<PAGE>
WARBURG PINCUS ADVISOR FUNDS
AUGUST 31, 1996
GROWTH & INCOME FUND
BALANCED FUND
ANNUAL REPORT
A Prospectus containing more complete information, including charges and
expenses and where applicable, the special considerations and risks
associated with international investing may be obtained by calling
800-369-2728 or by writing to Warburg Pincus Advisor Funds, P.O. Box 9030,
Boston, MA 02205-9030. Investors should read the Prospectus carefully before
investing.
WARBURG PINCUS
INVESTMENTS
<PAGE>
THE VIEWS OF THE FUNDS' MANAGEMENT ARE AS OF THE DATE OF THE LETTERS AND
PORTFOLIO HOLDINGS DESCRIBED IN THIS ANNUAL REPORT ARE AS OF AUGUST 31, 1996;
THESE VIEWS AND PORTFOLIO HOLDINGS MAY HAVE CHANGED SUBSEQUENT TO THESE DATES.
NOTHING IN THIS ANNUAL REPORT IS A RECOMMENDATION TO PURCHASE OR SELL
SECURITIES.
<PAGE>
WARBURG PINCUS ADVISOR GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT
- ---------------------------------------------------------------------
Dear Shareholder: October 21, 1996
For the 12 months ended August 31, 1996, Warburg Pincus Advisor Growth &
Income Fund (the "Fund") had a total return of -3.92%, vs. a total return of
18.73% for the S&P 500 Index.
The Fund's significant underperformance is largely attributable to weakness in
gold-related shares, which had a sizable representation in the portfolio through
the period. As long-term shareholders in the Fund know, we have been and remain
positive on gold and gold-mining stocks as a secular investment theme, based on
the large and ongoing imbalance between the metal's supply and demand. Annual
demand for gold exceeds new supply by over 800 tons. The magnitude of this
imbalance should, we believe, lead to a markedly higher price for the metal over
time, assuming that gold responds like any other commodity to market forces.
Outside forces -- e.g., forward-selling by gold-mining companies and selling by
central banks -- may suppress gold's price over the short to intermediate term,
but we believe the overall trend will remain positive.
Gold's positive fundamentals asserted themselves in January of this year, when
the metal's spot price rose to $415 an ounce, its highest level in several
years. This marked the first time in a decade that gold had risen above the $400
mark without the benefit of an exogenous shock of some sort (previously, gold
had risen above $400 in response to the stock-market crash of 1987, the
Tiananmen Square uprising in China, and the Gulf War), and seemed to suggest
that gold was poised for an extended run. Unfortunately, the rally proved short-
lived, and the metal's price fell back below $400, where it has remained since.
The gold-related sector continued to be among the market's best performers
year to date through May of 1996, however, with a gain of over 25%. The Fund's
year-to-date performance at the time roughly matched that of the S&P 500. Within
an approximately two-week period in June, however, gold shares tumbled,
triggered by redemptions from gold-sector mutual funds and asset allocation
shifts away from gold by market strategists. The speed and severity of the
sell-off left us little time to take profits, and the Fund's large weighting
took a sizable toll on its performance. (Large redemptions from gold mutual
funds had taken a similarly large toll on the sector at the end of 1995, and the
Fund's performance had suffered then as well. It is noteworthy that, in both
cases, the sales of these stocks were unrelated to movements in gold's price,
which remained in a fairly narrow range throughout.)
Since it is difficult to predict when gold will finally and decisively break
out of its range, we are scaling back the Fund's exposure, to a targeted
weighting of approximately 10%. This remaining position will consist of what we
deem to be
1
<PAGE>
WARBURG PINCUS ADVISOR GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- ---------------------------------------------------------------------
the highest-quality companies in the sector. The smaller weighting will allow us
to participate in a rally in gold stocks when such materializes, but will also
allow us to take advantage of other opportunities in the market as they arise.
Another factor that weighed on the Fund's performance during the reporting
period was its emphasis on industrial cyclical stocks in the early part of 1996.
We had established a fairly significant weighting in these securities (e.g.,
steel companies) in the latter months of 1995. This was based on our view that
the U.S. economy would prove surprisingly strong in 1996, benefiting companies
whose earnings prospects are tied closely to the economic cycle. While our
forecast on the economy proved correct, industrial cyclical stocks barely moved
in price. Historically, the correlation between stronger economic growth and the
performance of cyclical stocks has been very high, but in this instance the two
bore little relation.
Weakness in these two areas -- gold-related stocks and industrial cyclicals --
accounted for the bulk of the Fund's underperformance, and outweighed gains seen
in other areas of the portfolio. Areas of strength during the period included
financial stocks, oil-services securities, selected health-care stocks, and
aerospace & defense issues. We continue to find selected values in these areas,
and will likely add to our weightings in the months ahead. We are particularly
positive on the prospects for financials, especially banks, and these represent
the largest portion of the Fund's assets currently.
More broadly, we plan to expand the Fund's emphasis on larger-cap, higher-
quality companies in the months ahead, particularly those on the
capital-investment side of the economy. This reflects our view that a gradually
decelerating economy over the next several quarters will translate into
generally slower profit growth. In this type of environment, we believe,
investors will likely place a premium on companies with the demonstrated ability
to generate steadily growing profits. We will also continue to focus on
companies engaged in share-buyback programs (e.g., banks), as such programs can
have the effect of improving reported profit growth. This strategy, combined
with the reduction in the Fund's gold weighting, should, we believe, lead to a
significant improvement in the Fund's performance going forward.
Anthony G. Orphanos
Portfolio Manager
2
<PAGE>
WARBURG PINCUS ADVISOR GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- ---------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ADVISOR SHARES OF WARBURG PINCUS GROWTH & INCOME
FUND SINCE INCEPTION AS OF AUGUST 31, 1996
The graph below illustrates the hypothetical investment of $10,000 in Advisor
Shares of Warburg Pincus Growth & Income Fund from May 15, 1995 (inception) to
August 31, 1996, assuming the reinvestment of dividends and capital gains at net
asset value, compared to the S&P 500* for the same period.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FUND (ADVISOR SHARES) S&P 500
<S> <C> <C>
5/31/95 10,000 10,000
6/30/95 10,164.81 10,234.10
7/31/95 10,669.02 10,580.73
8/31/95 10,011.88 10,599.14
9/29/95 10,868.95 11,045.79
10/31/95 10,422.28 11,013.09
11/30/95 11,092.29 11,486.87
12/29/95 10,934.81 11,709.49
1/31/96 11,609.79 12,113.70
2/29/96 11,531.64 12,220.42
3/29/96 11,614.62 12,339.94
4/30/96 11,792.33 12,521.58
5/31/96 11,870.52 12,843.51
6/28/96 11,013.92 12,892.45
7/31/96 10,182.01 12,323.76
8/30/96 10,580.19 12,583.92
Average Annual Total Returns for periods ending
8/31/96
(Advisor Shares)
1 year -3.92%
Since Inception (5/15/95) 4.70%
</TABLE>
<TABLE>
<CAPTION>
FUND
---------
<S> <C>
1 Year Total Return (9/30/95-9/30/96)........... -4.01%
Average Annual Total Since Inception
(5/15/95-9/30/96)............................. 3.36%
</TABLE>
All figures cited here represent past performance and do not guarantee future
results. Investment return and principal value of an investment will fluctuate
so that an investor's shares upon redemption may be worth more or less than
original cost.
