<PAGE>
<PAGE>
As filed with the U.S. Securities and Exchange Commission
on DECEMBER 30, 1996
Securities Act File No. 333-00533
Investment Company Act File No. 811-07517
U.S. 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. 2 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [x]
ACT OF 1940
Amendment No. 3 [x]
(Check appropriate box or boxes)
Warburg, Pincus Balanced Fund, Inc.
................................................................................
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue
New York, New York 10017-3147
....................................... .......................
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 878-0600
Mr. Eugene P. Grace
Warburg, Pincus Balanced Fund, Inc.
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
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
<PAGE>
<PAGE>
It is proposed that this filing will become effective (check appropriate
box)
[x] immediately upon filing pursuant to paragraph (b)
____ on ___________, 1996 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on _____ pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on _____ pursuant to paragraph (a)(2) of rule 485
If appropriate, check following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
---------------------
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OR AMOUNT OF SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO SECTION (a)(1) OF Rule
24f-2 under the Investment Company Act of 1940, AS AMENDED (THE "1940 ACT"), AND
TO THE NUMBER OR AMOUNT PRESENTLY REGISTERED IS ADDED an indefinite number OR
AMOUNT OF SUCH SECURITIES. THE RULE 24f-2 NOTICE FOR REGISTRANT'S fiscal year
ended August 31, 1996 WAS FILED ON OCTOBER 31, 1996.
---------------------
<PAGE>
<PAGE>
WARBURG, PINCUS BALANCED FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
---------------------
<TABLE>
<CAPTION>
Part A Heading for the Common Shares and
Item No. the Advisor Shares Prospectuses
- ------------------------------------------ -------------------------------------
<C> <S> <C>
1. Cover Page...................... Cover Page
2. Synopsis........................ The Funds' Expenses
3. Condensed Financial Information. Financial Highlights
4. General Description of
Registrant....................... Cover Page; Investment Objectives and Policies;
Portfolio Investments; Risk Factors and Special
Considerations; Certain Investment Strategies;
Investment Guidelines; General Information
5. Management of the Fund........... Management of the Funds
6. Capital Stock and Other
Securities....................... General Information
7. Purchase of Securities Being
Offered.......................... How to Open an Account; How to Purchase Shares; Net
Asset Value
8. Redemption or Repurchase........ How to Redeem and Exchange Shares
9. Legal Proceedings............... Not applicable
<CAPTION>
Part B Heading for the Statement of
Item No. Additional Information
- ------------------------------------------ -------------------------------------
<C> <S> <C>
10. Cover Page.......................... Cover Page
11. Table of Contents............... Contents
12. General Information
and History. ................... Management of the Fund;
Notes to Financial Statements; See
Prospectuses--"General Information"
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<C> <S> <C>
13. Investment Objectives and
Policies........................ Investment Objective; Investment Policies
14. Management of the Registrant.... Management of the Fund; See Prospectuses--"Management
of the Fund"
15. Control Persons and Principal
Holders of Securities........... Management of the Fund; Miscellaneous; See
Prospectuses--"General Information"
16. Investment Advisory and Other
Services........................ Management of the Fund; See Prospectuses--"Management
of the Fund" and "Shareholder Servicing"
17. Brokerage Allocation............ Investment Policies; See Prospectuses--"Portfolio
Transactions and Turnover Rate"
18. Capital Stock and Other
Securities....................... Management of the Fund--Organization of the Fund; See
Prospectuses--"General Information"
19. Purchase, Redemption and
Pricing of Securities Being
Offered......................... Additional Purchase and Redemption Information; See
Prospectuses--"How to Open an Account," "How to
Purchase Shares," "How to Redeem and Exchange Shares"
and "Net Asset Value"
20. Tax Status...................... Additional Information Concerning Taxes; See
Prospectuses--"Dividends, Distributions and Taxes"
21. Underwriters.................... Investment Policies--Portfolio Transactions; See
Prospectuses--"Management of the Fund" and
"Shareholder Servicing"
22. Calculation of
Performance Data. .............. Determination of Performance
23. Financial Statements............ Financial Highlights; Financial Statements
</TABLE>
2
<PAGE>
<PAGE>
PROSPECTUS
December 30, 1996
WARBURG PINCUS
GROWTH & INCOME FUND
WARBURG PINCUS
BALANCED FUND
WARBURG PINCUS
TAX FREE FUND
[Logo]
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS December 30, 1996
Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Three funds are described in this
Prospectus:
WARBURG PINCUS GROWTH & INCOME FUND seeks long-term growth of capital and income
and a reasonable current return by investing primarily in equity securities and
in various income producing securities including, but not limited to, dividend
paying equity securities, fixed income securities and money market instruments.
WARBURG PINCUS BALANCED FUND seeks maximum total return through a combination of
long-term growth of capital and current income consistent with preservation of
capital by investing in a diversified portfolio of equity and debt investments
managed using a multi-manager approach.
WARBURG PINCUS TAX FREE FUND seeks maximum current income exempt from federal
income taxes, consistent with preservation of capital, by investing
substantially all its assets in a diversified portfolio of municipal
obligations.
NO LOAD CLASS OF COMMON SHARES
________________________________________________________________________________
Each Fund each offers two classes of shares, one of which, the Common Shares, is
offered by this Prospectus (i) directly from the Funds' distributor, Counsellors
Securities Inc., and (ii) through various brokerage firms including Charles
Schwab & Company, Inc. Mutual Fund OneSource'tm' Program; Fidelity Brokerage
Services, Inc. FundsNetwork'tm' Program; Jack White & Company, Inc.; and
Waterhouse Securities, Inc.
This Prospectus briefly sets forth certain information about the Funds that
investors should know before investing. Investors are advised to read this
Prospectus carefully and retain it for future reference. Additional information
about each Fund, contained in a Statement of Additional Information, has been
filed with the Securities and Exchange Commission (the 'SEC') in a document
entitled 'Statement of Additional Information' and is available for reference,
along with other related materials, on the SEC Internet Web site
(http://www.sec.gov). The Statement of Additional Information is also available
upon request and without charge by calling Warburg Pincus Funds at (800)
927-2874. Information regarding the status of shareholder accounts may also be
obtained by calling Warburg Pincus Funds at the same number. The Statements of
Additional Information, as amended or supplemented from time to time, bear the
same date as this Prospectus and are incorporated by reference in their entirety
into this Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENTS IN SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
LOW MINIMUM INVESTMENT
________________________________________________________________________________
The minimum initial investment in each Fund is $1,000 ($500 for an IRA or
Uniform Gifts to Minors Act account) and the minimum subsequent investment is
$100. Through the Automatic Monthly Investment Plan, subsequent investment
minimums may be as low as $50. See 'How to Purchase Shares.'
2
<PAGE>
<PAGE>
THE FUNDS' EXPENSES
________________________________________________________________________________
Warburg Pincus Growth & Income Fund, Warburg Pincus Balanced Fund and Warburg
Pincus Tax Free Fund (each a 'Fund' and, collectively, the 'Funds') currently
offer two separate classes of shares: Common Shares and Advisor Shares. For a
description of Advisor Shares see 'General Information.' Common Shares of the
Balanced Fund and the Tax Free Fund pay the Fund's distributor a 12b-1 fee. See
'Management of the Funds -- Distributor.'
<TABLE>
<CAPTION>
Growth & Tax
Income Balanced Free
Fund Fund Fund
-------- -------- ----
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............... 0 0 0
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after fee waivers)................. .75% .45% 0
12b-1 Fees.......................................... 0 .25% .25 %
Other Expenses (after expense reimbursements)....... .46% .65% .25 %
-------- --- ----
Total Fund Operating Expenses (after fee waivers
and expense reimbursements)`D'.................... 1.21% 1.35% .50 %
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year.............................................. $ 12 $ 14 $ 5
3 years............................................. $ 38 $ 43 $16
5 years............................................. $ 66 $ 74 $28
10 years............................................ $ 147 $ 162 $63
</TABLE>
- --------------------------------------------------------------------------------
`D' The Funds' investment adviser and co-administrator have undertaken to limit
Total Fund Operating Expenses of the Growth & Income Fund, the Balanced Fund
and the Tax Free Fund to 1.26%, 1.60% and .50%, respectively, through May 3,
1997. There is no obligation to continue these waivers after that time.
Absent the waiver of fees by the Funds' investment adviser and
co-administrator, Management Fees for the Balanced and Tax Free Funds would
equal .90% and .50%, respectively, Other Expenses would equal .80% and
2.20%, respectively, and Total Fund Operating Expenses would equal 1.95% and
2.95%, respectively. Other Expenses for the Funds are based on expenses
for the fiscal year ending August 31, 1996, net of expense reimbursements.
---------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as a Common Shareholder of each Fund. Certain broker-
dealers and financial institutions also may charge their clients fees in
connection with investments in a Fund's Common Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, each Fund's
actual performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of the Balanced Fund or the Tax Free Fund may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the National Association of Securities Dealers, Inc. (the 'NASD').
3
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
________________________________________________________________________________
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The tables below set forth certain information concerning the investment
results of shares of the Warburg Pincus Growth & Income, Balanced and Tax Free
Funds (formerly investment portfolios of The RBB Fund, Inc. (the 'RBB Fund'))
for the periods indicated. The financial data included in this table for the
year ended August 31, 1996 has been audited by Coopers & Lybrand L.L.P. The
financial data for each of the years ended August 31, 1992 through 1995 are a
part of the RBB Fund's financial statements, which have also been audited by
Coopers & Lybrand L.L.P., the RBB Fund's independent accountants. The report of
Coopers & Lybrand L.L.P. appears in the Statement of Additional Information
along with the financial statements. The financial data for the Funds for the
years ended August 31, 1991 and 1990 and the period ended August 31, 1989 is
part of previous financial statements also audited by Coopers & Lybrand L.L.P.
The financial data included in these tables should be read in conjunction with
the financial statements and related notes included in the Statement of
Additional Information. Further information about the performance of the Funds
is contained in the Funds' annual report dated August 31, 1996, copies of which
may be obtained without charge by calling Warburg Pincus Funds at (800)
927-2874.
WARBURG PINCUS GROWTH & INCOME FUND(d)
<TABLE>
<CAPTION>
For the
Period
October 6,
1988
(Commencement
of
For the Years Ended August 31, Operations)
--------------------------------------------------------------------------- to August 31,
1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------ ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 16.40 $ 14.56 $ 16.72 $ 11.99 $12.11 $ 11.00 $11.53 $ 10.00
------- ------- ------- ------- ------ ------- ------ -----
Income from
Investment
Operations:
Net investment
income............. 0.1116 0.2224 .0785 .0464 .1912 .3744 .3574 .3876
Net gains (losses) on
securities (both
realized and
unrealized)........ (0.6633) 1.9834 1.8151 4.8499 .0402 1.6891 (.1856) 1.4225
------- ------- ------- ------- ------ ------- ------ -----
Total from investment
operations......... (0.5517) 2.2058 1.8936 4.8963 .2314 2.0635 .1718 1.8101
------- ------- ------- ------- ------ ------- ------ -----
Less Distributions:
Dividends (from net
investment
income)............ (0.1350) (0.1824) (.0785) (.0875) (.1871) (.4043) (.3951) (.2833)
Distributions (from
capital gains)..... (0.8133) (0.1834) (3.9751) (.0788) (.1643) (.5492) (.3067) --
------- ------- ------- ------- ------ ------- ------ -----
Total
distributions...... (0.9483) (0.3658) (4.0536) (.1663) (.3514) (.9535) (.7018) (.2833)
------- ------- ------- ------- ------ ------- ------ -----
Net asset value, end
of period............ $ 14.90 $ 16.40 $ 14.56 $ 16.72 $11.99 $ 12.11 $11.00 $ 11.53
------- ------- ------- ------- ------ ------- ------ -----
------- ------- ------- ------- ------ ------- ------ -----
Total Returns......... (3.54%) 15.62% 14.41% 41.17%(e) 1.99%(e) 19.91%(e) 1.48%(e) 18.48%(c)(e)
Ratios/Supplemental
Data:
Net assets, end of
period (000)....... $727,627 $1,038,193 $410,658 $60,689 $28,976 $24,726 $1,396 $ 1,150
Ratios of expenses to
average net
assets............. 1.21% 1.22% 1.28%(a) 1.14%(a) 1.25%(a) 1.30%(a) 1.40%(a) 1.40%(a)(b)
Ratios of net
investment income
to average net
assets............. 0.69% 1.64% .41% .30% 1.66% 3.42% 3.32% 4.32%(b)
Portfolio turnover
rate................. 94% 109% 150% 344% 175% 41% 98% 111%(c)
Average commission
rate................. $ .0596(f) N/A N/A N/A 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%, 1.28%, 2.17% and 3.81% for the years ended August 31,
1994, 1993, 1992, 1991 and 1990, respectively, and 2.82% annualized for
the period ended August 31, 1989.
(b) Annualized.
(c) Not annualized.
(d) Financial Highlights, other than for the year ended August 31, 1996, relate
solely to the Common Shares of the Warburg Pincus Growth & Income Fund
investment portfolio of the RBB Fund. Prior to December 1992, the Warburg
Pincus Growth & Income Fund investment portfolio of the RBB Fund was
advised by PNC Institutional Management Corporation.
(e) Sales load not reflected in total return. The sales load was eliminated
effective July 29, 1993.
(f) 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.
4
<PAGE>
<PAGE>
WARBURG PINCUS BALANCED FUND(d)
<TABLE>
<CAPTION>
For the
Period
October 6,
1988
(Commencement
of
For the Years Ended August 31, Operations)
------------------------------------------------------------------------------------ to August 31,
1996 1995 1994 1993 1992 1991 1990 1989
------------ ------- ------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $ 11.12 $ 11.01 $ 11.71 $ 12.04 $ 12.05 $ 10.60 $ 11.32 $ 10.00
------ ------- ------- ------- ------- ------- ------- ------
Income from Investment
Operations:
Net investment
income........... 0.1573 0.2080 .4132 .5555 .4408 .4213 .4080 .4371
Net gains (losses)
on securities
(both realized
and
unrealized)...... 0.9389 1.7225 .3248 1.1253 .5155 1.7196 (.2785) 1.2239
------ ------- ------- ------- ------- ------- ------- ------
Total from
investment
operations....... 1.0962 1.9305 .7380 1.6808 .9563 2.1409 .1295 1.6610
------ ------- ------- ------- ------- ------- ------- ------
Less Distributions:
Dividends (from net
investment
income).......... (0.1300) (0.3136) (0.4586) (0.5412) (0.3713) (0.4128) (0.4296) (0.3419)
Distributions (from
capital gains)... (0.1462) (1.5069) (.9794) (1.4696) (.5950) (.2781) (.4199) --
------ ------- ------- ------- ------- ------- ------- ------
Total
distributions.... (0.2762) (1.8205) (1.4380) (2.0108) (.9663) (.6909) (.8495) (.3419)
------ ------- ------- ------- ------- ------- ------- ------
Net asset value, end
of period.......... $ 11.94 $ 11.12 $ 11.01 $ 11.71 $ 12.04 $ 12.05 $ 10.60 $ 11.32
------ ------- ------- ------- ------- ------- ------- ------
------ ------- ------- ------- ------- ------- ------- ------
Total Returns....... 9.99% 21.56% 6.86%(e) 15.27%(e) 8.07%(e) 21.18%(e) 1.09%(e) 17.03%(c)(e)
Ratios/Supplemental
Data:
Net assets, end of
period (000)..... $30,853 $5,342 $808 $762 $1,026 $1,290 $1,373 $1,128
Ratios of expenses
to average net
assets........... 1.53%(a) 1.53%(a) 0%(a) 0%(a) .67%(a) 1.40%(a) 1.40%(a) 1.40%(a)(b)
Ratios of net
investment income
to average net
assets........... 1.66% 2.30% 3.76% 4.13% 3.68% 3.58% 3.80% 4.90%(b)
Portfolio turnover
rate............... 108% 107% 32% 30% 93% 76% 95% 35%(c)
Average commission
rate............... $ .0453(f) N/A N/A N/A 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%, 3.88%, 3.89% and 3.76% for the years ended
August 31, 1996, 1995, 1994, 1993, 1992, 1991 and 1990, respectively, and
2.83% (annualized) for the period ended August 31, 1989.
(b) Annualized.
(c) Not annualized.
(d) Financial Highlights, other than for the year ended August 31, 1996, relate
solely to the Common Shares of the Warburg Pincus Balanced Fund investment
portfolio of the RBB Fund. Prior to October 1, 1994, the Warburg Pincus
Balanced Fund investment portfolio of the RBB Fund was advised by PNC
Institutional Management Corporation.
(e) Sales load not reflected in total return. The sales load was eliminated
effective August 31, 1994.
(f) 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.
