PAGE> 11

INVESTOR EXPENSES

FEES AND FUND EXPENSES

This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended December 31, 1998.

<S> <C> <C>
NEW YORK
CASH RESERVE TAX EXEMPT
FUND FUND
SHAREHOLDER FEES
(paid directly from your investment)
Sales charge "load" on
purchases NONE NONE
Deferred sales charge "load" NONE NONE
Sales charge "load" on reinvested distributions NONE NONE
Redemption fees NONE NONE
Exchange fees NONE NONE
ANNUAL FUND OPERATING EXPENSES
(deducted from fund assets)
Management fee .50% .50%
Distribution and service
(12b-1) fee NONE NONE
Other expenses .18% .19%
TOTAL ANNUAL FUND OPERATING
EXPENSES* .68% .69%
</TABLE>

* Actual fees and expenses for the fiscal year ended December 31, 1998 are shown
below. Fee waivers and expense reimbursements or credits reduced some expenses
during 1998 but may be discontinued at any time.

<TABLE>
<CAPTION>
NEW YORK
EXPENSES AFTER WAIVERS CASH RESERVE TAX EXEMPT
AND REIMBURSEMENTS FUND FUND
<S> <C> <C>
Management fee .39% .36%
Distribution and service
(12b-1) fee NONE NONE
Other expenses .16% .19%
----- -----
TOTAL ANNUAL FUND OPERATING
EXPENSES .55% .55%
</TABLE>

<PAGE> 12

EXAMPLE

This example may help you compare the cost of investing in these funds with the
cost of investing in other mutual funds. Because it uses hypothetical
conditions, your actual costs may be higher or lower.

Assume you invest $10,000, each fund returns 5% annually, expense ratios remain
as listed in the first table on the opposite page (before fee waivers and
expense reimbursements or credits) and you close your account at the end of each
of the time periods shown. Based on these assumptions, your cost would be:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
<S> <C> <C> <C> <C>
CASH RESERVE FUND $69 $218 $379 $847
NEW YORK TAX EXEMPT FUND $70 $221 $384 $859
</TABLE>

11
<PAGE> 13

THE FUNDS IN DETAIL

THE MANAGEMENT FIRMS

WARBURG PINCUS ASSET
MANAGEMENT, INC.
466 Lexington Avenue
New York, NY 10017-3147

- Investment adviser for the funds

- Responsible for determining each fund's investment program, including the
types, maturities and issuers of securities to be held by the fund

- Supervises the activities of BlackRock

- A professional investment-advisory firm providing investment services to
individuals since 1970 and to institutions since 1973

- Currently manages approximately $22 billion in assets

For easier reading, Warburg Pincus Asset Management, Inc. will be referred to
as "Warburg Pincus" or "we" throughout this Prospectus.

BLACKROCK INSTITUTIONAL
MANAGEMENT CORPORATION
400 Bellevue Parkway
Wilmington, DE 19809

- Sub-investment adviser for the funds

- Responsible for providing investment research and credit analysis, and
managing the day-to-day operations of the funds

- A majority owned indirect subsidiary of PNC Bank, N.A.

- Currently manages approximately $50 billion

<PAGE> 14

FUND INFORMATION KEY

Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:

GOAL AND STRATEGIES
The fund's particular investment goal and the strategies it intends to use in
pursuing that goal. Percentages of fund assets are based on total assets unless
indicated otherwise.

PORTFOLIO INVESTMENTS
The primary types of securities in which the fund invests. Secondary
investments are described in "More About Risk."

RISK FACTORS
The major risk factors associated with the fund. Additional risk factors are
included in "More About Risk."

INVESTOR EXPENSES
Actual fund expenses for the 1998 fiscal year. Future expenses may be higher
or lower.

- MANAGEMENT FEE The fee paid to the investment adviser and sub-investment
adviser for providing investment advice to the fund. Expressed as a percentage
of average net assets after waivers.

- OTHER EXPENSES Fees paid by the fund for items such as administration,
transfer agency, custody, auditing, legal and registration fees and
miscellaneous expenses. Expressed as a percentage of average net assets after
waivers, credits and reimbursements.

FINANCIAL HIGHLIGHTS
A table showing the fund's audited financial performance for up to five
years.

- TOTAL RETURN How much you would have earned on an investment in the fund,
assuming you had reinvested all dividend and capital-gain distributions.

The Annual Report includes the auditor's report, along with the fund's
financial statements. It is available free upon request.

13
<PAGE> 15

CASH RESERVE FUND

GOAL AND STRATEGIES

The Cash Reserve Fund seeks high current income consistent with liquidity and
stability of principal. To pursue this goal, it invests in high-quality, U.S.
dollar-denominated money market instruments. The fund seeks to maintain a stable
$1 share price.

In selecting securities, the portfolio managers may examine the relationships
among yields on various types and maturities of money-market securities in the
context of their outlook for interest rates. For example, commercial paper often
offers a yield advantage over Treasury bills. And if rates are expected to fall,
longer maturities may be purchased to try to preserve the fund's income level.
Conversely, shorter maturities may be favored if rates are expected to rise.
PORTFOLIO INVESTMENTS

This fund invests in the following types of money-market instruments:

- Government securities, including U.S. Treasury bills and other obligations of
the U.S. government, its agencies or instrumentalities

- U.S. and foreign bank obligations such as certificates of deposit, bankers'
acceptances, time deposits, commercial paper and debt obligations

- commercial paper and notes of other corporate issuers, including variable
rate master demand notes and other variable-rate obligations

- repurchase agreements

No more than 5% of assets may be invested in securities rated in the second-
highest short-term category (or unrated equivalents). The rest of the fund's
investments must be in the highest short-term rating category. Under normal
conditions, the fund will invest at least 25% of assets in the banking industry.

The fund maintains an average maturity of 90 days or less, and only invests
in securities which have (or are deemed by the SEC to have) remaining maturities
of 397 days or less at the date of purchase. To a limited extent, the fund may
also engage in other investment practices.
RISK FACTORS

This fund's principal risk factors are:

- credit risk

- income risk

- industry concentration

- interest-rate risk

- market risk

The fund's yield will vary with changes in interest rates. If interest rates
fall, your dividend income will likely decline.

Since it is managed to maintain a constant $1 share price, the fund should
have little risk of principal loss. However, there is no assurance the fund will
avoid principal losses in the rare event that fund holdings default or interest
rates rise sharply in an unusually short period.

Concentrating its investments in the banking industry will subject the fund
to risks associated with investing in banks and banking-related companies. These
risks are discussed in "More About Risk." That section also details other
investment practices the fund may use. Please read "More About Risk" carefully
before you invest.

<PAGE> 16

PORTFOLIO MANAGEMENT

Under the supervision of Warburg Pincus, a portfolio management team at
BlackRock Institutional Management Corporation, the fund's sub-investment
adviser, makes the fund's day-to-day investment decisions.
INVESTOR EXPENSES

<TABLE>
<S> <C>
Management fee .39%
All other expenses .16%
------------
Total expenses .55%
</TABLE>

FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.

PERIOD ENDED: 1998(1) 1997(2) 1997(3) 1996(3) 1995(3) 1994(3)
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Investment activities:
Net investment income 0.05 0.04 0.05 0.05 0.04 0.03
Total from investment activities 0.05 0.04 0.05 0.05 0.04 0.03
Distributions:
From net investment income (0.05) (0.04) (0.05) (0.05) (0.04) (0.03)
Total distributions (0.05) (0.04) (0.05) (0.05) (0.04) (0.03)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ======== ========
Total return 5.12% 4.28%(4) 5.03% 5.57% 4.35% 2.76%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s
omitted) $429,978 $472,675 $416,735 $383,607 $403,211 $277,557
Ratio of expenses to average net
assets .56%(5) .55%(5,6) .55%(5) .56%(5) .55% .54%
Ratio of net income to average
net assets 5.00% 5.11%(6) 4.93% 5.43% 4.41% 2.73%
Decrease reflected in above
operating expense ratios due to
waivers/reimbursements .12% .12%(6) .14% .16% .19% .13%
</TABLE>

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

(1) For the year ended December 31, 1998.
(2) For the ten-months ended December 31, 1997.
(3) For the years ended February 28 or 29.
(4) Not Annualized.
(5) Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
fund's net expense ratio by .01%, .00%, .00% and .01% for the year ended
December 31, 1998, the period ended December 31, 1997 and the fiscal years
ended February 28 or 29, 1997 and 1996, respectively. The operating expense
ratio after reflecting these arrangements were .55%, .55%, .55% and .55% for
the year ended December 31, 1998, the period ended December 31, 1997 and the
fiscal years ended February 28 or 29, 1997 and 1996, respectively.
(6) Annualized.

15
<PAGE> 17

NEW YORK TAX EXEMPT FUND

GOAL AND STRATEGIES

The New York Tax Exempt Fund seeks as high a level of current income exempt
from federal, New York state and New York City personal income taxes as is
consistent with preservation of capital and liquidity. The fund seeks to
maintain a stable $1 share price.

Under normal market conditions, the fund will invest at least 65% of assets
in New York municipal securities. In selecting investments, fund managers may
examine the relationships among yields on various types and maturities of
municipal securities in the context of their outlook for interest rates. For
example, if rates are expected to fall, longer maturities may be purchased to
try to preserve the fund's income level. Conversely, shorter maturities may be
favored if rates are expected to rise.
PORTFOLIO INVESTMENTS

This fund invests at least 80% of assets in high-quality short-term tax-
exempt municipal securities. These include:

- tax-exempt commercial paper

- variable-rate demand notes

- bonds

- municipal put bonds

- bond-anticipation notes

- revenue-anticipation notes

No more than 5% of assets may be invested in securities rated in the second-
highest short-term rating category (or unrated equivalents). The rest of the
fund's investments must be in the highest short-term category.

This fund's principal risk factors are:

- credit risk

- income risk

- interest-rate risk

- market risk

- New York municipal securities

- non-diversified status

The fund's yield will vary with changes in interest rates. If interest rates
fall, your dividend income will likely decline.

The fund's ability to maintain a stable share price also depends upon
guarantees from banks and other financial institutions that back certain
securities the fund invests in. Changes in the credit quality of these
institutions could cause losses to the fund and affect its share price.

New York state and New York City have at times faced serious economic
problems that have adversely affected New York municipal issuers. The default or
credit-rating downgrade of one of these issuers could affect the market values
and marketability of all New York municipal

<PAGE> 18

securities and hurt the fund's yield or share
price. As a result, this fund may be riskier than a more geographically
diversified municipal money-market fund.

Compared to a diversified mutual fund, a non-diversified fund may invest a
greater portion of its assets in the securities of fewer issuers. Because this
fund is non-diversified, it may involve more risk than a diversified
money-market fund.

"More About Risk" details certain other investment practices the fund may
use. Please read that section carefully before you invest.
PORTFOLIO MANAGEMENT

Under the supervision of Warburg Pincus, a portfolio-management team at
Blackrock Institutional Management Corporation, the fund's sub-investment
adviser, makes the fund's day-to-day investment decisions.
INVESTOR EXPENSES

Management fee .36%
All other expenses .19%

-----------
Total expenses .55%

FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.