- ------------
*The S&P 500 is an unmanaged index, composed of approximately 500 common stocks,
most of which are listed on the New York Stock Exchange, and has no defined
investment objective.
3
<PAGE>
WARBURG PINCUS ADVISOR BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT
- -----------------------------------------------------------------------------
Dear Shareholder: October 21, 1996
For the 12 months ended August 31, 1996, Warburg Pincus Advisor Balanced Fund
(the "Fund") gained 9.56%, vs. a 10.41% gain for the Lipper Balanced Funds
Index.
The 12 months can best be viewed as two distinct periods. From September 1995
through December 1995, U.S. interest rates generally fell, reflecting investors'
positive views on the controlled rate of economic expansion and the continued
absence of significant inflationary pressures. This benign economic environment
translated into strong gains for domestic stock and bond markets.
From January 1996 through August 1996, however, U.S. interest rates backed up
significantly, as investors responded negatively to evidence of robust growth in
the economy. Too-rapid growth, it was reasoned, would lead to rising inflation
and a potential tightening of credit by the Federal Reserve. This took a heavy
toll on the bond market, with most sectors (excluding the high-yield group)
posting disappointing results. Stocks continued to advance, however
(notwithstanding a correction in June and July), propelled by steady growth in
corporate earnings and continued strong cash flows into equity mutual funds.
We made few major changes in asset allocation during the period. Our primary
focus remained U.S. equities, and these proved to be the main contributors to
the Fund's performance for the full 12 months. We divided this weighting (55% of
net assets as of August 31) among the large-, mid- and small-cap sectors of the
market, with our heaviest concentration on the small-cap area through most of
the period.
Our fixed-income exposure (35% of net assets as of August 31, including
short-term obligations) remained concentrated primarily in U.S. Treasuries
through the 12 months. We maintained an intermediate duration in the portfolio
throughout, consistent with our view that the fixed-income portion of the Fund
exists primarily to provide income and stability, rather than as a potential
source of large capital gains.
We kept our international-equity weighting close to 10% of net assets
throughout the reporting period, and good stock selection here contributed
positively to the Fund's results. Our holdings included a geographically diverse
mix of securities from Europe and the Far East.
Our outlook on the Fund's prospects remains positive. We believe that the
present economic environment in the U.S., consisting of moderate growth and low
inflation, will extend through the remainder of 1996 and into 1997. This augurs
well for the performance of U.S. financial markets, which comprise the bulk of
our exposure. Similarly, we continue to find excellent investment opportunities
abroad. Set against this favorable backdrop, we will strive to provide
attractive total returns while keeping a firm rein on risk.
<TABLE>
<S> <C>
Dale C. Christensen Anthony G. Orphanos
Co-Portfolio Strategist Co-Portfolio Strategist
</TABLE>
4
<PAGE>
WARBURG PINCUS ADVISOR BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- -----------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN ADVISOR SHARES OF WARBURG PINCUS BALANCED FUND
SINCE INCEPTION AS OF AUGUST 31, 1996
The graph below illustrates the hypothetical investment of $10,000 in Advisor
Shares of Warburg Pincus Balanced Fund from July 31, 1995 (inception) to August
31, 1996 assuming the reinvestment of dividends and capital gains at net asset
value, compared to the S&P 500* and Lipper Balanced Funds Index ("LBFI")** for
the same time period.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FUND (ADVISOR SHARES) S&P 500 LBFI
<S> <C> <C> <C>
7/31/95 10,000 10,000 10,000
8/31/95 10,382.46 10,017.40 10,078.00
9/29/95 10,493.56 10,439.53 10,318.66
10/31/95 10,241.27 10,408.63 10,292.66
11/30/95 10,727.17 10,856.41 10,612.56
12/29/95 10,902.15 11,066.81 10,779.60
1/31/96 11,215.00 11,448.84 10,974.17
2/29/96 11,233.96 11,549.70 10,979.44
3/29/96 11,242.20 11,662.66 11,020.83
4/30/96 11,546.30 11,834.33 11,093.90
5/31/96 11,802.89 12,138.59 11,207.28
6/28/96 11,517.51 12,184.84 11,244.26
7/31/96 11,012.61 11,647.37 10,954.95
8/30/96 11,374.61 11,893.24 11,127.81
Average Annual Total Returns for periods ending
8/31/96
(Advisor Shares)
1 year 9.56%
Since Inception (7/31/95) 12.54%
</TABLE>
<TABLE>
<CAPTION>
FUND
---------
<S> <C>
1 Year Total Return (9/30/95-9/30/96)............ 11.70%
Average Annual Total Since Inception
(7/31/95-9/30/96).............................. 14.51%
</TABLE>
All figures cited here represent past performance and do not guarantee future
results. Investment return and principal value of an investment will fluctuate
so that an investor's shares upon redemption may be worth more or less than
original cost.
- ------------
*The S&P 500 is an unmanaged index, composed of approximately 500 common
stocks, most of which are listed on the New York Stock Exchange, and has no
defined investment objective.
**The Lipper Balanced Funds Index is an equal weighted index of the 30 largest
balanced funds that is compiled by Lipper Analytical Services, Inc. It is
unmanaged with no defined investment objective.
5
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (92.2%)
AEROSPACE & DEFENSE (3.9%)
GRC International, Inc. + 820,000 $ 16,810,000
Litton Industries, Inc. + 320,000 14,920,000
------------
31,730,000
------------
AGRICULTURE (0.7%)
Agrium, Inc. 390,000 5,460,000
------------
BANKS & SAVINGS & LOANS (16.9%)
BankAmerica Corp. 270,000 20,925,000
Bankers Trust New York Corp. 335,000 26,046,250
Bank of New York Co., Inc. 755,000 21,045,625
Chase Manhattan Corp. 233,000 17,329,375
Greenpoint Financial Corp. 365,000 13,003,125
Mercantile Bancorp, Inc. 370,000 18,083,750
Wells Fargo & Co. 80,000 19,900,001
------------
136,333,126
------------
COMMUNICATIONS & MEDIA (0.8%)
Infinity Broadcasting Corp. Class A 235,000 6,433,125
------------
COMPUTERS (6.7%)
Amdahl Corp. + 650,000 6,459,375
Honeywell, Inc. 550,000 31,968,750
Intuit, Inc. + 380,000 13,870,000
Novadigm, Inc. + 258,000 1,935,000
------------
54,233,125
------------
ELECTRONICS (0.8%)
Lexmark International Group Inc., Class A + 360,000 6,435,000
------------
ENERGY (0.4%)
Santa Fe Energy Resources, Inc. + 280,000 3,290,000
------------
ENGINEERING & CONSTRUCTION (2.7%)
Stone & Webster, Inc. 665,000 21,446,250
------------
ENTERTAINMENT (0.7%)
Boardwalk Casino, Inc. + 900,000 5,625,000
------------
FINANCIAL SERVICES (7.8%)
Aetna, Inc. 340,000 22,482,500
Charles Schwab Corp. 420,000 10,500,000
Student Loan Marketing Association 144,000 10,602,000
USF & G Corp. 1,200,000 19,350,000
------------
62,934,500
------------
</TABLE>
See Accompanying Notes to Financial Statements.