5
<PAGE>
<PAGE>
WARBURG PINCUS TAX FREE FUND(d)
<TABLE>
<CAPTION>
For the
Period
October 18,
1988
(Commencement
of
Operations)
For the Years Ended August 31, to
------------------------------------------------------------------------------ August 31,
1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.............. $ 10.41 $ 10.40 $ 11.53 $ 11.04 $ 10.46 $ 10.05 $10.28 $ 10.00
------- ------- ------- ------- ------- ------- ------ -----
Income from
Investment
Operations:
Net investment
income............ 0.5097 0.5426 0.6026 0.6385 0.6771 0.6027 .5940 .5273
Net gains (losses)
on securities
(both realized and
unrealized)....... (0.0541) 0.3077 (0.6259) 0.8654 0.6145 0.4402 (.1741) 0.247
------- ------- ------- ------- ------- ------- ------ -----
Total from
investment
operations........ 0.4556 0.8503 (0.0233) 1.5039 1.2916 1.0429 .4199 .7320
------- ------- ------- ------- ------- ------- ------ -----
Less Distributions:
Dividends (from net
investment
income)........... (0.5056) (0.5426) (0.6092) (0.6725) (0.6345) (0.6212) (.6499) (.4549)
Distributions (in
excess of net
investment
income)........... -- -- (0.0135) -- -- -- -- --
Distributions (from
capital gains).... 0.0000 (0.2977) (0.4886) (0.3414) (0.0771) (0.0117) -- --
------- ------- ------- ------- ------- ------- ------ -----
Total
distributions..... (0.5056) (0.8403) (1.1113) (1.0139) (0.7116) (0.6329) (.6499) (.4549)
------- ------- ------- ------- ------- ------- ------ -----
Net asset value, end
of period........... $ 10.36 $ 10.41 $ 10.40 $ 11.53 $ 11.04 $ 10.46 $10.05 $ 10.28
------- ------- ------- ------- ------- ------- ------ -----
------- ------- ------- ------- ------- ------- ------ -----
Total Returns........ 4.42% 8.89%(e) (0.30%)(e) 14.45%(e) 12.77%(e) 10.66%(e) 4.00%(e) 7.94%(c)(e)
Ratios/Supplemental
Data:
Net assets, end of
period (000)...... $4,519 $4,127 $5,465 $6,631 $6,491 $8,840 $1,187 $1,095
Ratios of expenses
to average net
assets............ .50%(a) .48%(a) .15%(a) .17%(a) .33%(a) .83%(a) 1.25%(a) 1.25%(a)(b)
Ratios of net
investment income
to average net
assets............ 4.83% 5.53% 5.51% 5.71% 6.21% 6.02% 5.74% 6.01%(b)
Portfolio turnover
rate................ 82% 38% 20% 70% 78% 63% 10% 175%(c)
</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 Tax Free Fund would have been
3.17%, 2.12%, 1.84%, 1.76%, 1.61%, 3.06% and 3.75% for the years ended
August 31, 1996, 1995, 1994, 1993, 1992, 1991 and 1990, respectively, and
2.48% annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Not annualized.
(d) Financial Highlights, other than for the year ended August 31, 1996,
related solely to the Common Shares of the Warburg Pincus Tax Free Fund
investment portfolio of the RBB Fund. Prior to April 10, 1995, the Warburg
Pincus Tax Free Fund investment portfolio of the RBB Fund was advised by
PNC Institutional Management Corporation.
(e) Sales load not reflected in total return. The sales load was eliminated
effective February 1, 1995.
6
<PAGE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
________________________________________________________________________________
Each Fund's investment objective(s) and policies are non-fundamental policies
and may be changed by the Fund's Board of Directors (the 'Board') without first
obtaining the approval of a majority of the outstanding shares of that Fund. Any
changes may result in the Fund having investment objectives different from those
an investor may have considered at the time of investment. Any investment
involves risk and, therefore, there can be no assurance that any Fund will
achieve its investment objective. See 'Portfolio Investments' and 'Certain
Investment Strategies' for descriptions of certain types of investments the
Funds may make.
GROWTH & INCOME FUND
The Growth & Income Fund's investment objectives are to seek long-term growth
of capital and income and a reasonable current return. The Fund is a diversified
management investment company that pursues its objectives by investing primarily
in equity securities. The policy of the Fund is to invest substantially all of
its assets in equity securities under normal market conditions. Equity
securities include common stocks, securities which are convertible into common
stocks and readily marketable securities, such as rights and warrants, which
derive their value from common stock. The Fund seeks to achieve its income
objective by investing in various income producing securities including, but not
limited to, dividend paying equity securities and fixed income securities. The
portion of the Fund invested from time to time in equity securities, fixed
income securities and money market securities will vary depending on market
conditions, and there may be extended periods when the Fund is primarily
invested in one of them. In addition, the amount of income generated from the
Fund will fluctuate depending on, among other things, the composition of the
Fund's holdings and the level of interest and dividend income paid on those
holdings. Investments in common stock in general are subject to market risks
that may cause their prices to fluctuate over time. Therefore, an investment in
the Fund may be more suitable for long-term investors who can bear the risk of
these fluctuations.
The Fund may invest up to 10% of its total assets in securities of foreign
issuers and may hold from time to time various foreign currencies pending
investment in foreign securities or conversion into U.S. dollars. The Fund may
also purchase without limitation dollar-denominated American Depository Receipts
('ADRs'). ADRs are issued by domestic banks and evidence ownership of underlying
foreign securities. The Fund may also invest up to 5% of its net assets in
mortgage-related and asset-backed securities.
BALANCED FUND
The Balanced Fund's investment objective is to seek to maximize total return
through a combination of long-term growth of capital and current income
consistent with preservation of capital. The Fund is a diversified
7
<PAGE>
<PAGE>
management investment company that pursues its objective through a policy of
diversified investment in common stocks, convertible and non-convertible
preferred stocks and debt securities, such as government, corporate, bank and
commercial obligations. The Fund may also purchase warrants provided they are
attached to securities that may otherwise be purchased by the Fund. At all
times, the Fund will have a minimum of 25% of its assets in equity securities
and a minimum of 25% in fixed income securities. Compliance with these
percentage requirements may limit the ability of the Fund to maximize total
return. With respect to convertible senior securities, only that portion of the
value of such securities attributable to their fixed income characteristics will
be used for purposes of determining the percentage of the assets of the Fund
that are invested in fixed income securities. The actual percentage of assets
invested in equity and fixed income securities will vary from time to time,
depending on the judgment of Warburg, Pincus Counsellors, Inc., the investment
adviser of each Fund ('Warburg'), as to general market and economic conditions,
trends and yields and interest rates and changes in fiscal and monetary
policies.
The Fund will be managed by a team of senior managers of Warburg. Two
managers are designated overall portfolio strategists and are responsible for
determining the portion of the Fund allocated between equity and fixed income
securities and the allocation among the various equity sectors. See 'Management
of the Funds -- Portfolio Managers' for information about the portfolio
managers.
EQUITY INVESTMENT. Each of the equity portfolio managers will manage an
allocated portion of the equity holdings of the Fund. Each manager will manage
his/her portion with a different investment emphasis or approach, but in each
case consistent with the overall objective of long-term growth of capital for
the Balanced Fund's equity portion.
The four sectors in the equity portion are:
U.S. Value Sector invests primarily in stocks whose acquisition price
represents low absolute or relative value, based on historical and financial
analysis and compared to other stocks and sectors of the Standard & Poor's 500
universe of common stocks and other indexes.
U.S. Small Company Sector invests primarily in common stocks and warrants of
small capitalization and emerging growth U.S. companies that represent
attractive opportunities for maximum capital appreciation. Emerging growth
companies are small- and medium-sized companies that have passed their start-up
phase and that show positive earnings and prospects for achieving significant
profit and gain in a relatively short period of time. Small capitalization
companies may be purchased for their growth potential or because Warburg
believes they are undervalued.
U.S. Mid-Cap Sector invests primarily in a diversified portfolio of common
stocks, warrants and securities convertible into or exchangeable for common
stock of 'mid-cap' U.S. companies. These are companies that have market
capitalizations in the $660 million to $13.8 billion range and include a
potential universe of companies in such indexes as the Russell Midcap Index
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and Standard & Poor's Midcap 400 Index. The managers attempt to identify sectors
of the market and companies within market sectors that they believe will
outperform the overall market.
International Equity Sector invests primarily in a broadly diversified
portfolio of equity securities of companies that, wherever organized, have their
principal business activities and interests outside the United States. The
international equity managers intend to invest principally in the securities of
financially strong companies with opportunities for growth within growing
international economies and markets through increased earnings power and
improved utilization or recognition of assets. Investments may be made in equity
securities of companies of any size, whether traded on or off a national
securities exchange.
FIXED INCOME INVESTMENT. The fixed income portion invests primarily in debt
instruments such as corporate obligations, U.S. government obligations,
municipal obligations and mortgage-related and asset-backed debt securities.
TAX FREE FUND
The Tax Free Fund's investment objective is to seek to maximize current
interest income which is exempt from federal income taxes, consistent with
preservation of capital. The Fund is a diversified management investment company
that pursues its investment objective by investing substantially all of its
assets in a diversified portfolio of obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities ('Municipal Obligations'), the interest on which, in the opinion of
bond counsel or counsel to the issuer, as the case may be, is exempt from
regular federal income tax. During normal market conditions, at least 80% of the
net assets of the Fund will be invested in Municipal Obligations, the interest
on which is exempt from regular federal income taxes and does not constitute an
item of tax preference for purposes of the federal alternative minimum tax ('Tax
Exempt Interest'). The Fund may also invest up to 5% of its net assets in
mortgage-related and asset-backed securities.
PORTFOLIO INVESTMENTS
________________________________________________________________________________
ALL FUNDS
U.S. GOVERNMENT OBLIGATIONS. The obligations issued or guaranteed by the U.S.
government in which a Fund may invest include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government
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National Mortgage Association); instruments that are supported by the right of
the issuer to borrow from the U.S. Treasury (such as securities of Federal Home
Loan Banks); and instruments that are supported by the credit of the
instrumentality (such as Federal National Mortgage Association and Federal Home
Loan Mortgage Corporation bonds).
TEMPORARY DEFENSIVE MEASURES. When Warburg believes that a defensive posture
is warranted, the Growth & Income Fund and the Balanced Fund may invest
temporarily without limit in U.S. dollar-denominated money market obligations,
including repurchase agreements. The Tax Free Fund may hold uninvested cash
reserves, pending investment, during temporary defensive periods or when, in the
opinion of Warburg, suitable Municipal Obligations are unavailable. Uninvested
cash reserves will not earn income.
GROWTH & INCOME FUND AND BALANCED FUND
INVESTMENT GRADE DEBT. The Growth & Income and Balanced Funds may each invest
in investment grade debt securities and preferred stocks. Debt obligations of
corporations in which the Funds may invest include corporate bonds, debentures,
debentures convertible into common stocks and notes. The interest income to be
derived may be considered as one factor in selecting debt securities for
investment by Warburg. The market value of debt obligations may be expected to
vary depending upon, among other factors, interest rates, the ability of the
issuer to repay principal and interest, any change in investment rating and
general economic conditions. A security will be deemed to be investment grade if
it is rated within the four highest grades by Moody's Investors Service, Inc.
('Moody's') or Standard & Poor's Ratings Group ('S&P') or, if unrated, is
determined to be of comparable quality by Warburg. Bonds rated in the fourth
highest grade may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds.
In selecting debt securities for a Fund, Warburg will review and monitor the
creditworthiness of each issuer and issue, in addition to relying on ratings
assigned by Moody's or S&P. Interest rate trends and specific developments which
may affect individual issuers will also be analyzed. The Balanced Fund may only
invest in debt securities rated within the three highest grades by Moody's or
S&P or, if unrated, determined to be of comparable quality by Warburg.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of such securities and downgraded
securities may be retained without limit as to quantity or quality, although
Warburg will consider such event in its determination of whether a Fund should
continue to hold the securities.
LOWER-RATED SECURITIES. Lower-rated and comparable unrated securities
(commonly referred to as 'junk bonds'), which a Fund may come to hold as a
result of a downgrade (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are
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outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. The market values of certain of these securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-quality securities. In addition, medium- and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by such issuers is significantly
greater because medium- and lower-rated securities and unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness.
The market value of securities in lower-rated categories is more volatile
than that of higher-quality securities. In addition, a Fund may have difficulty
disposing of certain of these securities because there may be a thin trading
market, which may also make it more difficult for a Fund to obtain accurate
market quotations for purposes of calculating a Fund's net asset value.
REPURCHASE AGREEMENTS. The Growth & Income Fund and the Balanced Fund may
invest in repurchase agreement transactions with member banks of the Federal
Reserve System and certain non-bank dealers. Repurchase agreements are contracts
under which the buyer of a security simultaneously commits to resell the
security to the seller at an agreed-upon price and date. Under the terms of a
typical repurchase agreement, a Fund would acquire any underlying security for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return that
is not subject to market fluctuations during the Fund's holding period. The
value of the underlying securities will at all times be at least equal to the
total amount of the purchase obligation, including interest. The Fund bears a
risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations or becomes bankrupt and the Fund is delayed or
prevented from exercising its right to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert this right. Warburg,
acting under the supervision of each Fund's Board, monitors the creditworthiness
of those bank and non-bank dealers with which the Fund enters into repurchase
agreements to evaluate this risk. A repurchase agreement is considered to be a
loan under the Investment Company Act of 1940, as amended (the '1940 Act').
CONVERTIBLE SECURITIES. Convertible securities in which the Growth & Income
Fund and the Balanced Fund may invest, including both convertible debt and
convertible preferred stock, may be converted at either a stated price or stated
rate into underlying shares of common stock. Because of this feature,
convertible securities enable an investor to benefit from increases in the
market price of the underlying common stock. Convertible securities
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provide higher yields than the underlying equity securities, but generally offer
lower yields than non-convertible securities of similar quality. The value of
convertible securities fluctuates in relation to changes in interest rates like
bonds and, in addition, fluctuates in relation to the underlying common stock.
BALANCED FUND
MORTGAGE-RELATED AND ASSET-BACKED DEBT SECURITIES. The Balanced Fund may
purchase mortgage-related debt securities without limit. Such securities
represent interests in pools of mortgage loans made by lenders such as savings
and loan institutions, mortgage bankers, commercial banks and others and
assembled for sale to investors by various governmental, government-related and
private organizations. Mortgage-related securities are based on different types
of mortgages, including those on commercial real estate or residential
properties. Mortgage-related securities in which the Fund may invest include
adjustable rate securities. The Fund may also invest in asset-backed securities
which are backed by installment sales contracts, credit card receivables or
other assets. The remaining maturity of any asset-backed security the Fund
invests in will be 397 days or less. As new types of mortgage-related securities
will likely be developed in the future, the Fund may invest in them if Warburg
determines they are consistent with the Fund's investment objectives and
policies.
Non-government mortgage-related securities may offer higher yields than those
issued by governmental or government-related entities, but may be subject to
greater price fluctuations and, in addition, may not be readily marketable.
The existence of any insurance or guarantees supporting mortgage-related or
asset-backed securities and the creditworthiness of the issuer will be
considered in determining whether a security meets the Fund's investment
standards, although the Fund may purchase mortgage-related and asset-backed
securities without insurance or guarantees if Warburg determines that the issuer
is creditworthy.
The value of mortgage-related and asset-backed securities may change due to
shifts in the market's perception of issuers, and regulatory or tax changes may
adversely affect the mortgage or asset-backed securities market as a whole.
Foreclosures and prepayments, which occur when unscheduled or early payments are
made on the underlying mortgages, may shorten the effective maturities of these
securities, and the Fund's yield may be affected by reinvestment of prepayments
at higher or lower rates than the original investment. Prepayments may tend to
increase due to refinancing of mortgages as interest rates decline. In addition,
like other debt securities, the values of mortgage-related and asset-backed
securities will generally fluctuate in response to interest rates.
RISK FACTORS AND SPECIAL CONSIDERATIONS
________________________________________________________________________________
Investing in securities is subject to the inherent risk of fluctuations in
prices. For certain additional risks relating to each Fund's investments,
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including with respect to high portfolio turnover, foreign securities and
lower-rated securities, see 'Portfolio Investments' beginning at page 9 and
'Certain Investment Strategies' beginning at page 14.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. Each Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to each Fund's limitation on the purchase of illiquid securities, unless
the Fund's Board determines on an ongoing basis that an adequate trading market
exists for the security. In addition to an adequate trading market, the Boards
will also consider factors such as trading activity, availability of reliable
price information and other relevant information in determining whether a Rule
144A Security is liquid. This investment practice could have the effect of
increasing the level of illiquidity in the Funds to the extent that qualified
institutional buyers become uninterested for a time in purchasing Rule 144A
Securities. The Board of each Fund will carefully monitor any investments by the
Fund in Rule 144A Securities. The Boards may adopt guidelines and delegate to
Warburg the daily function of determining and monitoring the liquidity of Rule
144A Securities, although each Board will retain ultimate responsibility for any
determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and a Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. A Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
BALANCED FUND
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of emerging
growth and small- and medium-sized companies may involve greater risks, since
these securities may have limited marketability and, thus, may be more volatile
than securities of larger, more established companies or the market in general.
Because small- and medium-sized companies normally have fewer shares outstanding
than larger companies, it may be more difficult for the Fund to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. Small-sized companies
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may have limited product lines, markets or financial resources and may lack
management depth. In addition, small- and medium-sized companies are typically
subject to a greater degree of changes in earnings and business prospects than
are larger, more established companies. There is typically less publicly
available information concerning small- and medium-sized companies than for
larger, more established ones. Although investing in securities of emerging
growth companies offers potential for above-average returns if the companies are
successful, the risk exists that the companies will not succeed and the prices
of the companies' shares could significantly decline in value. Therefore, the
Balanced Fund's U.S. Small Company Sector and Mid-Cap Sector may involve a
greater degree of risk than investment in better-known, larger companies.
PORTFOLIO TRANSACTIONS AND TURNOVER RATE
________________________________________________________________________________
A Fund will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever Warburg
believes it to be in the best interests of the relevant Fund. A Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. It is not
possible to predict the Funds' portfolio turnover rates. High portfolio turnover
rates (100% or more) may result in dealer markups or underwriting commissions as
well as other transaction costs, including correspondingly higher brokerage
commissions. In addition, short-term gains realized from portfolio turnover may
be taxable to shareholders as ordinary income. See 'Dividends, Distributions and
Taxes -- Taxes' below and 'Investment Policies -- Portfolio Transactions' in
each Fund's Statement of Additional Information.