PERIOD ENDED: 1998(1) 1997(2) 1997(3) 1996(3) 1995(3) 1994(3)
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Investment activities:
Net investment income 0.03 0.03 0.03 0.03 0.02 0.02
Total from investment activities 0.03 0.03 0.03 0.03 0.02 0.02
Distributions:
From net investment income (0.03) (0.03) (0.03) (0.03) (0.02) (0.02)
Total distributions (0.03) (0.03) (0.03) (0.03) (0.02) (0.02)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total return 2.42% 2.64%(4) 2.92% 3.31% 2.48% 1.77%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s
omitted) $174,743 $151,173 $124,191 $96,584 $77,111 $65,984
Ratio of expenses to average net
assets .55%(5) .55%(5,6) .55%(5) .56%(5) .55% .54%
Ratio of net loss to average net
assets 2.86% 3.12%(6) 2.88% 3.24% 2.46% 1.75%
Decrease reflected in above
operating expense ratio due to
waivers/reimbursements .14% .12%(6) .17% .27% .27% .19%
</TABLE>

(1) For the year ended December 31, 1998.
(2) For the ten-months ended December 31, 1997.
(3) For the years ended February 28 or 29.
(4) Not Annualized
(5) Interest earned on uninvested cash balances is used to offset portions of
transfer agent expense. These arrangements resulted in a reduction to the
fund's net expense ratio by .00%, .00%, .00% and .01% for the year ended
December 31, 1998, the period ended December 31, 1997 and the fiscal years
ended February 28 or 29, 1997 and 1996, respectively. The operating expense
ratio after reflecting these arrangements were .55%, .55%, .55% and .55% for
the year ended December 31, 1998, the period ended December 31, 1997 and the
fiscal years ended February 28 or 29, 1997 and 1996, respectively.
(6) Annualized

17
<PAGE> 19

MORE ABOUT RISK

INTRODUCTION

A fund's goal and principal strategies largely determine its risk profile.
You will find a concise description of each fund's risk profile in "Key Points."
The fund-by-fund discussions contain more detailed information. This section
discusses other risks that may affect the funds.

The "Certain Investment Practices" table takes a more detailed look at
certain investment practices the funds may use. Some of these practices may have
higher risks associated with them. However, each fund has limitations and
policies designed to reduce many of the risks.

TYPES OF INVESTMENT RISK

The following risks are referred to throughout this Prospectus.

CREDIT RISK The issuer of a security or the counterparty to a contract may
default or otherwise become unable to honor a financial obligation. An issuer's
failure to make scheduled interest or principal payments to a fund could reduce
the fund's income level and share price.

EXPOSURE RISK The risk associated with investments or practices that increase
the amount of money a fund could gain or lose on an investment.

- HEDGED Exposure risk could multiply losses generated by a practice used
for hedging purposes. Such losses should be substantially offset by gains
on the hedged investment. However, while hedging can reduce or eliminate
losses, it can also reduce or eliminate gains.

- SPECULATIVE To the extent that a derivative or practice is not used as a
hedge, the fund is directly exposed to its risks.

EXTENSION RISK An unexpected rise in interest rates may extend the life of a
mortgage-backed security beyond the expected prepayment time, typically reducing
the security's value.

INCOME RISK A fund's income level may decline because of falling interest
rates.

INTEREST-RATE RISK Changes in interest rates may cause a decline in the
market value of an investment. With bonds and other fixed-income securities, a
rise in interest rates typically causes a fall in values, while a fall in
interest rates typically causes a rise in values.

LIQUIDITY RISK Certain fund securities may be difficult or impossible to sell
at the time and the price that the fund would like. A fund may have to lower the
price, sell other securities instead or forego an investment opportunity. Any of
these could have a negative effect on fund management or performance.

MARKET RISK The market value of a security may move up and down, sometimes
rapidly and unpredictably. Market risk may affect a single issuer, industry,
sector of the economy, or the market as a whole. Market risk is common to most
investments --

<PAGE> 20

including debt securities and the mutual funds that invest in them.

POLITICAL RISK Foreign governments may expropriate assets, impose capital or
currency controls, impose punitive taxes, or nationalize a company or industry.
Any of these actions could have a severe effect on security prices and impair a
fund's ability to bring its capital or income back to the U.S. Other political
risks include economic policy changes, social and political instability,
military action and war.

PREPAYMENT RISK Securities with
high stated interest rates may be prepaid prior to maturity. During periods of
falling interest rates, a fund would generally have to reinvest the proceeds at
lower rates.

REGULATORY RISK Governments, agencies or other regulatory bodies may adopt or
change laws or regulations that could adversely affect the issuer, the market
value of the security, or a fund's performance.

VALUATION RISK The lack of an
active trading market may make it difficult to obtain an accurate price for a
fund security.

YEAR 2000 PROCESSING RISK The funds' investment adviser is working to address
the Year 2000 issue relating to the change from "99" to "00" on January 1, 2000,
and has obtained assurances from major service providers that they are taking
similar steps. The adviser is working on the Year 2000 issue pursuant to a plan
designed to address potential problems, and progress is proceeding according to
the plan. The adviser anticipates the completion of testing of internal systems
in the first part of 1999, and is developing contingency plans intended to
address any unexpected service problems.

The funds' operations are dependent upon interactions among many participants
in the financial-services and other related industries. There is no assurance
that preparations by the adviser and other industry participants will be
sufficient, and any noncompliant computer systems could hurt key fund
operations, such as shareholder servicing, pricing and trading.

The Year 2000 issue affects practically all companies, organizations,
governments, markets and economies throughout the world -- including companies
or governmental entities in which the funds invest and markets in which they
trade. However, at this time no one knows precisely what the degree of impact
will be. To the extent that the impact on a fund holding or on markets or
economies is negative, it could seriously affect a fund's performance.

19
<PAGE> 21

CERTAIN INVESTMENT PRACTICES

For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.

KEY TO TABLE:

<TABLE>
<S> <C>
F[-] Permitted without limitation; does not indicate
actual use
20% Italic type (e.g., 20%) represents an investment
limitation as a percentage of NET fund assets; does
not indicate actual use
20% Roman type (e.g., 20%) represents an investment
limitation as a percentage of TOTAL fund assets; does
not indicate actual use
[ ] Permitted, but not expected to be used to a
significant extent
- -- Not permitted
</TABLE>

<TABLE>
<CAPTION>
CASH NEW YORK
RESERVE TAX EXEMPT
FUND FUND
------- ----------
<S> <C> <C>
INVESTMENT PRACTICE LIMIT
AMT SECURITIES Municipal securities whose interest is a
tax-preference item for purposes of the federal alternative
minimum tax. Credit, liquidity, market, interest-rate,
regulatory risks. [ ] 20%
- ----------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS U.S. dollar-denominated
certificates of deposit issued or backed by foreign banks
and foreign branches of U.S. banks. Credit, income, interest
rate, market, political risks. [ ] [ ]
- ----------------------------------------------------------------------------
INDUSTRY CONCENTRATION -- BANKING Investing more than 25% of
a fund's net assets in obligations of banks and
banking-related companies. Risks affecting the industry will
have a greater effect on the fund. Credit, interest-rate,
market, regulatory risks. [-] --
- ----------------------------------------------------------------------------
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES Debt securities
backed by pools of mortgages, including passthrough
certificates and other senior classes of collateralized
mortgage obligations (CMOs), or other receivables. Credit,
extension, interest-rate, liquidity, prepayment risks. [ ] [ ]
- ----------------------------------------------------------------------------
MUNICIPAL SECURITIES Debt obligations issued by or on behalf
of the State of New York and other states and jurisdictions
of the U.S. and their authorities, agencies and
instrumentalities. May include tax-exempt commercial paper,
variable-rate demand notes, bonds, municipal put bonds,
bond-anticipation notes and revenue-anticipation notes.
Credit, interest-rate, market risks. [-] [-]
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS The purchase of a security with a
commitment to resell the security back to the counterparty
at the same price plus interest. Credit risk. [ ] [ ]
- ----------------------------------------------------------------------------
RESTRICTED AND OTHER ILLIQUID SECURITIES Securities with
restrictions on trading, or those not actively traded. May
include private placements. Liquidity, market, valuation
risks. 10% 10%
- ----------------------------------------------------------------------------
</TABLE>

<PAGE> 22

<TABLE>
<CAPTION>
CASH NEW YORK
RESERVE TAX EXEMPT
FUND FUND
------- ----------
<S> <C> <C>

INVESTMENT PRACTICE LIMIT
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's
assets in defensive investments when the adviser or
subadviser believes that doing so would be in the best
interests of fund investors. For the New York Tax Exempt
Fund, these investments may include taxable securities and
municipal securities that are not exempt from New York state
and New York City taxes. Although intended to avoid losses
in unusual market conditions, defensive tactics might
prevent a fund from achieving its goal. [ ] [ ]
- ----------------------------------------------------------------------------
VARIABLE-NOTE MASTER DEMAND NOTES Unsecured instruments that
provide for periodic adjustments in their interest rate and
permit the indebtedness of the issuer to vary. Credit,
interest-rate, liquidity, market risks. [ ] [ ]
- ----------------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Liquidity, market,
speculative exposure risks. 20% 20%
- ----------------------------------------------------------------------------
</TABLE>

21
<PAGE> 23

ABOUT YOUR ACCOUNT

SHARE VALUATION

The price of your shares is also referred to as their net asset value (NAV).

The NAV is determined at 12:00 noon and at the close of regular trading on
the New York Stock Exchange (NYSE) (usually 4 p.m. Eastern Time) each day the
NYSE is open for business. It is calculated by dividing a fund's total assets,
less its liabilities, by the number of shares outstanding.

Each fund values its securities using amortized cost. This method values a
fund holding initially at its cost and then assumes a constant amortization to
maturity of any discount or premium. The amortized cost method ignores any
impact of fluctuating interest rates.

BUYING AND
SELLING SHARES

The accompanying Shareholder Guide explains how to invest directly with the
funds. You will find additional information about purchases, redemptions,
exchanges and services.

Each fund is open on those days when the NYSE is open, typically Monday
through Friday. Your transaction will be priced at the NAV next computed after
we receive your request in proper form.

Each fund reserves the right to:

- modify or terminate the check-redemption privilege

- limit the number of check redemptions

- begin charging a fee for checks

ACCOUNT STATEMENTS

In general, you will receive account statements as follows:

- after every transaction that affects your account balance (except for
distribution reinvestments and automatic transactions)

- after any changes of name or address of the registered owner(s)

- otherwise, every quarter

You will also receive annual and semiannual financial reports.

DISTRIBUTIONS

As a fund investor, you are entitled to your share of the fund's net income
and gains on its investments. A fund passes these earnings along to its
shareholders as distributions.

Each fund earns interest from its investments. These are passed along as
dividend distributions. The fund may realize capital gains if it sells
securities for a higher price than it paid for them. These are passed along as
capital-gain distributions. Money market funds usually do not make capital-gain
distributions.

The funds declare dividend distributions daily and pay them monthly. Each of
the funds typically distributes long-term capital gains (if any) to shareholders
annually, at the end of its fiscal year. The Tax Exempt Fund distributes
short-term capital gains (if any) at the end of its fiscal year; the Cash
Reserve Fund distributes them periodically as determined by the Board of
Directors.

<PAGE> 24

Most investors have their distributions reinvested in additional shares of
the same fund. Alternatively, you can choose to have a check for your
distributions mailed to you or sent by electronic transfer. Distributions will
be reinvested unless you select another option on your account application.
TAXES

As with any investment, you should consider how your investment in a fund
will be taxed. If your account is not a tax-advantaged retirement account, you
should be especially aware of the following potential tax implications. Please
consult your tax professional concerning your own tax situation.

Each fund intends to meet the requirements for being a tax-qualified
regulated investment company. As long as a fund continues to qualify, it pays no
federal income tax on the earnings it distributes to shareholders.

When you sell shares in any fund, you may realize a gain or loss. An exchange
from one fund to another is still a sale for tax purposes.

The Form 1099 that is mailed to you every January details your distributions
and their federal-tax category.

CASH RESERVE FUND

Distributions you receive from the Cash Reserve Fund, whether reinvested or
taken in cash, are generally considered taxable. The fund does not expect to
realize long-term capital gains or make capital-gain distributions.
Distributions from other sources are generally taxed as ordinary income.

Depending on provisions in your state's tax law, the portion of the fund's
income derived from "full faith and credit" U.S. Treasury obligations may be
exempt from state and local taxes. The fund will indicate each year the portion
of its income, if any, that may qualify for this exemption.

