<PAGE> 1
As filed with the Securities and Exchange Commission
on April 29, 1999
Securities Act File No. 2-94841
Investment Company Act File No. 811-4170
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 New York Tax Exempt Fund, Inc.
(formerly Counsellors New York Tax Exempt 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 New York Tax Exempt Fund
466 Lexington Avenue
New York, New York 10017-3147
(Name and Address of Agent for Service)
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)
[X] on April 30, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) 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
SUPPLEMENT TO THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
WARBURG PINCUS FUNDS
On February 15, 1999, Warburg Pincus and Credit Suisse Group announced that
they reached an agreement for Credit Suisse to acquire Warburg Pincus Asset
Management, Inc., the investment adviser to these Warburg Pincus funds. Under
the terms of the arrangement, no immediate changes are planned to Warburg Pincus
investment portfolio managers and investment professionals.
The funds' governing Board and fund shareholders will be asked to vote on
the "assignment" of the funds' current investment advisory agreements with
Warburg Pincus Asset Management. Shareholders will receive more information
about the advisory agreement arrangements, but until then shareholders do not
need to take any action relating to their Warburg Pincus fund shares.
The transaction is expected to be complete in mid-1999 upon satisfaction of
the various conditions in the agreement.
Date: April 30, 1999
<PAGE> 4
PROSPECTUS
April 30, 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]
<PAGE> 5
CONTENTS
<TABLE>
<S> <C>
KEY POINTS.................... .................... 4
Goals and Principal Strategies.................. 4
A Word About Risk............................... 5
Investor Profile................................ 6
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................ ................. 25
About the Distributor........................... 25
FOR MORE INFORMATION............... ............... back cover
</TABLE>
3
<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 guaranteed
Income risk principal by the U.S. government, its
Industry agencies or instrumentalities
concentration - bank and corporate debt
Interest-rate risk obligations
Market risk - Concentrates its investments 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 municipal
Credit risk York state and New York securities -- debt obligations
Income risk City personal income whose interest is exempt from
Interest-rate risk taxes as is consistent federal, New York state and New
Market risk with preservation of York City income taxes
New York municipal capital and liquidity - Fund dividends derived from
securities interest on New York municipal
Non-diversified securities remain tax-exempt when
status 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>
4
<PAGE> 7
A WORD ABOUT RISK
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money.
Principal risk factors for the funds are discussed below. Before you invest,
please make sure you understand the risks that apply to your fund.
Investments in the funds are not bank deposits and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although each fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in a fund.
CREDIT RISK
Both funds
The issuer of a security or the counterparty to a contract may default or
otherwise become unable to honor a financial obligation. An issuer's failure to
make scheduled interest or principal payments to a fund could reduce the fund's
income level and share price.
INCOME RISK
Both funds
A fund's income level may decline because of falling interest rates and other
market conditions. Each fund's yield will vary from day to day, generally
reflecting changes in overall short-term interest rates. This should be an
advantage when interest rates are rising, but not when rates are falling.
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 share price to drop below $1. However, the extremely short maturity of
securities held in money-market portfolios -- a means of achieving an overall
fund objective of principal safety -- reduces their potential for price
fluctuation.
MARKET RISK
Both funds
The market value of a security may move up and down, sometimes rapidly and
unpredictably. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. Market risk is common to most
investments -- including debt securities and the mutual funds that invest in
them.
5
<PAGE> 8
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.
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 tax-advantaged retirement plans. You should base your selection of a fund
on your own goals, risk preferences and time horizon.
6
<PAGE> 9
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7
<PAGE> 10
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 over the past 10 years. As with all
mutual funds, past performance is not a prediction of the future.
YEAR-BY-YEAR TOTAL RETURNS
[BAR CHART]
Cash Reserve Fund
Best Quarter: 2.37% (Q2 89)
Worst Quarter: 0.67% (Q2 93)
Inception Date: 4/16/85
<TABLE>
<CAPTION>
Year Ended 12/31: 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]
New York Tax Exempt Fund
Best Quarter: 1.47% (Q2 89)
Worst Quarter: 0.41% (Q1 94)
Inception Date: 4/18/85
<TABLE>
<CAPTION>
Year Ended 12/31: 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>
8
<PAGE> 11
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
(800-927-2874).
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> 12
INVESTOR EXPENSES
FEES AND FUND EXPENSES
This table describes the fees and expenses you may bear as a shareholder. Annual
fund operating expense figures are for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
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>
10
<PAGE> 13
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> 14
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 in assets
12
<PAGE> 15
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 distributions.
The Annual Report includes the auditor's report, along with the fund's
financial statements. It is available free upon request.
13
<PAGE> 16
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 rating category (or unrated equivalents). The rest of the
fund's investments must be in the highest short-term rating category. Under
normal conditions, the fund will invest at least 25% of assets in the banking
industry.
The fund maintains an average maturity of 90 days or less, and only purchases
securities that have (as determined under SEC rules) remaining maturities of 397
days or less. To a limited extent, the fund may also engage in other investment
practices.
RISK FACTORS
This fund's principal risk factors are:
- credit risk
- income risk
- 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.
14
<PAGE> 17
PORTFOLIO MANAGEMENT
Under the supervision of Warburg Pincus, a portfolio-management team at
BlackRock Institutional Management Corporation, the fund's sub-investment
adviser, makes the fund's day-to-day investment decisions.
INVESTOR EXPENSES
Management fee .39%
All other expenses .16%
------------
Total expenses .55%
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors,
PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
PERIOD ENDED: 12/98(1) 12/97(2) 2/97(3) 2/96(3) 2/95(3) 2/94(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
Distributions:
From net investment income (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 5.17% 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 10 months ended December 31, 1997. In 1997, the fund changed its
fiscal year-end to December 31.
(3) For the years ended February 28 or 29.
(4) Not annualized.
(5) Interest earned on uninvested cash balances is used to offset part of the
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 was .55% for each of the year
ended December 31, 1998, the period ended December 31, 1997 and the fiscal
years ended February 28 or 29, 1997 and 1996.
(6) Annualized.
15
<PAGE> 18
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 rating category.
The fund maintains an average maturity of 90 days or less, and only purchases
securities that have (as determined under SEC rules) remaining maturities of 397
days or less. To a limited extent, the fund may also engage in other investment
practices.
RISK FACTORS
This fund's principal risk factors are:
- credit risk
- income risk
- interest-rate risk
- market risk
- 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.
Since it is managed to maintain a constant $1 share price, the fund should
have little risk of principal loss. However, there is no assurance the fund will
avoid principal losses in the rare event that fund holdings default or interest
rates rise sharply in an unusually short period.
The fund's ability to maintain a stable share price also depends upon
guarantees from banks and other financial institutions that back certain
securities the fund invests in. Changes in the credit quality of these
institutions could cause losses to the fund and affect its share price.
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
16
<PAGE> 19
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.
<TABLE>
<CAPTION>
PERIOD ENDED: 12/98(1) 12/97(2) 2/97(3) 2/96(3) 2/95(3) 2/94(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
Distributions:
From net investment income (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 2.96% 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 income 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 10 months ended December 31, 1997. In 1997, the fund changed its
fiscal year-end to December 31.
(3) For the years ended February 28 or 29.
(4) Not annualized.
(5) Interest earned on uninvested cash balances is used to offset part of the
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 was .55% for each of the year
ended December 31, 1998, the period ended December 31, 1997 and the fiscal
years ended February 28 or 29, 1997 and 1996.