6
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS (CONT'D)
HEALTHCARE (3.5%)
ALZA Corp. + 555,000 $ 15,193,125
Baxter International, Inc. 69,000 3,079,125
Biomet, Inc. + 400,000 6,250,000
FoxMeyer Health Corp. + 980,000 3,920,000
------------
28,442,250
------------
INDUSTRIAL MANUFACTURING & PROCESSING (6.6%)
Corning, Inc. 475,000 17,693,750
Inco Ltd. 1,110,000 35,797,500
------------
53,491,250
------------
METALS (4.2%)
Pegasus Gold, Inc. + 2,800,000 33,600,000
------------
MINING (22.9%)
Echo Bay Mines Ltd. 1,300,000 12,918,750
Hecla Mining Co. + 2,200,000 15,125,000
Homestake Mining Co. 2,514,000 41,481,000
Newmont Mining Corp. 1,058,000 55,941,750
Placer Dome, Inc. 2,000,000 48,000,000
Prime Resources Group, Inc. 1,400,000 10,845,520
------------
184,312,020
------------
OIL SERVICES (6.1%)
Baker Hughes, Inc. 955,000 28,888,750
Coflexip-Sponsored ADR 30,000 596,250
Halliburton Co. 380,000 19,997,500
------------
49,482,500
------------
PHARMACEUTICALS (0.6%)
Columbia Laboratories, Inc. + 389,000 4,959,750
------------
TELECOMMUNICATIONS & EQUIPMENT (6.9%)
Airtouch Communications, Inc. + 845,000 23,237,500
Frontier Corp. 650,000 19,175,000
Globalstar Telecommunications, Ltd. + 180,000 7,785,000
Lucent Technologies, Inc. 150,000 5,531,250
------------
55,728,750
------------
TOTAL COMMON STOCKS (Cost $693,199,366) 743,936,646
------------
</TABLE>
See Accompanying Notes to Financial Statements.
7
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
--------- ----------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS (6.4%)
State Street Bank & Trust Co. 5.25%
(Agreement dated 08/30/96 to be repurchased at
$51,700,141, collateralized by $51,610,000 U.S. Treasury
Notes 6.125% due 03/31/98. Market value of collateral is
$52,706,712.)
(cost $51,670,000) 09/03/96 $ 51,670 $ 51,670,000
------------
TOTAL INVESTMENTS AT VALUE (98.6%) (cost $744,869,366*) 795,606,646
------------
OTHER ASSETS IN EXCESS OF LIABILITIES (1.4%) 11,585,561
------------
NET ASSETS (100%) (applicable to 48,839,771 Common Shares
and 5,345,955 Advisor Shares) $807,192,207
------------
------------
NET ASSET VALUE, offering and redemption price per Common
Share ($727,627,300 DIVIDED BY 48,839,771) $14.90
------------
------------
NET ASSET VALUE, offering and redemption price per Advisor
Share ($79,564,907 DIVIDED BY 5,345,955) $14.88
------------
------------
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depositary Receipt
- --------------------------------------------------------------------------------
+ Non-income producing
* Cost for Federal income tax purposes at August 31, 1996 is $745,079,592. The
gross appreciation (depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross Appreciation $ 97,532,243
Gross Depreciation $(47,005,189)
------------
Net Appreciation $ 50,527,054
------------
------------
</TABLE>
See Accompanying Notes to Financial Statements.
8
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- -----------
<S> <C> <C>
COMMON STOCKS (63.0%)
U.S. COMMON STOCKS
AEROSPACE & DEFENSE (1.7%)
GRC International, Inc. + 4,500 $ 92,250
Litton Industries, Inc. + 1,100 51,288
Lockheed Martin Corp. 1,500 126,188
Loral Space and Communications Ltd. 5,100 71,400
Sundstrand Corp. 1,900 71,013
Tracor, Inc. + 5,400 104,625
-----------
516,764
-----------
BANKS & SAVINGS & LOANS (6.1%)
Bancorp of Hawaii, Inc. 1,100 41,663
BankAmerica Corp. 1,300 100,750
Bank of Boston Corp. 2,200 116,050
Bank of New York Co., Inc. 6,900 192,338
Bankers Trust New York Corp. 1,500 116,625
Chase Manhattan Corp. 2,980 221,638
Citicorp 1,200 99,900
Cullen/Frost Bankers Inc. 2,500 71,250
Great Financial Corp. 3,700 104,988
Great Western Financial Corp. 3,500 86,625
Greenpoint Financial Corp. 1,700 60,563
Mercantile Bancorp, Inc. 1,700 83,088
PNC Bank Corp. 2,300 71,875
Quaker City Bancorp. + 6,700 97,988
RCSB Financial, Inc. 3,750 100,781
Texas Regional Bancshares, Inc. 1,500 43,125
Wells Fargo & Co. 1,066 265,168
-----------
1,874,415
-----------
BUSINESS SERVICES (2.5%)
American List Corp. 3,650 102,656
American Management Systems, Inc. + 3,000 76,125
Checkpoint Systems, Inc. + 2,000 57,750
Daisytek International Corp. + 1,000 41,750
DecisionOne Holdings Corp. + 2,300 38,525
DST Systems, Inc. + 2,000 61,500
Electronic Data Systems Corp. 1,500 81,750
First Data Corp. 1,500 117,000
Olsten Corp. 3,400 94,775
Pittston Brink's Services Group 2,000 56,500
Reynolds & Reynolds Co., Class A 1,000 50,125
-----------
778,456
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
9
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
CAPITAL EQUIPMENT (1.0%)
Allied Products Corp. 3,100 $ 80,212
Avondale Industries, Inc. + 5,600 88,200
Navistar International Corp + 6,000 58,500
Roper Industries, Inc. 2,000 83,000
-----------
309,912
-----------
CHEMICALS (1.9%)
Avery Dennison Corp. 2,800 143,150
Foamex International, Inc. + 3,100 48,244
Monsanto Co. 7,000 224,875
Morton International, Inc. 2,000 74,250