NEW YORK TAX EXEMPT FUND

Interest income that the fund earns is distributed to shareholders as income
dividends. Interest that is federally tax-free when received by the fund remains
tax-free when it is distributed.

However, gain on the sale of tax-free securities results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are distributed as dividends and taxed as ordinary
income. Although the fund does not expect to make them, long-term capital-gain
distributions would be taxed as long-term capital gains. Distributions of
capital gains are taxable whether you take them in cash or reinvest them.

The interest from some municipal securities is subject to the federal
alternative minimum tax. The fund may invest up to 100% of its assets in these
securities. Individuals who are subject to the tax must report this interest on
their tax returns. In addition, the fund may invest a portion of its assets in
securities that generate income that is not exempt from federal income tax.

To the extent that the fund's income dividends are derived from state
tax-free investments, they will be free from New York state and City personal
income taxes. The fund will indicate each year the portion of its dividends that
may qualify for this exemption. Corporate taxpayers should note that the fund's
income dividends and other distributions are not exempt from New York state and
City franchise or corporate income taxes.

23
<PAGE> 25

OTHER INFORMATION

ABOUT THE DISTRIBUTOR

Counsellors Securities Inc., a wholly owned subsidiary of Warburg Pincus, is
responsible for:

- making the funds available to you

- account servicing and maintenance

- other administrative services related to sale of the fund shares

24
<PAGE> 26

FOR MORE INFORMATION

More information about these funds is available free upon request, including
the following:

SHAREHOLDER GUIDE

Explains how to buy and sell shares. The Shareholder Guide is incorporated by
reference into (is legally part of) this Prospectus.

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes financial statements, portfolio investments and detailed performance
information.

The Annual Report also contains a letter from the fund's manager discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.

OTHER INFORMATION

A current Statement of Additional Information (SAI), which provides more
details about the funds, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.

You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference, and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
800-SEC-0330) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009.

Please contact Warburg Pincus Funds to obtain information, without charge,
the SAI and Annual and Semiannual Reports and to make shareholder inquiries:

BY TELEPHONE:
800-WARBURG
(800-927-2874)

BY MAIL:
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030

BY OVERNIGHT OR COURIER SERVICE:
Boston Financial
Attn: Warburg Pincus Funds
2 Heritage Drive
North Quincy, MA 02171

ON THE INTERNET:
www.warburg.com

SEC FILE NUMBERS:

Warburg Pincus Cash Reserve Fund 811-04171

Warburg Pincus New York Tax Exempt Fund 811-04170

[Warburg Pincus Funds Logo]

P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) - www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPMMF-1-0499

<PAGE> 27

Subject to Completion, February 26, 1999

STATEMENT OF ADDITIONAL INFORMATION

APRIL __, 1999

WARBURG PINCUS CASH RESERVE FUND

WARBURG PINCUS NEW YORK TAX EXEMPT FUND

This combined Statement of Additional Information provides information about
Warburg Pincus Cash Reserve Fund (the "Cash Reserve Fund") and Warburg Pincus
New York Tax Exempt Fund (the "Tax Exempt Fund" and collectively with the Cash
Reserve Fund, the "Funds") which supplements the information that is contained
in the combined Prospectus of the Funds, dated April , 1999.

Each Fund's audited annual report dated December 31, 1998, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference.

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus. Copies of the Prospectus and the Annual
Report can be obtained by writing or telephoning:

Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
800-WARBURG

<PAGE> 28
Table of Contents

<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVES..................................................... 1
GENERAL................................................................... 1
Price and Portfolio Maturity........................................ 1
Portfolio Quality and Diversification............................... 1
INVESTMENT POLICIES....................................................... 2
Municipal Securities................................................ 2
Bank Obligations.................................................... 4
Variable Rate Master Demand Notes................................... 5
Government Securities............................................... 6
When-Issued Securities.............................................. 6
Repurchase Agreements............................................... 6
Reverse Repurchase Agreements and Borrowings........................ 7
Stand-By Commitment Agreements...................................... 7
Third Party Puts.................................................... 8
Taxable Investments................................................. 9
Other Investment Policies and Practices of the New York Tax Exempt
Fund................................................................ 9
Non-Diversified Status........................................... 9
Other Investment Limitations........................................ 10
Cash Reserve Fund................................................ 10
New York Tax Exempt Fund......................................... 11
PORTFOLIO VALUATION....................................................... 13
PORTFOLIO TRANSACTIONS.................................................... 13
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES.......... 14
State Economy....................................................... 15
State Budget........................................................ 15
Recent Financial Results............................................ 18
Debt Limits and Outstanding Debt.................................... 19
Litigation.......................................................... 21
Authorities......................................................... 23
New York City and Other Localities.................................. 23
MANAGEMENT OF THE FUNDS................................................... 28
Officers and Board of Directors..................................... 28
Directors' Compensation............................................. 31
Investment Adviser, Sub-Investment Adviser and Administrator
and Co-Administrator................................................ 32
Banking Laws........................................................ 34
Custodian and Transfer Agent........................................ 34
Organization of the Fund............................................ 35
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................ 36
Automatic Cash Withdrawal Plan...................................... 37
</TABLE>

(i)
<PAGE> 29

<TABLE>
<S> <C>
EXCHANGE PRIVILEGE........................................................ 37
ADDITIONAL INFORMATION CONCERNING TAXES................................... 37
DETERMINATION OF YIELD.................................................... 40
INDEPENDENT ACCOUNTANTS AND COUNSEL....................................... 41
MISCELLANEOUS............................................................. 42
FINANCIAL STATEMENTS...................................................... 43
APPENDIX.................................................................. A-1
DESCRIPTION OF COMMERCIAL PAPER RATINGS............................. A-1
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS......................... A-2
</TABLE>

(ii)
<PAGE> 30
INVESTMENT OBJECTIVES

The following information supplements the discussion of each Fund's
investment objective and policies in the Prospectus. There are no assurances
that the Funds will achieve their investment objectives.

The investment objective of the Cash Reserve Fund is to provide
investors with high current income consistent with liquidity and stability of
principal.

The investment objective of the New York Tax Exempt Fund is to
provide investors with as high a level of current income that is excluded from
gross income for federal income tax purposes and exempt from New York State and
New York City personal income taxes as is consistent with preservation of
capital and liquidity.

Unless otherwise indicated, each Fund is permitted to engage in the
following investment strategies. The Funds are not obligated to pursue any of
the following strategies and do not represent that these techniques are
available now or will be available at any time in the future.

GENERAL

Price and Portfolio Maturity. Each Fund invests only in securities
which are purchased with and payable in U.S. dollars and which have (or,
pursuant to regulations adopted by the Securities and Exchange Commission
("SEC"), are deemed to have) remaining maturities of 397 calendar days or less
at the date of purchase by the Fund. For this purpose, variable rate master
demand notes (as described below), which are payable on demand, or, under
certain conditions, at specified periodic intervals not exceeding 397 calendar
days, in either case on not more than 30 days' notice, will be deemed to have
remaining maturities of 397 calendar days or less. 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. The Funds may purchase securities that are unrated at the
time of purchase that a Fund's investment adviser and sub-investment adviser
deem to be of comparable quality to rated securities that the Fund may purchase.
The NRSROs currently designated as such by the

<PAGE> 31

SEC are Standard & Poor's Ratings Services ("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 the Fund's Statement of Additional
Information.

The Funds have adopted certain credit quality, maturity and
diversification requirements under Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"), as operating policies. Under these policies,
there are two tiers of Eligible Securities, first and second tier, based on
their ratings by NRSROs or, if the securities are unrated, on determinations by
a Fund's investment adviser and sub-investment adviser. These policies generally
restrict a Fund from investing more than 5% of its assets in second tier
securities and limit to 5% of assets the portion that may be invested in any one
issuer. The Tax Exempt Fund may invest up to 25% of its assets without regard to
this per issuer limit. In addition, the credit quality and diversification
policies vary to some extent between the Cash Reserve and Tax Exempt Funds
because the Tax Exempt Fund is a single-state tax exempt fund.

INVESTMENT POLICIES

Municipal Securities. Under normal circumstances, substantially all
of the New York Tax Exempt Fund's assets will be invested in Municipal
Securities. Municipal Securities include short-term debt obligations issued by
governmental entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses and the extension of
loans to public institutions and facilities. Private activity securities that
are issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Municipal Securities
if the interest paid thereon is exempt from federal income tax.

The two principal types of Municipal Securities consist of "general
obligation" and "revenue" issues, and the New York Tax Exempt Fund's portfolio
may include "moral obligation" issues, which are normally issued by special
purpose authorities. General obligation bonds are secured by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity securities held by the Fund are in
most cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity securities
is usually directly related to the credit standing of the corporate user of the
facility involved.

There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a

-2-
<PAGE> 32
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of rating agencies represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and Municipal Securities with the
same maturity, interest rate and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the New York Tax
Exempt Fund, an issue of Municipal Securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Fund's investment adviser and sub-investment adviser will consider
such an event in determining whether the Fund should continue to hold the
obligation. See the Appendix attached hereto for further information concerning
ratings and their significance.

An issuer's obligations under its Municipal Securities are subject
to the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. There is also the possibility that as a result of litigation or
other conditions, the power or ability of any one or more issuers to pay, when
due, principal of and interest on its, or their, Municipal Securities may be
materially adversely affected.

Among other instruments, the New York Tax Exempt Fund may purchase
short-term Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation
Notes and other forms of short-term loans. Such notes are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues.

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.

-3-
<PAGE> 33

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. Although 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 in recent years, the most recent actions of S&P
and Moody's have been to place the debt obligations of New York State on
CreditWatch with positive implications and to upgrade the debt obligations of
New York City, respectively. Strong demand for New York Municipal Securities has
also 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 Statement of Additional Information,
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.

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

-4-
<PAGE> 34

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.

Variable rate master demand notes held by a Fund may have maturities
of more than thirteen months, provided: (i) the Fund is entitled to payment of
principal and accrued interest upon not more than seven days' notice and (ii)
the rate of interest on such notes is adjusted automatically at periodic
intervals which may extend up to thirteen months. In determining the Fund's
average weighted portfolio maturity and whether a variable rate master demand
note has a remaining maturity of thirteen months or less, each note will be
deemed by the Fund to have a maturity equal to the longer of the period
remaining until its next interest rate adjustment or the period remaining until
the principal amount owed can be recovered through demand. In determining
whether an unrated variable rate master demand note is of comparable quality at
the time of purchase to instruments rated "high quality" by any major rating
service or when purchasing variable rate master demand notes, the Fund's
investment adviser and sub-investment adviser will consider the earning power,
cash flow and other liquidity ratios of the issuer of the note and will
continuously monitor its financial condition. In addition, when necessary to
ensure that a note is of "high quality," the Fund will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter of line of credit, guarantee or commitment to lend.

In the event an issuer of a variable rate master demand note
defaults on its payment obligation, a Fund might be unable to dispose of the
note because of the absence of a secondary market and might, for this or other
reasons, suffer a loss to the extent of the default. However, the Fund will
invest in such instruments only where its investment adviser and 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.

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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.

When-Issued Securities. A Fund may purchase Municipal Securities or
portfolio securities, as the case may be, on a "when-issued" basis (i.e., for
delivery beyond the normal settlement date at a stated price and yield). 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.

When the Fund agrees to purchase when-issued securities, its
custodian will set aside cash or liquid securities in a segregated account equal
to the amount of the commitment. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to place additional assets in the segregated
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. It may be expected that the Fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because the Fund
will set aside cash and liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its portfolio might
be affected in the event its commitments to purchase when-issued securities ever
exceeded 25% of the value of its assets.

When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.