(6) Annualized.
17
<PAGE> 20
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 --
18
<PAGE> 21
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> 22
CERTAIN INVESTMENT PRACTICES
For each of the following practices, this table shows the applicable investment
limitation. Risks are indicated for each practice.
KEY TO TABLE:
<TABLE>
<S> <C>
[-] Permitted without limitation; does not indicate
actual use
20% Italic type (e.g., 20%) represents an investment
limitation as a percentage of NET fund assets; does
not indicate actual use
20% Roman type (e.g., 20%) represents an investment
limitation as a percentage of TOTAL fund assets; does
not indicate actual use
[ ] Permitted, but not expected to be used to a
significant extent
- -- Not permitted
</TABLE>
<TABLE>
<S> <C> <C>
INVESTMENT PRACTICE LIMIT
AMT SECURITIES Municipal securities whose interest is a
tax-preference item for purposes of the federal alternative
minimum tax. Credit, liquidity, market, interest-rate,
regulatory risks. [ ] 20%
- ----------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS U.S. dollar-denominated
certificates of deposit issued or backed by foreign banks
and foreign branches of U.S. banks. Credit, income, interest
rate, market, political risks. [-] [ ]
- ----------------------------------------------------------------------------
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>
20
<PAGE> 23
<TABLE>
<S> <C> <C>
INVESTMENT PRACTICE LIMIT
TEMPORARY DEFENSIVE TACTICS Placing some or all of a fund's
assets in defensive investments when the investment adviser
or sub-investment adviser believes that doing so would be in
the best interests of fund shareholders. For the 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-RATE MASTER DEMAND NOTES Unsecured instruments that
provide for periodic adjustments in their interest rate and
permit the indebtedness of the issuer to vary. Credit,
interest-rate, liquidity, market risks. [ ] [-]
- ----------------------------------------------------------------------------
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Liquidity, market,
speculative exposure risks. 20% 20%
- ----------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
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 New York Tax Exempt Fund
distributes short-term capital gains (if any) at the end of its fiscal year; the
Cash Reserve Fund distributes them
22
<PAGE> 25
periodically as determined by the Board of Directors.
Most investors have their distributions reinvested in additional shares of
the same fund. Alternatively, you can choose to have a check for your
distributions mailed to you or sent by electronic transfer. Distributions will
be reinvested unless you select another option on your account application.
TAXES
As with any investment, you should consider how your investment in a fund
will be taxed. 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.
Any time you sell or exchange shares, it is considered a taxable event for
you. Because each fund seeks to maintain a stable $1 share price, you should not
realize a taxable gain or loss when you sell shares.
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 during temporary defensive periods. Individuals who are subject to
the tax must report this interest on their
23
<PAGE> 26
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.
24
<PAGE> 27
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 the sale of fund shares
25
<PAGE> 28
FOR MORE INFORMATION
More information about these funds is available free upon request, including
the following:
SHAREHOLDER GUIDE
Explains how to buy and sell shares. The Shareholder Guide is incorporated by
reference into (is legally part of )
this Prospectus.
ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS
Includes financial statements, portfolio investments and detailed performance
information.
The Annual Report also contains a letter from the fund's manager discussing
market conditions and investment strategies that significantly affected fund
performance during its past fiscal year.
OTHER INFORMATION
A current Statement of Additional Information (SAI), which provides more
details about the funds, is on file with the Securities and Exchange Commission
(SEC) and is incorporated by reference.
You may visit the SEC's Internet Web site (www.sec.gov) to view the SAI,
material incorporated by reference, and other information. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington, DC (phone
800-SEC-0330) or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, DC 20549-6009.
Please contact Warburg Pincus 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> 29
WARBURG PINCUS FUNDS
SHAREHOLDER
GUIDE
Common Class
December 3, 1998
This Shareholder Guide is incorporated into and legally part of each
Warburg Pincus (Common Class) prospectus.
[Warburg Pincus Funds Logo]
<PAGE> 30
BUYING SHARES
OPENING AN ACCOUNT
Your account application provides us with key information we need to set up
your account correctly. It also lets you authorize services that you may find
convenient in the future.
If you need an application, call our Shareholder Service Center to receive
one by mail or fax. Or you can download it from our Internet Web site:
www.warburg.com.
You can make your initial investment by check or wire. The "By Wire" method
in the table enables you to buy shares on a particular day at that day's closing
NAV.
ADDING TO AN ACCOUNT
You can add to your account in a variety of ways, as shown in the table. If
you want to use ACH transfer, be sure to complete the "ACH on Demand" section of
the account application.
INVESTMENT CHECKS
Please use either a personal or bank check payable in U.S. dollars to Warburg
Pincus Funds. Unfortunately, we cannot accept "starter" checks that do not have
your name preprinted on them. We also cannot accept checks payable to you or to
another party and endorsed to the order of Warburg Pincus Funds. These types of
checks may be returned to you and your purchase order may not be processed.
Limited exceptions include properly endorsed IRA Rollover and government checks.
MINIMUM INITIAL INVESTMENT
<TABLE>
<S> <C>
Cash Reserve Fund: $ 1,000
New York Tax Exempt
Fund: $ 1,000
Balanced Fund: $ 1,000
Growth & Income Fund: $ 1,000
WorldPerks(R) Funds: $ 5,000
Long-Short Funds $ 25,000
All other funds: $ 2,500
IRAs: $ 500*
Transfers/Gifts to
Minors: $ 500*
* $25,000 minimum for Long-Short
Funds.
</TABLE>
WIRE INSTRUCTIONS
State Street Bank and Trust Company
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Warburg Pincus Fund Name]
DDA# 9904-649-2
F/F/C: [Account Number and Registration]
HOW TO REACH US
SHAREHOLDER SERVICE CENTER
Toll free: 800 -WARBURG
(800 -927-2874)
Fax: 212-370-9833
MAIL
Warburg Pincus Funds
P.O. Box 9030
Boston, MA 02205-9030
OVERNIGHT/COURIER SERVICE
Boston Financial
Attn: Warburg Pincus Funds
2 Heritage Drive
North Quincy, MA 02171
INTERNET WEB SITE
www.warburg.com
2
<PAGE> 31
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
BY CHECK
- - Complete the New Account Application. - Make your check payable to Warburg
For IRAs use the Universal IRA Pincus Funds.
Application. - Write the account number and the fund
- - Make your check payable to Warburg name on your check.
Pincus Funds. - Mail to Warburg Pincus Funds.
- - Mail to Warburg Pincus Funds. - Minimum amount is $100.
BY EXCHANGE
- - Call our Shareholder Service Center to - Call our Shareholder Service Center to
request an exchange. Be sure to read request an exchange.
the current prospectus for the new - Minimum amount is $250.
fund. Also please observe the minimum If you do not have telephone privileges,
initial investment. mail or fax a signed letter of
If you do not have telephone privileges, instruction.
mail or fax a signed letter of
instruction.
BY WIRE
- - Complete and sign the New Account - Call our Shareholder Service Center by
Application. 4 p.m. ET to inform us of the incoming
- - Call our Shareholder Service Center and wire. Please be sure to specify your
fax the signed New Account Application name, the account number and the fund
by 4 p.m. ET. name on your wire advice.
- - Shareholder Services will telephone you - Wire the money for receipt that day.
with your account number. Please be - Minimum amount is $500.
sure to specify your name, the account
number and the fund name on your wire
advice.
- - Wire your initial investment for
receipt that day.
- - Mail the original, signed application
to Warburg Pincus Funds.