Olin Corp. 1,000 79,250
-----------
569,769
-----------
COMMUNICATIONS & MEDIA (1.5%)
Harte-Hanks Communications 4,000 102,000
Heritage Media Corp., Inc. Class A + 2,600 52,000
Infinity Broadcasting Corp. 6,000 164,250
K-III Communications Corp. + 10,000 110,000
Metromedia International Group, Inc. + 3,800 42,750
-----------
471,000
-----------
COMPUTERS (2.0%)
Amdahl Corp. + 2,800 27,825
Auspex Systems, Inc. + 4,000 63,000
Citrix Systems, Inc. 1,000 42,000
Clarify, Inc. + 1,000 41,813
Honeywell, Inc. 2,800 162,750
Intuit, Inc. + 2,100 76,650
National Instruments Corp. + 2,000 56,250
Pure Atria Corp. + 3,089 94,994
Rational Software 1,000 53,250
-----------
618,532
-----------
CONGLOMERATES (0.8%)
Oglebay Norton Co. 2,300 97,175
Thermo Electron Corp. + 1,200 47,550
United Technologies Corp. 800 90,200
-----------
234,925
-----------
CONSUMER DURABLES (0.1%)
Triangle Pacific Corp. + 1,700 36,975
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
10
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
CONSUMER NON-DURABLES (1.9%)
Alberto Culver Co. Class A 2,800 $ 98,000
American Safety Razor Corp. + 5,900 69,325
Donnkenny, Inc. + 4,500 79,313
Nature's Sunshine Products, Inc. 3,000 67,500
Samsonite Corp. + 1,900 38,950
Scotts Co. Class A 2,000 37,500
Sola International, Inc. + 1,000 35,000
Standex International Corp. 3,100 89,900
Westpoint Stevens, Inc. + 2,700 70,538
-----------
586,026
-----------
CONSUMER SERVICES (0.7%)
DeVRY, Inc. + 2,000 92,000
ITT Educational Services, Inc. + 1,000 36,125
York Group, Inc. 4,400 72,600
-----------
200,725
-----------
ELECTRONICS (2.5%)
ESCO Electronics Corp. Common Trust Receipt + 6,700 78,725
Glenayre Technologies, Inc. + 3,000 110,250
Larson Davis, Inc. + 18,300 153,263
Lexmark International Group Inc., Class A + 2,000 35,750
Linear Technology Corp. 2,500 85,000
Maxim Integrated Products, Inc. + 2,600 79,788
Methode Electronics, Inc. Class A 5,250 99,750
Synopsys, Inc. + 2,500 95,000
ThermoTrex Corp. + 900 33,863
-----------
771,389
-----------
ENERGY & RESOURCES (2.4%)
Barrett Resources Corp. + 1,000 33,125
Burlington Resources, Inc. 2,300 98,038
Forest Oil Corp. + 6,700 94,638
Nuevo Energy Co. 3,300 123,337
Texas Meridian Resources Corp. + 22,900 294,837
United Meridian Corp. Series A + 2,000 79,500
-----------
723,475
-----------
ENGINEERING & CONSTRUCTION (0.5%)
Gradall Industries, Inc. 6,000 63,750
Stone & Webster, Inc. 2,300 74,175
-----------
137,925
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
11
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
ENVIRONMENTAL SERVICES (0.5%)
Allied Waste Industries, Inc. + 8,000 $ 64,000
USA Waste Services, Inc. + 3,500 96,250
-----------
160,250
-----------
FINANCIAL SERVICES (5.7%)
Aetna, Inc. 1,300 85,962
Charles Schwab Corp. 1,700 42,500
City National Corp. 2,000 35,250
Commerce Group, Inc. 1,900 39,662
Federal Home Loan Mortgage Corp. 1,100 97,212
First Alliance Corp. 2,300 56,925
Fund American Enterprises Holdings, Inc. 700 64,487
Household International, Inc. 600 47,550
Legg Mason, Inc. 5,000 151,875
Leucadia National Corp. 4,000 91,000
Liberty Financial Companies, Inc. 2,500 76,250
National Western Life Insurance Co. Class A + 1,400 101,150
Security Connecticut Corp. 8,000 242,000
Student Loan Marketing Association + 600 44,175
Transactions Systems Architects, Inc. Class A + 6,800 207,400
Transport Holdings, Inc. Class A + 2,000 98,000
Triad Guaranty, Inc. + 3,200 88,000
USF & G Corp. 5,500 88,687
White River Corp. + 1,900 108,300
-----------
1,766,385
-----------
FOOD, BEVERAGES & TOBACCO (0.4%)
Coca Cola Enterprises, Inc. 1,300 52,487
Suiza Foods Corp. + 4,800 84,000
-----------
136,487
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
12
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
HEALTHCARE (2.9%)
ALZA Corp. 2,200 $ 60,225
Ballard Medical Products 2,500 41,875
Baxter International, Inc. 500 22,312
Biomet, Inc. + 1,700 26,562
Caremark International, Inc. 6,000 149,250
Emcare Holdings, Inc. 2,200 52,250
FoxMeyer Health Corp. + 4,500 18,000
Healthcare COMPARE Corp. + 3,000 128,250
Health Management Associates, Inc. Class A + 4,050 92,137
Hooper Holmes, Inc. 8,000 102,000
Mallinckrodt Group, Inc. 3,000 121,500
Physician Reliance Network, Inc. + 2,500 35,625
Trex Medical + 180 4,140
Vivra, Inc. 1,000 30,125
-----------
884,251
-----------
INDUSTRIAL MANUFACTURING & PROCESSING (1.6%)
Corning, Inc. 4,800 178,800
Inco, Ltd. 5,500 177,375
Schnitzer Steel Industries, Inc. Class A 3,600 94,500
Waters Corp. + 1,000 31,375
-----------
482,050
-----------
LEISURE & ENTERTAINMENT (0.4%)
Boardwalk Casino, Inc. + 3,000 18,750
SCP Pool Corp. + 6,000 114,000
-----------
132,750
-----------
LODGING & RESTAURANTS (1.5%)
Doubletree Corp. + 3,000 113,625
HFS, Inc. + 1,600 95,800
IHOP Corp. + 3,600 89,100
McDonald's Corp. 2,100 97,387
Mortons Restaurant Group, Inc. + 4,700 81,662
-----------
477,574
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
METALS & MINING (3.9%)