Repurchase Agreements. Each Fund may agree to purchase money market
instruments from financial institutions such as banks and broker-dealers subject
to the seller's agreement to repurchase them at an agreed-upon date and price
("repurchase agreements"). The repurchase price generally equals the price paid
by 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

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<PAGE> 36

securities, could expose the Fund to possible loss, including the risk of a
possible decline in the value of the underlying securities during the period
while the Fund seeks to assert its rights thereto. Repurchase agreements are
considered to be loans by the Fund under the 1940 Act. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price (including
accrued interest). Securities subject to repurchase agreements will be held by
the Fund's custodian or in the Federal Reserve/Treasury book-entry system or
another authorized securities depository.

Reverse Repurchase Agreements and Borrowings. A Fund may borrow
funds for temporary purposes and not for leverage by agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed-upon date and price. At the time the Fund
enters into such an arrangement (a "reverse repurchase agreement"), it will
place in a segregated custodial account cash or liquid securities having a value
equal to the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
Reverse repurchase agreements are considered to be borrowings by the Fund under
the 1940 Act.

Stand-By Commitment Agreements. (New York Tax Exempt Fund only). The
Fund may acquire "stand-by commitments" with respect to Municipal Securities
held in its portfolio. Under a stand-by commitment, a dealer agrees to purchase
at the Fund's option specified Municipal Securities at a specified price.
Stand-by commitments acquired by the Fund may also be referred to as "put"
options. The Fund's right to exercise stand-by commitments is unconditional and
unqualified. A stand-by commitment is not transferable by the Fund, although the
Fund can sell the underlying securities to a third party at any time.

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

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

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<PAGE> 37
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Fund's portfolio will
not exceed 1/2 of 1% of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.

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

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

Third Party Puts. (New York Tax Exempt Fund only). The Fund may
purchase long-term fixed rate bonds that have been coupled with an option
granted by a third party financial institution allowing the Fund at specified
intervals to tender (or "put") the bonds to the institution and receive the face
value thereof (plus accrued interest). These third party puts are available in
several different forms, may be represented by custodial receipts or trust
certificates and may be combined with other features such as interest rate
swaps. The Fund receives a short-term rate of interest (which is periodically
reset), and the interest rate differential between that rate and the fixed rate
on the bond is retained by the financial institution. The financial institution
granting the option does not provide credit enhancement, and in the event that
there is a default in the payment of principal or interest, or downgrading of a
bond to below investment grade, or a loss of the bond's tax-exempt status, the
put option will terminate automatically, the risk to the Fund will be that of
holding such a long-term bond and the dollar-weighted average maturity of the
Fund's portfolio would be adversely affected.

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

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<PAGE> 38
in relation to various regulated investment company tax provisions is unclear.
However, Warburg, intends to manage the Fund's portfolio in a manner designed to
minimize any adverse impact from these investments.

Taxable Investments. (New York Tax Exempt fund only). Because the
Fund's purpose is to provide income excluded from gross income for federal
income tax purposes and exempt from New York State and New York City taxes, the
Fund generally will invest in taxable obligations only if and when the
investment adviser believes it would be in the best interests of the Fund's
investors to do so. Situations in which the Fund may invest up to 20% of its
total assets in taxable securities include: (i) pending investment of proceeds
of sales of Fund shares or the sale of its portfolio securities or (ii) when the
Fund requires highly liquid securities in order to meet anticipated redemptions.
The Fund may temporarily invest more than 20% of its total assets in taxable
securities to maintain a "defensive" posture when the Fund's investment adviser
determines that it is advisable to do so because of adverse market conditions
affecting the market for Municipal Securities generally.

Among the taxable investments in which the Fund may invest are
repurchase agreements and time deposits maturing in not more than seven days.
The Fund may agree to purchase money market instruments from financial
institutions such as banks and broker-dealers subject to the seller's agreement
to repurchase them at an agreed-upon date and price ("repurchase agreements").
The seller under a repurchase agreement will be required to maintain the value
of the securities subject to the agreement at not less than the repurchase price
(including accrued interest). Securities subject to repurchase agreements will
be held by the Fund's custodian or in the Federal Reserve/Treasury book-entry
system or another authorized securities depository.

Other Investment Policies and Practices of the New York Tax Exempt Fund

Non-Diversified Status. The New York Tax Exempt Fund is classified
as non-diversified within the meaning of the 1940 Act, which means that it is
not limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. The Fund's investments will be limited, however,
in order to qualify as a "regulated investment company" for purposes of the
Code. See "Additional Information Concerning Taxes." To qualify, the Fund will
comply with certain requirements, including limiting its investments so that at
the close of each quarter of the taxable year (a) not more than 25% of the
market value of its total assets will be invested in the securities of a single
issuer, and (b) with respect to 50% of the market value of its total assets, not
more than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer.

Other Investment Limitations

Cash Reserve Fund. 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

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<PAGE> 39
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 and 12 may be changed by a vote of
the Fund's Board of Directors (the "Board") at any time.

The Cash Reserve 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.

7. Purchase securities on margin, make short sales of securities or
maintain a short position.

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<PAGE> 40
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 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 with maturities greater
than seven days after notice by the Fund, variable rate master demand notes
providing for settlement upon maturities longer than seven days and savings
accounts which require more than seven days' notice prior to withdrawal shall be
considered illiquid securities.

12. Invest in oil, gas or mineral leases.

If a percentage restriction (other than the percentage limitation
set forth in No. 3 above) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in the
values of portfolio securities or in the amount of the Fund's assets will not
constitute a violation of such restriction.

New York Tax Exempt Fund. The investment limitations numbered 1
through 9 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 10 and 11 may be changed by a vote of the Fund's Board of Directors
(the "Board") at any time.

The New York Tax Exempt Fund may not:

1. Invest less than 80% of its assets in securities the interest on
which is exempt from federal income tax, except during temporary defensive
periods or under unusual market conditions, as determined by the Fund's
investment adviser.

2. Borrow money, issue senior securities or enter into reverse
repurchase agreements except for temporary or emergency purposes, and not for
leveraging, and then in 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

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<PAGE> 41
the agreement is entered into. Whenever borrowings exceed 5% of the value of the
Fund's total assets, the Fund will not make any additional investments.

3. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the same
industry; provided that there shall be no limit on the purchase of (i)
obligations issued by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political sub-divisions, (ii) certificates of
deposit issued by United States branches of United States banks or (iii)
Municipal Securities the interest on which is paid solely from revenues of
economically related projects. For purposes of this restriction, private
activity securities ultimately payable by companies within the same industry are
treated as if they were issued by issuers in the same industry.

4. Make loans except that the Fund may purchase or hold debt
obligations and enter into repurchase agreements in accordance with its
investment objective, policies and limitations.

5. Underwrite any issue of securities except to the extent that the
purchase of debt obligations directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitations may be deemed to be
underwriting.

6. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Fund may invest in debt
obligations secured by real estate, mortgages or interests therein.

7. Purchase securities on margin, make short sales of securities or
maintain short positions.

8. Write or sell puts, calls, straddles, spreads or combinations
thereof, except that the Fund may acquire stand-by commitments.

9. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition or reorganization.

10. Invest more than 10% of the value of the Fund's total assets in
securities which may be illiquid because of legal or contractual restrictions on
resale or securities for which there are not readily available market
quotations. For purposes of this limitation, repurchase agreements with
maturities greater than seven days and variable rate master demand notes
providing for settlement upon more than seven days notice by the Fund and time
deposits maturing in more than seven calendar days shall be considered illiquid
securities.

11. Invest in oil, gas or mineral leases.

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<PAGE> 42
If a percentage restriction (other than the percentage limitation
set forth in No. 2 above) is adhered to at the time of an investment, a later
increase or decrease in the percentage of assets resulting from a change in the
values of portfolio securities or in the amount of the Fund's assets will not
constitute a violation of such restriction.

PORTFOLIO VALUATION

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

Investment decisions for a Fund concerning specific portfolio
securities are made independently from those for other clients advised by BIMC.
Such other investment clients may invest in the same securities as the Fund.
When purchases or sales of the same

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<PAGE> 43
security are made at substantially the same time on behalf of such other
clients, transactions are averaged as to price, and available investments
allocated as to amount, in a manner which BIMC believes to be equitable to each
client, including the Fund. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold for the Fund. To the extent permitted by law, BIMC may
aggregate the securities to be sold or purchased for each Fund with those to be
sold or purchased for such other investment clients in order to obtain best
execution.

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

The New York Tax Exempt Fund may participate, if and when
practicable, in bidding for the purchase of Municipal Securities directly from
an issuer for the Fund's portfolio in order to take advantage of the lower
purchase price available to members of such a group. The Fund will engage in
this practice, however, only when Warburg and BIMC, in their sole discretion,
believe such practice to be otherwise in the Fund's interest.

Each Fund does not intend to seek profits through short-term
trading. A Fund's annual portfolio turnover will be relatively high but 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.

SPECIAL CONSIDERATIONS RELATING TO NEW YORK
MUNICIPAL SECURITIES

Some of the significant financial considerations relating to the New
York Tax Exempt Fund's investments in New York Municipal Securities are
summarized below. This summary information is not intended to be a complete
description and is principally derived from official statements relating to
issues of New York Municipal Securities that were available prior to the date of
this Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been independently
verified.

State Economy. New York is the third most populous state in the
nation and has a relatively high level of personal wealth. The State's economy
is diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State has a declining
proportion of its workforce engaged in manufacturing, and an increasing
proportion engaged in service industries. New York City (the "City"), which is
the most populous city in the State and nation and is the center of the nation's
largest metropolitan area, accounts for a large portion of the State's
population and personal income.

The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually

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<PAGE> 44
eroding its relative economic position. State per capita personal income has
historically been significantly higher than the national average, although the
ratio has varied substantially.

Moderate growth is projected to continue in 1998 and 1999 for
employment, wages, and personal income, although the growth rates will lessen
gradually during the course of the two years. Overall employment growth is
expected to continue at a modest rate, reflecting the slowing growth in the
national economy, continued spending restraint in government, and restructuring
in the health care, social service, and banking sectors.

There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.

State Budget. The State Constitution requires the governor (the
"Governor") to submit to the State legislature (the "Legislature") a balanced
executive budget which contains a complete plan of expenditures for the ensuing
fiscal year and all moneys and revenues estimated to be available therefor,
accompanied by bills containing all proposed appropriations or reappropriations
and any new or modified revenue measures to be enacted in connection with the
executive budget. The entire plan constitutes the proposed State financial plan
for that fiscal year. The Governor is required to submit to the Legislature
quarterly budget updates which include a revised cash-basis state financial
plan, and an explanation of any changes from the previous state financial plan.

The State's budget for the 1997-98 fiscal year was adopted by the
Legislature on August 4, 1997, more than four months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for State-supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.

The Governor is required by law to propose a balanced budget each
year. In order to address any potential remaining budget gap, the Governor is
expected to make additional proposals to bring receipts in line with
disbursements. The State has closed projected budget gaps of $5.0 billion, $3.9
billion and $2.3 billion in its 1995-96, 1996-97 and 1997-98 fiscal years,
respectively.

The 1997-98 General Fund Financial Plan is projected to be balanced
on a cash basis, with a projected cash surplus of $1.83 billion. As compared to
the Governor's Executive Budget as amended in February 1997, the State's adopted
budget for 1997-98 increased General Fund spending by $1.7 billion, primarily
from increases for local assistance ($1.3 billion). Resources used to fund these
additional expenditures include increased revenues projected for the 1997-98
fiscal year, increased resources produced in the 1996-97

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<PAGE> 45
fiscal year that will be utilized in 1997-98, re-estimates of social service,
fringe benefit and other spending, and certain non-recurring resources.

The 1997-98 adopted budget includes multi-year reductions, including
a State funded property and local income tax reduction program, estate tax
relief, utility gross receipts tax reductions, permanent reductions in the State
sales tax on clothing, and elimination of assessments on medical providers.
These reductions are intended to reduce the overall level of State and local
taxes in New York and to improve the State's competitive position vis-a-vis
other states. The various elements of the State and local tax and assessments
reductions have little or no impact on the 1997-98 State Financial Plan, and do
not begin to materially affect the outyear projections until the State's
1999-2000 fiscal year.

Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.

On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.

The Governor presented his 1998-99 Executive Budget to the
Legislature on January 20, 1998. The Executive Budget contains financial
projections for the State's 1997-98 through 2000-01 fiscal years, detailed
estimates of receipts and a proposed Capital Program and Financing Plan for the
1997-98 through 2002-03 fiscal years. It is expected that the Governor will
prepare amendments to his Executive Budget as permitted under law and that these
amendments will be reflected in a revised Financial Plan. There can be no
assurance that the Legislature will enact into law the Executive Budget as
proposed by the Governor, or that the State's adopted budget projections will
not differ materially and adversely from the projections set forth therein.

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The 1998-99 Financial Plan is projected to be balanced on a cash
basis in the General Fund. Total General Fund receipts, including transfers from
other funds, are projected to be $36.22 billion, an increase of $1.02 billion
over projected receipts in the current fiscal year. Total General Fund
disbursements, including transfers to other funds, are projected to be $36.18
billion, an increase of $1.02 billion over the projected expenditures (including
pre-payments), for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes year-to-year growth in General
Fund spending of 2.89 percent. State Funds spending (i.e., General Fund plus
other dedicated funds, with the exception of federal aid) is projected to grow
by 8.5 percent. Spending from All Governmental Funds (excluding transfers) is
proposed to increase by 7.6 percent from the prior fiscal year.

The forecast of General Fund receipts in 1998-99 incorporates
several Executive Budget tax proposals that, if enacted, would further reduce
receipts otherwise available to the General Fund by approximately $700 million
during 1998-99. The Executive Budget proposes accelerating school tax relief for
senior citizens under STAR, which is projected to reduce General Fund receipts
by $537 million in 1998-99. The proposed reduction supplements STAR tax
reductions already scheduled in law, which are projected at $187 million in
1998-99. The Budget also proposes several new tax-cut initiatives and other
funding changes that are projected to further reduce receipts available to the
General Fund by over $200 million. These initiatives include reducing the fee to
register passenger motor vehicles and earmarking a larger portion of such fees
to dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.

The Division of the Budget estimates that the 1998-99 Financial Plan
includes approximately $62 million in non-recurring resources, comprising less
than two-tenths of one percent of General Fund disbursements. The non-recurring
resources projected for use in 1998-99 consist of $27 million in retroactive
federal welfare reimbursements for family assistance recipients with HIV/AIDS,
$25 million in receipts from the Housing Finance Agency that were originally
anticipated in 1997-98, and $10 million in other measures, including $5 million
in asset sales.

Disbursements from Capital Projects funds in 1998-99 are estimated
at $4.82 billion, or $1.07 billion higher than 1997-98. The proposed spending
plan includes: $2.51 billion in disbursements for transportation purposes,
including the State and local highway and bridge program; $815 million for
environmental activities; $379 million for correctional services; $228 million
for the State University of New York ("SUNY") and the City University of New
York ("CUNY"); $290 million for mental hygiene projects; and $375 million for
CEFAP. Approximately 28 percent of capital projects are proposed to be financed

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by "pay-as-you-go" resources. State-supported bond issuances finance 46 percent
of capital projects, with federal grants financing the remaining 26 percent.

The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, the financial plan is based
upon forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. Actual results, however, could differ
materially and adversely from the projections set forth in a financial plan, and
those projections may be changed materially and adversely from time to time.

In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
Division of Budget believes it could take similar actions should variances occur
in its projections for the current fiscal year.

Recent Financial Results. The General Fund is the principal
operating fund of the State and is used to account for all financial
transactions, except those required to be accounted for in another fund. It is
the State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes.

The State ended the first six months of its 1997-98 fiscal year with
an unaudited General Fund cash balance of $3.2 billion, or $254 million above
the August Financial Plan estimate. Total unaudited receipts, including
transfers from other funds, totaled $18.8 billion, or $340 million higher than
expected. The additional receipts reflected higher-than-anticipated tax revenues
of $244 million and miscellaneous receipts of $93 million. Unaudited General
Fund spending for the same period equaled $16.0 billion, or $86 million above
the cashflow projections published in the August Financial Plan. For fiscal year
1997-98, total General Fund receipts were projected at $35.09 billion, an
increase of $2.05 billion from 1996-97 results. Total disbursements, including
transfers to capital projects, debt service and other funds, were projected at
$34.60 billion, or 5.2 percent higher than disbursements in 1996-97.

The mid-year update projected a closing balance in the General Fund
of $927 million, which was composed of a $530 million reserve for future needs,
a $332 million balance in the Tax Stabilization Reserve Fund ("TSRF"), and a $65
million balance in the Contingency Reserve Fund ("CRF").

As part of the 1997-98 Adopted Budget Report, the State also issued
its update to the GAAP-basis Financial Plan for the State's 1997-98 fiscal year,
based on the cash-basis 1997-98 State Financial Plan completed in August. The
GAAP-basis update projected a General Fund operating deficit of $959 million,
primarily reflecting the use of a portion of the 1996-97 cash surplus to fund
1997-98 liabilities, offset by the $530 million reserve for future needs.

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Debt Limits and Outstanding Debt. There are a number of methods by
which the State of New York may incur debt. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.

The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.

The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the Local Government
Assistance Corporation ("LGAC") to restructure the way the State makes certain
local aid payments.

In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.

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In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through New York State's annual seasonal borrowing. The legislation empowered
LGAC to issue its bonds and notes in an amount to yield net proceeds not in
excess of $4.7 billion (exclusive of certain refunding bonds). Over a period of
years, the issuance of these long-term obligations, which were to be amortized
over no more than 30 years, was expected to eliminate the need for continued
short-term seasonal borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt service on
these bonds. The legislation also imposed a cap on the annual seasonal borrowing
of the State at $4.7 billion, less net proceeds of bonds issued by LGAC and
bonds issued to provide for capitalized interest, except in cases where the
Governor and the legislative leaders have certified the need for additional
borrowing and provided a schedule for reducing it to the cap. If borrowing above
the cap was thus permitted in any fiscal year, it was required by law to be
reduced to the cap by the fourth fiscal year after the limit was first exceeded.
As of June 1995, LGAC had issued bonds to provide net proceeds of $4.7 billion,
completing the program.

On January 13, 1992, Standard & Poor's Ratings Services ("S&P")
reduced its ratings on the State's general obligation bonds from A to A- and, in
addition, reduced its ratings on the State's moral obligation, lease purchase,
guaranteed and contractual obligation debt. On August 28, 1997, S&P revised its
ratings on the State's general obligation bonds from A- to A and revised its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. On March 2, 1998, S&P affirmed its A rating on the
State's outstanding bonds.

On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State
and stated that the outlook for the State's general obligations is stable.

The State anticipates that its capital programs will be financed, in
part, by State and public authorities borrowings in the 1997-98 fiscal year. The
State expects to issue $605 million in general obligation bonds (including $140
million for purposes of redeeming outstanding bond anticipation notes) and $140
million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in certificates of participation
(including costs of issuance, reserve funds and other costs) during the State's
1997-98 fiscal year for equipment purchases. The projection of State borrowings
for the 1997-98 fiscal year is subject to change as market conditions, interest
rates and other factors vary throughout the fiscal year.

The proposed 1997-98 through 2002-03 Capital Program and Financing
Plan was released with the 1998-99 Executive Budget on January 20, 1998. As a
part of that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the

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issuance of COPs to finance welfare information systems until 1998-99 to permit
a thorough assessment of needs; and the elimination of issuances for the CEFAP
to reflect the proposed conversion of that bond-financed program to
pay-as-you-go financing.

As a result of these changes, the State's 1997-98 borrowing plan now
reflects: $501 million in general obligation bonds (including $140 million for
purposes of redeeming outstanding BANs) and $140 million in general obligation
commercial paper; the issuance of $83 million in COPs for equipment purchases;
and approximately $1.8 billion in borrowings by public authorities pursuant to
lease-purchase and contractual-obligation financings for capital programs of the
State, including costs of issuance, reserve funds, and other costs, net of
anticipated refundings and other adjustments for 1997-98 capital projects. The
projection of State borrowings for the 1997-98 fiscal year is subject to change
as market conditions, interest rates and other factors vary through the end of
the fiscal year.

New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.

Litigation. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) challenges to the practice of reimbursing certain
Office of Mental Health patient care expenses from the client's Social Security
benefits; (5) alleged responsibility of New York State officials to assist in
remedying racial segregation in the City of Yonkers; (6) challenges to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) action alleging damages resulting from the failure
by the State's Department of Environmental Conservation to timely provide
certain data; (9) challenges to the constitutionality of Public Health Law
2807-d, which imposes a gross receipts tax from certain patient care services;
(10) an action seeking reimbursement from the State for certain costs arising
out of the provision of pre-school services and programs for children with
handicapped conditions; (11) action seeking enforcement of certain sales and
excise taxes and tobacco products and motor fuel sold to non-Indian consumers on
Indian reservations; and (12) a challenge to the constitutionality of Clean
Water/Clean Air Bond Act.

Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-

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97, $193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware vs. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.

The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.

Although other litigation is pending against New York State, except
as described herein, no current litigation involves New York State's authority,
as a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.

Authorities. The fiscal stability of New York State is related, in
part, to the fiscal stability of its Authorities, which generally have
responsibility for financing, constructing and operating revenue-producing
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that is
State-supported or State-related.

Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for

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dormitory rooms and housing. In recent years, however, New York State has
provided financial assistance through appropriations, in some cases of a
recurring nature, to certain of the Authorities for operating and other expenses
and, in fulfillment of its commitments on moral obligation indebtedness or
otherwise, for debt service. This operating assistance is expected to continue
to be required in future years. In addition, certain statutory arrangements
provide for State local assistance payments otherwise payable to localities to
be made under certain circumstances to certain Authorities. The State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to Authorities under these arrangements. However, in the
event that such local assistance payments are so diverted, the affected
localities could seek additional State funds.

New York City and Other Localities. The fiscal health of the State
of New York may also be impacted by the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City depends on State
aid both to enable the City to balance its budget and to meet its cash
requirements. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.

In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979. In 1975, S&P suspended its A
rating of City bonds. This suspension remained in effect until March 1981, at
which time the City received an investment grade rating of BBB from S&P.

On July 2, 1985, S&P revised its rating of City bonds upward to BBB+
and on November 19, 1987, to A-. On February 3, 1998, S&P placed a BBB+ rating
on the City's general obligation debt on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in effect
since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May
1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's debt from Baa1 to A3.

New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid

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otherwise payable by the State to the City. Failure by the State to continue the
imposition of such taxes, the reduction of the rate of such taxes to rates less
than those in effect on July 2, 1975, failure by the State to pay such aid
revenues and the reduction of such aid revenues below a specified level are
included among the events of default in the resolutions authorizing MAC's
long-term debt. The occurrence of an event of default may result in the
acceleration of the maturity of all or a portion of MAC's debt. MAC bonds and
notes constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. As of June 30, 1997, MAC had
outstanding an aggregate of approximately $4.267 billion of its bonds. MAC is
authorized to issue bonds and notes to refunds its outstanding bonds and notes
and to fund certain reserves, without limitation as to principal amount, and to
finance certain capital commitments to the Transit Authority and the New York
City School Construction Authority through the 1997 fiscal year in the event the
City fails to provide such financing.

Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.

On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and CUNY and
reflected the City's expense and capital budgets for the 1998 fiscal year, which
were adopted on June 6, 1997. The 1998-2001 Financial Plan projected revenues
and expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.