All orders for transactions in securities or options on behalf of a Fund are
placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Funds' distributor ('Counsellors Securities'). A Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transaction does not
exceed usual and customary levels and when doing so is consistent with
guidelines adopted by the Fund's Board.
CERTAIN INVESTMENT STRATEGIES
________________________________________________________________________________
Although there is no current intention of doing so during the coming year,
each Fund is authorized to engage in the following investment strategies: (i)
lending portfolio securities, (ii) entering into reverse repurchase agreements
and (iii) in the case of the Tax Free Fund, engaging in options and futures
transactions. Detailed information concerning each Fund's strategies and related
risks is contained below and in the Fund's Statement of Additional Information.
STRATEGY AVAILABLE TO ALL FUNDS
SHORT SALES AGAINST THE BOX. Each Fund may enter into a short sale of
securities such that when the short position is open the Fund owns an equal
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amount of the securities sold short or owns preferred stocks or debt securities
convertible or exchangeable without payment of further consideration into an
equal number of securities sold short. This kind of short sale, which is
referred to as one 'against the box,' will be entered into by a Fund for the
purpose of receiving a portion of the interest earned by the executing broker
from the proceeds of the sale. The proceeds of the sale will generally be held
by the broker until the settlement date, when the Fund delivers securities to
close out its short position. Although prior to delivery the Fund will have to
pay an amount equal to any dividends paid on the securities sold short, the Fund
will receive the dividends from the securities sold short or the dividends from
the preferred stock or interest from the debt securities convertible or
exchangeable into the securities sold short, plus a portion of the interest
earned from the proceeds of the short sale. A Fund will deposit, in a segregated
account with its custodian or a qualified subcustodian, the securities sold
short or convertible or exchangeable preferred stocks or debt securities in
connection with short sales against the box. The Fund will endeavor to offset
transaction costs associated with short sales against the box with the income
from the investment of the cash proceeds.
The extent to which a Fund may make short sales may be limited by
requirements of the Internal Revenue Code of 1986, as amended (the 'Code'), for
qualification as a regulated investment company. See 'Dividends, Distributions
and Taxes' for other tax considerations applicable to short sales.
STRATEGIES AVAILABLE TO THE GROWTH & INCOME FUND AND
THE BALANCED FUND
FOREIGN SECURITIES. Each of the Growth & Income Fund and the Balanced Fund
may invest up to 10% of its total assets in the securities of foreign issuers.
There are certain risks involved in investing in securities of companies and
governments of foreign nations which are in addition to the usual risks inherent
in U.S. investments. These risks include those resulting from fluctuations in
currency exchange rates, revaluation of currencies, future adverse political and
economic developments and the possible imposition of currency exchange blockages
or other foreign governmental laws or restrictions, reduced availability of
public information concerning issuers, the lack of uniform accounting, auditing
and financial reporting standards and other regulatory practices and
requirements that are often generally less rigorous than those applied in the
United States. Moreover, securities of many foreign companies may be less liquid
and their prices more volatile than those of securities of comparable U.S.
companies. Certain foreign countries are known to experience long delays between
the trade and settlement dates of securities purchased or sold. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Funds, including the withholding of
dividends. Foreign
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securities may be subject to foreign government taxes that would reduce the net
yield on such securities. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Investment in foreign
securities will also result in higher operating expenses due to the cost of
converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
OPTIONS AND FUTURES TRANSACTIONS. At the discretion of Warburg, each Fund
may, but is not required to, engage in a number of strategies involving options
and futures contracts. These strategies, commonly referred to as 'derivatives,'
may be used (i) for the purpose of hedging against a decline in value of a
Fund's current or anticipated portfolio holdings and (ii) in the case of the
Growth & Income Fund, (a) as a substitute for purchasing or selling portfolio
securities or (b) to seek to generate income to offset expenses or increase
return. Transactions that are not considered hedging should be considered
speculative and may serve to increase the Growth & Income Fund's investment
risk. Transaction costs and any premiums associated with these strategies, and
any losses incurred, will affect a Fund's net asset value and performance.
Therefore, an investment in a Fund may involve a greater risk than an investment
in other mutual funds that do not utilize these strategies. The Funds' use of
these strategies may be limited by position and exercise limits established by
securities and commodities exchanges and the NASD and by the Code.
Securities and Stock Index Options. Each Fund may write covered call options
and put options and purchase put and call options on securities and stock
indexes and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. Such options may be traded on an exchange or
may trade over-the-counter ('OTC'). The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option has the right to purchase the underlying
security from the writer. A stock index measures the movement of a certain group
of stocks by assigning relative values to the stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to a Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
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Futures Contracts and Related Options. Each Fund may enter into interest rate
and securities index futures contracts and purchase and write (sell) related
options that are traded on an exchange designated by the Commodity Futures
Trading Commission (the 'CFTC') or, if consistent with CFTC regulations, on
foreign exchanges. These futures contracts are standardized contracts for the
future delivery of an interest rate sensitive security or, in the case of index
futures contracts, are settled in cash with reference to a specified multiplier
times the change in the specified interest rate or index. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of a Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Funds are limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities. However, the Growth & Income Fund may not write put
options or purchase or sell futures contracts or options on futures contracts to
hedge more than its total assets unless immediately after any such transaction
the aggregate amount of premiums paid on put options and the amount of margin
deposits on its existing futures positions do not exceed 5% of its total assets.
Hedging Considerations. A hedge is designed to offset a loss on a portfolio
position with a gain in the hedge position; at the same time, however, a
properly correlated hedge will result in a gain in the portfolio position being
offset by a loss in the hedge position. As a result, the use of options and
futures transactions for hedging purposes could limit any potential gain from an
increase in value of the position hedged. In addition, the movement in the
portfolio position hedged may not be of the same magnitude as movement in the
hedge. A Fund will engage in hedging transactions only when deemed advisable by
Warburg, and successful use of hedging transactions will depend on Warburg's
ability to correctly predict movements in the hedge and the hedged position and
the correlation between them, which could prove to be inaccurate. Even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or trends.
Additional Considerations. To the extent that a Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. A Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. Each Fund will comply with applicable regulatory requirements
designed to eliminate any potential for leverage with respect to options written
by that Fund on securities and indexes and interest rate and
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index futures contracts and options on these futures contracts. The use of these
strategies may require that the Fund maintain cash or certain liquid assets in a
segregated account with its custodian or a designated sub-custodian to the
extent the Fund's obligations with respect to these strategies are not otherwise
'covered' through ownership of the underlying security or financial instrument
or by other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
STRATEGIES AVAILABLE TO THE BALANCED FUND AND
THE TAX FREE FUND
MUNICIPAL OBLIGATIONS. The two principal types of Municipal Obligations, in
terms of the source of payment of debt service on the bonds, are general
obligation bonds and revenue securities, and a Fund may hold both in any
proportion. 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 securities 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 or other specific revenue source but not from the general taxing
power.
Although the Tax Free Fund may invest more than 25% of its net assets in (i)
Municipal Obligations whose issuers are in the same state, (ii) Municipal
Obligations the interest on which is paid solely from revenues of similar
projects and (iii) private activity bonds bearing Tax Exempt Interest (described
below), it does not currently intend to do so on a regular basis. To the extent
a Fund's assets are concentrated in Municipal Obligations that are payable from
the revenues of economically related projects or facilities or whose issuers are
located in the same state, the Fund will be subject to the peculiar risks
presented by the laws and economic conditions relating to such states or
projects or facilities to a greater extent than it would be if its assets were
not so concentrated.
Private Activity Bonds; Alternative Minimum Tax Bonds. The Funds may invest
in 'Alternative Minimum Tax Bonds,' which are certain private activity bonds
issued after August 7, 1986 to finance certain non-governmental activities.
While the income from Alternative Minimum Tax Bonds is exempt from regular
federal income tax, it is a tax preference item for purposes of the federal
individual and corporate 'alternative minimum tax.' The alternative minimum tax
is a special tax that applies to a limited number of taxpayers who have certain
adjustments or tax preference items. Available returns on Alternative Minimum
Tax Bonds acquired by a Fund may be lower than those from other Municipal
Obligations acquired by a Fund due to the possibility of federal, state and
local alternative minimum or
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minimum income tax liability on Alternative Minimum Tax Bonds. Depending on
market conditions, the Tax Free Fund may invest up to 20% of its net assets in
private activity bonds.
Variable Rate Notes. Municipal Obligations purchased by a Fund may include
variable rate demand notes issued by industrial development authorities and
other governmental entities. Variable rate demand notes are tax exempt Municipal
Obligations that provide for a periodic adjustment in the interest rate paid on
the notes. While there may be no active secondary market with respect to a
particular variable rate demand note purchased by a Fund, the Fund may, upon
notice as specified in the note, demand payment of the principal of and accrued
interest on the note at any time or during specified periods not exceeding one
year (depending on the instrument involved) and may resell the note at any time
to a third party. The absence of such an active secondary market, however, could
make it difficult for the Fund to dispose of the variable rate demand note
involved, in the event the issuer of the note defaulted on its payment
obligations and during the periods that the Fund is not entitled to exercise its
demand rights. A Fund could, for this or other reasons, suffer a loss to the
extent of the default plus any expenses involved in an attempt to recover the
investment.
Variable rate demand notes are frequently not rated by credit rating
agencies, but unrated notes purchased by the Fund will have been determined by
Warburg to be of comparable quality at the time of the purchase to rated
instruments purchasable by the Fund. Warburg monitors the continuing
creditworthiness of issuers of such notes to determine whether the Fund should
continue to hold such notes.
Ratings. The Funds may invest in Municipal Obligations which are determined
by Warburg to present minimal credit risks and which at the time of purchase are
considered to be 'high grade' -- e.g., rated 'A' or higher by S&P or Moody's in
the case of bonds; rated 'SP-1' by S&P or 'MIG-1' by Moody's ('MIG-2' in the
case of the Balanced Fund) in the case of notes; rated 'VMIG-1' by Moody's in
the case of variable rate demand notes ('VMIG-2' by Moody's in the case of the
Balanced Fund); or, in the case of the Tax Free Fund, rated 'A-1' by S&P or
'Prime-1' by Moody's in the case of tax exempt commercial paper. In addition,
the Tax Free Fund may invest in 'high quality' notes and tax exempt commercial
paper rated 'MIG-2,' 'VMIG-2' or 'Prime-2' by Moody's or 'A-2' by S&P if deemed
advisable by Warburg. The Funds may also purchase securities that are unrated at
the time of purchase provided that the securities are determined to be of
comparable quality by Warburg. The applicable Municipal Obligations ratings are
described in the Appendix to each Fund's Statement of Additional Information.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Funds may each
purchase securities on a when-issued or delayed-delivery basis. In these
transactions, payment for and delivery of the securities occur beyond the
regular settlement dates, normally within 30-45 days after the transaction.
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The payment obligation and the interest rate that will be received in when-
issued and delayed-delivery transactions are fixed at the time the buyer enters
into the commitment. Due to fluctuations in the value of securities purchased on
a when-issued or delayed-delivery basis, the yields obtained on such securities
may be higher or lower than the yields available in the market on the dates when
the investments are actually delivered to the buyers. When-issued securities may
include securities purchased on a 'when, as and if issued' basis, under which
the issuance of the security depends on the occurrence of a subsequent event,
such as approval of a merger, corporate reorganization or debt restructuring.
Each Fund is required to segregate assets equal to the amount of its when-issued
and delayed-delivery purchase commitments.
STRATEGY AVAILABLE TO THE TAX FREE FUND
TAX EXEMPT DERIVATIVE SECURITIES. The Tax Free Fund may invest in tax exempt
derivative securities such as tender option bonds, custodial receipts,
participations, beneficial interests in trusts and partnership interests. A
typical tax exempt derivative security involves the purchase of an interest in a
pool of Municipal Obligations, which interest includes a tender option, demand
or other feature, allowing the Fund to tender the underlying Municipal
Obligation to a third party at periodic intervals and to receive the principal
amount thereof. In some cases, Municipal Obligations are represented by
custodial receipts evidencing rights to future principal or interest payments,
or both, on underlying Municipal Obligations held by a custodian, and such
receipts include the option to tender the underlying securities to the sponsor
(usually a bank, broker-dealer or other financial institution). Although the
Internal Revenue Service has not ruled on whether the interest received on
derivative securities in the form of participation interests or custodial
receipts is Tax Exempt Interest, opinions, relating to the validity of and the
tax exempt status of payments received by the Fund from such derivative
securities, are rendered by counsel to the respective sponsors of such
derivatives and relied upon by the Fund in purchasing such securities. Neither
the Fund nor Warburg will review the proceedings relating to the creation of any
tax exempt derivative securities or the basis for such legal opinions.
STAND-BY COMMITMENTS. The Tax Free Fund may acquire stand-by commitments with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, which is commonly known as a 'put,' a dealer agrees to purchase, at
the Fund's option, specified Municipal Obligations at a specified price. The
Fund may pay for stand-by commitments, either separately in cash or by paying a
higher price for the securities acquired with the commitment, thus increasing
the cost of the securities and reducing the yield otherwise available from them,
and they will be valued at zero in determining the Fund's net asset value. The
principal risk of stand-by commitments is that the writer of a commitment may
default on its obligation to repurchase the securities acquired with it.
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The Fund intends to enter into stand-by commitments only with brokers, dealers
and banks that, in the opinion of Warburg, present minimal credit risks. The
total amount paid for outstanding stand-by commitments will not exceed 1/2 of 1%
of the value of the Fund's total assets calculated immediately after the
stand-by commitment is acquired. The Fund will acquire stand-by commitments only
in order to facilitate portfolio liquidity and does not intend to exercise its
rights under stand-by commitments for trading purposes.
INVESTMENT GUIDELINES
________________________________________________________________________________
Each Fund may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) time deposits maturing in more than seven calendar days; (iii)
certain Rule 144A Securities and (iv) in the case of the Growth & Income and
Balanced Funds, repurchase agreements with maturities greater than seven days.
In addition, up to 5% of each Fund's total assets may be invested in the
securities of issuers which have been in continuous operation for less than
three years. Each Fund may borrow from banks for temporary or emergency
purposes, such as meeting anticipated redemption requests, provided that reverse
repurchase agreements and any other borrowing by the Fund may not exceed 30% of
its total assets at the time of borrowing. Each Fund may also pledge its assets
in connection with borrowings up to 125% of the amount borrowed. Whenever
borrowings (including reverse repurchase agreements) exceed 5% of the value of
the Fund's total assets, the Fund will not purchase portfolio securities. Except
for the limitations on borrowing, the investment guidelines set forth in this
paragraph may be changed at any time without shareholder consent by vote of the
Board of each Fund, subject to the limitations contained in the 1940 Act. A
complete list of investment restrictions that each Fund has adopted identifying
additional restrictions that cannot be changed without the approval of the
majority of the Fund's outstanding shares is contained in each Fund's Statement
of Additional Information.
MANAGEMENT OF THE FUNDS
________________________________________________________________________________
INVESTMENT ADVISER. Each Fund employs Warburg as its investment adviser.
Warburg, subject to the control of each Fund's officers and the Board, manages
the investment and reinvestment of the assets of the Funds in accordance with
each Fund's investment objective and stated investment policies. Warburg makes
investment decisions for each Fund and places orders to purchase or sell
securities on behalf of each such Fund. Warburg also employs a support staff of
management personnel to provide services to the Funds and furnishes each Fund
with office space, furnishings and equipment.
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For the services provided by Warburg, the Growth & Income Fund, the Balanced
Fund and the Tax Free Fund pay Warburg a fee calculated at an annual rate of
.75%, .90% and .50%, respectively, of the Fund's average daily net assets.
Warburg and each Fund's co-administrators may voluntarily waive a portion of
their fees from time to time and temporarily limit the expenses to be paid by
the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of October 31,
1996, Warburg managed approximately $18.4 billion of assets, including
approximately $9.8 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership. E.M. Warburg, Pincus & Co.,
Inc. ('EMW') controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. GROWTH & INCOME FUND. Brian S. Posner, a managing
director of Warburg, is portfolio manager of the Fund effective January 9, 1997.
Prior to joining Warburg in January 1997, Mr. Posner was an employee of Fidelity
Investments ('Fidelity') from 1987 until December 1996. He was the vice
president and portfolio manager of the Fidelity Equity-Income II Fund
(1992-December 1996); the portfolio manager of the Fidelity Value Fund
(1990-1992); assistant portfolio manager of the Fidelity Equity-Income Fund
(1989-1990); assistant portfolio manager of the Fidelity Capital Appreciation
Fund (1989); portfolio manager of the Fidelity Select Property-Casualty
Insurance Portfolio (1987-1990) and an equity analyst (1987). Prior to joining
Fidelity, Mr. Posner was a research associate at John Nuveen and Co. and an
analyst at Feldman Securities Corp. in Chicago. Linda Diaz, assistant vice
president of Warburg, is a research analyst and assistant portfolio manager of
the Fund. Ms. Diaz has been with Warburg since 1995, before which time she was
an assistant vice president and portfolio manager in the asset management
division for Kidder Peabody & Co.
BALANCED FUND. As described above, the Fund is managed using a multi-manager
approach where different managers are responsible for sectors of the Fund's
portfolio. Anthony G. Orphanos and Dale C. Christensen are the overall portfolio
strategists for the Fund and are responsible for determining the portion of the
Fund's portfolio to be allocated among sectors.
U.S. Value Sector. The U.S. Value Sector is managed by Anthony G. Orphanos.
Mr. Orphanos, a managing director of EMW, has been with Warburg since 1977.
U.S. Small Company Sector. Elizabeth B. Dater, Stephen J. Lurito and Kyle F.