Allegheny Teledyne, Inc. 3,000 $ 60,750
Coeur d'Alene Mines Corp. 5,000 75,625
Hecla Mining Co. + 5,500 37,812
Homestake Mining Co. 11,000 181,500
Newmont Mining Corp. 5,500 290,813
Pegasus Gold, Inc. + 15,000 180,000
Placer Dome, Inc. 10,000 240,000
Prime Resources Group, Inc. 3,000 23,240
Universal Stainless & Alloy Products, Ltd. + 9,700 87,300
Western Deep Levels Ltd. ADR 800 29,800
-----------
1,206,840
-----------
OFFICE EQUIPMENT & SUPPLIES (0.4%)
New England Business Service, Inc. 2,300 35,650
Viking Office Products, Inc. + 3,000 77,625
-----------
113,275
-----------
OIL SERVICES (2.9%)
Baker Hughes, Inc. 5,500 166,375
Global Industries, Ltd. + 4,000 53,000
Halliburton Co. 2,100 110,512
Input/Output, Inc. + 5,600 198,100
Nabors Industries, Inc. + 7,000 104,125
Smith International, Inc. + 8,000 278,000
-----------
910,112
-----------
PAPER & FOREST PRODUCTS (0.1%)
Westvaco Corp. 1,500 42,937
-----------
PHARMACEUTICALS (1.1%)
Columbia Laboratories, Inc. + 1,700 21,675
Gilead Sciences, Inc. + 3,000 72,750
Human Genome Sciences, Inc. + 3,000 102,375
Ligand Pharmaceuticals, Inc. Class B + 4,000 48,750
Pharmacia & Upjohn, Inc. 1,700 71,400
Regeneron Pharmaceuticals, Inc. + 2,000 33,500
-----------
350,450
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
REAL ESTATE (3.6%)
Healthcare Realty Trust, Inc. 16,500 $ 381,562
Home Properties of New York, Inc. 5,100 102,000
Jameson Inns, Inc. 9,700 93,362
NHP, Inc. + 5,700 108,300
U.S. Restaurant Properties Master L.P. 4,220 107,082
Walden Residential Properties, Inc. 10,000 206,250
Wellsford Residential Property Trust SBI 5,000 108,125
-----------
1,106,681
-----------
RETAIL (2.2%)
Autozone, Inc. + 2,100 57,225
Borders Group, Inc. + 3,000 97,125
Carr Gottstein Foods Co. + 11,500 47,438
Cole National Corp. Class A + 5,100 96,900
CUC International, Inc. 3,500 120,313
Kenneth Cole Productions, Inc. Class A + 3,000 58,500
PETsMART, Inc. + 3,600 99,000
Rhodes, Inc. + 4,700 41,712
Urban Outfitters, Inc. + 2,500 57,187
-----------
675,400
-----------
TELECOMMUNICATIONS & EQUIPMENT (1.1%)
AirTouch Communications, Inc. + 3,800 104,500
Frontier Corp. 2,200 64,900
Globalstar Telecommunications, Ltd. + 600 25,950
Lucent Technologies, Inc. 1,700 62,688
MFS Communications Co., Inc. + 2,000 84,750
-----------
342,788
-----------
TRANSPORTATION (1.2%)
Heartland Express, Inc. + 1,500 42,750
Hub Group Inc.Class A + 2,000 44,625
Landstar Systems, Inc. + 3,400 89,250
Mark VII, Inc. + 4,000 83,500
MTL, Inc. + 5,900 107,675
-----------
367,800
-----------
FOREIGN COMMON STOCKS
AUSTRALIA (0.6%)
Boral, Ltd. 78,000 187,372
-----------
AUSTRIA (0.5%)
VA Technologie AG 1,165 149,038
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------- -----------
<S> <C> <C>
FOREIGN COMMON STOCKS (CONT'D)
CHINA (0.4%)
Guangshen Railway Co., Ltd. ADR 7,500 $ 143,438
-----------
DENMARK (0.5%)
ISS International Service System B 5,600 145,874
-----------
FINLAND (0.6%)
Valmet Corp. Class A 9,900 169,899
-----------
FRANCE (0.8%)
Compagnie Francaise de Petroleum Total S.A. Series B 1,326 97,558
Usinor Sacilor 12,000 164,724
-----------
262,282
-----------
HONG KONG (0.7%)
Hong Kong Land Holdings 90,000 204,300
-----------
JAPAN (1.4%)
Keyence Corp. 1,000 127,060
NKK Corp. + 120,000 317,098
-----------
444,158
-----------
NEW ZEALAND (0.5%)
Fletcher Forest 115,000 158,723
-----------
PORTUGAL (0.8%)
Portugal Telecommunications SA ADR + 9,500 252,937
-----------
SOUTH KOREA (0.4%)
Samsung Electronics GDR + 4,800 115,200
-----------
SWITZERLAND (0.7%)
Ciba-Geigy AG 160 202,067
-----------
TOTAL COMMON STOCKS (cost $18,379,309) 19,421,606
-----------
PREFERRED STOCKS (2.4%)
Globalstar Telecommunications, Ltd. 6.50% Convertible 10,000 425,000
Oasis Residential, Inc. Series A Convertible 5,000 121,250
Walden Residential Properties, Inc. 9.16% Series B Convertible 7,500 191,250
-----------
TOTAL PREFERRED STOCKS (cost $807,175) 737,500
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
<TABLE>
<CAPTION>
PAR
RATE MATURITY (000) VALUE
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (20.2%)
U.S. TREASURY NOTES (20.2%)
U.S. Treasury Notes 8.500% 11/15/00 $ 1,500 $ 1,598,310
U.S. Treasury Notes 6.875 05/31/01 1,000 991,050
U.S. Treasury Notes 5.125 02/28/98 3,700 3,644,278
------------
TOTAL U.S. TREASURY OBLIGATIONS (cost $6,316,557) 6,233,638
------------
AGENCY OBLIGATIONS (3.1%)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (3.1%)
Government National Mortgage Association 6.500 08/15/03 11 10,464
Government National Mortgage Association 7.000 07/15/26 1,009 958,065
------------
TOTAL AGENCY OBLIGATIONS (cost $975,748) 968,529
------------
ZERO COUPON BONDS (0.7%)
TAIWAN
President Enterprises 07/22/01 140 221,970
------------
TOTAL ZERO COUPON BONDS (cost $166,780) 221,970
------------
REPURCHASE AGREEMENTS (10.6%)
State Street Bank & Trust Co. 5.25%
(Agreement dated 08/30/96 to be repurchased at
$3,270,907 collateralized by $3,265,000 U.S.