This method is not available for IRAs.
BY AUTOMATED CLEARING HOUSE (ACH) TRANSFER
- - Cannot be used to open an account. - Call our Shareholder Service Center to
request an ACH transfer from your bank.
- Your purchase will be effective at the
next NAV calculated after we receive your
order in proper form.
- Minimum amount is $50.
Requires ACH on Demand privileges.
</TABLE>
800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET
3
<PAGE> 32
SELLING SHARES(*)
<TABLE>
<CAPTION>
SELLING SOME OR ALL OF YOUR SHARES CAN BE USED FOR
<S> <C>
BY MAIL
Write us a letter of instruction that - Accounts of any type.
includes: - Sales of any amount.
- - your name(s) and signature(s) For IRAs please use the IRA Distribution
- - the fund name and account number Request Form.
- - the dollar amount you want to sell
- - how to send the proceeds
Obtain a signature guarantee or other
documentation, if required (see "Selling
Shares
in Writing").
Mail the materials to Warburg Pincus
Funds.
If only a letter of instruction is
required, you can fax it to the
Shareholder Service Center.
BY EXCHANGE
- - Call our Shareholder Service Center to - Accounts with telephone privileges.
request an exchange. Be sure to read If you do not have telephone privileges,
the current prospectus for the new fund. mail or fax a letter of instruction to
Also please observe the minimum initial exchange shares.
investment.
BY PHONE
Call our Shareholder Service Center to - Non-IRA accounts with telephone
request a redemption. You can receive the privileges.
proceeds as:
- - a check mailed to the address of record
- - an ACH transfer to your bank ($50
minimum)
- - a wire to your bank ($500 minimum)
See "By Wire or ACH Transfer" for
details.
BY WIRE OR ACH TRANSFER
- - Complete the "Wire Instructions" or - Non-IRA accounts with wire-redemption
"ACH on Demand" section of your New or ACH on Demand privileges.
Account Application. - Requests by phone or mail.
- - For federal-funds wires, proceeds will
be wired on the next business day. For
ACH transfers, proceeds will be
delivered within two business days.
</TABLE>
()* For the Central & Eastern Europe Fund only: A short-term trading fee of 1.0%
of the amount redeemed will be deducted from the redemption proceeds if you sell
shares of the fund after holding them less than six months. This fee, which is
currently being waived, does not apply to shares acquired through reinvestment
of distributions. For purposes of computing the short-term trading fee, any
shares bought through reinvestment of distributions will be redeemed first
without charging the fees, followed by the shares held longest.
4
<PAGE> 33
SELLING SHARES IN WRITING
Some circumstances require a written sell order, along with a signature
guarantee. These include:
- accounts whose address of record has been changed within the past 30 days
- redemption in certain large amounts (other than by exchange)
- requests to send the proceeds to a different payee or address
- shares represented by certificates, which must be returned with your sell
order
A signature guarantee helps protect against fraud. You can obtain one from
most banks or securities dealers, but not from a notary public.
RECENTLY PURCHASED SHARES
If the fund has not yet collected payment for the shares you are selling, it
will delay sending you the proceeds until your purchase payment clears. This may
take up to 10 calendar days after the purchase. To avoid the collection period,
consider buying shares by bank wire, bank check, certified check or money order.
LOW-BALANCE ACCOUNTS
If your account balance falls below the minimum required to keep it open due
to redemptions or exchanges, the fund may ask you to increase your balance. If
it is still below the minimum after 60 days, the fund may close your account and
mail you the proceeds.
MINIMUM TO KEEP AN ACCOUNT OPEN
<TABLE>
<S> <C>
Cash Reserve Fund: $ 750
New York Tax Exempt Fund: $ 750
Balanced Fund: $ 500
Growth & Income Fund: $ 500
WorldPerks Funds: $ 750
All other funds: $2,000
IRAs: $ 250
Transfers/Gifts to
Minors: $ 250
</TABLE>
800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET
5
<PAGE> 34
SHAREHOLDER SERVICES
AUTOMATIC SERVICES
Buying or selling shares automatically is easy with the services described
below. You can set up most of these services with your account application or by
calling our Shareholder Service Center.
AUTOMATIC MONTHLY INVESTMENT PLAN
For making automatic investments ($50 minimum) from a designated bank
account.
AUTOMATIC WITHDRAWAL PLAN
For making automatic monthly, quarterly, semiannual or annual withdrawals of
$250 or more.
DISTRIBUTION SWEEP
For automatically reinvesting your dividend and capital-gain distributions
into another identically registered Warburg Pincus fund. Not available for IRAs.
RETIREMENT PLANS
Warburg Pincus offers a range of tax-advantaged retirement accounts,
including:
- Traditional IRAs
- Roth IRAs
- Roth Conversion IRAs
- Spousal IRAs
- Rollover IRAs
- SEP IRAs
To transfer your IRA to Warburg Pincus, use the IRA Transfer/Direct Rollover
Form. If you are opening a new IRA, you will also need to complete the Universal
IRA Application. Please consult your tax professional concerning your IRA
eligibility and tax situation.
TRANSFERS/GIFTS TO MINORS
Depending on state laws, you can set up a custodial account under the Uniform
Transfers-to-Minors Act (UTMA) or the Uniform Gifts-to-Minors Act (UGMA). Please
consult your tax professional about these types of accounts.
ACCOUNT CHANGES
Call our Shareholder Service Center to update your account records whenever
you change your address. Shareholder Services can also help you change your
account information or privileges.
6
<PAGE> 35
OTHER POLICIES
TRANSACTION DETAILS
You are entitled to capital-gain and earned dividend distributions as soon as
your purchase order is executed. For the Intermediate Maturity Government, New
York Intermediate Municipal and Fixed Income Funds and the Money Market Funds,
you begin to earn dividend distributions the business day after your purchase
order is executed. However, if we receive your purchase order and payment to
purchase shares of a Money Market Fund before 12 p.m. (noon), you begin to earn
dividend distributions on that day.
Your purchase order will be canceled and you may be liable for losses or fees
incurred by the fund if:
- your investment check or ACH transfer does not clear
- you place a telephone order by 4 p.m. ET and we do not receive your wire that
day
If you wire money without first calling Shareholder Services to place an
order, and your wire arrives after the close of regular trading on the NYSE,
then your order will not be executed until the end of the next business day. In
the meantime, your payment will be held uninvested. Your bank or other
financial-services firm may charge a fee to send or receive wire transfers.
While we monitor telephone servicing resources carefully, during periods of
significant economic or market change it may be difficult to place orders by
telephone.
Uncashed redemption or distribution checks do not earn interest.
SPECIAL SITUATIONS
A fund reserves the right to:
- refuse any purchase or exchange request, including those from any person or
group who, in the fund's view, is likely to engage in excessive trading
- change or discontinue its exchange privilege after 30 days' notice to current
investors, or temporarily suspend this privilege during unusual market
conditions
- change its minimum investment amounts after 15 days' notice to current
investors of any increases
- charge a wire-redemption fee
- make a "redemption in kind"--payment in portfolio securities rather than
cash--for certain large redemption amounts that could hurt fund operations
- suspend redemptions or postpone payment dates as permitted by the Investment
Company Act of 1940 (such as during periods other than weekends or holidays
when the NYSE is closed or trading on the NYSE is restricted, or any other
time that the SEC permits)
- modify or waive its minimum investment requirements for employees and clients
of its adviser, sub-adviser, distributor and their affiliates and, for the
Long-Short Funds, investments through certain financial-services firms
($10,000 minimum) and through retirement plan programs (no minimum)
- stop offering its shares for a period of time (such as when management
believes that a substantial increase in assets could adversely affect it)
800-WARBURG (800-927-2874)
MONDAY - FRIDAY, 8 A.M. - 8 P.M. ET SATURDAY, 8 A.M. - 4 P.M. ET
7
<PAGE> 36
[WARBURG PINCUS FUNDS LOGO]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874) - www.warburg.com
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPCOM-31-1298C
<PAGE> 37
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 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 30, 1999.