Frey manage the U.S. Small Company Sector. Ms. Dater, a senior managing director
of EMW, has been a portfolio manager of Warburg since 1978. Mr. Lurito, a
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managing director of EMW, has been with Warburg since 1987, before which time he
was a research analyst at Sanford C. Bernstein & Company, Inc. Mr. Frey is a
senior vice president of Warburg and has been with Warburg since 1989, before
which time he was with Goldman Sachs & Co.
U.S. Mid-Cap Sector. George U. Wyper and Susan L. Black, senior managing
directors of Warburg, manage the U.S. Mid-Cap Sector. Mr. Wyper joined Warburg
in August 1994, before which time he was chief investment officer of White River
Corporation and president of Hanover Advisors, Inc. (1993-August 1994) and chief
investment officer of Fund American Enterprises, Inc. (1990-1993). Ms. Black has
been with Warburg since 1985.
International Equity Sector. Richard H. King and Nancy Nierman manage the
International Equity Sector. Mr. King, a senior managing director of EMW, has
been with Warburg since 1988. Ms. Nierman is a vice president of Warburg and has
been with Warburg since April 1996, before which time she was an analyst with
Fiduciary Trust Company International.
Fixed Income Sector. Dale C. Christensen, a managing director of EMW, manages
the Fixed Income Sector and has been with Warburg since 1989.
TAX FREE FUND. Dale C. Christensen, portfolio manager of the Fixed Income
Sector of the Balanced Fund, and Sharon B. Parente are portfolio managers of the
Fund. Ms. Parente is a senior vice president of Warburg and has been with
Warburg since 1992, before which time she was a vice president at Citibank, N.A.
CO-ADMINISTRATORS. The Funds employ Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Funds, including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Funds and their various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Funds' Boards, preparing proxy
statements and annual, semiannual and quarterly reports, assisting in other
regulatory filings as necessary and monitoring and developing compliance
procedures for the Funds. As compensation, the Growth & Income Fund pays
Counsellors Service a fee calculated at an annual rate of .05% of the Fund's
first $125 million of average daily net assets and .10% of average daily net
assets over $125 million; the Balanced and Tax Free Funds each pay Counsellors
Service a fee calculated at an annual rate of .10% of the Fund's average daily
net assets.
Each Fund employs PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary of
PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the
Balanced and Growth & Income Funds each pay PFPC a fee calculated at an annual
rate of .15% of the Fund's first $1 billion of average daily net assets and .05%
of average daily net assets over $1 billion,
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and the Tax Free Fund pays PFPC a fee calculated at a rate of .05% of its
average daily net assets. PFPC has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
U.S. assets of the Funds and State Street Bank and Trust Company ('State
Street') serves as custodian of the Growth & Income and Balanced Funds' non-U.S.
assets. Like PFPC, PNC is a subsidiary of PNC Bank Corp. and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101. State Street's principal business address is 225 Franklin Street, Boston,
Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Funds. State Street has
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
('BFDS'), responsibility for most shareholder servicing functions. BFDS's
principal business address is 2 Heritage Drive, North Quincy, Massachusetts
02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of
the Funds. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Growth & Income Fund to Counsellors Securities for
distribution services. Counsellors Securities receives a fee at an annual rate
equal to .25% of the average daily net assets of each of the Balanced and Tax
Free Fund's Common Shares for distribution services, pursuant to a shareholder
servicing and distribution plan (the '12b-1 Plan') adopted by each Fund pursuant
to Rule 12b-1 under the 1940 Act. Amounts paid to Counsellors Securities under a
12b-1 Plan may be used by Counsellors Securities to cover expenses that are
primarily intended to result in, or that are primarily attributable to, (i) the
sale of the Common Shares, (ii) ongoing servicing and/or maintenance of the
accounts of Common Shareholders of the Fund and (iii) sub-transfer agency
services, sub-accounting services or administrative services related to the sale
of the Common Shares, all as set forth in the 12b-1 Plans. Payments under the
12b-1 Plans are not tied exclusively to the distribution expenses actually
incurred by Counsellors Securities and the payments may exceed distribution
expenses actually incurred. The Boards of the Balanced Fund and the Tax Free
Fund evaluate the appropriateness of the 12b-1 Plans on a continuing basis and
in doing so consider all relevant factors, including expenses paid by
Counsellors Securities and amounts received under the 12b-1 Plan.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Funds, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
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DIRECTORS AND OFFICERS. The officers of each Fund manage its day-to-day
operations and are directly responsible to its Board. The Boards set broad
policies for each Fund and choose its officers. A list of the Directors and
officers of each Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information of each Fund.
HOW TO OPEN AN ACCOUNT
________________________________________________________________________________
In order to invest in a Fund, an investor must first complete and sign an
account application. To obtain an application, an investor may telephone Warburg
Pincus Funds at (800) 927-2874. An investor may also obtain an account
application by writing to:
Warburg Pincus Funds
P.O. Box 9030
Boston, Massachusetts 02205-9030
Completed and signed account applications should be mailed to Warburg Pincus
Funds at the above address.
RETIREMENT PLANS AND UGMA ACCOUNTS. For information (i) about investing in
the Funds through a tax-deferred retirement plan, such as an Individual
Retirement Account ('IRA') or a Simplified Employee Pension IRA ('SEP-IRA'), or
(ii) about opening a Uniform Gifts to Minors Act or Uniform Transfers to Minors
Act ('UGMA') account, an investor should telephone Warburg Pincus Funds at (800)
927-2874 or write to Warburg Pincus Funds at the address set forth above.
Investors should consult their own tax advisers about the establishment of
retirement plans and UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account, an
investor should telephone Warburg Pincus Funds at (800) 927-2874.
HOW TO PURCHASE SHARES
________________________________________________________________________________
Common Shares of each Fund may be purchased either by mail or, with special
advance instructions, by wire.
The minimum initial investment in each Fund is $1,000 and the minimum
subsequent investment is $100, except that subsequent minimum investments can be
as low as $50 under the Automatic Monthly Investment Plan described below. For
retirement plans and UGMA accounts, the minimum initial investment is $500. The
Fund reserves the right to change the initial and subsequent investment minimum
requirements at any time. In addition, the Fund may, in its sole discretion,
waive the initial and subsequent investment minimum requirements with respect to
investors who are employees of EMW or its affiliates or persons with whom
Warburg has entered into an investment advisory agreement. Existing investors
will be given 15 days' notice by mail of any increase in investment minimum
requirements.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined below. Wire
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payments for initial and subsequent investments should be preceded by an order
placed with the Fund and should clearly indicate the investor's account number
and the name of the Fund in which shares are being purchased. In the interest of
economy and convenience, physical certificates representing shares in the Funds
are not normally issued.
BY MAIL. If the investor desires to purchase Common Shares by mail, a check
or money order made payable to the Fund or Warburg Pincus Funds (in U.S.
currency) should be sent along with the completed account application to Warburg
Pincus Funds through its distributor, Counsellors Securities Inc., at the
address set forth above. Checks payable to the investor and endorsed to the
order of the Fund or Warburg Pincus Funds will not be accepted as payment and
will be returned to the sender. If payment is received in proper form by the
close of regular trading on the New York Stock Exchange (the 'NYSE') (currently
4:00 p.m., Eastern time) on a day that the Fund calculates its net asset value
(a 'business day'), the purchase will be made at the Fund's net asset value
calculated at the end of that day. If payment is received after the close of
regular trading on the NYSE, the purchase will be effected at the Fund's net
asset value determined for the next business day after payment has been
received. Checks or money orders that are not in proper form or that are not
accompanied or preceded by a complete account application will be returned to
the sender. Shares purchased by check or money order are entitled to receive
dividends and distributions beginning on the day after payment has been
received. Checks or money orders in payment for shares of more than one Warburg
Pincus Fund should be made payable to Warburg Pincus Funds and should be
accompanied by a breakdown of amounts to be invested in each fund. If a check
used for purchase does not clear, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred. For a description of the
manner of calculating the Fund's net asset value, see 'Net Asset Value' below.
BY WIRE. Investors may also purchase Common Shares in a Fund by wiring funds
from their banks. Telephone orders by wire will not be accepted until a
completed account application in proper form has been received and an account
number has been established. Investors should place an order with the Fund prior
to wiring funds by telephoning (800) 927-2874. Federal funds may be wired to
Counsellors Securities Inc. using the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
[Insert Warburg Pincus Fund name(s) here]
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
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If a telephone order is received by the close of regular trading on the NYSE
and payment by wire is received on the same day in proper form in accordance
with instructions set forth above, the shares will be priced according to the
net asset value of the Fund on that day and are entitled to dividends and
distributions beginning on that day. If payment by wire is received in proper
form by the close of the NYSE without a prior telephone order, the purchase will
be priced according to the net asset value of the Fund on that day and is
entitled to dividends and distributions beginning on that day. However, if a
wire in proper form that is not preceded by a telephone order is received after
the close of regular trading on the NYSE, the payment will be held uninvested
until the order is effected at the close of business on the next business day.
Payment for orders that are not accepted will be returned to the prospective
investor after prompt inquiry. If a telephone order is placed and payment by
wire is not received on the same day, the Fund will cancel the purchase and the
investor may be liable for losses or fees incurred.
PURCHASES THROUGH INTERMEDIARIES. Common Shares of each Fund are available
through the Charles Schwab & Company, Inc. Mutual Fund OneSourceTM Program;
Fidelity Brokerage Services, Inc. Funds NetworkTM Program; Jack White & Company,
Inc.; and Waterhouse Securities, Inc. Generally, these programs do not require
customers to pay a transaction fee in connection with purchases or redemptions.
The Funds are also available through certain broker-dealers, financial
institutions and other industry professionals (including the programs discussed
above, collectively, 'Service Organizations'), which may impose certain
conditions on their clients or customers that invest in the Funds, which are in
addition to or different than those described in this Prospectus, and may charge
their clients or customers direct fees. Certain features of the Funds, such as
the initial and subsequent investment minimums, redemption fees and certain
trading restrictions, may be modified or waived by Service Organizations.
Service Organizations may impose transaction or administrative charges or other
direct fees, which charges or fees would not be imposed if Fund shares are
purchased directly from the Funds. Therefore, a client or customer should
contact the Service Organization acting on his behalf concerning the fees (if
any) charged in connection with a purchase or redemption of Fund shares and
should read this Prospectus in light of the terms governing his accounts with
the Service Organization. Service Organizations will be responsible for promptly
transmitting client or customer purchase and redemption orders to the Funds in
accordance with their agreements with clients or customers. Service
Organizations that have entered into agreements with a Fund or its agent may
enter confirmed purchase orders on behalf of clients and customers, with payment
to follow no later than the Funds' pricing on the following business day. If
payment is not received by such time, the Service Organization could be held
liable for resulting fees or losses.
For administration, subaccounting, transfer agency and/or other services,
Warburg, Counsellors Securities or their affiliates may pay Service
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Organizations and certain recordkeeping organizations with whom they have
entered into agreements a fee generally up to .35% (the 'Service Fee') of the
average annual value of accounts maintained by such Service Organizations or
recordkeepers with the Funds. A portion of the Service Fee may be borne by the
Funds as a transfer agency fee. In addition, a Service Organization or
recordkeeper may directly or indirectly pay a portion of its Service Fee to the
Fund's custodian or transfer agent for costs related to accounts of its clients
or customers. The Service Fee payable to any one Service Organization or
recordkeeper is determined based upon a number of factors, including the nature
and quality of the services provided, the operations processing requirements of
the relationship and the standardized fee schedule of the Service Organization
or recordkeeper.
AUTOMATIC MONTHLY INVESTING. Automatic monthly investing allows shareholders
to authorize a Fund to debit their bank account monthly ($50 minimum) for the
purchase of Fund shares on or about either the tenth or twentieth calendar day
of each month. To establish the automatic monthly investing option, obtain a
separate application or complete the 'Automatic Investment Program' section of
the account applications and include a voided, unsigned check from the bank
account to be debited. Only an account maintained at a domestic financial
institution which is an automated clearing house member may be used.
Shareholders using this service must satisfy the initial investment minimum for
the Fund prior to or concurrent with the start of any Automatic Investment
Program. Please refer to an account application for further information, or
contact Warburg Pincus Funds at (800) 927-2874 for information or to modify or
terminate the program. Investors should allow a period of up to 30 days in order
to implement an automatic investment program. The failure to provide complete
information could result in further delays.
GENERAL. Each Fund reserves the right to reject any specific purchase order.
Purchase orders may be refused if, in Warburg's opinion, they are of a size that
would disrupt the management of a Fund. A Fund may discontinue sales of its
shares if management believes that a substantial further increase in assets may
adversely affect that Fund's ability to achieve its investment objective. In
such event, however, it is anticipated that existing shareholders would be
permitted to continue to authorize investment in such Fund and to reinvest any
dividends or capital gains distributions.
HOW TO REDEEM AND EXCHANGE SHARES
________________________________________________________________________________
REDEMPTION OF SHARES. An investor in a Fund may redeem (sell) his shares on
any day that the Fund's net asset value is calculated (see 'Net Asset Value'
below).
Common Shares of the Funds may either be redeemed by mail or by telephone.
Investors should realize that in using the telephone redemption and exchange
option, you may be giving up a measure of security that you may have if you were
to redeem or exchange your shares in writing. If an investor desires to redeem
his shares by mail, a written request for
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redemption should be sent to Warburg Pincus Funds at the address indicated above
under 'How to Open an Account.' An investor should be sure that the redemption
request identifies the Fund, the number of shares to be redeemed and the
investor's account number. In order to change the bank account or address
designated to receive the redemption proceeds, the investor must send a written
request (with signature guarantee of all investors listed on the account when
such a change is made in conjunction with a redemption request) to Warburg
Pincus Funds. Each mail redemption request must be signed by the registered
owner(s) (or his legal representative(s)) exactly as the shares are registered.
If an investor has applied for the telephone redemption feature on his account
application, he may redeem his shares by calling Warburg Pincus Funds at (800)
927-2874 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any business day. An
investor making a telephone withdrawal should state (i) the name of the Fund,
(ii) the account number of the Fund, (iii) the name of the investor(s) appearing
on the Fund's records, (iv) the amount to be withdrawn and (v) the name of the
person requesting the redemption.
After receipt of the redemption request by mail or by telephone, the
redemption proceeds will, at the option of the investor, be paid by check and
mailed to the investor of record or be wired to the investor's bank as indicated
in the account application previously filled out by the investor. No Fund
currently imposes a service charge for effecting wire transfers but each Fund
reserves the right to do so in the future. During periods of significant
economic or market change, telephone redemptions may be difficult to implement.
If an investor is unable to contact Warburg Pincus Funds by telephone, an
investor may deliver the redemption request to Warburg Pincus Funds by mail at
the address shown above under 'How to Open an Account.' Although each Fund will
redeem shares purchased by check or through the Automatic Investment Program
before the check or funds clear, payments of the redemption proceeds will be
delayed for five days (for funds received through the Automatic Investment
Program) or ten days (for check purchases). Investors should consider purchasing
shares using a certified or bank check or money order if they anticipate an
immediate need for redemption proceeds.
If a redemption order is received by a Fund or its agent, prior to the close
of regular trading on the NYSE, the redemption order will be effected at the net
asset value per share as determined on that day. If a redemption order is
received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be mailed or wired to an investor on
the next business day following the date a redemption order is effected. If,
however, in the judgment of Warburg, immediate payment would adversely affect a
Fund, each Fund reserves the right to pay the redemption proceeds within seven
days after the redemption order is effected. Furthermore, each Fund may suspend
the right of redemption or postpone the date of payment
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upon redemption (as well as suspend or postpone the recordation of an exchange
of shares) for such periods as are permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
If, due to redemptions, the value of an investor's account drops to less than
$500, each Fund reserves the right to redeem the shares in that account at net
asset value. Prior to any redemption, the Fund will notify an investor in
writing that this account has a value of less than the minimum. The investor
will then have 60 days to make an additional investment before a redemption will
be processed by the Fund.
TELEPHONE TRANSACTIONS. In order to request redemptions by telephone,
investors must have completed and returned to Warburg Pincus Funds an account
application containing a telephone election. Unless contrary instructions are
elected, an investor will be entitled to make exchanges by telephone. Neither a
Fund nor its agents will be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. Reasonable procedures will
be employed on behalf of each Fund to confirm that instructions communicated by
telephone are genuine. Such procedures include providing written confirmation of
telephone transactions, tape recording telephone instructions and requiring
specific personal information prior to acting upon telephone instructions.
AUTOMATIC CASH WITHDRAWAL PLAN. Each Fund offers investors an automatic cash
withdrawal plan under which investors may elect to receive periodic cash
payments of at least $1,000 monthly or quarterly. To establish this service,
complete the 'Automatic Withdrawal Plan' section of the account application and
attach a voided check from the bank account to be credited. For further
information regarding the automatic cash withdrawal plan or to modify or
terminate the plan, investors should contact Warburg Pincus Funds at (800)
927-2874.