Treasury Notes 6.125% due 03/31/98. Market value of
collateral is $3,334,381.) (cost $3,269,000) 09/03/96 3,269 3,269,000
------------
TOTAL INVESTMENT AT VALUE (100.0%) (cost $29,914,569*) 30,852,243
OTHER ASSETS IN EXCESS OF LIABILITIES (0.0%) 11,980
------------
NET ASSETS (100%) (Applicable to 2,584,219 Common Shares
and 979 Advisor Shares) $ 30,864,223
------------
------------
NET ASSET VALUE, offering and redemption price per
Common Share ($30,852,529 DIVIDED BY 2,584,219) $11.94
------------
------------
NET ASSET VALUE, offering and redemption price per
Advisor Share ($11,694 DIVIDED BY 979) $11.94
------------
------------
</TABLE>
INVESTMENT ABREVIATIONS
ADR = American Depository Receipt
GDR = Global Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing
* Cost for Federal income tax purposes at August 31, 1996 is $29,915,847. The
gross appreciation (depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross Appreciation $1,719,780
Gross Depreciation (783,384)
----------
Net Appreciation $ 936,396
----------
----------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
WARBURG PINCUS FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended August 31, 1996
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG
GROWTH & INCOME PINCUS
FUND BALANCED FUND
------------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 12,111,169 $ 158,025
Interest 7,930,958 447,676
Foreign taxes withheld -- (1,541)
------------------- -------------
Total investment income 20,042,127 604,160
------------------- -------------
EXPENSES:
Investment advisory 7,914,238 170,672
Administration services 2,638,080 47,394
Distribution 377,281 47,452
Custodian 199,178 45,684
Transfer agent 1,175,942 41,073
Legal 237,132 24,919
Audit 38,690 498
Registration 234,965 72,482
Insurance 26,671 432
Printing 176,153 7,613
Other 65,098 9,526
------------------- -------------
13,083,428 467,745
Less fees waived and expenses reimbursed 0 (177,882)
------------------- -------------
Total expenses 13,083,428 289,863
------------------- -------------
Net investment income 6,958,699 314,297
------------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND
FOREIGN CURRENCY RELATED ITEMS:
Net realized gain from investment transactions 20,871,086 490,109
Net realized gain from foreign currency related items 0 37
Net change in unrealized appreciation from investments and
foreign currency related items (67,018,131) 472,314
------------------- -------------
Net realized and unrealized gain (loss) from
investments and foreign currency related items (46,147,045) 962,460
------------------- -------------
Net increase (decrease) in net assets resulting from
operations $ (39,188,346) $ 1,276,757
------------------- -------------
------------------- -------------
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
WARBURG PINCUS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS
GROWTH & INCOME FUND BALANCED FUND
------------------------------ ------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,958,699 $ 12,539,769 $ 314,297 $ 38,382
Net realized and unrealized gain
(loss) from investments and foreign
currency related items (46,147,045) 135,061,213 962,460 495,992
-------------- -------------- -------------- --------------
Net increase (decrease) in net
assets resulting from
operations (39,188,346) 147,600,982 1,276,757 534,374
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends to shareholders from net
investment income:
Common shares (8,430,598) (9,949,389) (212,883) (38,909)
Advisor shares (306,084) (137,213) (10) --
Distributions to shareholders from
net realized capital gains:
Common shares (49,915,078) (8,067,592) (149,992) (111,945)
Advisor shares (3,362,883) -- (16) --
-------------- -------------- -------------- --------------
Total distributions to
shareholders (62,014,643) (18,154,194) (362,901) (150,854)
-------------- -------------- -------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares 370,678,850 722,996,657 33,327,987 4,349,805
Reinvested dividends 58,584,414 233,504 345,753 148,491
Net asset value of shares redeemed (615,963,314) (168,239,331) (9,065,222) (347,995)
-------------- -------------- -------------- --------------
Net increase (decrease) in net
assets from capital share
transactions (186,700,050) 554,990,830 24,608,518 4,150,301
-------------- -------------- -------------- --------------
Total increase (decrease) in
net assets (287,903,039) 684,437,618 25,522,374 4,533,821
NET ASSETS:
Beginning of year 1,095,095,246 410,657,628 5,341,849 808,028
-------------- -------------- -------------- --------------
End of year $ 807,192,207 $1,095,095,246 $ 30,864,223 $ 5,341,849
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
WARBURG PINCUS FUNDS
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Year)
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS
GROWTH & INCOME FUND BALANCED FUND
FOR THE PERIOD FOR THE PERIOD
MAY 15, 1995 JULY 31, 1995
(COMMENCEMENT (COMMENCEMENT
FOR THE YEAR ENDED OF OPERATIONS) TO FOR THE YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $16.38 $14.87 $11.13 $10.72
------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income 0.0800 0.0236 0.3689 0.0170
Net Gains (Losses) on Securities
(both realized and unrealized) (0.6931) 1.5323 0.6815 0.3930
------ ------ ------ ------
Total from Investment
Operations (0.6131) 1.5559 1.0504 0.4100
------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net investment
income) (0.0736) (0.0459) (0.0942) 0.0000
Distributions (from capital
gains) (0.8133) -- (0.1462) 0.0000
------ ------ ------ ------
Total Distributions (0.8869) (0.0459) (0.2404) 0.0000
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $14.88 $16.38 $11.94 $11.13
------ ------ ------ ------
------ ------ ------ ------
Total Returns (3.92%) 10.49%(c) 9.56% 3.82%(c)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $79,565 $56,902 $12 $1
Ratios of Expenses to Average Net
Assets 1.59% 1.92%(b) 1.71%(a) 1.76%(a)(b)
Ratios of Net Investment Income
(Loss) to Average Net Assets .28% 0.43%(b) (4.11%) 2.00%(b)
Portfolio Turnover Rate 94% 109%(b) 108% 107%(b)
Average Commission Rate $.0596(d) N/A $.0453(d) N/A
</TABLE>
- --------------------------------------------------------------------------------
(a)Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Warburg Pincus Balanced Fund would have been
628.47% and 205.06% for the periods ended August 31, 1995 and 1996.
(b)Annualized.
(c)Not Annualized.
(d)Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
TAX STATUS OF 1996 DIVIDENDS (UNAUDITED)
Dividends paid by the Growth & Income Fund and the Balanced Fund taxable as
ordinary income amounted to $0.0736 and $0.0942 per share, respectively; 20.29%
and 11.79% of ordinary income dividends of the Growth & Income and the Balanced
Fund, respectively, qualify for the dividends received deduction available to
corporate shareholders for U.S. income tax purposes.
Because the Funds' fiscal years are not calendar years, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1997.
See Accompanying Notes to Financial Statements.
20
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Funds covered in this report are comprised of Warburg
Pincus Growth & Income Fund (the "Growth & Income Fund") and Warburg Pincus
Balanced Fund (the "Balanced Fund") which are registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as diversified, open-end
management investment companies. The Growth & Income Fund and the Balanced Fund
each have two classes of shares: Common Class and Advisor Class.