Each Fund's audited annual report dated December 31, 1998, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus. Copies of the Prospectus and the Annual
Report can be obtained by writing or telephoning:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
800-WARBURG
<PAGE> 38
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.......................................................... 5
When-Issued Securities......................................................... 6
Repurchase Agreements.......................................................... 6
Reverse Repurchase Agreements and Borrowings................................... 7
Stand-By Commitment Agreements................................................. 7
Third Party Puts............................................................... 8
Taxable Investments............................................................ 8
Other Investment Policies and Practices of the New York Tax Exempt Fund........ 9
Non-Diversified Status.................................................... 9
Other Investment Limitations................................................... 9
Cash Reserve Fund......................................................... 9
New York Tax Exempt Fund.................................................. 11
PORTFOLIO VALUATION..................................................................... 12
PORTFOLIO TRANSACTIONS.................................................................. 13
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES........................ 14
State Economy.................................................................. 14
State Budget................................................................... 15
Recent Financial Results....................................................... 19
Debt Limits and Outstanding Debt............................................... 20
Litigation..................................................................... 22
Authorities.................................................................... 23
New York City and Other Localities............................................. 24
Year 2000 Compliance........................................................... 28
MANAGEMENT OF THE FUNDS................................................................. 29
Officers and Board of Directors................................................ 29
Directors' Compensation........................................................ 32
Investment Adviser, Sub-Investment Adviser and Administrator
and Co-Administrator......................................................... 33
Banking Laws................................................................... 35
Custodian and Transfer Agent................................................... 36
Organization of the Fund....................................................... 36
</TABLE>
(i)
<PAGE> 39
<TABLE>
<S> <C>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................................... 37
Automatic Cash Withdrawal Plan................................................. 38
EXCHANGE PRIVILEGE...................................................................... 38
ADDITIONAL INFORMATION CONCERNING TAXES................................................. 38
DETERMINATION OF YIELD.................................................................. 42
INDEPENDENT ACCOUNTANTS AND COUNSEL..................................................... 43
MISCELLANEOUS........................................................................... 43
FINANCIAL STATEMENTS.................................................................... 44
APPENDIX................................................................................ A-1
Description of Commercial Paper Ratings....................................... A-1
Description of Municipal Securities Ratings................................... A-2
</TABLE>
(ii)
<PAGE> 40
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 (the "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 SEC are Standard & Poor's Ratings Services ("S&P"), Moody's
<PAGE> 41
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 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
-2-
<PAGE> 42
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.
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
-3-
<PAGE> 43
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 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
-4-
<PAGE> 44
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.
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
-5-
<PAGE> 45
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 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
-6-
<PAGE> 46
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.
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.
-7-
<PAGE> 47
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, 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%
-8-
<PAGE> 48
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 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.
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<PAGE> 49
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.
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.
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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 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
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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.
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
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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 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
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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 the Annual Information Statement of the State of New
York as supplemented and contained in 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's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
In the calendar years 1987 through 1997, the State's rate of economic
growth was somewhat slower than that of the nation. In particular, during the
1990-91 recession and post-recession period, the economy of the State, and that
of the rest of the Northeast, was more heavily damaged than that of the nation
as a whole and has been slower to recover.
State per capita personal income has historically been significantly higher
than the national average, although the ratio has varied substantially. Because
New York City (the "City") is a regional employment center for a multi-state
region, State personal income measured on a residence basis understates the
relative importance of the State to the national economy and the size of the
base to which State taxation applies.
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The Additional Information Statement reflects estimates of receipts and
disbursements as formulated in the State Financial Plan released on June 25,
1998, as updated on a quarterly basis. The third quarterly update ("Third
Quarterly Update") was released on January 27, 1999 in connection with the
1999-2000 Executive Budget. 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.
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State's 1998-99 fiscal year began on April 1, 1998 and
ended on March 31, 1999. The Legislature adopted the debt service component of
the State budget for the 1998-99 fiscal year March 30, 1998 and the remainder of
the budget on April 18, 1998. In the period prior to adoption of the budget for
the 1998-99 fiscal year, the Legislature also enacted appropriations to permit
the State to continue its operations and provide for other purposes.
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The 1998-99 State Financial Plan projected a closing balance in the General
Fund of $1.42 billion comprised of a reserve of $761 million available for
future needs, a balance of $400 million in the Tax Stabilization Reserve Fund
("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF") and a
balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF can be
used in the event of an unanticipated General Fund cash operating deficit, as
provided under the State Constitution and State Finance Law. The CPF is used to
finance various legislative and executive initiatives. The CRF provides resource
to help finance any extraordinary litigation costs during the fiscal year.
The Third Quarterly Update of the 1998-99 Financial Plan projected a
year-end available cash surplus of $1.79 billion in the General Fund, an
increase of $749 million over the surplus estimate in the Mid-Year Update.
Strong growth in receipts as well as lower-than expected disbursements during
the first nine months of the fiscal year account for the higher surplus
estimate. As of February 9, 1999, this amount was projected to be reduced by the
transfer of $1.04 billion to the tax refund reserve. The projected remaining
closing balance of $799 million in the General Fund is comprised of $473 million
in the TSRF, $226 million in the CPF, and $100 million in the CRF.
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The Governor presented his 1999-2000 Executive Budget to the Legislature on
January 27, 1999. The 1999-2000 Financial Plan projects General Fund
disbursements and transfers to other funds of $37.10 billion, an increase of
$482 million over projected spending for the current year. Grants to local
governments constitute approximately 67 percent of all General Fund spending,
and include payments to local governments, non-profit providers and individuals.
Disbursements in this category are projected to decrease $87 million (0.4
percent) to $24.81 billion in 1999-2000, in part due to a $175 million decline
in proposed spending for legislative initiatives.
The State is projected to close the 1999-2000 fiscal year with a General
Fund balance of $2.36 billion. The balance is comprised of $1.79 billion in tax
reduction reserves, $473 million in the TSRF and $100 million in the CRF. The
entire $226 million balance in the Community Projects Fund is expected to be
used in 1999-2000, with $80 million spent to pay for existing projects and the
remaining balance of $146 million, against which there are currently no
appropriations as a result of the Governor's 1998 vetoes, used to fund other
expenditures in 1999-2000.
The State currently projects spending to grow by $1.09 billion (2.9
percent) in 2000-01 and an additional $1.8 billion (4.7 percent) in 2001-02.
General Fund spending increases at a higher rate in 2001-02 than in 2000-01,
driven primarily by higher growth rates for Medicaid, welfare, Children and
Families Services, and Mental Retardation, as well as the loss of federal money
that offsets General Fund spending.