EXCHANGE OF SHARES. An investor may exchange Common Shares of a Fund for
Common Shares of another Fund or for Common Shares of another Warburg Pincus
Fund at their respective net asset values. Exchanges may be effected by mail or
by telephone in the manner described under 'Redemption of Shares' above. If an
exchange request is received by Warburg Pincus Funds or their agent prior to the
close of regular trading on the NYSE, the exchange will be made at each Fund's
net asset value determined at the end of that business day. Exchanges may be
effected without a sales charge but must satisfy the minimum dollar amount
necessary for new purchases. Due to the costs involved in effecting exchanges,
each Fund reserves the right to refuse to honor more than three exchange
requests by a shareholder in any 30-day period. The exchange privilege may be
modified or terminated at any
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time upon 60 days' notice to shareholders. Currently, exchanges may be made
among the Funds and with the following other funds:
WARBURG PINCUS CASH RESERVE FUND -- a money market fund investing in
short-term, high quality money market instruments;
WARBURG PINCUS NEW YORK TAX EXEMPT FUND -- a money market fund investing in
short-term, high quality municipal obligations designed for New York investors
seeking income exempt from federal, New York State and New York City income
tax;
WARBURG PINCUS NEW YORK INTERMEDIATE MUNICIPAL FUND -- an intermediate-term
municipal bond fund designed for New York investors seeking income exempt from
federal, New York State and New York City income tax;
WARBURG PINCUS INTERMEDIATE MATURITY GOVERNMENT FUND -- an intermediate-term
bond fund investing in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities;
WARBURG PINCUS FIXED INCOME FUND -- a bond fund seeking current income and,
secondarily, capital appreciation by investing in a diversified portfolio of
fixed-income securities;
WARBURG PINCUS GLOBAL FIXED INCOME FUND -- a bond fund investing in a
portfolio consisting of investment grade fixed-income securities of
governmental and corporate issuers denominated in various currencies, including
U.S. dollars;
WARBURG PINCUS CAPITAL APPRECIATION FUND -- an equity fund seeking long-term
capital appreciation by investing principally in equity securities of
medium-sized domestic companies;
WARBURG PINCUS STRATEGIC VALUE FUND -- an equity fund seeking capital
appreciation by investing in undervalued companies and market sectors;
WARBURG PINCUS EMERGING GROWTH FUND -- an equity fund seeking maximum capital
appreciation by investing in emerging growth companies;
WARBURG PINCUS SMALL COMPANY VALUE FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of small
companies;
WARBURG PINCUS SMALL COMPANY GROWTH FUND -- an equity fund seeking capital
growth by investing in equity securities of small-sized domestic companies;
WARBURG PINCUS HEALTH SCIENCES FUND -- an equity fund seeking capital
appreciation by investing primarily in equity and debt securities of health
sciences companies;
WARBURG PINCUS POST-VENTURE CAPITAL FUND -- an equity fund seeking long-term
growth of capital by investing principally in equity securities of issuers in
their post-venture capital stage of development;
WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL FUND -- an equity fund seeking
long-term growth of capital by investing principally in equity
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securities of U.S. and foreign issuers in their post-venture capital stage of
development;
WARBURG PINCUS INTERNATIONAL EQUITY FUND -- an equity fund seeking long-term
capital appreciation by investing primarily in equity securities of non-United
States issuers;
WARBURG PINCUS EMERGING MARKETS FUND -- an equity fund seeking growth of
capital by investing primarily in securities of non-United States issuers
consisting of companies in emerging securities markets;
WARBURG PINCUS JAPAN GROWTH FUND -- an equity fund seeking long-term growth
of capital by investing primarily in equity securities of Japanese issuers; and
WARBURG PINCUS JAPAN OTC FUND -- an equity fund seeking long-term capital
appreciation by investing in a portfolio of securities traded in the Japanese
over-the-counter market.
The exchange privilege is available to shareholders residing in any state in
which the Common Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Common
Shares of a Fund for Common Shares in another Warburg Pincus Fund should review
the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Fund, an investor should contact Warburg Pincus Funds
at (800) 927-2874.
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS. Each Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on a Fund's portfolio securities for the applicable period (which
includes amortization of market discounts) less amortization of market premiums
and applicable expenses. The Growth & Income Fund and the Balanced Fund each
declares and pays its dividends from its net investment income quarterly. The
Tax Free Fund declares dividends from its net investment income daily and pays
those dividends monthly. Each Fund declares distributions of its net realized
short-term and long-term capital gains annually and pays them in the calendar
year in which they are declared, generally in November or December. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Unless an investor instructs a Fund to pay
dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Common Shares of the relevant Fund at
net asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Funds at the
address set forth under 'How to Open an Account' or by calling Warburg Pincus
Funds at (800) 927-2874.
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A Fund may be required to withhold for U.S. federal income taxes 31% of all
distributions payable to shareholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. Each Fund intends to qualify each year as a 'regulated investment
company' within the meaning of the Code. Each Fund, if it qualifies as a
regulated investment company, will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of ordinary income and
capital gain. Each Fund expects to pay such additional dividends and to make
such additional distributions as are necessary to avoid the application of this
tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains ('capital gain
dividends') are taxable to investors as long-term capital gains, in each case
regardless of how long the shareholder has held Fund shares and whether received
in cash or reinvested in additional Fund shares. As a general rule, an
investor's gain or loss on a sale or redemption of his Fund shares will be a
long-term capital gain or loss if he has held his shares for more than one year
and will be a short-term capital gain or loss if he has held his shares for one
year or less. However, any loss realized upon the sale or redemption of shares
within six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period with respect to such shares. In the
case of the Tax Free Fund, any loss realized by a shareholder on the sale or
redemption of a Fund share held by the shareholder for six months or less will
be disallowed to the extent of the amount of any exempt-interest dividend
received by the shareholder with respect to such share. The portion of such loss
not disallowed as described in the preceding sentence shall be treated for
federal income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by the
shareholder with respect to such share. An investor in the Tax Free Fund who
redeems his shares prior to the declaration of a dividend may lose tax exempt
status on accrued income attributable to tax exempt Municipal Obligations.
Investors may be proportionately liable for taxes on income and gains of the
Funds, but investors not subject to tax on their income will not be required to
pay tax on amounts distributed to them. The Funds' investment activities,
including short sales of securities, should not result in unrelated business
taxable income to a tax exempt investor.
The Growth & Income and Balanced Funds anticipate that dividends paid by
these Funds will be eligible for the 70% dividends received deduction allowed to
certain corporations to the extent of the gross amount of qualified dividends
received by each Fund for the year. However, corporate
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shareholders will have to take into account the entire amount of any dividend
received in determining their adjusted current earnings adjustment for
alternative minimum tax purposes. The dividends received deduction is not
available for capital gain dividends.
Certain provisions of the Code may require that a gain recognized by a Fund
upon the closing of a short sale be treated as a short-term capital gain, and
that a loss recognized by the Fund upon the closing of a short sale be treated
as a long-term capital loss, regardless of the amount of time that the Fund held
the securities used to close the short sale. A Fund's use of short sales may
also affect the holding periods of certain securities held by the Fund if such
securities are 'substantially identical' to securities used by the Fund to close
the short sale.
Special Tax Matters Relating to the Tax Free Fund. As a regulated investment
company, the Tax Free Fund will designate and pay exempt-interest dividends
derived from interest earned on qualifying Municipal Obligations. Such
exempt-interest dividends may be excluded by investors of the Fund from their
gross income for federal income tax purposes although (i) all or a portion of
such exempt-interest dividends and tax exempt interest will be a specific
tax-preference item for purposes of the federal individual and corporate
alternative minimum taxes to the extent they are derived from certain types of
private activity bonds issued after August 7, 1986 and (ii) all exempt-interest
dividends will be a component of the 'current earnings' adjustment item for
purposes of the federal corporate alternative minimum tax. Furthermore,
exempt-interest dividends paid by the Fund will constitute a component of the
'current earnings' adjustment item for purposes of the .12% corporate
environmental tax. Moreover, dividends paid by the Fund will be subject to a
branch profits tax of up to 30% when received by certain foreign corporate
investors.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. In the case of the Tax Exempt Fund, these
statements set forth the dollar amount of income excluded or exempt from federal
income taxes and the dollar amount, if any, subject to taxation. These
statements also designate the amount of exempt-interest dividends that is a
specific preference item for purposes of the federal individual and corporate
alternative minimum taxes. Each investor will also receive, if applicable,
various written notices after the close of a Fund's prior taxable year with
respect to certain dividends and distributions which were received from the Fund
during the Fund's prior taxable year. Investors should consult their own tax
advisers with specific reference to their own tax situations, including their
state and local tax liabilities.
NET ASSET VALUE
________________________________________________________________________________
Each Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's
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Birthday, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
The net asset value per share of each Fund generally changes each day.
The net asset value per Common Share of each Fund is computed by adding the
Common Shares' pro rata share of the value of the Fund's assets, deducting the
Common Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Common Shares and then dividing the result by the
total number of outstanding Common Shares.
Securities listed on a U.S. securities exchange (including securities traded
through the NASDAQ National Market System) or foreign securities exchange or
traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless a Fund's Board determines
that using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by a Fund's Board. Further information regarding valuation policies is contained
in the Statement of Additional Information.
PERFORMANCE
________________________________________________________________________________
The Funds quote the performance of Common Shares separately from Advisor
Shares. The net asset value of Common Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Funds.' From time to
time, each Fund may advertise yield and average annual total return of its
Common Shares over various periods of time. The yield refers to net investment
income generated by the Common Shares over a specified thirty-day period, which
is then annualized. In addition, advertisements concerning the Tax Free Fund may
describe a tax equivalent yield. The tax equivalent yield demonstrates the yield
on a taxable investment necessary to produce an after-tax yield equal to the
Common Shares' tax-free yield. It is calculated by increasing the yield shown
for the Common Shares to the extent necessary to reflect the payment of
specified tax rates. Thus, the tax equivalent yield will always exceed a Fund's
Common Shares' yield. These total return figures show the average percentage
change in value of an investment in the Common Shares from the beginning of the
measuring period to the end of the measuring period. The figures reflect changes
in the price of the Common Shares assuming that any income dividends and/or
capital gain distributions made by the Fund during the period were reinvested in
Common Shares of the Fund. Total return will be shown for recent one-, five- and
ten-year periods, and may be shown for other periods as well (such as from
commencement of the Fund's operations or on a year-
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by-year, quarterly or current year-to-date basis). Performance quotations of a
Fund will include performance of a predecessor fund.
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that each Fund seeks long-term appreciation and
that such return may not be representative of any Fund's return over a longer
market cycle. Each Fund may also advertise aggregate total return figures of its
Common Shares for various periods, representing the cumulative change in value
of an investment in the Common Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average total returns may be shown by means of
schedules, charts or graphs and may indicate various components of total return
(i.e., change in value of initial investment, income dividends and capital gain
distributions).
Investors should note that yield, tax-equivalent yield and total return
figures are based on historical earnings and are not intended to indicate future
performance. Each Fund's Statement of Additional Information describes the
method used to determine the yield, tax-equivalent yield and total return.
Current performance figures may be obtained by calling Warburg Pincus Funds at
(800) 927-2874.
In reports or other communications to investors or in advertising material, a
Fund may describe general economic and market conditions affecting the Fund. The
Fund may compare its performance (i) with that of other mutual funds as listed
in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) in the case of the Growth & Income Fund,
with the S&P 500 Index; in the case of the Balanced Fund, with the Lipper
Balanced Fund Index and the S&P 500 Index; and in the case of the Tax Free Fund,
with Lipper General Municipal Debt Funds Average; or (iii) with other
appropriate indexes of investment securities or with data developed by Warburg
derived from such indexes. A Fund may include evaluations of the Fund published
by nationally recognized ranking services and by financial publications that are
nationally recognized, such as The Wall Street Journal, Investor's Business
Daily, Money, Inc., Institutional Investor, Barron's, Fortune, Forbes, Business
Week, Mutual Fund Magazine, Morningstar, Inc., Smart Money and Financial Times.
In reports or other communications to investors or in advertising, each Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, a Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of
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significant portfolio holdings and analysis of holdings by industry, country,
credit quality and other characteristics. Each Fund may also discuss measures of
risk, the continuum of risk and return relating to different investments and the
potential impact of foreign securities on a portfolio otherwise composed of
domestic securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, each Fund may from
time to time compare the expense ratio of its Common Shares to that of
investment companies with similar objectives and policies, based on data
generated by Lipper Analytical Services, Inc. or similar investment services
that monitor mutual funds.
GENERAL INFORMATION
________________________________________________________________________________
ORGANIZATION. The Funds were incorporated on January 29, 1996 under the laws
of the State of Maryland under the names 'Warburg, Pincus Growth & Income Fund,
Inc.,' 'Warburg, Pincus Balanced Fund, Inc.' and 'Warburg, Pincus Tax Free Fund,
Inc.' On May 3, 1996, each Fund acquired all of the assets and liabilities of
the investment portfolio of the RBB Fund with a similar name.
The charter of each Fund authorizes its Board to issue three billion full and
fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and 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 its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
MULTI-CLASS STRUCTURE. Each Fund offers a separate class of shares, the
Advisor Shares, pursuant to a separate prospectus. Individual investors may only
purchase Advisor Shares through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries. Shares of each class represent equal pro
rata interests in the respective 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. Investors may obtain
information concerning the Advisor Shares from their investment professional or
by calling Counsellors Securities at (800) 369-2728.
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
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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.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement
of his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). Each Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by a Fund may be obtained by
calling Warburg Pincus Funds at (800) 927-2874.
The prospectuses of the Funds are combined in this Prospectus. Each Fund
offers only its own shares, yet it is possible that a Fund might become liable
for a misstatement, inaccuracy or omission in this Prospectus with regard to
another Fund.
---------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, EACH FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUNDS' OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUNDS, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
COMMON SHARES OF THE FUNDS IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFER MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Funds' Expenses..................................................... 3
Financial Highlights.................................................... 4
Investment Objectives and Policies...................................... 7
Portfolio Investments................................................... 9
Risk Factors and Special Considerations................................. 12
Portfolio Transactions and Turnover Rate................................ 14
Certain Investment Strategies........................................... 14
Investment Guidelines................................................... 21
Management of the Funds................................................. 21
How to Open an Account.................................................. 25
How to Purchase Shares.................................................. 25
How to Redeem and Exchange Shares....................................... 28
Dividends, Distributions and Taxes...................................... 32
Net Asset Value......................................................... 34
Performance............................................................. 35
General Information..................................................... 37
</TABLE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-WARBURG (800-927-2874)
WPGBT-1-1296
<PAGE>
<PAGE>
[LOGO]
PROSPECTUS
DECEMBER 30, 1996
[ ] WARBURG PINCUS BALANCED FUND
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
WARBURG PINCUS ADVISOR FUNDS
P.O. BOX 9030
BOSTON, MASSACHUSETTS 02205-9030
TELEPHONE NUMBER: (800) 369-2728
December 30, 1996
PROSPECTUS
Warburg Pincus Advisor Funds are a family of open-end mutual funds that are
offered to investors who wish to buy shares through an investment professional,
to financial institutions investing on behalf of their customers and to
retirement plans that elect to make one or more Advisor Funds an investment
option for participants in the plans. One Advisor Fund is described in this
Prospectus:
WARBURG PINCUS BALANCED FUND seeks maximum total return through a combination of
long-term growth of capital and current income consistent with preservation of
capital. The Fund employs a policy of diversified equity and debt investments
managed using a multi-manager approach.
The Fund currently offers two classes of shares, one of which, the Advisor
Shares, is offered pursuant to this Prospectus. The Advisor Shares of the Fund,
as well as Advisor Shares of certain other Warburg Pincus-advised funds, are
sold under the name 'Warburg Pincus Advisor Funds.' Individual investors may
purchase Advisor Shares only through institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and other financial intermediaries ('Institutions'). The Advisor Shares
impose a 12b-1 fee of .50% per annum, which is the economic equivalent of
a sales charge. The Fund's Common Shares are available for purchase by
individuals directly and are offered by a separate prospectus.
NO MINIMUM INVESTMENT
There is no minimum amount of initial or subsequent purchases of shares imposed
on Institutions. See 'How to Purchase Shares.'
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information, has been filed with
the Securities and Exchange Commission (the 'SEC') in a document entitled
'Statement of Additional Information' and is available for reference, along with
other related materials, on the SEC Internet Web site (http://www.sec.gov). The
Statement of Additional Information is also available upon request and without
charge by calling Warburg Pincus Advisor Funds at (800) 369-2728. Information
regarding the status of shareholder accounts may also be obtained by calling
Warburg Pincus Advisor Funds at the same number. The Statement of Additional
Information, as amended or supplemented from time to time, bears the same date
as this Prospectus and is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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THE FUND'S EXPENSES
Warburg Pincus Balanced Fund (the 'Fund') currently offers two separate
classes of shares: Common Shares and Advisor Shares. See 'General Information.'
Because of the higher fees paid by Advisor Shares, the total return on such
shares can be expected to be lower than the total return on Common Shares.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. 0
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after fee waivers)...................................................................... .45%
12b-1 Fees............................................................................................... .50%*
Other Expenses (after expense reimbursements)............................................................ .65%
Total Fund Operating Expenses (after fee waivers and expense reimbursements)`D'.......................... 1.60%
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 year................................................................................................... $ 16
3 years.................................................................................................. $ 50
5 years.................................................................................................. $ 87
10 years................................................................................................. $ 190
</TABLE>
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* Current 12b-1 fees are .50% out of a maximum of .75% authorized under the
Advisor Shares' Distribution Plan. At least a portion of these fees should be
considered by the investor to be the economic equivalent of a sales charge.
`D' The Fund's investment adviser and co-administrator have undertaken to limit
Total Fund Operating Expenses through May 3, 1997 to 1.85%. There is no
obligation to continue these waivers after that time. Absent the waiver of
fees by the Fund's investment adviser and co-administrator, Management Fees
would equal .90%, Other Expenses would equal 203.60% and Total Fund
Operating Expenses would equal 205%. Other Expenses are based on
expenses for the fiscal year ending August 31, 1996, net of expense
reimbursements.
------------------------
The expense table shows the costs and expenses that an investor will bear
directly or indirectly as an Advisor Shareholder of the Fund. Certain
broker-dealers and financial institutions also may charge their clients fees in
connection with investments in the Fund's Advisor Shares, which fees are not
reflected in the table. The Example should not be considered a representation of
past or future expenses; actual Fund expenses may be greater or less than those
shown. Moreover, while the Example assumes a 5% annual return, the Fund's actual
performance will vary and may result in a return greater or less than 5%.
Long-term shareholders of Advisor Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc. (the 'NASD').