The 1998-99 forecast for user taxes and fees also reflects the
impact of scheduled tax reductions that will lower receipts by $38 million, as
well as the impact of two Executive Budget proposals that are projected to lower
receipts by an additional $79 million. The first proposal would divert $30
million in motor vehicle registration fees from the General Fund to the
Dedicated Highway and Bridge Trust Fund; the second would reduce fees for motor
vehicle registrations, which would further lower receipts by $49 million. The

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underlying growth of receipts in this category is projected at 4 percent, after
adjusting for these scheduled and recommended changes.

In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.

The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.

Since the preparation of the 1998-2001 Financial Plan, the State has
adopted its budget for the 1997-1998 fiscal year. The State budget enacted a
smaller sales tax reduction than the tax reduction program assumed by the City
in the financial plan, which will increase projected City sales tax revenues;
provided for State aid to the City which was less than assumed in the financial
plan; and enacted a State funded tax relief program which begins a year later
than reflected in the financial plan. In addition, the net effect of tax law
changes made in the Federal Balanced Budget Act of 1997 are expected to increase
tax revenues in the 1998 fiscal year.

Although the City has maintained balanced budgets in each of its
last sixteen fiscal years and is projected to achieve balanced operating results
for the 1997 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.

The projections set forth in the 1998-2001 Financial Plan were based
on various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of

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Federal and State welfare reform and any future legislation affecting Medicare
or other entitlements.

Implementation of the 1998-2001 Financial Plan is also dependent
upon the City's ability to market its securities successfully. The City's
financing program for fiscal years 1998 through 2001 contemplates the issuance
of $5.7 billion of general obligation bonds and $5.7 billion of bonds to be
issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority,
was created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.

The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.

The City since 1981 has fully satisfied its seasonal financing needs
in the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. Although the City's current financial plan projects
$2.4 billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.

Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.

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<PAGE> 56
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.

Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.

Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.

Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in New York State other than New York City was approximately $19
billion. A small portion (approximately $102.3 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Eighteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1995.

From time to time, federal expenditure reductions could reduce, or
in some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
New York State assistance in the future.

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<PAGE> 57
MANAGEMENT OF THE FUNDS

Officers and Board of Directors

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

<TABLE>
<S> <C>
Richard N. Cooper* (64)............ Director
Harvard University Professor at Harvard University; National
1737 Cambridge Street Intelligence Council from June 1995 until
Cambridge, Massachusetts 02138 January 1997; Director or Trustee of
Circuit City Stores, Inc. (retail
electronics and appliances) and Phoenix
Home Life Insurance Company;
Director/Trustee of other investment
companies in the Warburg Pincus family of
funds.

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

John L. Furth* (67)............... Director
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970;
Chairman of the Board of other investment
companies in the Warburg Pincus family of
funds.

Jeffrey E. Garten (51)............ Director
Box 208200 Dean of Yale School of Management and
New Haven, Connecticut 06520-8200 William S. Beinecke Professor in the
Practice of International Trade and
Finance; Undersecretary of Commerce for
International Trade from November 1993 to
October 1995; Professor at Columbia
University from September 1992 to November
1993; Director/Trustee of other investment
companies in the Warburg Pincus family of
funds.
</TABLE>

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

-28-
<PAGE> 58

<TABLE>
<S> <C>
Thomas A. Melfe (66)............... Director
1251 Avenue of the Americas Partner in the law firm of Piper & Marbury
New York, New York 10020-1104 L.L.P.; Partner in the law firm of Donovan
Leisure Newton & Irvine from April 1984 to
April 1998; Director of Municipal Fund for
New York Investors, Inc.; Director/Trustee
of other investment companies in the
Warburg Pincus family of funds.

Arnold M. Reichman* (50)........... Director
466 Lexington Avenue Managing Director and Assistant Secretary
New York, New York 10017-3147 of Warburg; Associated with Warburg since
1984; Senior Vice President, Secretary and
Chief Operating Officer of Counsellors
Securities; Director/Trustee of other
investment companies in the Warburg Pincus
family of funds.

Alexander B. Trowbridge (68)....... Director
1317 F Street, N.W., 5th Floor President of Trowbridge Partners, Inc.
Washington, DC 20004 (business consulting) from January 1990 to
November 1996; Director or Trustee of New
England Mutual Life Insurance Co., ICOS
Corporation (biopharmaceuticals), Waste
Management, Inc. (solid and hazardous waste
collection and disposal), IRI International
(energy services), The Rouse Company (real
estate development), Harris Corp.
(electronics and communications equipment),
The Gillette Co. (personal care products)
and Sun Company Inc. (petroleum refining
and marketing); Director/Trustee of other
investment companies in the Warburg Pincus
family of funds.

Eugene L. Podsiadlo (41)........... President
466 Lexington Avenue Managing Director of Warburg; Associated
New York 10017-3147 with Warburg since 1991; Vice President of
Citibank, N.A. from 1987-1991; Officer of
Counsellors Securities and other investment
companies in the Warburg Pincus family of
funds.
</TABLE>

-29-
<PAGE> 59

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

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

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

Howard Conroy, CPA (44)............ Vice President and Chief Financial Officer
466 Lexington Avenue Vice President of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1992; Officer of other
investment companies in the Warburg Pincus
family of funds.

Daniel S. Madden, CPA (32)......... Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1995; Associated with
BlackRock Financial Management, Inc. from
September 1994 to October 1995; Associated
with BEA Associates from April 1993 to
September 1994; Associated with Ernst &
Young LLP from 1990 to 1993; Officer of
other investment companies in the Warburg
Pincus family of funds.

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

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<PAGE> 60

No employee of Warburg, BIMC, PNC or PFPC Inc. ("PFPC") or any of
their affiliates receives any compensation from a Fund for acting as an officer
or Director of a 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 and $250 for each Audit Committee
Meeting, as applicable, attended by him for his services as Director and is
reimbursed for expenses incurred in connection with his attendance at Board
meetings.

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

<TABLE>
<CAPTION>
Total Compensation from
Compensation from all Investment Companies
Name of Director* each Fund Managed by Warburg
- ----------------- --------- ------------------
<S> <C> <C>
John L. Furth None** None**
Richard N. Cooper $2,000 $44,500
Donald J. Donahue*** $2,000 $44,500
Jack W. Fritz $2,000 $44,500
Jeffrey E. Garten N/A N/A
Thomas A. Melfe $2,000 $44,500
Arnold M. Reichman None** None**
Alexander B. Trowbridge $2,000 $44,500
</TABLE>

- ----------

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

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

*** Mr. Donahue resigned as a Director of each Fund effective February 6,
1998.

[As of April 1, 1999, Directors and officers of a Fund as a group
owned of record less than 1% of the relevant Fund's outstanding common stock.]

Investment Adviser, Sub-Investment Adviser and Administrator
and Co-Administrator

Warburg serves as investment adviser to the Fund, BIMC 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

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<PAGE> 61
(the "Advisory Agreement," the "Sub-Advisory Agreement" and the
"Co-Administration Agreement," respectively, and collectively, the
"Agreements").

For the services provided pursuant to the Advisory Agreement,
Warburg is entitled to receive a fee, computed daily and payable monthly, at the
annual rate of .25% of the value of each Fund's average daily net assets.
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.

As sub-investment adviser and administrator, BIMC has agreed to
implement each Fund's investment program as determined by the Board and Warburg.
BIMC will supervise the day-to-day operations of the Fund and perform the
following services: (i) providing investment research and credit analysis
concerning the Fund's investments, (ii) placing orders for all purchases and
sales of the Fund's portfolio investments and (iii) maintaining the books and
records required to support the Fund's operations. BIMC also calculates the
Fund's net asset value, provides accounting services for the Funds and assists
in related aspects of the Funds ' operations. As compensation therefor, each
Fund has agreed to pay BIMC a fee computed daily and payable monthly at an
annual rate of .25% of the value of each Fund's average daily net assets.

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 a Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual and semiannual reports, assisting in the preparation of tax returns and
monitoring and developing compliance procedures for the Fund. As compensation,
each Fund pays to Counsellors Service a fee calculated at an annual rate of .10%
of the Fund's average daily net assets.

CASH RESERVE FUND

Advisory and Sub-Advisory Fees paid to each of Warburg and BIMC

<TABLE>
<CAPTION>
Fiscal year ended 10-month period ended Fiscal year ended
February 28, 1997 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C>
$1,092,344 $1,004,894
</TABLE>

Regarding the aggregate amounts waived and for the same periods, Warburg
voluntarily waived $229,970, $192,234 and $_______, respectively, and BIMC
voluntarily waived $344,956, $288,351 and $_______, respectively.

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<PAGE> 62
Administrative Services/Co-Administration Fees paid to Counsellors Service

NEW YORK TAX EXEMPT FUND

Advisory and Sub-Advisory Fees paid to each of Warburg and BIMC

Regarding the aggregate amounts waived and for the same periods, Warburg
voluntarily waived $74,362, $58,818 and $______, respectively, and BIMC
voluntarily waived $111,543, $88,227 and $______, respectively.

Administrative Services/Co-Administration Fees paid to Counsellors Service

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

-33-
<PAGE> 63
acting as investment adviser, transfer agent or custodian to such an investment
company. PNC and BIMC are subject to such banking laws and regulations.

BIMC, PNC and each Fund have been advised by Messrs. Ballard, Spahr,
Andrews & Ingersoll that BIMC and PNC may perform the services for a Fund
contemplated by their respective agreements with the Fund and the Prospectus
without violation of applicable banking laws or regulations. Such counsel have
pointed out, however, that future changes in legal requirements relating to the
permissible activities of banks and their affiliates, as well as future
interpretations of present requirements, could prevent one or more of them from
continuing to perform services for the Fund. If BIMC or PNC were prohibited from
providing services to the Fund, the Board would select another qualified firm.
Any new sub-investment advisory agreement would be subject to shareholder
approval.

Custodian and Transfer Agent

PNC is custodian of each Fund's assets pursuant to a custodian
agreement (the "Custodian Agreement"). Under the Custodian Agreement, PNC (i)
maintains a separate account or accounts in the name of the Fund, (ii) holds and
transfers portfolio securities on account of the Fund, (iii) makes receipts and
disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities and (v) makes periodic reports to the Board concerning the Fund's
custodial arrangements. PNC is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of a Fund, provided that PNC
remains responsible for the performance of all its duties under the Custodian
Agreement and holds the Fund harmless from the acts and omissions of any
sub-custodian. PNC is an indirect wholly owned subsidiary of PNC Bank Corp., and
its principal business address is 1600 Market Street, Philadelphia, Pennsylvania
19103.

State Street Bank and Trust Company ("State Street") has agreed to
serve as each Fund's shareholder servicing, transfer and dividend disbursing
agent pursuant to a Transfer Agency and Service Agreement, under which State
Street (i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to record owners of the Fund shares, including
reports to shareholders, dividend and distribution notices and proxy material
for its meetings of shareholders, (iii) maintains shareholder accounts and, if
requested, sub-accounts, and (iv) makes periodic reports to the Board concerning
the transfer agent's operations with respect to the Fund. State Street has
delegated to Boston Financial Data Services, Inc. ("BFDS"), a 50% owned
subsidiary, responsibility for most shareholder servicing functions. The
principal business address of State Street is 225 Franklin Street, Boston,
Massachusetts 02110. BFDS's principal business address is 2 Heritage Drive,
Boston, Massachusetts 02171.

Organization of the Fund

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

-34-
<PAGE> 64

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 two 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. All shareholders of a
Fund, upon liquidation, will participate ratably in the Fund's net assets.

Multi-Class Structure. Although neither Fund currently does so, each
Fund is authorized to offer a separate class of shares, the Advisor Shares,
pursuant to a separate prospectus. Individual investors could only purchase
Advisor Shares through institutional shareholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and other
financial intermediaries. Shares of each class would represent equal pro rata
interests in the 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. 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. 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.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Information on how to purchase and redeem Fund shares and how such
shares are priced is included in the Shareholder Guide.