Over the long-term, uncertainties with regard to the economy present the
largest potential risk to future budget balance in New York State. For example,
a downturn in the financial markets or the wider economy is possible, a risk
that is heightened by the lengthy expansion currently underway. The securities
industry is more important to the New York economy than the national economy,
potentially amplifying the impact of an economic downturn. A large change in
stock market performance during the forecast horizon could result in wage and
unemployment levels that are significantly different from those embodied in the
forecast. Merging and downsizing by firms, as a consequence of deregulation or
continued foreign competition, may also have
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more significant adverse effects on employment than expected. Finally, a
"forecast error" of one percentage point in the estimated growth of receipts
could cumulatively raise or lower results by over $1 billion by 2002.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
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. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. The projections assume
no changes in federal tax law, which could substantially alter the current
receipts forecast. In addition, these projections do not include funding for new
collective bargaining agreements after the current contracts expire on April 1,
1999. Actual results, however, could differ materially and adversely from their
projections , and those projections may be changed materially and adversely from
time to time.
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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-
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obligation financing arrangement with the LGAC to restructure the way the State
makes certain local aid payments.
The proposed 1998-99 through 2003-04 Capital Program and Financing Plan was
released with the Executive Budget on January 27, 1999. The recommended
five-year Capital Program and Financing Plan reflects debt reduction initiatives
that would reduce future State-supported debt issuances by significantly
increasing the share of the Plan financed with pay-as-you-go resources. Compared
to the last year of the July 1998 update to the Plan, outstanding
State-supported debt would be reduced by $4.7 billion (from $41.9 billion to
$37.2 billion).
As described therein, efforts to reduce debt, unanticipated delays in the
advancement of certain projects and revisions to estimated proceeds needs will
modestly reduce projected borrowings in 1998-99. The State's 1998-99 borrowing
plan now projects issuances of $331 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State has issued $179
million in Certificates of Participation to finance equipment purchases
(including costs of issuance, reserve funds, and other costs) during the 1998-99
fiscal year. Of this amount, it is anticipated that approximately $83 million
will be used to finance agency equipment acquisitions, and $96 million to
address Statewide technology issues related to Year 2000 compliance.
Approximately $228 million for information technology related to welfare reform,
originally anticipated to be issued during the 1998-99 fiscal year, is now
expected to be delayed until 1999-2000.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.85 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
On January 13, 1992, 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
5, 1999, S&P affirmed its A rating on the State's outstanding bonds.
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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.
On March 5, 1999, Moody's affirmed its A2 rating with a stable outlook to the
State's general obligations .
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 regulations promulgated by the
Superintendent of Insurance establishing certain excess medical malpractice
premium rates; (5) challenges to the constitutionality of Public Health Law
2807-d, which imposes a gross receipts tax from certain patient care services;
(6) action seeking enforcement of certain sales and excise taxes and tobacco
products and motor fuel sold to non-Indian consumers on Indian reservations; (7)
a challenge to the Governor's application of his constitutional line item veto
authority; and (8) a challenge to the enactment of the Clean Water/Clean Air
Bond Act of 1996.
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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 1996-97,
$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 v. 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 1998-99 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.
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.
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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 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.
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. JDA recently resumed its lending activities
under a revised set of lending programs and underwriting guidelines.
New York City and Other Localities. The fiscal health of the State may also
be impacted by the fiscal health of its localities, particularly the City ,
which has required and continues to require significant financial assistance
from the 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 and again on May 27, 1998, S&P
assigned a BBB+ rating to the City's general obligation debt and placed the
ratings on CreditWatch with positive implications. On March 9, 1999, S&P
assigned its A- rating to Series 1999H of New York City general obligation bonds
and affirmed the A- rating on various previously issued New York City bonds.
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 approximately $28 billion of the City's general obligations from Baa1
to A3. On June 9, 1998, Moody's affirmed its A3 rating to the City's general
obligations and stated that its outlook was stable.
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On March 8, 1999, Fitch IBCA upgraded New York City's $26 billion
outstanding general obligation bonds from A- to A.
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 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.
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- 1998 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 1997-98, but roughly equivalent to the rate for 1995-96.
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<PAGE> 64
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 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.
Although the City has consistently maintained balanced budgets and is
projected to achieve balanced operating results for the 1999 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 Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
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<PAGE> 65
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 1998 fiscal year financial plan projected
$2.4 billion of seasonal financing , the City expected 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.
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
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<PAGE> 66
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.
On June 30, 1998, the City of Yonkers satisfied the statutory conditions
for ending the supervision of its finances by a State-ordered control board.
Pursuant to State law, the control board's powers over City finances lapsed six
months after the satisfaction of these conditions, on December 31, 1998.
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.
The 1998-99 budget includes $29.4 million in unrestricted aid targeted to
57 municipalities across the State. Other assistance for municipalities with
special needs totals more than $25.6 million. Twelve upstate cities will receive
$24.2 million in one-time assistance from a cash flow acceleration of State aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
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
the State, the 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 the 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 the State assistance in the future.
Year 2000 Compliance. The State is currently addressing Year 2000 ("Y2K")
data processing compliance issues. Since its inception, the computer industry
has used a two-digit date convention to represent the year. In the year 2000,
the date field will contain "00" and, as a result, many computer systems and
equipment may not be able to process dates properly or may fail since they may
not be able to distinguish between the years 1900 and 2000. The Year 2000 issue
not only affects computer programs, but also the hardware, software and networks
they operate on. In addition,
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<PAGE> 67
any system or equipment that is dependent on an embedded chip, such as
telecommunication equipment and security systems, may also be adversely
affected.
The Office for Technology is monitoring compliance progress for the State's
mission-critical and high-priority systems and is reporting compliance progress
to the Governor's office on a quarterly basis. As of December 1998, the State
had completed 93 percent of overall compliance effort for its mission-critical
systems; 18 systems are now Year 2000 compliant and the remaining systems are on
schedule to be compliant by the first quarter of 1999. As of December 1998, the
State has completed 70 percent of overall compliance effort on the high-priority
systems; 168 systems are now Year 2000 compliant and the remaining systems are
on schedule to be compliant by the second quarter of 1999. Compliance testing is
expected to be completed by the end of calendar 1999.
While New York State is taking what it believes to be appropriate action to
address Year 2000 compliance, there can be no guarantee that all of the State's
systems and equipment will be Year 2000 compliant and that there will not be an
adverse impact upon State operations or finances as a result. Since Year 2000
compliance by outside parties is beyond the State's control to remediate, the
failure of outside parties to achieve Year 2000 compliance could have an adverse
impact on State operations or finances as well.
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 02777 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.
</TABLE>
- ----------
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
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<PAGE> 68
<TABLE>
<S> <C>
Jack W. Fritz (71)................................. Director
2425 North Fish Creek Road Private investor; Consultant and Director of
P.O. Box 483 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* (68)............................... Director
466 Lexington Avenue Chairman of the Board of the Funds and Warburg
New York, New York 10017-3147 and Managing Director of Warburg; Associated
with Warburg since 1970; Director of other
companies affiliated with Warburg; Chairman
of the Board of Directors/Trustees of other
investment companies in the Warburg Pincus
family of funds.
Jeffrey E. Garten (51)............................ Director
Box 208200 Dean of Yale School of Management and William
New Haven, Connecticut 06520-8200 S. Beinecke Professor in the Practice of
International Trade and Finance;
Undersecretary of Commerce for International
Trade from November 1993 to October 1995;
Director/Trustee of other investment
companies in the Warburg Pincus family of
funds.
Thomas A. Melfe (66)............................... Director
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 Chief Operating Officer
New York, New York 10017-3147 of Warburg; Associated with Warburg since
1984; Director of The RBB Fund, Inc. since
July 1991; Officer of Counsellors Securities
and other companies affiliated with Warburg .