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FINANCIAL HIGHLIGHTS
WARBURG PINCUS BALANCED FUND(d)
(for an Advisor Share outstanding throughout each period)
The table below sets forth certain information concerning the investment
results of shares of the Warburg Pincus Balanced Fund (formerly an investment
portfolio of The RBB Fund, Inc. (the 'RBB Fund')) for the periods indicated. The
financial data included in this table for the year ended August 31, 1996 has
been audited by Coopers & Lybrand L.L.P. The financial data included in this
table for the period from July 31, 1995 to August 31, 1995 is part of the RBB
Fund's financial statements which have also been audited by Coopers & Lybrand
L.L.P., the RBB Fund's independent accountants, whose report thereon appears in
the Statement of Additional Information along with the financial statements. The
financial data included in the table should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the annual report, dated August 31, 1996, copies of which may be obtained
without charge by calling Warburg Pincus Funds at (800) 369-2728.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 31, 1995
YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995
----------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $ 11.13 $ 10.72
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Income From Investment Operations:
Net Investment Income...................................... 0.3689 0.0170
Net Gains (Losses) on Securities (both realized and
unrealized).............................................. 0.6815 0.3930
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Total from Investment Operations...................... 1.0504 0.4100
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Less Distributions:
Dividends (from net investment income)..................... (0.0942) 0.0000
Distributions (from capital gains)......................... (0.1462) 0.0000
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Total Distributions................................... (0.2404) 0.0000
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NET ASSET VALUE, END OF PERIOD.................................. $ 11.94 $ 11.13
-------- -------
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Total Returns................................................... 9.56% 3.82%(c)
Ratios/Supplemental Data
Net Assets, End of Period (000)................................. $ 12 $ 1
Ratio of Expenses to Average Net Assets......................... 1.71%(a) 1.76%(a)(b)
Ratio of Net Investment Income to Average Net Assets............ (4.11%) 2.00%(b)
Portoflio Turnover Rate......................................... 108% 107%(b)
Average Commission Rate......................................... $ .0453(e) N/A
</TABLE>
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(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 Balanced Fund would have been 205.06% for the
year ended August 31, 1996 and 628.47% annualized for the period ended
August 31, 1995.
(b) Annualized.
(c) Not Annualized.
(d) Financial Highlights relate solely to the Advisor Class of shares of the
Fund.
(e) 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.
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek to maximize total return through
a combination of long-term growth of capital and current income consistent with
preservation of capital. The Fund's objective and policies are non-fundamental
policies and may be changed without first obtaining the approval of a majority
of the outstanding shares of the Fund. Any changes may result in the Fund having
investment objectives different from those an investor may have considered at
the time of investment. Any investment involves risk and, therefore, there can
be no assurance that the Fund will achieve its investment objective. See
'Portfolio Investments' and 'Certain Investment Strategies' for descriptions of
certain types of investments the Fund may make.
The Fund is a diversified management investment company that pursues its
objective through a policy of diversified investment in common stocks,
convertible and non-convertible preferred stocks and debt securities, such as
government, corporate, bank and commercial obligations. The Fund may also
purchase warrants provided they are attached to securities that may otherwise be
purchased by the Fund. At all times, the Fund will have a minimum of 25% of its
assets in equity securities and a minimum of 25% in fixed income securities.
Compliance with these percentage requirements may limit the ability of the Fund
to maximize total return. With respect to convertible senior securities, only
that portion of the value of such securities attributable to their fixed income
characteristics will be used for purposes of determining the percentage of the
assets of the Fund that are invested in fixed income securities. The actual
percentage of assets invested in equity and fixed income securities will vary
from time to time, depending on the judgment of Warburg, Pincus Counsellors,
Inc., the investment adviser of the Fund ('Warburg'), as to general market and
economic conditions, trends and yields and interest rates and changes in fiscal
and monetary policies.
The Fund will be managed by a team of senior managers of Warburg. Two
managers are designated overall portfolio strategists and are responsible for
determining the portion of the Fund allocated between equity and fixed income
securities and the allocation among the various equity sectors. See 'Management
of the Funds -- Portfolio Managers' for information about the portfolio
managers.
EQUITY INVESTMENT. Each of the equity portfolio managers will manage an
allocated portion of the equity holdings of the Fund. Each manager will manage
his/her portion with a different investment emphasis or approach, but in each
case consistent with the overall objective of long-term growth of capital for
the Balanced Fund's equity portion.
The four sectors in the equity portion are:
U.S. Value Sector invests primarily in stocks whose acquisition price
represents low absolute or relative value, based on historical and financial
analysis and compared to other stocks and sectors of the Standard & Poor's 500
universe of common stocks and other indexes.
U.S. Small Company Sector invests primarily in common stocks and warrants
of small capitalization and emerging growth U.S. companies that represent
attractive opportunities for maximum capital appreciation. Emerging growth
companies are small- and medium-sized companies that have passed their start up
phase and that show positive earnings and prospects for achieving significant
profit and gain in a relatively short period of time. Small capitalization
companies may be purchased for their growth potential or because Warburg
believes they are undervalued.
U.S. Mid-Cap Sector invests primarily in a diversified portfolio of common
stocks, warrants and securities convertible into or exchangeable for common
stock of 'mid-cap' U.S. companies. These are companies that have market
capitalizations in the $660 million to $13.8 billion range and includes a
potential universe of companies in such indexes as the Russell Midcap Index and
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Standard & Poor's Midcap 400 Index. The managers attempt to identify sectors of
the market and companies within market sectors that they believe will outperform
the overall market.
International Equity Sector invests primarily in a broadly diversified
portfolio of equity securities of companies that, wherever organized, have their
principal business activities and interests outside the United States. The
international equity managers intend to invest principally in the securities of
financially strong companies with opportunities for growth within growing
international economies and markets through increased earnings power and
improved utilization or recognition of assets. Investments may be made in equity
securities of companies of any size, whether traded on or off a national
securities exchange.
FIXED INCOME INVESTMENT. The fixed income portion invests primarily in debt
instruments such as corporate obligations, U.S. government obligations,
municipal obligations and mortgage-related and asset-backed debt securities.
PORTFOLIO INVESTMENTS
U.S. GOVERNMENT OBLIGATIONS. The obligations issued or guaranteed by the U.S.
government in which the Fund may invest include direct obligations of the U.S.
Treasury and obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the United States are
Treasury Bills, Treasury Notes and Treasury Bonds, which differ principally in
terms of their maturities. Treasury Bills have maturities of less than one year,
Treasury Notes have maturities of one to 10 years and Treasury Bonds generally
have maturities of greater than 10 years at the date of issuance. Included among
the obligations issued by agencies and instrumentalities of the United States
are: instruments that are supported by the full faith and credit of the United
States (such as certificates issued by the Government National Mortgage
Association); instruments that are supported by the right of the issuer to
borrow from the U.S. Treasury (such as securities of Federal Home Loan Banks);
and instruments that are supported by the credit of the instrumentality (such as
Federal National Mortgage Association and Federal Home Loan Mortgage Corporation
bonds).
TEMPORARY DEFENSIVE MEASURES. When Warburg believes that a defensive posture is
warranted, the Fund may invest temporarily without limit in U.S.
dollar-denominated money market obligations, including repurchase agreements.
INVESTMENT GRADE DEBT. The Fund may invest in investment grade debt securities
and preferred stocks. Debt obligations of corporations in which the Fund may
invest include corporate bonds, debentures, debentures convertible into common
stocks and notes. The interest income to be derived may be considered as one
factor in selecting debt securities for investment by Warburg. The market value
of debt obligations may be expected to vary depending upon, among other factors,
interest rates, the ability of the issuer to repay principal and interest, any
change in investment rating and general economic conditions. A security will be
deemed to be investment grade if it is rated within the four highest grades by
Moody's Investors Service, Inc. ('Moody's') or Standard & Poor's Ratings
Group ('S&P') or, if unrated, is determined to be of comparable quality by
Warburg. Bonds rated in the fourth highest grade may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds.
In selecting debt securities for the Fund, Warburg will review and monitor
the creditworthiness of each issuer and issue, in addition to relying on ratings
assigned by Moody's or S&P. Interest rate trends and specific developments which
may affect individual issuers will also be analyzed. The Fund may only invest in
debt securities rated within the three highest grades by Moody's or S&P or, if
unrated,
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determined to be of comparable quality by Warburg. Subsequent to its purchase
by the Fund, an issue of securities may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require sale of such securities and downgraded securities may be retained
without limit as to quantity or quality, although Warburg will consider such
event in its determination of whether the Fund should continue to hold the
securities.
LOWER-RATED SECURITIES. Lower-rated and comparable unrated securities (commonly
referred to as 'junk bonds'), which the Fund may come to hold as a result of a
downgrade (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, medium- and lower-rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by such issuers is significantly greater because
medium- and lower-rated securities and unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness.
The market value of securities in lower-rated categories is more volatile
than that of higher quality securities. In addition, the Fund may have
difficulty disposing of certain of these securities because there may be a thin
trading market, which may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of calculating the Fund's net asset
value.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreement transactions
with member banks of the Federal Reserve System and certain non-bank dealers.
Repurchase agreements are contracts under which the buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under the terms of a typical repurchase agreement, the Fund
would acquire any underlying security for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the underlying securities will at all times
be at least equal to the total amount of the purchase obligation, including
interest. The Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations or becomes bankrupt and the
Fund is delayed or prevented from exercising its right to dispose of the
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period while the
Fund seeks to assert this right. Warburg, acting under the supervision of the
Fund's Board, monitors the creditworthiness of those bank and non-bank dealers
with which the Fund enters into repurchase agreements to evaluate this risk. A
repurchase agreement is considered to be a loan under the Investment Company Act
of 1940, as amended (the '1940 Act').
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest,
including both convertible debt and convertible preferred stock, may be
converted at either a stated price or stated rate into underlying shares of
common stock. Because of this feature, convertible securities enable an investor
to benefit from increases in the market price of the underlying common stock.
Convertible securities provide higher yields than the underlying equity
securities, but generally offer lower yields than non-convertible
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securities of similar quality. The value of convertible securities fluctuates
in relation to changes in interest rates like bonds and, in addition, fluctuates
in relation to the underlying common stock.
MORTGAGE-RELATED AND ASSET-BACKED DEBT SECURITIES. The Fund may purchase
mortgage-related debt securities without limit. Such securities represent
interests in pools of mortgage loans made by lenders such as savings and loan
institutions, mortgage bankers, commercial banks and others and assembled for
sale to investors by various governmental, government-related and private
organizations. Mortgage-related securities are based on different types of
mortgages, including those on commercial real estate or residential properties.
Mortgage-related securities in which the Fund may invest include adjustable rate
securities. The Fund may also invest in asset-backed securities which are backed
by installment sales contracts, credit card receivables or other assets. The
remaining maturity of any asset-backed security the Fund invests in will be 397
days or less. As new types of mortgage-related securities will likely be
developed in the future, the Fund may invest in them if Warburg determines they
are consistent with the Fund's investment objective and policies.
Non-government mortgage-related securities may offer higher yields than
those issued by governmental or government-related entities, but may be subject
to greater price fluctuations and, in addition, may not be readily marketable.
The existence of any insurance or guarantees supporting mortgage-related or
asset-backed securities and the creditworthiness of the issuer will be
considered in determining whether a security meets the Fund's investment
standards, although the Fund may purchase mortgage-related and asset-backed
securities without insurance or guarantees if Warburg determines that the issuer
is creditworthy.
The value of mortgage-related and asset-backed securities may change due to
shifts in the market's perception of issuers, and regulatory or tax changes may
adversely affect the mortgage or asset-backed securities market as a whole.
Foreclosures and prepayments, which occur when unscheduled or early payments are
made on the underlying mortgages, may shorten the effective maturities of these
securities, and the Fund's yield may be affected by reinvestment of prepayments
at higher or lower rates than the original investment. Prepayments may tend to
increase due to refinancing of mortgages as interest rates decline. In addition,
like other debt securities, the values of mortgage-related and asset-backed
securities will generally fluctuate in response to interest rates.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investing in securities is subject to the inherent risk of fluctuations in
prices. For certain additional risks relating to the Fund's investments,
including with respect to high portfolio turnover, foreign securities and
lower-rated securities, see 'Portfolio Investments' beginning at page 5 and
'Certain Investment Strategies' beginning at page 9.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase
securities that are not registered under the Securities Act of 1933, as amended
(the 'Securities Act'), but that can be sold to 'qualified institutional buyers'
in accordance with Rule 144A under the Securities Act ('Rule 144A Securities').
An investment in Rule 144A Securities will be considered illiquid and therefore
subject to the Fund's limitation on the purchase of illiquid securities, unless
the Board determines on an ongoing basis that an adequate trading market exists
for the security. In addition to an adequate trading market, the Board will also
consider factors such as trading activity, availability of reliable price
information and other relevant information in determining whether a Rule 144A
Security is liquid. This investment practice could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become uninterested for a
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time in purchasing Rule 144A Securities. The Board will carefully monitor any
investments by the Fund in Rule 144A Securities. The Board may adopt guidelines
and delegate to Warburg the daily function of determining and monitoring the
liquidity of Rule 144A Securities, although the Board will retain ultimate
responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk and may result in substantial
losses. These securities may be less liquid than publicly traded securities, and
the Fund may take longer to liquidate these positions than would be the case for
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in illiquid securities is subject to the risk that
should the Fund desire to sell any of these securities when a ready buyer is not
available at a price that is deemed to be representative of their value, the
value of the Fund's net assets could be adversely affected.
EMERGING GROWTH AND SMALL COMPANIES. Investing in securities of emerging growth
and small-and medium-sized companies may involve greater risks since these
securities may have limited marketability and, thus, may be more volatile than
securities of larger, more established companies or the market in general.
Because small- and medium-sized companies normally have fewer shares outstanding
than larger companies, it may be more difficult for the Fund to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. Small-sized companies may have limited product lines, markets or
financial resources and may lack management depth. In addition, small- and
medium-sized companies are typically subject to a greater degree of change in
earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning small- and
medium-sized companies than for larger, more established ones. Although
investing in securities of emerging growth companies offers potential for
above-average returns if the companies are successful, the risk exists that the
companies will not succeed and the prices of the companies' shares could
significantly decline in value. Therefore, the Fund's U.S. Small Company Sector
and Mid-Cap Sector may involve a greater degree of risk than investment in
better-known, larger companies.
PORTFOLIO TRANSACTIONS AND
TURNOVER RATE
The Fund will attempt to purchase securities with the intent of holding
them for investment but may purchase and sell portfolio securities whenever
Warburg believes it to be in the best interests of the Fund. The Fund will not
consider portfolio turnover rate a limiting factor in making investment
decisions consistent with its investment objective and policies. It is not
possible to predict the Fund's portfolio turnover rates. High portfolio turnover
rates (100% or more) may result in dealer markups or underwriting commissions as
well as other transaction costs, including correspondingly higher brokerage
commissions. In addition, short-term gains realized from portfolio turnover may
be taxable to shareholders as ordinary income. See 'Dividends, Distributions and
Taxes -- Taxes' below and 'Investment Policies -- Portfolio Transactions' in the
Statement of Additional Information.
All orders for transactions in securities or options on behalf of the Fund
are placed by Warburg with broker-dealers that it selects, including Counsellors
Securities Inc., the Fund's distributor ('Counsellors Securities'). The Fund may
utilize Counsellors Securities in connection with a purchase or sale of
securities when Warburg believes that the charge for the transac-
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tion does not exceed usual and customary levels and when doing so is consistent
with guidelines adopted by the Board.
CERTAIN INVESTMENT STRATEGIES
Although there is no current intention of doing so during the coming year,
the Fund is authorized to engage in the following investment strategies: (i)
lending portfolio securities and (ii) entering into reverse repurchase
agreements. Detailed information concerning the Fund's strategies and related
risks is contained below and in the Statement of Additional Information.
SHORT SALES AGAINST THE BOX. The Fund may enter into a short sale of securities
such that when the short position is open the Fund owns an equal amount of the
securities sold short or owns preferred stocks or debt securities, convertible
or exchangeable without payment of further consideration into an equal number of
securities sold short. This kind of short sale, which is referred to as one
'against the box,' will be entered into by the Fund for the purpose of receiving
a portion of the interest earned by the executing broker from the proceeds of
the sale. The proceeds of the sale will generally be held by the broker until
the settlement date when the Fund delivers securities to close out its short
position. Although prior to delivery the Fund will have to pay an amount equal
to any dividends paid on the securities sold short, the Fund will receive the
dividends from the securities sold short or the dividends from the preferred
stock or interest from the debt securities convertible or exchangeable into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Fund will deposit, in a segregated account with its
custodian or a qualified subcustodian, the securities sold short or convertible
or exchangeable preferred stocks or debt securities in connection with short
sales against the box. The Fund will endeavor to offset transaction costs
associated with short sales against the box with the income from the investment
of the cash proceeds.
The extent to which the Fund may make short sales may be limited by
requirements of the Internal Revenue Code of 1986, as amended (the 'Code'), for
qualification as a regulated investment company. See 'Dividends, Distributions
and Taxes' for other tax considerations applicable to short sales.
FOREIGN SECURITIES. The Fund may invest up to 10% of its total assets in the
securities of foreign issuers. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in U.S. investments. These risks include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future adverse political and economic developments and the possible
imposition of currency exchange blockages or other foreign governmental laws or
restrictions, reduced availability of public information concerning issuers, the
lack of uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United States. Moreover, securities of many foreign
companies may be less liquid and their prices more volatile than those of
securities of comparable U.S. companies. Certain foreign countries are known to
experience long delays between the trade and settlement dates of securities
purchased or sold. In addition, with respect to certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Fund,
including the withholding of dividends. Foreign securities may be subject to
foreign government taxes that would reduce the net yield on such securities.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of
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gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments positions. Investment in foreign
securities will also result in higher operating expenses due to the cost of
converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.