-35-
<PAGE> 65
Under the 1940 Act, each Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which The New
York Stock Exchange, Inc. (the "NYSE") is closed, other than customary weekend
and holiday closings, or during which trading on the NYSE is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or fair valuation of portfolio securities
is not reasonably practicable, or for such other periods as the SEC may permit.
(A Fund may also suspend or postpone the recordation of an exchange of its
shares upon the occurrence of any of the foregoing conditions.)

If the Board of a Fund 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 a Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued withdrawal
payments may reduce the shareholder's investment and ultimately exhaust it.
Withdrawal payments should not be considered as income from investment in the
Fund. All dividends and distributions on shares in the Plan are automatically
reinvested at net asset value in additional shares of the Fund.

EXCHANGE PRIVILEGE

An exchange privilege with certain other funds advised by Warburg is
available to investors in each Fund. The funds into which exchanges of Common
Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.

The exchange privilege enables shareholders to acquire shares in a
fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. 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

-36-
<PAGE> 66
class and the proceeds are invested on the same day, at a price as described
above, in shares of the relevant class of the fund being acquired. The exchange
privilege may be modified or terminated at any time upon 30 days' notice to
shareholders.

ADDITIONAL INFORMATION CONCERNING TAXES

The discussion set out below of tax considerations generally
affecting a Fund and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.

As described above and in the Funds' Prospectus, the New York Tax
Exempt Fund is designed to provide investors with current income which is
excluded from gross income for federal income tax purposes and exempt from New
York State and New York City personal income taxes. The Fund is not intended to
constitute a balanced investment program and is not designed for investors
seeking capital gains or maximum tax-exempt income irrespective of fluctuations
in principal. Investment in the Fund would not be suitable for tax-exempt
institutions, individual retirement plans, employee benefit plans and individual
retirement accounts since such investors would not gain any additional tax
benefit from the receipt of tax-exempt income.

Each Fund intends to continue to qualify as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a regulated
investment company, a Fund will pay no federal income taxes on its taxable net
investment income (that is, taxable income other than net realized capital
gains) and its net realized capital gains that are distributed to shareholders.
To qualify under Subchapter M, each Fund must, among other things: (i)
distribute to its shareholders at least the sum of 90% of its taxable net
investment income (for this purpose consisting of taxable net investment income
and net realized short-term capital gains) plus 90% of its net tax-exempt
interest income; (ii) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of securities, gains from the sale or
other disposition of securities, or other income (including, but not limited to,
gains from options, futures, and forward contracts) derived with respect to the
Fund's business of investing in securities; and (iii) diversify its holdings so
that, at the end of each fiscal quarter of the Fund (a) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. government
securities and other securities, with those other securities limited, with
respect to any one issuer, to an amount no greater in value than 5% of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer, and (b) not more than 25% of the market value of the
Fund's assets is invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated investment companies) or
of two or more issuers that the Fund controls and that are determined to be in
the same or similar trades or businesses or related trades or businesses. As a
regulated investment company, the Fund will be subject to a 4% non-deductible
excise tax measured with respect to certain undistributed amounts of ordinary
income and capital gain required to be but not distributed under a prescribed
formula.

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<PAGE> 67
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 each Fund expects to be relieved of all or substantially
all federal income taxes, depending upon the extent of its activities in states
and localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of a Fund's income which is treated as earned
in any such state or locality could be subject to state and local tax. Any taxes
paid by the Fund would reduce the amount of income and gains available for
distribution to shareholders.

If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of
its taxable income will be subject to federal income tax at regular corporate
rates (without any deduction for distributions to its shareholders). In such
event, dividend distributions, including amounts derived from interest on
tax-exempt obligations, would be taxable to shareholders to the extent of
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations in the case of corporate
shareholders.

If, in any taxable year, a Fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary corporation
and distributions to its shareholders would not be deductible by the Fund in
computing its taxable income. In addition, in the event of a failure to
qualify, the Fund's distributions, to the extent derived from the Fund's
current or accumulated earnings and profits, would constitute dividends
(eligible for the corporate dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the shareholders' hands as
long-term capital gains. If a Fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and profits accumulated in
that year in order to qualify again as a regulated investment company. In
addition, if the Fund failed to qualify as a regulated investment company for a
period greater than one taxable year, the Fund may be required to recognize any
net built-in gains (the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized if it had been
liquidated) in order to qualify as a regulated investment company in a
subsequent year.

Investors in the Cash Reserve Fund should be aware that it is
possible that some portion of the Fund's income from investments in obligations
of foreign banks could become subject to foreign taxes.

Because the New York Tax Exempt Fund will distribute exempt interest
dividends, interest on indebtedness incurred by a shareholder to purchase or
carry Fund shares is not deductible for federal income tax purposes and New York
State and New York City personal income tax purposes. In addition, the Code may
require a shareholder, if he or she receives exempt interest dividends, to treat
as taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of any dividend
paid by the Fund which represents income derived from private activity
securities held by the Fund may not retain its tax-exempt status in the hands of
a shareholder who is a "substantial user" of a facility financed by such bonds,
or a "related person" thereof. Moreover, as noted in the Fund's prospectus, some
of the Fund's dividends may be a tax preference item, or a component of an
adjustment item, for purposes of the federal individual and corporate
alternative minimum taxes. In addition, the receipt of Fund dividends and
distributions may affect a foreign corporate shareholder's federal "branch
profits" tax liability and a Subchapter S corporation shareholder's federal
"excess net passive income" tax liability. Shareholders should consult their own
tax advisers as to whether they (i) may be "substantial users" with respect to a
facility or "related" to such users within the meaning of the Code and (ii) are
subject to a federal alternative minimum tax, the federal environmental tax, the
federal "branch profits" tax, or the federal "excess net passive income" tax.

While each Fund does not expect to realize net long-term capital
gains, any such realized gains will be distributed as described in the
Prospectus. Such distributions ("capital gain dividends") will be taxable to
shareholders as long-term capital gains, regardless of how

-38-
<PAGE> 68
long a shareholder has held Fund shares, and will be designated as capital gain
dividends in a written notice mailed by a Fund to shareholders after the close
of the Fund's taxable year. Gain or loss, if any, recognized on the sale or
other disposition of shares of the Fund will be taxed as capital gain or loss if
the shares are capital assets in the shareholder's hands. Generally, a
shareholder's gain or loss will be a long-term gain or loss if the shares have
been held for more than one year. If a shareholder sells or otherwise disposes
of a share of the Fund before holding it for more than six months, any loss on
the sale or other disposition of such share shall be treated as a long-term
capital loss to the extent of any capital gain dividends received by the
shareholder with respect to such share.

A shareholder of a Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as receiving
a distribution in an amount equal to the amount of money that a shareholder
receiving cash dividends or distributions receives, and should have a cost basis
in the shares received equal to that amount.

Each shareholder of the Cash Reserve Fund will receive an annual
statement as to the federal income tax status of his dividends and distributions
from the Fund for the prior calendar year. Furthermore, shareholders will also
receive, if appropriate, various written notices after the close of the Fund's
taxable year regarding the federal income tax status of certain dividends and
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding year.

Each shareholder of the New York Tax Exempt Fund will receive an
annual statement as to the federal and New York State and New York City personal
income tax status of his dividends and distributions from the Fund for the prior
calendar year. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding the
federal income tax status of certain dividends and distributions that were paid
(or that are treated as having been paid) by the Fund to its shareholders during
the preceding year. Shareholders should consult their tax advisers as to any
other state and local taxes that may apply to the Fund's dividends and
distributions. The dollar amount of dividends excluded from federal income
taxation and exempt from New York State and New York City personal income
taxation and the dollar amounts subject to federal income and New York State and
New York City personal income taxation, if any, will vary for each shareholder
depending upon the size and duration of each shareholder's investment in the
Fund. In the event that the Fund derives taxable net investment income, it
intends to designate as taxable dividends the same percentage of each day's
dividend as its actual taxable net investment income bears to its total net
investment income earned on that day. Therefore, the percentage of each day's
dividend designated as taxable, if any, may vary from day to day.

If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is not
subject to withholding, then the shareholder may be subject to a 31% "backup
withholding" tax with respect to taxable dividends and distributions. An
individual's taxpayer identification number is his social security number.
Corporate shareholders and other

-39-
<PAGE> 69
shareholders specified in the Code are or may be exempt from backup withholding.
The backup withholding tax is not an additional tax and may be credited against
a taxpayer's federal income tax liability.

THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING A FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.

DETERMINATION OF YIELD

From time to time, each Fund may quote its yield, effective yield
and tax equivalent yield, as applicable, in advertisements or in reports and
other communications to shareholders. The Cash Reserve Fund's yield and
effective yield for the seven-day period ended on December 31, 1998 were [5.26%]
and [5.40%], respectively. In the absence of waivers, these yields would have
been [5.05%] and [5.18%], respectively. The New York Tax Exempt Fund's yield,
effective yield and tax equivalent yield for the seven-day period ended on
December 31, 1998, was [3.37%], [3.43%] and [6.24%] (based on a [50.14%] total
of 3 tax rates), respectively. In the absence of waivers these yields would have
been [3.30%], [3.35%] and [6.11%], respectively. Each 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.
Each 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 New York Tax Exempt Fund's
tax equivalent yield is calculated by dividing that portion of the base period
return which is exempt from federal, New York State and New York City personal
income taxes by 1 minus the highest marginal federal, New York State and New
York City individual income tax rates and adding the quotient to that portion,
if any, of the yield which is not exempt from those taxes.

Each Fund's yield will vary from time to time depending upon market
conditions, the composition of a 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.

-40-
<PAGE> 70
INDEPENDENT ACCOUNTANTS AND COUNSEL

PricewaterhouseCoopers L.L.P. ("PwC"), with principal offices at
2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as independent
accountants for each Fund. The Funds' financial statements for the fiscal year
ended December 31, 1998, that is incorporated by reference in this Statement of
Additional Information have been audited by PwC, and have been included herein
by reference in reliance upon the report of such firm of independent accountants
given upon their authority as experts in accounting and auditing.

Willkie Farr & Gallagher serves as counsel for each Fund as well as
counsel to Warburg, Counsellors Service and Counsellors Securities.

MISCELLANEOUS

As of March 31, 1999, the name, address and percentage of ownership
of other persons that control a Fund (within the meaning of the rules and
regulations under the 1940 Act) or own of record 5% or more of the Fund's
outstanding shares were as follows:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CASH RESERVE FUND COMMON STOCK
- --------------------------------------------------------------------------------
<S> <C>
Fiduciary Trust Company International* 20.86%
Securities Services Group
Church Street Station
P.O. Box 3199
New York, NY 10008-3199
- --------------------------------------------------------------------------------
Neuberger and Berman* 29.47%
Attn.: Operations Control Dept.
55 Water Street, FL 272
New York, NY 10041-0001
- --------------------------------------------------------------------------------
The Bank of New York* 7.67%
Special Processing Dept.
2nd Floor
One Wall Street
New York, NY 10005-2501
- --------------------------------------------------------------------------------
Zilog Inc. Corporate Acct.* 10.96%
c/o M. Tangirala
Zilog Inc.
210 Hacienda Avenue
Campbell, CA 95008-6617
- --------------------------------------------------------------------------------
Warburg Pincus & Co. 5.41%
466 Lexington Avenue-10th Floor
New York, NY 10017-3147
- --------------------------------------------------------------------------------
</TABLE>

-41-
<PAGE> 71
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NEW YORK TAX EXEMPT FUND COMMON STOCK
- --------------------------------------------------------------------------------
<S> <C>
Fiduciary Trust Company International* 47.20%
Securities Services Group
Church Street Station
P.O. Box 3199
New York, NY 10008-3199
- --------------------------------------------------------------------------------
Neuberger & Berman* 42.35%
Attn.: Operations Control Dept.
55 Water Street, FL 272
New York, NY 10041-0001
- --------------------------------------------------------------------------------
</TABLE>

* To the knowledge of each Fund, these entities are not the beneficial owners of
a majority of the shares held by them of record.