On May 3, 1996, pursuant to an Agreement and Plan of Reorganization, the
Growth & Income Fund and the Balanced Fund (each, an "Acquiring Fund") each
acquired all of the assets of an investment series of The RBB Fund, Inc.,
Warburg Pincus Growth & Income Fund (the "Acquired Growth & Income Fund") and
Warburg Pincus Balanced Fund (the "Acquired Balanced Fund"). The acquisitions
were accomplished by a tax-free exchange of 62,938,828 Common Shares and
5,340,670 Advisor Shares, in the case of the Acquired Growth & Income Fund, and
2,135,930 Common Shares and 111 Advisor Shares, in the case of the Acquired
Balanced Fund for the same amount of shares of the same class of the
corresponding Acquiring Fund. Shares were reissued to shareholders at the time
of the reorganizations. The net assets of each Acquiring Fund directly after the
reorganization were the same as the net assets of the relevant Acquired Fund:
$1,112,424,664 in the case of the Growth & Income Fund, including $129,715,900
of unrealized appreciation; and $25,721,368 in the case of the Balanced Fund,
including $1,465,365 of unrealized appreciation. Each Acquiring Fund assumed the
prior operating history of the corresponding Acquired Fund.
The net asset value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
mean between the last reported bid and asked prices. In the absence of market
quotations, investments are generally valued at fair value as determined by or
under the direction of the Funds' governing board. Short-term obligations with
maturities of 60 days or less are valued at amortized cost which approximates
market value.
Security transactions are accounted for on the trade date basis. The cost of
investments sold is determined by use of the specific identification method for
both financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Dividends are recorded on the ex-dividend date. Income,
21
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
expenses (excluding class-specific expenses, principally distribution,
Shareholder servicing fees and transfer agency fees) and realized/unrealized
gains (losses) are allocated proportionally to each class of shares based upon
the relative net-asset value of outstanding shares.
Dividends from net investment income, if any, are declared and paid at least
quarterly. Dividends from net realized capital gains, if any, will be
distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Money market instruments may be purchased subject to the seller's agreement to
repurchase them at an agreed upon date and price. The seller will be required on
a daily basis to maintain the value of the securities subject to the agreement
at not less than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or with
the Fund's custodian or a third party sub-custodian.
Each Fund may enter into repurchase agreement transactions. Under the terms of
a typical repurchase agreement, a Fund acquires an underlying security subject
to an obligation of the Seller to repurchase. The value of the underlying
security collateral will be maintained at an amount at least equal to the total
amount of the purchase obligation, including interest. The collateral is in the
Fund's possession.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ("Warburg"), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ("Counsellors G.P.") serves as each Fund's
22
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR (CONT'D)
investment adviser. For its advisory services, Warburg is entitled to receive
the following fees, computed daily and payable monthly based on the Funds' daily
net assets:
<TABLE>
<CAPTION>
FUND ANNUAL RATE
- ----------------------------------------------------------------------
<S> <C>
Growth & Income Fund .75% average daily net assets
Balanced Fund .90% average daily net assets
</TABLE>
Warburg may, at its discretion, voluntarily waive all or any portion of its
advisory fees for any of the Funds. In addition, Warburg may voluntarily
reimburse the Funds for a portion of the Funds' expenses. For the year ended
August 31, 1996, investment advisory fees, waivers and expense reimbursements
were as follows:
<TABLE>
<CAPTION>
GROSS NET EXPENSE
ADVISORY FEE WAIVER ADVISORY FEE REIMBURSEMENTS
------------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Growth & Income Fund $7,914,238 $ -- $7,914,238 $ --
Balanced Fund 170,672 (145,632) 25,040 (8,518)
</TABLE>
PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank Corp., and
Counsellors Fund Services, Inc. ("CFSI"), a wholly owned subsidiary of Warburg,
serve as co-administrators for each of the Funds. For the Growth & Income Fund,
the co-administration fees are computed daily and payable monthly at an annual
rate of .20% of the first $125 million of average daily net assets and .15% of
average daily net assets in excess of $125 million for PFPC and .05% of the
first $125 million of average daily net assets and .10% of average daily net
assets in excess of $125 million for CFSI.
For the Balanced Fund, the co-administration fees are computed daily and
payable monthly at an annual rate of .15% of average daily net assets for PFPC
and .10% of average daily net assets for CFSI.
CFSI and PFPC may, at their discretion, voluntarily waive all or any portion
of their co-administration fees for any of the Funds. For the year ended August
31, 1996, CFSI and PFPC's co-administration fees and waivers were as follows:
<TABLE>
<CAPTION>
GROSS NET
CO-ADMINISTRATION CO-ADMINISTRATION
FEES WAIVERS FEES
------------------- --------- -------------------
<S> <C> <C> <C>
Growth & Income Fund $ 2,638,080 $ -- $ 2,638,080
Balanced Fund 47,394 (23,732) 23,662
</TABLE>
23
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR (CONT'D)
The Funds have adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Counsellors Securities Inc. ("CSI"),
also a wholly owned subsidiary of Warburg, serves as each Fund's distributor.
For distribution services with respect to the Balanced Fund's Common Shares, CSI
receives a fee at the annual rate of .25%, computed daily and payable monthly,
on average daily net assets. For distribution services with respect to the
Growth & Income and the Balanced Funds' Advisor Shares, CSI receives a fee of
.50%, respectively, computed daily and payable monthly, on average daily net
assets. No compensation is payable by the Growth & Income Fund's Common Shares.
For the year ended August 31, 1996, distribution fees were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION
FEES
--------------
<S> <C>
Growth & Income Fund
Advisor Shares $ 377,281
--------------
--------------
Balanced Fund
Common Shares $ 47,438
Advisor Shares 14
--------------
$ 47.452
--------------
--------------
</TABLE>
3. INVESTMENT IN SECURITIES
For the year ended August 31, 1996, purchases and sales of investment
securities (other than short-term investments) were as follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
--------------------------
PURCHASES SALES
------------ ------------
<S> <C> <C>
Growth & Income Fund $836,836,603 $944,323,575
Balanced Fund 40,617,534 18,123,632
</TABLE>
4. CAPITAL SHARES
The Growth & Income Fund and the Balanced Fund are each authorized to issue
three billion full and fractional shares of capital stock, $.001 par value per
share, of which one billion shares of each Fund are designated Advisor shares.