</TABLE>
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<PAGE> 69
<TABLE>
<S> <C>
Alexander B. Trowbridge (69)...................... Director
1317 F Street, N.W., 5th Floor Currently retired; President of Trowbridge
Washington, DC 20004 Partners, Inc. (business consulting) from
January 1990 to November 1996; Director or
Trustee of New England Mutual Life Insurance
Co., ICOS Corporation (biopharmaceuticals),
The Rouse Company (real estate development),
Harris Corp. (electronics and communications
equipment), The Gillette Co. (personal care
products) , Sunoco, Inc. (petroleum refining
and marketing) and IRI International, Inc.
(energy services); Director/Trustee of other
investment companies in the Warburg Pincus
family of funds.
Eugene L. Podsiadlo (42).......................... President
466 Lexington Avenue Managing Director of Warburg; Associated with
New York 10017-3147 Warburg since 1991; Officer of Counsellors
Securities and of other companies affiliated
with Warburg and investment companies in the
Warburg Pincus family of funds.
Steven B. Plump (40)............................... Executive Vice President
466 Lexington Avenue Senior Vice President of Warburg; Associated
New York, New York 10017-3147 with Warburg since 1995; Associated with
Chemical Investment Services and its
affiliates from 1993 until 1995. Officer of
other investment companies in the Warburg
Pincus family of funds.
Stephen Distler (45)............................... Vice President
466 Lexington Avenue Managing Director of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1984; Officer of Counsellors
Securities and of other companies affiliated
with Warburg and investment companies in the
Warburg Pincus family of funds.
Janna Manes, Esq. (31)............................. Vice President and Secretary
466 Lexington Avenue Vice President, Secretary and General Counsel
New York, New York 10017-3147 of Warburg; Associated with Warburg since
1996; Associated with the law firm of Willkie
Farr & Gallagher from 1993 to 1996; Officer
of Counsellors Securities and of other
companies affiliated with Warburg and
investment companies in the Warburg Pincus
family of funds.
</TABLE>
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<PAGE> 70
<TABLE>
<S> <C>
Howard Conroy, CPA (45)............................ 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 Counsellors
Securities and of other companies affiliated
with Warburg and investment companies in the
Warburg Pincus family of funds.
Daniel S. Madden, CPA (33)......................... Treasurer and Chief Accounting Officer
466 Lexington Avenue Vice President of Warburg; Associated with
New York, New York 10017-3147 Warburg since 1995; Associated with BlackRock
Financial Management, Inc. from September
1994 to October 1995; Associated with Credit
Suisse Asset Management from April 1993 to
September 1994; Officer of other investment
companies in the Warburg Pincus family of
funds.
Stuart J. Cohen, Esq. (30)......................... Assistant Secretary
466 Lexington Avenue Vice President and Associate General Counsel
New York, New York 10017-3147 of Warburg; Associated with Warburg since
1997; Associated with the law firm of Gordon
Altman Butowsky Weitzen Shalov & Wein from
1995 to 1997; Officer of other investment
companies in the Warburg Pincus family of
funds.
</TABLE>
No employee of Warburg, BIMC, PNC or PFPC Inc. ("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 $56,600
Donald J. Donahue*** $2,000 $13,525
</TABLE>
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<PAGE> 71
<TABLE>
<S> <C> <C>
Jack W. Fritz $2,000 $63,100
Jeffrey E. Garten $2,000 $49,325
Thomas A. Melfe $2,000 $60,700
Arnold M. Reichman None** None**
Alexander B. Trowbridge $2,000 $64,000
</TABLE>
- --------------------
* Each Director also serves as a Director or Trustee of 39 investment
companies in the Warburg Pincus family of funds except for Mr. Melfe, who
serves as a Director/Trustee of 22 investment companies in the Warburg
Pincus family of funds.
** Mr. Furth and Mr. Reichman receive compensation as affiliates of Warburg,
and, accordingly, receive no compensation from a Fund or any other
investment company 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 (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
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<PAGE> 72
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
Net Advisory Fees paid to Warburg
<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 $1,059,673
</TABLE>
For the same periods, Warburg voluntarily waived $229,970, $192,234 and
$237,838, respectively.
Net Sub-Advisory and Administration Fees paid to 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 $941,839
</TABLE>
For the same periods, BIMC voluntarily waived $344,956, $288,351 and $356,758,
respectively. For the fiscal year ended February 28, 1997 and the 10-month
period ended December 31, 1997, BIMC was entitled only to sub-advisory fees.
Administrative Services/Co-Administration Fees paid to Counsellors Service
<TABLE>
<CAPTION>
Fiscal year ended 10-month period ended Fiscal year ended
February 28, 1997 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C>
$436,938 $401,957 $519,004
</TABLE>
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<PAGE> 73
NEW YORK TAX EXEMPT FUND
Net Advisory Fees paid to Warburg
<TABLE>
<CAPTION>
Fiscal year ended 10-month period ended Fiscal year ended
February 28, 1997 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C>
$287,156 $294,367 $307,690
</TABLE>
For the same periods, Warburg voluntarily waived $74,362, $58,818 and $86,187,
respectively.
Net Sub-Advisory and Administration Fees paid to 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>
$287,156 $294,367 $265,190
</TABLE>
For the same periods, BIMC voluntarily waived $111,543, $88,227 and $129,280,
respectively. For the fiscal year ended February 28, 1997 and the 10-month
period ended December 31, 1997, BIMC was entitled only to sub-advisory fees.
Administrative Services/Co-Administration Fees paid to Counsellors Service
<TABLE>
<CAPTION>
Fiscal year ended 10-month period ended Fiscal year ended
February 28, 1997 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C>
$114,862 $117,747 $157,551
</TABLE>
Banking Laws
Banking laws and regulations presently (i) prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 (the "Holding
Company Act") or any bank or non-bank affiliate thereof from sponsoring,
organizing, controlling, or distributing the shares of a registered, open-end
investment company continuously engaged in the issuance of its shares, but (ii)
do not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent or custodian to such an investment company. PNC and 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
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<PAGE> 74
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
PFPC Trust Company is custodian of each Fund's assets pursuant to a
custodian agreement (the "Custodian Agreement"). Under the Custodian Agreement,
PFPC Trust Company (i) maintains a separate account or accounts in the name of
the Fund, (ii) holds and transfers portfolio securities on account of the Fund,
(iii) makes receipts and disbursements of money on behalf of the Fund, (iv)
collects and receives all income and other payments and distributions on
account of the Fund's portfolio securities and (v) makes periodic reports to
the Board concerning the Fund's custodial arrangements. PFPC Trust Company is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of a Fund, provided that PFPC Trust Company remains
responsible for the performance of all its duties under the Custodian Agreement
and holds the Fund harmless from the acts and omissions of any sub-custodian.
PFPC Trust Company's principal business address is 200 Stevens Drive, Lester,
Pennsylvania 19103.
State Street Bank and Trust Company ("State Street") has agreed to serve as
each Fund's shareholder servicing, transfer and dividend disbursing agent
pursuant to a Transfer Agency and Service Agreement, under which State Street
(i) issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to record owners of the Fund shares, including
reports to shareholders, dividend and distribution notices and 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
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
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<PAGE> 75
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.
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
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<PAGE> 76
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. 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 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 a Fund.
-38-
<PAGE> 77
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. 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
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<PAGE> 78
paid by the Fund would reduce the amount of income and gains available for
distribution to shareholders.