OPTIONS AND FUTURES TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options and
futures contracts. These strategies, commonly referred to as 'derivatives,' may
be used for the purpose of hedging against a decline in value of the Fund's
current or anticipated portfolio holdings. Transaction costs and any premiums
associated with these strategies, and any losses incurred, will affect the
Fund's net asset value and performance. Therefore, an investment in the Fund may
involve a greater risk than an investment in other mutual funds that do not
utilize these strategies. The Fund's use of these strategies may be limited by
position and exercise limits established by securities and commodities exchanges
and the NASD and by the Code.
Securities and Stock Index Options. The Fund may write covered call options
and put options and purchase put and call options on securities and stock
indexes and will realize fees (referred to as 'premiums') for granting the
rights evidenced by the options. Such options may be traded on an exchange or
may trade over-the-counter ('OTC'). The purchaser of a put option on a security
has the right to compel the purchase by the writer of the underlying security,
while the purchaser of a call option has the right to purchase the underlying
security from the writer. A stock index measures the movement of a certain group
of stocks by assigning relative values to the stocks included in the index.
The potential loss associated with purchasing an option is limited to the
premium paid, and the premium would partially offset any gains achieved from its
use. However, for an option writer the exposure to adverse price movements in
the underlying security or index is potentially unlimited during the exercise
period. Writing securities options may result in substantial losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or at
less advantageous prices, limit the amount of appreciation the Fund could
realize on its investments or require the Fund to hold securities it would
otherwise sell.
Futures Contracts and Related Options. The Fund may enter into interest
rate and securities index futures contracts and purchase and write (sell)
related options that are traded on an exchange designated by the Commodity
Futures Trading Commission (the 'CFTC') or, if consistent with CFTC regulations,
on foreign exchanges. These futures contracts are standardized contracts for the
future delivery of an interest rate sensitive security or, in the case of index
futures contracts, are settled in cash with reference to a specified multiplier
times the change in the specified interest rate or index. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract.
Aggregate initial margin and premiums required to establish positions other
than those considered by the CFTC to be 'bona fide hedging' will not exceed 5%
of the Fund's net asset value, after taking into account unrealized profits and
unrealized losses on any such contracts. Although the Fund is limited in the
amount of assets that may be invested in futures transactions, there is no
overall limit on the percentage of Fund assets that may be at risk with respect
to futures activities.
Hedging Considerations. A hedge is designed to offset a loss on a portfolio
position with a gain in the hedge position; at the same time, however, a
properly correlated hedge will
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result in a gain in the portfolio position being offset by a loss in the hedge
position. As a result, the use of options and futures transactions for hedging
purposes could limit any potential gain from an increase in value of the
position hedged. In addition, the movement in the portfolio position hedged
may not be of the same magnitude as movement in the hedge. The Fund will engage
in hedging transactions only when deemed advisable by Warburg, and successful
use of hedging transactions will depend on Warburg's ability to correctly
predict movements in the hedge and the hedged position and the correlation
between them, which could prove to be inaccurate. Even a well-conceived
hedge may be unsuccessful to some degree because of unexpected market behavior
or trends.
Additional Considerations. To the extent that the Fund engages in the
strategies described above, the Fund may experience losses greater than if these
strategies had not been utilized. In addition to the risks described above,
these instruments may be illiquid and/or subject to trading limits, and the Fund
may be unable to close out an option or futures position without incurring
substantial losses, if at all. The Fund is also subject to the risk of a default
by a counterparty to an off-exchange transaction.
Asset Coverage. The Fund will comply with applicable regulatory
requirements designed to eliminate any potential for leverage with respect to
options written by the Fund on securities and indexes and interest rate and
index futures contracts and options on these futures contracts. The use of these
strategies may require that the Fund maintain cash or certain liquid assets in a
segregated account with its custodian or a designated sub-custodian to the
extent the Fund's obligations with respect to these strategies are not otherwise
'covered' through ownership of the underlying security or financial instrument
or by other portfolio positions or by other means consistent with applicable
regulatory policies. Segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
MUNICIPAL OBLIGATIONS. The Fund may invest in obligations issued by or on behalf
of states, territories and possessions of the United States, the District of
Columbia and their political subdivisions, agencies, instrumentalities and
authorities ('Municipal Obligations'), the interest on which, in the opinion of
bond counsel or counsel to the issuer, as the case may be, is exempt from
regular federal income tax. The two principal types of Municipal Obligations, in
terms of the source of payment of debt service on the bonds, are general
obligation bonds and revenue securities, and the Fund may hold both in any
proportion. 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 securities 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 or other specific revenue source but not from the general taxing
power.
To the extent the Fund's assets are concentrated in Municipal Obligations
that are payable from the revenues of economically related projects or
facilities or whose issuers are located in the same state, the Fund will be
subject to the peculiar risks presented by the laws and economic conditions
relating to such states or projects or facilities to a greater extent than it
would be if its assets were not so concentrated.
Private Activity Bonds; Alternative Minimum Tax Bonds. 'Alternative Minimum
Tax Bonds' are certain private activity bonds issued after August 7, 1986 to
finance certain non-governmental activities. While the income from Alternative
Minimum Tax Bonds is exempt from regular federal income tax, it is a tax
preference item for purposes of the federal individual and
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corporate 'alternative minimum tax.' The alternative minimum tax is a special
tax that applies to a limited number of taxpayers who have certain adjustments
or tax preference items. Available returns on Alternative Minimum Tax Bonds
acquired by the Fund may be lower than those from other Municipal Obligations
acquired by the Fund due to the possibility of federal, state and local
alternative minimum or minimum income tax liability on Alternative Minimum Tax
Bonds.
Variable Rate Notes. Municipal Obligations purchased by the Fund may
include variable rate demand notes issued by industrial development authorities
and other governmental entities. Variable rate demand notes are tax exempt
Municipal Obligations that provide for a periodic adjustment in the interest
rate paid on the notes. While there may be no active secondary market with
respect to a particular variable rate demand note purchased by the Fund, the
Fund may, upon notice as specified in the note, demand payment of the principal
of and accrued interest on the note at any time or during specified periods not
exceeding one year (depending on the instrument involved) and may resell the
note at any time to a third party. The absence of such an active secondary
market, however, could make it difficult for the Fund to dispose of the variable
rate demand note involved in the event the issuer of the note defaulted on its
payment obligations and during the periods that the Fund is not entitled to
exercise its demand rights, and the Fund could, for this or other reasons,
suffer a loss to the extent of the default plus any expenses involved in an
attempt to recover the investment.
Variable rate demand notes are frequently not rated by credit rating
agencies, but unrated notes purchased by the Fund will have been determined by
Warburg to be of comparable quality at the time of the purchase to rated
instruments purchasable by the Fund. Warburg monitors the continuing
creditworthiness of issuers of such notes to determine whether the Fund should
continue to hold such notes.
Ratings. The Fund may invest in Municipal Obligations which are determined
by Warburg to present minimal credit risks and which at the time of purchase are
considered to be 'high grade' -- e.g., rated 'A' or higher by S&P or Moody's in
the case of bonds; rated 'SP-1' by S&P or 'MIG-2' by Moody's in the case of
notes; or rated 'VMIG-2' by Moody's in the case of variable rate demand notes.
The Fund may also purchase securities that are unrated at the time of purchase
provided that the securities are determined to be of comparable quality by
Warburg. The applicable Municipal Obligations ratings are described in the
Appendix to the Statement of Additional Information.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed-delivery basis. In these transactions,
payment for and delivery of the securities occur beyond the regular settlement
dates, normally within 30-45 days after the transaction. The payment obligation
and the interest rate that will be received in when-issued and delayed-delivery
transactions are fixed at the time the buyer enters into the commitment. Due to
fluctuations in the value of securities purchased on a when-issued or
delayed-delivery basis, the yields obtained on such securities may be higher or
lower than the yields available in the market on the dates when the investments
are actually delivered to the buyers. When-issued securities may include
securities purchased on a 'when, as and if issued' basis under which the
issuance of the security depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund is required to segregate assets equal to the amount of its when-issued and
delayed-delivery purchase commitments.
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INVESTMENT GUIDELINES
The Fund may invest up to 15% of its net assets in securities with
contractual or other restrictions on resale and other instruments that are not
readily marketable ('illiquid securities'), including (i) securities issued as
part of a privately negotiated transaction between an issuer and one or more
purchasers; (ii) time deposits maturing in more than seven calendar days; (iii)
certain Rule 144A Securities and (iv) repurchase agreements with maturities
greater than seven days. In addition, up to 5% of the Fund's total assets may be
invested in the securities of issuers which have been in continuous operation
for less than three years. The Fund may borrow from banks for temporary or
emergency purposes, such as meeting anticipated redemption requests, provided
that reverse repurchase agreements and any other borrowing by the Fund may not
exceed 30% of its total assets at the time of borrowing. The Fund may also
pledge its assets in connection with borrowings up to 125% of the amount
borrowed. Whenever borrowings (including reverse repurchase agreements) exceed
5% of the value of the Fund's total assets, the Fund will not purchase portfolio
securities. Except for the limitations on borrowing, the investment guidelines
set forth in this paragraph may be changed at any time without shareholder
consent by vote of the Board of each Fund, subject to the limitations contained
in the 1940 Act. A complete list of investment restrictions that the Fund has
adopted identifying additional restrictions that cannot be changed without the
approval of the majority of the Fund's outstanding shares is contained in the
Statement of Additional Information.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER. The Fund employs Warburg as its investment adviser. Warburg,
subject to the control of the Fund's officers and the Board, manages the
investment and reinvestment of the assets of the Fund in accordance with the
Fund's investment objective and stated investment policies. Warburg makes
investment decisions for the Fund and places orders to purchase or sell
securities on behalf of the Fund. Warburg also employs a support staff of
management personnel to provide services to the Fund and furnishes the Fund with
office space, furnishings and equipment.
For the services provided by Warburg, the Fund pays Warburg a fee
calculated at an annual rate of .90% of the Fund's average daily net assets.
Although this advisory fee is higher than that paid by most other investment
companies, including money market and fixed income funds, Warburg believes that
it is comparable to fees charged by other mutual funds with similar policies and
strategies. Warburg and the Fund's co-administrators may voluntarily waive a
portion of their fees from time to time and temporarily limit the expenses to be
paid by the Fund.
Warburg is a professional investment counselling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. As of October 31,
1996, Warburg managed approximately $18.4 billion of assets, including
approximately $9.8 billion of investment company assets. Incorporated in 1970,
Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors G.P.
('Warburg G.P.'), a New York general partnership. E.M. Warburg, Pincus & Co.,
Inc. ('EMW') controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
PORTFOLIO MANAGERS. As described above, the Fund employs a multi-manager
approach where different managers are responsible for sectors of the Fund's
portfolio. Anthony G. Orphanos and Dale C. Christensen are the overall portfolio
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strategists for the Fund and are responsible for determining the portion of the
Fund's portfolio to be allocated among sectors.
U.S. Value Sector. The U.S. Value Sector is managed by Anthony G. Orphanos,
a managing director of EMW. Mr. Orphanos has been with Warburg since 1977.
U.S. Small Company Sector. Elizabeth B. Dater, Stephen J. Lurito and
Kyle F. Frey manage the U.S. Small Company Sector. Ms. Dater, a senior managing
director of EMW, has been a portfolio manager of Warburg since 1978. Mr. Lurito,
a managing director of EMW, has been with Warburg since 1987, before which
time he was a research analyst at Sanford C. Bernstein & Company, Inc. Mr. Frey
is a senior vice president of Warburg and has been with Warburg since 1989,
before which time he was with Goldman Sachs & Co.
U.S. Mid-Cap Sector. George U. Wyper and Susan L. Black, senior managing
directors of Warburg, manage the U.S. Mid-Cap Sector. Mr. Wyper joined Warburg
in August 1994, before which time he was chief investment officer of White River
Corporation and president of Hanover Advisors, Inc. (1993-August 1994) and chief
investment officer of Fund American Enterprises, Inc. (1990-1993). Ms. Black has
been with Warburg since 1985.
International Equity Sector. Richard H. King and Nancy Nierman manage
the International Equity Sector. Mr. King, a senior managing director of EMW,
has been with Warburg since 1988. Ms. Nierman is a vice president of
Warburg and has been with Warburg since April 1996, before which time she
was an analyst with Fiduciary Trust Company International.
Fixed Income Sector. Dale C. Christensen, a managing director of EMW,
manages the Fixed Income Sector and has been with Warburg since 1989.
CO-ADMINISTRATORS. The Fund employs Counsellors Funds Service, Inc.
('Counsellors Service'), a wholly owned subsidiary of Warburg, as a co-
administrator. As co-administrator, Counsellors Service provides shareholder
liaison services to the Fund including responding to shareholder inquiries and
providing information on shareholder investments. Counsellors Service also
performs a variety of other services, including furnishing certain executive and
administrative services, acting as liaison between the Fund and its various
service providers, furnishing corporate secretarial services, which include
preparing materials for meetings of the Board, preparing proxy statements and
annual, semiannual and quarterly reports, assisting in other regulatory filings
as necessary and monitoring and developing compliance procedures for the Funds.
As compensation, the Fund pays Counsellors Service a fee calculated at an annual
rate of .10% of the Fund's average daily net assets.
The Fund employs PFPC Inc. ('PFPC'), an indirect, wholly owned subsidiary
of PNC Bank Corp., as a co-administrator. As a co-administrator, PFPC calculates
the Fund's net asset value, provides all accounting services for the Fund and
assists in related aspects of the Fund's operations. As compensation, the Fund
pays PFPC a fee calculated at an annual rate of .15% of the Fund's first $1
billion of average daily net assets and .05% of average daily net assets over $1
billion. PFPC has its principal offices at 400 Bellevue Parkway, Wilmington,
Delaware 19809.
CUSTODIANS. PNC Bank, National Association ('PNC') serves as custodian of the
U.S. assets of the Fund and State Street Bank and Trust Company ('State Street')
serves as custodian of the Fund's non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101. State Street's principal
business address is 225 Franklin Street, Boston, Massachusetts 02110.
TRANSFER AGENT. State Street also serves as shareholder servicing agent,
transfer agent and dividend disbursing agent for the Fund. State Street has
delegated to Boston Financial Data Services, Inc., a 50% owned subsidiary
('BFDS'), responsibility for most shareholder servicing functions. BFDS's
principal business
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address is 2 Heritage Drive, North Quincy, Massachusetts 02171.
DISTRIBUTOR. Counsellors Securities serves as distributor of the shares of the
Fund. Counsellors Securities is a wholly owned subsidiary of Warburg and is
located at 466 Lexington Avenue, New York, New York 10017-3147. No compensation
is payable by the Advisor Shares to Counsellors Securities for distribution
services.
Warburg or its affiliates may, at their own expense, provide promotional
incentives to parties who support the sale of shares of the Funds, consisting of
securities dealers who have sold Fund shares or others, including banks and
other financial institutions, under special arrangements. In some instances,
these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
DIRECTORS AND OFFICERS. The officers of the Fund manage its day-to-day
operations and are directly responsible to the Board. The Board sets broad
policies for the Fund and chooses its officers. A list of the Directors and
officers of the Fund and a brief statement of their present positions and
principal occupations during the past five years is set forth in the Statement
of Additional Information.
HOW TO PURCHASE SHARES
Individual investors may only purchase Warburg Pincus Advisor Fund shares
through Institutions. The Fund reserves the right to make Advisor Shares
available to other investors in the future. References in this Prospectus to
shareholders or investors are generally to Institutions as record holders of the
Advisor Shares.
Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Advisor Shares. There is no minimum amount of
initial or subsequent purchases of Advisor Shares imposed on Institutions,
although the Fund reserves the right to impose minimums in the future.
Orders for the purchase of Advisor Shares are placed with an Institution by
its customers. The Institution is responsible for the prompt transmission of the
order to the Fund or its agent.
Institutions may purchase Advisor Shares by telephoning the Fund and
sending payment by wire. After telephoning (800) 369-2728 for instructions, an
Institution should then wire federal funds to Counsellors Securities Inc. using
the following wire address:
State Street Bank and Trust Co.
225 Franklin St.
Boston, MA 02101
ABA# 0110 000 28
Attn: Mutual Funds/Custody Dept.
Warburg Pincus Advisor Balanced
Fund
DDA# 9904-649-2
[Shareowner name]
[Shareowner account number]
Orders by wire will not be accepted until a completed account application
has been received in proper form, and an account number has been established. If
a telephone order is received by the close of regular trading on the New York
Stock Exchange (the 'NYSE') (currently 4:00 p.m., Eastern time) and payment by
wire is received on the same day in proper form in accordance with instructions
set forth above, the shares will be priced according to the net asset value of
the Fund on that day and are entitled to dividends and distributions beginning
on that day. If payment by wire is received in proper form by the close of the
NYSE without a prior telephone order, the purchase will be priced according to
the net asset value of the Fund on that day and is entitled to dividends and
distributions beginning on that day. However, if a wire in proper form that is
not preceded by a telephone order is
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received after the close of regular trading on the NYSE, the payment will be
held uninvested until the order is effected at the close of business on the next
business day. Payment for orders that are not accepted will be returned after
prompt inquiry. Certain organizations or Institutions that have entered into
agreements with the Fund or its agent may enter confirmed purchase orders on
behalf of customers, with payment to follow no later than three business days
following the day the order is effected. If payment is not received by such
time, the organization could be held liable for resulting fees or losses.