24
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
4. CAPITAL SHARES (CONT'D)
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
WARBURG PINCUS GROWTH & INCOME FUND
------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
-------------------------------- --------------------------------
SHARES VALUE SHARES VALUE
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Shares sold
Common Shares 20,913,915 $ 336,297,357 46,345,660 $ 670,088,619
Advisor Shares 2,135,316 $ 34,381,493 3,521,620 $ 52,908,038
Shares issued in reinvestment
of dividends
Common Shares 3,538,291 54,915,454 6,891 96,291
Advisor Shares 237,054 3,668,960 9,051 137,213
Shares repurchased
Common Shares (38,907,636) (608,244,172) (11,270,725) (167,348,709)
Advisor Shares (499,292) (7,719,142) (57,795) (890,622)
----------------- ------------- ----------------- -------------
Net increase (decrease) (12,582,352) $(186,700,050) 38,554,702 $ 554,990,830
----------------- ------------- ----------------- -------------
----------------- ------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
WARBURG PINCUS BALANCED FUND
------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
-------------------------------- --------------------------------
SHARES VALUE SHARES VALUE
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Shares sold
Common Shares 2,799,590 $ 32,792,373 423,875 $ 4,348,625
Advisor Shares 45,037 $ 536,614 110 $ 1,180
Shares issued in reinvestment
of dividends
Common Shares 29,938 345,728 16,171 148,491
Advisor Shares 2 25 -- --
Shares repurchased
Common Shares (725,370) (8,530,390) (33,364) (347,995)
Advisor Shares (44,170) (534,832) -- --
----------------- ------------- ----------------- -------------
Net increase 2,105,027 $ 24,608,518 406,792 $ 4,150,301
----------------- ------------- ----------------- -------------
----------------- ------------- ----------------- -------------
</TABLE>
25
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
5. NET ASSETS
At August 31, 1996, net assets consisted of the following:
<TABLE>
<CAPTION>
GROWTH & INCOME BALANCED
FUND FUND
------------------- ------------
<S> <C> <C>
Capital paid-in $ 757,260,246 $29,416,934
Undistributed net investment income 675,184 108,542
Amortized market discount -- --
Accumulated net realized gain (loss) on investments
transactions, futures contracts and foreign exchange
transactions (1,480,503) 400,936
Unrealized appreciation on investments 50,737,280 937,811
------------------- ------------
$ 807,192,207 $30,864,223
------------------- ------------
------------------- ------------
</TABLE>
26
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
6. OTHER FINANCIAL HIGHLIGHTS
The Growth & Income and the Balanced Funds currently offer one other class of
shares, Common Shares representing an additional interest in each of the Funds.
The financial highlights of each of the Common Shares are as follows:
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON SHARES
--------------------------------------------------------------------
WARBURG PINCUS GROWTH & INCOME FUND
FOR THE YEARS ENDED AUGUST 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $16.40 $14.56 $16.72 $11.99 $12.11
-------- ---------- ----------- ---------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.1116 0.2224 0.0785 0.0464 0.1912
Net Gains (Losses) on Securities
(both realized and unrealized) (0.6633) 1.9834 1.8151 4.8499 0.0402
-------- ---------- ----------- ---------- -------
Total from Investment Operations (0.5517) 2.2058 1.8936 4.8963 0.2314
-------- ---------- ----------- ---------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.1350) (0.1824) (0.0785) (0.0875) (0.1871)
Distributions from Capital Gains (0.8133) (0.1834) (3.9751) (0.0788) (0.1643)
-------- ---------- ----------- ---------- -------
Total Distributions (0.9483) (0.3658) (4.0536) (0.1663) (0.3514)
-------- ---------- ----------- ---------- -------
NET ASSET VALUE, END OF YEAR $14.90 $16.40 $14.56 $16.72 $11.99
-------- ---------- ----------- ---------- -------
-------- ---------- ----------- ---------- -------
Total Returns (3.54%) 15.62% 14.41% 41.17% 1.99%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $727,627 $1,038,193 $410,658 $60,689 $28,976
Ratios of Expenses to Average Net Assets 1.21% 1.22% 1.28%(a) 1.14%(a) 1.25%(a)
Ratios of Net Investment Income to
Average Net Assets 0.69% 1.64% 0.41% 0.30% 1.66%
Portfolio Turnover Rate 94% 109% 150% 344% 175%
Average Commission Rate $.0596(b) N/A N/A N/A N/A
</TABLE>
- ---------------------------------------------------------------------
(a)Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Warburg Pincus Growth & Income Fund would have
been 1.28%, 1.14% and 1.28% for the years ended August 31, 1994, 1993 and
1992, respectively.
(b)Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
TAX STATUS OF 1996 DIVIDENDS (UNAUDITED)
Dividends paid by the Fund taxable as ordinary income amounted to $0.1350 per
share; 20.29% of ordinary income dividends qualify for the dividends received
deduction available to corporate shareholders for U.S. income tax purposes.
Because the Fund's fiscal year is not the calender year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1997.
27
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
6. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
<TABLE>
<CAPTION>
COMMON SHARES
---------------------------------------------------------------
WARBURG PINCUS BALANCED FUND
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.12 $11.01 $11.71 $12.04 $12.05
---------- ---------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.1573 0.2080 0.4132 0.5555 0.4408
Net Gains (Losses) on Securities
(both realized and unrealized) 0.9389 1.7225 0.3248 1.1253 0.5155
---------- ---------- ------- ------- -------
Total from Investment Operations 1.0962 1.9305 0.7380 1.6808 0.9563
---------- ---------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.1300) (0.3136) (0.4586) (0.5412) (0.3713)
Distributions from Capital Gains (0.1462) (1.5069) (0.9794) (1.4696) (0.5950)
---------- ---------- ------- ------- -------
Total Distributions (0.2762) (1.8205) (1.4380) (2.0108) (0.9663)
---------- ---------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $11.94 $11.12 $11.01 $11.71 $12.04
---------- ---------- ------- ------- -------
---------- ---------- ------- ------- -------
Total Returns 9.99% 21.56% 6.86% 15.27% 8.07%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $30,853 $5,342 $808 $762 $1,026
Ratios of Expenses to Average Net Assets 1.53%(a) 1.53%(a) 0%(a) 0%(a) .67%(a)
Ratios of Net Investment Income to
Average Net Assets 1.66% 2.30% 3.76% 4.13% 3.68%
Portfolio Turnover Rate 108% 107% 32% 30% 93%
Average Commission Rate $.0453(b) N/A N/A N/A N/A
</TABLE>
- ---------------------------------------------------------------------
(a)Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Warburg Pincus Balanced Fund would have been
2.43%, 6.04%, 5.46%, 5.37% and 3.88% for the years ended August 31, 1996,
1995, 1994, 1993 and 1992, respectively.
(b)Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
TAX STATUS OF 1996 DIVIDENDS (UNAUDITED)
Dividends paid by the Fund taxable as ordinary income amounted to $0.1300 per
share; 11.97% of ordinary income dividends qualify for the dividends received
deduction available to corporate shareholders for U.S. income tax purposes.
Because the Fund's fiscal year is not the calender year, amounts to be used by
calendar year taxpayers on their Federal return will be reflected on Form
1099-DIV and will be mailed in January 1997.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------------------------------------------
To the Shareholders and Board of Directors of The Warburg Pincus Funds:
We have audited the accompanying statements of net assets of Warburg Pincus
Growth & Income Fund and Warburg Pincus Balanced Fund, as of August 31, 1996,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of investments held as of August
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Warburg Pincus Growth & Income Fund and Warburg Pincus Balanced Fund, as of
August 31, 1996, and the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, and their financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 18, 1996
29
<PAGE>
WARBURG PINCUS
ADVISOR FUNDS
COUNSELLORS
SECURITIES INC.,
DISTRIBUTOR
800-369-2728
WARBURG PINCUS
INVESTMENTS