Mr. Lionel I. Pincus may be deemed to have beneficially owned
[46.5%] and [30.1%] of the Cash Reserve and New York Tax Exempt Fund's shares
outstanding, respectively, including shares owned by clients for which Warburg
has investment discretion and by companies that he 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

Each Fund's audited annual report, dated December 31, 1998, which
either accompanies this Statement of Additional Information or has previously
been provided to the investor to whom this Statement of Additional Information
is being sent, is incorporated herein by reference. A Fund will furnish without
charge a copy of its annual report upon request by calling Warburg Pincus Funds
at (800) 927-2874.

-42-
<PAGE> 72
APPENDIX

DESCRIPTION OF COMMERCIAL PAPER RATINGS

Commercial paper rated A-1 by Standard & Poor's Ratings Services
("S&P") indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted with a plus sign designation. Capacity for timely payment on commercial
paper rated A-2 is satisfactory, but the relative degree of safety is not as
high as for issues designated A-1.

The rating Prime-1 is the highest commercial paper rating assigned
by Moody's Investor Services, Inc. ("Moody's"). Issuers rated Prime-1 (or
related supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) are considered to have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.

Short term obligations, including commercial paper, rated A1 + by
IBCA are obligations supported by the highest capacity for timely repayment.
Obligations rated A1 have a very strong capacity for timely repayment.
Obligations rated A2 have a strong capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.

Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.

Duff & Phelps, Inc. employs the designation of Duff 1 with
respect to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: short-term liquidity is
clearly outstanding and safety is just below risk-free U.S. Treasury
short-term obligations. Duff 1- indicates high certainty of timely
payment. Duff 2 indicates good certainty of timely payment: liquidity
factors and company fundamentals are sound.

DESCRIPTION OF MUNICIPAL SECURITIES RATINGS

The following summarizes the highest two ratings used by S&P for
Municipal Securities:

AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
<PAGE> 73
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.

To provide more detailed indications of credit quality, the "AA"
rating may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.

The following summarizes the highest two ratings used by Moody's for
bonds:

Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa - Bonds that are rated As are judged to be of high quality by all
standards. Together with the Aaa group they are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.

Moody's applies numerical modifiers (1,2 and 3) with respect to the
bonds rated Aa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.

The following summarizes the two highest ratings used by S&P for
short-term notes:

SP-1 - Loans bearing this designation evidence a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a (+) designation.

SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest.

The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:

MIG-1/VMIG-1 - Obligations bearing these designations are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing, or both.

MIG-2/VMIG-2 - Obligations bearing these designations are of high
quality with margins of protection ample although not so large as in the
preceding group.

A-2
<PAGE> 74
Commercial paper rated A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign
designation. Capacity for timely payment on commercial paper rated A-2 is
satisfactory, but the relative degree of safety is not as high as for issues
designated A-1.

The rating Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Services, Inc. Issuers rated Prime-1 (or related supporting
institutions) are considered to have a superior capacity for repayment of
short-term promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.

Duff & Phelps, Inc. employs the designation of Duff 1 with respect
to top grade commercial paper and bank money instruments. Duff 1+ indicates the
highest certainty of timely payment: short-term liquidity is clearly outstanding
and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates good certainty of
timely payment: liquidity factors and company fundamentals are sound.

A-3
<PAGE> 75
PART C

OTHER INFORMATION

Item 23. Exhibits

a(1) Articles of Incorporation.*

a(2) Articles of Amendment.**

a(3) Articles Supplementary.**

b(1) Amended and Restated By-Laws.*

b(2) Amendment to By-Laws.***

b(3) Amendment to By-Laws****

c(1) Form of certificates for common stock.*

d(1) Form of Investment Advisory Agreement.*

d(2) Form of Sub-Investment Advisory and Administration Agreement.*

d(3) Form of Co-Administration Agreement.*

e Form of Distribution Agreement.*

f Not applicable.

- ----------
* Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A for Warburg, Pincus Cash Reserve Fund,
Inc. filed on June 28, 1995 (Securities Act File No. 2-94840).

** Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A for Warburg, Pincus Cash Reserve Fund,
Inc. filed on June 25, 1997 (Securities Act File No. 2-94840).

*** Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A for Warburg, Pincus Cash Reserve Fund,
Inc. filed on July 1, 1996 (Securities Act File No. 2-94840).

**** Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A for Warburg, Pincus Health Sciences
Fund, Inc. filed on February 23, 1998 (Securities Act File No. 33-15419).
<PAGE> 76

g Form of Custodian Agreement.*

h Form of Transfer Agency Agreement.*

i Opinion and Consent of Willkie Farr & Gallagher.*****

j Consent of PricewaterhouseCoopers LLP. *****

k Not applicable.

l Form of Purchase Agreement.*

m(1) Form of Shareholder Services Plan.*

m(2) Distribution Plan.***

n Financial Data Schedule. *****

o Not applicable.

Item 24. Persons Controlled by or Under Common Control with Registrant

From time to time, Warburg Pincus Asset Management, Inc. ("Warburg")
may be deemed to control the Fund and other registered investment companies it
advises through its beneficial ownership of more than 25% of the relevant fund's
shares on behalf of discretionary advisory clients. Warburg has seven
wholly-owned subsidiaries: Counsellors Securities Inc., a New York corporation;
Counsellors Funds Service Inc., a Delaware corporation; Counsellors Agency Inc.,
a New York corporation; Warburg, Pincus Investments International (Bermuda),
Ltd., a Bermuda corporation; Warburg, Pincus Asset Management International,
Inc., a Delaware corporation; Warburg Pincus Asset Management (Japan), Inc., a
Japanese corporation and Warburg Pincus Asset Management (Dublin) Limited, an
Irish corporation.

Item 25. Indemnification

Registrant, and officers and directors of Warburg of Counsellors
Securities Inc. ("Counsellors Securities") and Registrant, are covered by
insurance policies indemnifying them for liability incurred in connection with
the operation of Registrant. Discussion of this coverage is incorporated by
reference to Item 27 of Part C of the Registration Statement of Warburg, Pincus
Trust (Securities Act File No. 33-58125), filed on March 17, 1995.

- ----------
***** To be filed by amendment.
<PAGE> 77

Item 26. (a) Business and Other Connections of Investment Adviser

Warburg, a wholly owned subsidiary of Warburg, Pincus Asset
Management Holdings, Inc., acts as investment adviser to Registrant. Warburg
renders investment advice to a wide variety of individual and institutional
clients. The list required by this Item 26 of officers and directors of Warburg,
together with information as to their other business, profession, vocation or
employment of a substantial nature during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by Warburg (SEC File No.
801-28-496).

(b) Business and Other Connections of Sub-Investment Adviser and
Administrator

Blackrock Institutional Management Corporation ("BIMC"), a wholly
owned indirect subsidiary of PNC Bank, National Association ("PNC"), performs
sub-investment advisory services for Registrant and advisory services for
certain other investment companies. PNC and its predecessors have been in the
business of managing the investments of fiduciary and other accounts in the
Philadelphia area since 1847. In addition to its trust business, PNC provides
commercial banking services. The list required by this Item 26 of officers and
directors of BIMC, together with information as to their other business,
profession, vocation or employment of a substantial nature during the past two
years, is by BIMC (SEC File No. 801-13-304).

Item 27. Principal Underwriter

(a) Counsellors Securities will act as distributor for Registrant,
as well as for Warburg Pincus Balanced Fund; Warburg Pincus Capital Appreciation
Fund; Warburg Pincus Central & Eastern Europe Fund; Warburg Pincus Emerging
Growth Fund; Warburg Pincus Emerging Markets Fund; Warburg Pincus Emerging
Markets II Fund; Warburg Pincus European Equity Fund; Warburg Pincus Fixed
Income Fund; Warburg Pincus Global Fixed Income Fund; Warburg Pincus Global
Post-Venture Capital Fund; Warburg Pincus Global Telecommunications Fund;
Warburg Pincus Growth & Income Fund; Warburg Pincus Health Sciences Fund;
Warburg Pincus High Yield Fund; Warburg Pincus Institutional Fund; Warburg
Pincus Intermediate Maturity Government Fund; Warburg Pincus International
Equity Fund; Warburg Pincus International Growth Fund; Warburg Pincus
International Small Company Fund; Warburg Pincus Japan Growth Fund; Warburg
Pincus Japan Small Company Fund; Warburg Pincus Long-Short Equity Fund; Warburg
Pincus Long-Short Market Neutral Fund; Warburg Pincus Major Foreign Markets
Fund; Warburg Pincus Municipal Bond Fund; Warburg Pincus New York Intermediate
Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg Pincus
Post-Venture Capital Fund; Warburg Pincus Select Economic Value Equity Fund;
Warburg Pincus Small Company Growth Fund;

<PAGE> 78

Warburg Pincus Small Company Value Fund; Warburg Pincus Strategic Global Fixed
Income Fund; Warburg Pincus Strategic Value Fund; Warburg Pincus Trust; Warburg
Pincus Trust II; Warburg Pincus U.S. Core Equity Fund; Warburg Pincus U.S. Core
Fixed Income Fund; Warburg Pincus WorldPerks Money Market Fund; and Warburg
Pincus WorldPerks Tax Free Money Market Fund.

(b) For information relating to each director, officer or partner of
Counsellors Securities, reference is made to Form BD (SEC File No. 15-654) filed
by Counsellors Securities under the Securities Exchange Act of 1934.

Item 28. Location of Accounts and Records

(1) Warburg, Pincus Cash Reserve Fund
466 Lexington Avenue
New York, New York 10017-3147
(Fund's articles of incorporation, by-laws and minute books)

(2) Blackrock Institutional Management Corporation
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as sub-investment adviser
and administrator)

(3) Counsellors Funds Service, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as co-administrator)

(4) PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(records relating to its functions as transfer and dividend
disbursing agent)

(5) PNC Bank, National Association
Mutual Fund Custody Services
200 Stevens Drive
Suite 440
Lester, Pennsylvania 19113
(records relating to its functions as custodian)

(6) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)

(7) Warburg Pincus Asset Management, Inc.
466 Lexington Avenue
<PAGE> 79
New York, New York 10017-3147
(records relating to its functions as investment adviser)

(8) State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02110
(records relating to its functions as custodian, transfer
agent and dividend disbursing agent)

(9) Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, Massachusetts 02177
(records relating to its functions as transfer agent and
dividend disbursing agent)

Item 29. Management Services

Not applicable.

Item 30. Undertakings

Not applicable.

<PAGE> 80

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York, on the 26th
day of February, 1999.

WARBURG, PINCUS CASH RESERVE FUND, INC.

By: /s/ Eugene L. Podsiadlo
Eugene L. Podsiadlo
President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed below by the following persons in the capacities
and on the date indicated:

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John L. Furth Chairman of the February 26, 1999
John L. Furth Board of Directors

/s/ Eugene L. Podsiadlo President February 26, 1999
Eugene L. Podsiadlo

/s/ Howard Conroy Vice President and February 26, 1999
Howard Conroy Chief Financial
Officer

/s/ Daniel S. Madden Treasurer and February 26, 1999
Daniel S. Madden Chief Accounting
Officer

/s/ Richard N. Cooper Director February 26, 1999
Richard N. Cooper

/s/ Jack W. Fritz Director February 26, 1999
Jack W. Fritz

/s/ Jeffrey E. Garten Director February 26, 1999
Jeffrey E. Garten

/s/ Thomas A. Melfe Director February 26, 1999
Thomas A. Melfe

/s/ Arnold M. Reichman Director February 26, 1999
Arnold M. Reichman

/s/ Alexander B. Trowbridge Director February 26, 1999
Alexander B. Trowbridge
</TABLE>