If for any taxable year the Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such event, dividend
distributions, including amounts derived from interest on tax-exempt
obligations, would be taxable to shareholders to the extent of current and
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.
If, in any taxable year, a Fund fails to qualify as a regulated investment
company under the Code or fails to meet the distribution requirement, it would
be taxed in the same manner as an ordinary corporation and distributions to its
shareholders would not be deductible by the Fund in computing its taxable
income. In addition, in the event of a failure to qualify, the Fund's
distributions, to the extent derived from the Fund's current or accumulated
earnings and profits, would constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to shareholders as ordinary
income, even though those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as long-term capital gains or tax-exempt
interest income. If a Fund fails to qualify as a regulated investment company in
any year, it must pay out its earnings and profits accumulated in that year in
order to qualify again as a regulated investment company. In addition, if the
Fund failed to qualify as a regulated investment company for a period greater
than one taxable year, the Fund may be required to recognize any net built-in
gains (the excess of the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had been liquidated) in
order to qualify as a regulated investment company in a subsequent year.
Investors in the 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, if a
shareholder of the New York Tax Exempt Fund holds shares for six months or less,
any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Code may require a shareholder, if he or she receives exempt
interest dividends, to treat as taxable income a portion of certain otherwise
non-taxable social security and railroad retirement benefit payments.
Furthermore, that portion of any dividend paid by the Fund which represents
income derived from private 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
-40-
<PAGE> 79
income" tax liability. Shareholders should consult their own tax advisers as to
whether they (i) may be "substantial users" with respect to a facility or
"related" to such users within the meaning of the Code and (ii) are subject to a
federal alternative minimum tax, the federal "branch profits" tax, or the
federal "excess net passive income" tax.
While each Fund does not expect to realize net long-term capital gains, any
such realized gains will be distributed as described in the Prospectus. Such
distributions ("capital gain dividends") will be taxable to shareholders as
long-term capital gains, regardless of how long a shareholder has held Fund
shares, and will be designated as capital gain dividends in a written notice
mailed by a Fund to shareholders after the close of the Fund's taxable year.
Gain or loss, if any, recognized on the sale or other disposition of shares of
the Fund will be taxed as capital gain or loss if the shares are capital assets
in the shareholder's hands. Generally, a shareholder's gain or loss will be a
long-term gain or loss if the shares have been held for more than one year. If a
shareholder sells or otherwise disposes of a share of the Fund before holding it
for more than six months, any loss on the sale or other disposition of such
share shall be treated as a long-term capital loss to the extent of any capital
gain dividends received by the shareholder with respect to such share. This rule
will apply to a sale of shares of the New York Tax Exempt Fund only to the
extent the loss is not disallowed under the provision described above.
A shareholder of a Fund receiving dividends or distributions in additional
shares should be treated for federal income tax purposes as receiving a
distribution in an amount equal to the amount of money that a shareholder
receiving cash dividends or distributions receives, and should have a cost basis
in the shares received equal to that amount.
Each shareholder of the 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
-41-
<PAGE> 80
net investment income bears to its total net investment income earned on that
day. Therefore, the percentage of each day's dividend designated as taxable, if
any, may vary from day to day.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that he
has provided a correct taxpayer identification number and that he is not subject
to withholding, then the shareholder may be subject to a 31% "backup
withholding" tax with respect to taxable dividends and distributions. An
individual's taxpayer identification number is his social security number.
Corporate shareholders and other shareholders specified in the Code are or may
be exempt from backup withholding. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's federal income tax
liability.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING A FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE FUND.
DETERMINATION OF YIELD
From time to time, each Fund may quote its yield, effective yield and tax
equivalent yield, as applicable, in advertisements or in reports and other
communications to shareholders. The Cash Reserve Fund's yield and effective
yield for the seven-day period ended on December 31, 1998 were 4.61% and 4.72%,
respectively. In the absence of waivers, these yields would have been 4.49% and
4.59%, 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
3.08%, 3.13% and 6.18% (based on a 50.14% total of 3 tax rates), respectively.
In the absence of waivers these yields would have been 2.84%, 2.88% and 5.20%,
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
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<PAGE> 81
information may be useful in reviewing the Fund's performance and for providing
a basis for comparison with other investment alternatives. However, the Fund's
yield will fluctuate, unlike certain bank deposits or other investments which
pay a fixed yield for a stated period of time. In comparing the Fund's yield
with that of other money market funds, investors should give consideration to
the quality and maturity of the portfolio securities of the respective funds.
INDEPENDENT ACCOUNTANTS AND COUNSEL
PricewaterhouseCoopers LLP ("PwC"), with principal offices at 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as independent accountants
for each Fund. The Funds' financial statements for the fiscal 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>
Neuberger and Berman* 37.88%
#114000
** 1 Attn.: Operations Control Dept.
Steve Gallaro
** 2 55 Water Street, FL 27
** 3 New York, NY 10041-0001
- --------------------------------------------------------------------------------
Fiduciary Trust Company International* 19.25%
Cust A/C Attn Felyce Porr
Securities Services Group
Church Street Station
P.O. Box 3199
New York, NY 10008-3199
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE> 82
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CASH RESERVE FUND COMMON STOCK
- --------------------------------------------------------------------------------
<S> <C>
The Bank of New York* 6.72%
c/o Frank Notaro
Special Processing Dept.
2nd Floor
One Wall Street
New York, NY 10005-2501
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NEW YORK TAX EXEMPT FUND COMMON STOCK
- --------------------------------------------------------------------------------
<S> <C>
Neuberger & Berman* 56.85%
#114000
** 4 Attn.: Operations Control Dept.
Steve Gallaro
** 5 55 Water Street, FL 27
New York, NY 10041-0001
- --------------------------------------------------------------------------------
Fiduciary Trust Company International* 33.02%
Cust A/C Attn Felyce Porr
Securities Services Group
Church Street Station
P.O. Box 3199
New York, NY 10008-3199
</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 50% and 28%
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.
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<PAGE> 83
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.
<PAGE> 84
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.
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:
A-2
<PAGE> 85
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.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign designation. Capacity
for timely payment on commercial paper rated A-2 is satisfactory, but the
relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Services, Inc. Issuers rated Prime-1 (or related supporting
institutions) are considered to have a superior capacity for repayment of
short-term promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
Short term obligations, including commercial paper, rated A1 + by IBCA are
obligations supported by the highest capacity for timely repayment. Obligations
rated A1 have a very strong capacity for timely repayment. Obligations rated A2
have a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate issues
regarded as having the strongest degree of assurance for timely payment. The
rating F-1 reflects an assurance of timely payment only slightly less in degree
than issues rated F-1+, while the rating F-2 indicates a satisfactory degree of
assurance for timely payment, although the margin of safety is not as great as
indicated by the F-1+ and F-1 categories.
Duff & Phelps, Inc. employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. Duff 1+ indicates the highest
certainty of timely payment: short-term liquidity is clearly outstanding and
safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates good certainty of
timely payment: liquidity factors and company fundamentals are sound.
A-3
<PAGE> 86
PART C
OTHER INFORMATION
Item 23. Exhibits
Exhibit No. Description of Exhibit
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 the By-Laws.****
c(1) Form of certificates for common stock.*****
d(1) Form of Investment Advisory Agreement.*
- --------------------
* Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A for Warburg, Pincus New York Tax
Exempt Fund, Inc. (formerly known as Counsellors New York Tax Exempt
Fund) filed on June 28, 1995 (Securities Act File No. 2-94841).
** Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A for Warburg, Pincus New York Tax
Exempt Fund, Inc. (formerly known as Counsellors New York Tax Exempt
Fund) filed on June 25, 1997 (Securities Act File No. 2-94841).
*** Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A for Warburg, Pincus Cash Reserve
Fund, Inc. (formerly known as Counsellors Cash Reserve Fund) 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).
***** Incorporated by reference; material provisions of this exhibit
substantially similar to those of this exhibit in Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A for
Warburg, Pincus Cash Reserve Fund, Inc. (formerly known as
Counsellors Cash Reserve Fund) filed on June 28, 1995 (Securities Act
File No. 2-94840).
c-1
<PAGE> 87
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.
g(1) Form of Custodian Services Agreement with PFPC Trust Company.
******
(2) Form of Sub-Custodian Services Agreement with PFPC Trust
Company and PNC Bank, National Association.******
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
- --------------------
****** Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit to the
Registration Statement on Form N-1A of Warburg, Pincus Trust filed on
April 16, 1999 (Securities Act File No. 33-58125; Investment Company
Act File No. 811-07261).
c-2
<PAGE> 88
Japanese corporation; and Warburg Pincus Asset Management (Dublin) Limited, an
Irish corporation.
Item 25. Indemnification
Registrant, and officers and directors of Warburg, 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.
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 incorporated by reference to Schedules A and D of Form ADV filed 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 Cash Reserve 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;
c-3
<PAGE> 89
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
Post-Venture Capital Fund; Warburg Pincus Select Economic Value Equity Fund;
Warburg Pincus Small Company Growth Fund; Warburg Pincus Small Company Value
Fund; Warburg Pincus Strategic Global Fixed Income 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 and officer 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, as amended.
(c) None.
Item 28. Location of Accounts and Records
(1) Warburg, Pincus New York Tax Exempt 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) PFPC Trust Company
Mutual Fund Custody Services
200 Stevens Drive
Suite 440
Lester, Pennsylvania 19113
(records relating to its functions as custodian)
c-4
<PAGE> 90
(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
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.
c-5
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness of this Amendment to the
Registration Statement pursuant to 485(b) under the Securities Act of 1933, as
amended, and 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 29th day of April, 1999.
WARBURG, PINCUS NEW YORK TAX EXEMPT
FUND, INC.
By: 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 April 29, 1999
- ----------------------------- Board of Directors
John L. Furth
/s/Eugene L. Podsiadlo President April 29, 1999
- -----------------------------
Eugene L. Podsiadlo
/s/Howard Conroy Vice President and April 29, 1999
- ----------------------------- Chief Financial
Howard Conroy Officer
/s/Daniel S. Madden Treasurer and April 29, 1999
- ----------------------------- Chief Accounting
Daniel S. Madden Officer
/s/Richard N. Cooper Director April 29, 1999
- -----------------------------
Richard N. Cooper
/s/Jack W. Fritz Director April 29, 1999
- -----------------------------
Jack W. Fritz
/s/Jeffrey E. Garten Director April 29, 1999
- -----------------------------
Jeffrey E. Garten
/s/Thomas A. Melfe Director April 29, 1999
- -----------------------------
Thomas A. Melfe
/s/Arnold M. Reichman Director April 29, 1999
- -----------------------------
Arnold M. Reichman
/s/Alexander B. Trowbridge Director April 29, 1999
- -----------------------------
Alexander B. Trowbridge
</TABLE>
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
i Opinion and Consent of Willkie Farr & Gallagher, counsel to
the Fund.
j Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
n Financial Data Schedule.
</TABLE>
<PAGE> 1
Exhibit i
April 29, 1999
Warburg, Pincus New York Tax Exempt Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
Re: Post-Effective Amendment No. 16 to Registration Statement
(Securities Act File No. 2-94841; Investment Company Act
File No. 811-4170) (the "Registration Statement")
Ladies and Gentlemen:
You have requested us, as counsel to Warburg, Pincus New York Tax Exempt Fund,
Inc. (the "Fund"), a corporation organized under the laws of the State of
Maryland, to furnish you with this opinion in connection with the Fund's filing
of Post-Effective Amendment No. 16 to its Registration Statement on Form N-1A
(the "Amendment").
We have examined copies of the Fund's Articles of Incorporation, as amended or
supplemented (the "Articles"), the Fund's By-Laws, as amended (the "By-Laws"),
and the Amendment. We have also examined such other records, documents, papers,
statutes and authorities as we have deemed necessary to form a basis for the
opinion hereinafter expressed.
In our examination of material, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all copies submitted to us. As to
various questions of fact material to our opinion, we have relied upon
statements and certificates of officers and representatives of the Fund and
others.
Based upon the foregoing, we are of the opinion that the shares of common stock
of the Fund, par value $.001 per share (the "Shares"), when duly sold, issued
and paid for in accordance with the laws of applicable jurisdictions and the
terms of the Articles, the By-Laws and the Prospectus and Statement of
Additional Information ("SAI") included as part of the Amendment, and assuming
that at the time of sale such Shares will be sold at a sales price in each case
in excess of the par value, will be valid, legally issued, fully paid and
non-assessable.
<PAGE> 2
Warburg, Pincus New York Tax Exempt Fund, Inc.
April 29, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the Amendment,
to the reference to our name under the heading "Independent Accountants and
Counsel" in the SAI included as part of the Amendment, and to the filing of this
opinion as an exhibit to any application made by or on behalf of the Fund or any
distributor or dealer in connection with the registration or qualification of
the Fund or the Shares under the securities laws of any state or other
jurisdiction.
We are members of the Bar of the State of New York only and do not opine as to
the laws of any jurisdiction other than the laws of the State of New York and
the laws of the United States, and the opinions set forth above are,
accordingly, limited to the laws of those jurisdictions.
Very truly yours,
/s/Willkie Farr & Gallagher
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 16 to the Registration Statement under the Securities Act of 1933
on Form N-1A (File No. 2-94841) of our report dated February 5, 1999 on our
audit of the financial statements and financial highlights of Warburg, Pincus
New York Tax Exempt Fund, Inc., which report is included in the Annual Report to
Shareholders for the year ended December 31, 1998. We also consent to the
references to our Firm under the heading "Financial Highlights" in the
Prospectus and "Independent Accountants and Counsel" in the Statement of
Additional Information.
/s/PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP
April 29, 1999
2400 Eleven Penn Center
Philadelphia, Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000759434
<NAME> WARBUR, PINCUS NEW YORK TAX-EXEMPT FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 174407785
<INVESTMENTS-AT-VALUE> 174407785
<RECEIVABLES> 1606825
<ASSETS-OTHER> 55445
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 176070055
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1326872
<TOTAL-LIABILITIES> 1326872
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 174747460
<SHARES-COMMON-STOCK> 174756302
<SHARES-COMMON-PRIOR> 138278340
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4277)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 174743183
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5377726
<OTHER-INCOME> 0
<EXPENSES-NET> (866529)
<NET-INVESTMENT-INCOME> 4511197
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4511197
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4511197)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 430856437
<NUMBER-OF-SHARES-REDEEMED> (409478827)
<SHARES-REINVESTED> 2192770
<NET-CHANGE-IN-ASSETS> 23570380
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (8303)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 788347
<INTEREST-EXPENSE> (270)
<GROSS-EXPENSE> 1081996
<AVERAGE-NET-ASSETS> 157550743
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .029
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.029)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