After an investor has made his initial investment, additional shares may be
purchased at any time by mail or by wire in the manner outlined above. Wire
payments for initial and subsequent investments should be preceded by an order
placed with the Fund or its agent and should clearly indicate the investor's
account number. In the interest of economy and convenience, physical
certificates representing shares in the Fund are not normally issued.
The Fund understands that some broker-dealers (other than Counsellors
Securities), financial institutions, securities dealers and other industry
professionals may impose certain conditions on their clients or customers that
invest in the Fund, which are in addition to or different than those described
in this Prospectus, and may charge their clients or customers direct fees.
Certain features of the Fund, such as the initial and subsequent investment
minimums, redemption fees and certain trading restrictions, may be modified or
waived in these programs, and administrative charges may be imposed for the
services rendered. Therefore, a client or customer should contact the
organization acting on his behalf concerning the fees (if any) charged in
connection with a purchase or redemption of Fund shares and should read this
Prospectus in light of the terms governing his account with the organization.
GENERAL. The Fund reserves the right to reject any specific purchase order. The
Fund may discontinue sales of its shares if management believes that a
substantial further increase in assets may adversely affect the Fund's ability
to achieve its investment objective. In such event, however, it is anticipated
that existing shareholders would be permitted to continue to authorize
investment in the Fund and to reinvest any dividends or capital gains
distributions.
HOW TO REDEEM AND EXCHANGE
SHARES
REDEMPTION OF SHARES. An investor may redeem (sell) shares on any day that the
Fund's net asset value is calculated (see 'Net Asset Value' below). Requests for
the redemption (or exchange) of Advisor Shares are placed with an Institution by
its customers, which is then responsible for the prompt transmission of the
request to the Fund or its agent.
Institutions may redeem Advisor Shares by calling Warburg Pincus Advisor
Funds at (800) 369-2728 between 9:00 a.m. and 4:00 p.m. (Eastern time) on any
business day. An investor making a telephone withdrawal should state (i) the
name of the Fund, (ii) the account number of the Fund, (iii) the name of the
investor(s) appearing on the Fund's records, (iv) the amount to be withdrawn and
(v) the name of the person requesting the redemption.
After receipt of the redemption request the redemption proceeds will be
wired to the investor's bank as indicated in the account application previously
filled out by the investor. The Fund does not currently impose a service charge
for effecting wire transfers but reserves the right to do so in the future.
During periods of significant economic or market change, telephone redemptions
may be difficult to implement. If an investor is unable to contact Warburg
Pincus Advisor Funds by telephone, an investor may deliver the redemption
request to Warburg Pincus Advisor Funds by mail at Warburg Pincus Advisor Funds,
P.O. Box 9030, Boston, Massachusetts 02205-9030.
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If a redemption order is received by the Fund or its agent prior to the
close of regular trading on the NYSE, the redemption order will be effected at
the net asset value per share as determined on that day. If a redemption order
is received after the close of regular trading on the NYSE, the redemption order
will be effected at the net asset value as next determined. Except as noted
above, redemption proceeds will normally be wired to an investor on the next
business day following the date a redemption order is effected. If, however, in
the judgment of Warburg, immediate payment would adversely affect the Fund, the
Fund reserves the right to pay the redemption proceeds within seven days after
the redemption order is effected. Furthermore, the Fund may suspend the right of
redemption or postpone the date of payment upon redemption (as well as suspend
or postpone the recordation of an exchange of shares) for such periods as are
permitted under the 1940 Act.
The proceeds paid upon redemption may be more or less than the amount
invested, depending upon a share's net asset value at the time of redemption. If
an investor redeems all the shares in his account, all dividends and
distributions declared up to and including the date of redemption are paid along
with the proceeds of the redemption.
EXCHANGE OF SHARES. An Institution may exchange Advisor Shares of the Fund for
Advisor Shares of the other Warburg Pincus Advisor Funds at their respective net
asset values. Exchanges may be effected in the manner described under
'Redemption of Shares' above. If an exchange request is received by Warburg
Pincus Advisor Funds or its agent prior to 4:00 p.m. (Eastern time), the
exchange will be made at each fund's net asset value determined at the end of
that business day. Exchanges may be effected without a sales charge. The
exchange privilege may be modified or terminated at any time upon 60 days'
notice to shareholders.
The exchange privilege is available to shareholders residing in any state
in which the Advisor Shares being acquired may legally be sold. When an investor
effects an exchange of shares, the exchange is treated for federal income tax
purposes as a redemption. Therefore, the investor may realize a taxable gain or
loss in connection with the exchange. Investors wishing to exchange Advisor
Shares of the Fund for shares in another Warburg Pincus Advisor Fund should
review the prospectus of the other fund prior to making an exchange. For further
information regarding the exchange privilege or to obtain a current prospectus
for another Warburg Pincus Advisor Fund, an investor should contact Warburg
Pincus Advisor Funds at (800) 369-2728.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund calculates its dividends from net
investment income. Net investment income includes interest accrued and dividends
earned on the Fund's portfolio securities for the applicable period (which
includes amortization of market discounts) less amortization of market premiums
and applicable expenses. The Fund declares and pays its dividends from its net
investment income quarterly. The Fund declares distributions of its net realized
short-term and long-term capital gains annually and pays them in the calendar
year in which they are declared, generally in November or December. Net
investment income earned on weekends and when the NYSE is not open will be
computed as of the next business day. Unless an investor instructs the Fund to
pay dividends or distributions in cash, dividends and distributions will
automatically be reinvested in additional Advisor Shares of the Fund at net
asset value. The election to receive dividends in cash may be made on the
account application or, subsequently, by writing to Warburg Pincus Funds at the
address set forth under 'How to
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Open an Account' or by calling Warburg Pincus Funds at (800) 369-2728.
The Fund may be required to withhold for U.S. federal income taxes 31% of
all distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the U.S. Internal Revenue Service that they are
subject to backup withholding.
TAXES. The Fund intends to qualify each year as a 'regulated investment company'
within the meaning of the Code. The Fund, if it qualifies as a regulated
investment company, will be subject to a 4% non-deductible excise tax measured
with respect to certain undistributed amounts of ordinary income and capital
gain. The Fund expects to pay such additional dividends and to make such
additional distributions as are necessary to avoid the application of this tax.
Dividends paid from net investment income and distributions of net realized
short-term capital gains are taxable to investors as ordinary income, and
distributions derived from net realized long-term capital gains ('capital gain
dividends') are taxable to investors as long-term capital gains, in each case
regardless of how long the shareholder has held Fund shares and whether received
in cash or reinvested in additional Fund shares. As a general rule, an
investor's gain or loss on a sale or redemption of his Fund shares will be a
long-term capital gain or loss if he has held his shares for more than one year
and will be a short-term capital gain or loss if he has held his shares for one
year or less. However, any loss realized upon the sale or redemption of shares
within six months from the date of their purchase will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period with respect to such shares. Investors
may be proportionately liable for taxes on income and gains of the Fund, but
investors not subject to tax on their income will not be required to pay tax on
amounts distributed to them. The Fund's investment activities, including short
sales of securities, should not result in unrelated business taxable income to a
tax exempt investor.
The Fund anticipates that dividends paid by the Fund will be eligible for
the 70% dividends received deduction allowed to certain corporations to the
extent of the gross amount of qualified dividends received by the Fund for the
year. However, corporate shareholders will have to take into account the entire
amount of any dividends received in determining their adjusted current earnings
adjustment for alternative minimum tax purposes. The dividends received
deduction is not available for capital gain dividends.
Certain provisions of the Code may require that a gain recognized by the
Fund upon the closing of a short sale be treated as a short-term capital gain,
and that a loss recognized by the Fund upon the closing of a short sale be
treated as a long-term capital loss, regardless of the amount of time that the
Fund held the securities used to close the short sale. The Fund's use of short
sales may also affect the holding periods of certain securities held by the Fund
if such securities are 'substantially identical' to securities used by the Fund
to close the short sale.
GENERAL. Statements as to the tax status of each investor's dividends and
distributions are mailed annually. Each investor will also receive, if
applicable, various written notices after the close of the Fund's prior taxable
year with respect to certain dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Investors should consult
their own tax advisers with specific reference to their own tax situations,
including their state and local tax liabilities.
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NET ASSET VALUE
The Fund's net asset value per share is calculated as of the close of
regular trading on the NYSE (currently 4:00 p.m., Eastern time) on each business
day, Monday through Friday, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Washington's Birthday, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. The net asset value
per share of the Fund generally changes each day.
The net asset value per Advisor Share of the Fund is computed by adding the
Advisor Shares' pro rata share of the value of the Fund's assets, deducting the
Advisor Shares' pro rata share of the Fund's liabilities and the liabilities
specifically allocated to Advisor Shares and then dividing the result by the
total number of outstanding Advisor Shares.
Securities listed on a U.S. securities exchange (including securities
traded through the NASDAQ National Market System) or foreign securities exchange
or traded in an over-the-counter market will be valued at the most recent sale
price when the valuation is made. Options and futures contracts will be valued
similarly. Debt obligations that mature in 60 days or less from the valuation
date are valued on the basis of amortized cost, unless the Board determines that
using this valuation method would not reflect the investments' value.
Securities, options and futures contracts for which market quotations are not
readily available and other assets will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. Further information regarding valuation policies is contained in
the Statement of Additional Information.
PERFORMANCE
The Fund quotes the performance of Advisor Shares separately from Common
Shares. The net asset value of the Advisor Shares is listed in The Wall Street
Journal each business day under the heading 'Warburg Pincus Advisor Funds.' From
time to time, the Fund may advertise yield and average annual total return of
its Advisor Shares over various periods of time. The yield refers to net
investment income generated by the Advisor Shares over a specified thirty-day
period, which is then annualized. These total return figures show the average
percentage change in value of an investment in the Advisor Shares from the
beginning of the measuring period to the end of the measuring period. The
figures reflect changes in the price of the Advisor Shares assuming that any
income dividends and/or capital gain distributions made by the Fund during the
period were reinvested in Advisor Shares of the Fund. Total return will be shown
for recent one-, five- and ten-year periods, and may be shown for other periods
as well (such as from commencement of the Fund's operations or on a
year-by-year, quarterly or current year-to-date basis). Performance quotations
of the Fund will include performance of a predecessor fund.
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return for one year in the
period might have been greater or less than the average for the entire period.
When considering total return figures for periods shorter than one year,
investors should bear in mind that the Fund seeks long-term appreciation and
that such return may not be representative of the Fund's return over a longer
market cycle. The Fund may also advertise aggregate total return figures of
Advisor Shares for various periods, representing the cumulative change in value
of an investment in the Advisor Shares for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and
distributions). Aggregate and average
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total returns may be shown by means of schedules, charts or graphs and may
indicate various components of total return (i.e., change in value of initial
investment, income dividends and capital gain distributions).
Investors should note that total return figures are based on historical
earnings and are not intended to indicate future performance. The Statement of
Additional Information describes the method used to determine the total return.
Current total return figures may be obtained by calling Warburg Pincus Advisor
Funds at (800) 369-2728.
In reports or other communications to investors or in advertising material,
the Fund may describe general economic and market conditions affecting the Fund.
The Fund may compare its performance (i) with that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
investment services that monitor the performance of mutual funds or as set forth
in the publications listed below; (ii) with the Lipper Balanced Fund Index; or
(iii) with other appropriate indexes of investment securities or with data
developed by Warburg derived from such indexes. The Fund may include evaluations
of the Fund published by nationally recognized ranking services and by financial
publications that are nationally recognized, such as The Wall Street Journal,
Investor's Business Daily, Money, Inc., Institutional Investor, Barron's,
Fortune, Forbes, Business Week, Mutual Fund Magazine, Morningstar, Inc., Smart
Money and Financial Times.
In reports or other communications to investors or in advertising, the Fund
may also describe the general biography or work experience of the portfolio
managers of the Fund and may include quotations attributable to the portfolio
managers describing approaches taken in managing the Fund's investments,
research methodology underlying stock selection or the Fund's investment
objective. In addition, the Fund and its portfolio managers may render periodic
updates of Fund activity, which may include a discussion of significant
portfolio holdings and analyses of holdings by industry, country, credit quality
and other characteristics. The Fund may also discuss measures of risk, the
continuum of risk and return relating to different investments and the potential
impact of foreign securities on a portfolio otherwise composed of domestic
securities. Morningstar, Inc. rates funds in broad categories based on
risk/reward analyses over various time periods. In addition, the Fund may from
time to time compare the expense ratio of Advisor Shares to that of investment
companies with similar objectives and policies, based on data generated by
Lipper Analytical Services, Inc. or similar investment services that monitor
mutual funds.
GENERAL INFORMATION
ORGANIZATION. The Fund was incorporated on January 29, 1996 under the laws of
the State of Maryland under the name 'Warburg, Pincus Balanced Fund, Inc.' On
May 3, 1996 the Fund acquired all of the assets and liabilities of the
corresponding investment portfolio of The RBB Fund, Inc. with a similar name.
The charter of the Fund authorizes the Board to issue three billion full
and fractional shares of capital stock, $.001 par value per share, of which one
billion shares are designated Common Shares and two billion shares are
designated Advisor Shares. Under the 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 its shares into one or more series and,
without shareholder approval, may increase the number of authorized shares of
the Fund.
MULTI-CLASS STRUCTURE. The Fund offers a separate class of shares, the Common
Shares, directly
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to individuals pursuant to a separate prospectus. Shares of each class represent
equal pro rata interests in the Fund and accrue dividends and calculate net
asset value and performance quotations in the same manner, except that Advisor
Shares bear fees payable by the Fund to Institutions for services they provide
to the beneficial owners of such shares and enjoy certain exclusive voting
rights on matters relating to these fees. 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. Investors may obtain information concerning
the Common Shares from their investment professional or by calling Counsellors
Securities at (800) 927-2874.
VOTING RIGHTS. Investors in the Fund are entitled to one vote for each full
share held and fractional votes for fractional shares held. Shareholders of the
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 member of the Board may be removed from office
upon the vote of shareholders holding at least a majority of the Fund's
outstanding shares, at a meeting called for that purpose. A meeting will be
called for the purpose of voting on the removal of a Board member at the written
request of holders of 10% of the outstanding shares of the Fund.
SHAREHOLDER COMMUNICATIONS. Each investor will receive a quarterly statement of
his account, as well as a statement of his account after any transaction that
affects his share balance or share registration (other than the reinvestment of
dividends or distributions or investment made through the Automatic Investment
Program). The Fund will also send to its investors a semiannual report and an
audited annual report, each of which includes a list of the investment
securities held by the Fund and a statement of the performance of the Fund.
Periodic listings of the investment securities held by the Fund may be obtained
by calling Warburg Pincus Advisor Funds at (800) 369-2728. Each Institution that
is the record owner of Advisor Shares on behalf of its customers will send a
statement to those customers periodically showing their indirect interest in
Advisor Shares, as well as providing other information about the Fund. See
'Shareholder Servicing.'
The common share prospectuses of certain other Warburg Pincus Funds are
combined with the Fund's Common Share Prospectus. Each fund offers only its own
shares, yet it is possible that the Fund may become liable for a misstatement,
inaccuracy or omission in that prospectus with regard to another fund.
SHAREHOLDER SERVICING
The Fund is authorized to offer Advisor Shares exclusively through
Institutions whose clients or customers (or participants in the case of
retirement plans) ('Customers') are owners of Advisor Shares. Either those
Institutions or companies providing certain services to Customers (together,
'Service Organizations') will enter into agreements ('Agreements') with the Fund
and/or Counsellors Securities pursuant to a Distribution Plan as described
below. Such entities may provide certain distribution, shareholder servicing,
administrative and/or accounting services for their Customers. Distribution
services would be marketing or other services in connection with the promotion
and sale of Advisor Shares. Shareholder services that may be provided include
responding to Customer inquiries, providing information on Customer investments
and providing other shareholder liaison services. Administrative and accounting
services related to the sale of Advisor Shares may include (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the
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Fund's transfer agent, (ii) processing dividend payments from the Fund on behalf
of Customers and (iii) providing sub-accounting related to the sale of Advisor
Shares beneficially owned by Customers or the information to the Fund necessary
for sub-accounting. The Board has approved a Distribution Plan (the 'Plan')
pursuant to Rule 12b-1 under the 1940 Act under which each participating Service
Organization will be paid, out of the assets of the Fund (either directly or by
Counsellors Securities on behalf of the Fund), a negotiated fee on an annual
basis not to exceed .75% (up to a .25% annual service fee and a .50% annual
distribution fee) of the value of the average daily net assets of its Customers
invested in Advisor Shares. The current 12b-1 fee is .50% per annum. The Board
evaluates the appropriateness of the Plan on a continuing basis and in doing so
considers all relevant factors.
Warburg, Counsellors Securities or their affiliates may, from time to time,
at their own expense, provide compensation to Service Organizations. To the
extent they do so, such compensation does not represent an additional expense to
the Fund or its shareholders. In addition, Warburg, Counsellors Securities or
their affiliates may, from time to time, at their own expense, pay certain Fund
transfer agent fees and expenses related to accounts of Customers. A Service
Organization may directly or indirectly use a portion of the fees paid pursuant
to the Plan to compensate the Fund's custodian or transfer agent for costs
related to accounts of Customers.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION OR THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF SHARES OF THE FUND, AND IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF THE
ADVISOR SHARES IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY
NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
THE FUND'S EXPENSES ........................................ 2
FINANCIAL HIGHLIGHTS ....................................... 3
INVESTMENT OBJECTIVE AND POLICIES .......................... 4
PORTFOLIO INVESTMENTS ...................................... 5
RISK FACTORS AND SPECIAL
CONSIDERATIONS .......................................... 7
PORTFOLIO TRANSACTIONS AND TURNOVER
RATE .................................................... 8
CERTAIN INVESTMENT STRATEGIES .............................. 9
INVESTMENT GUIDELINES ..................................... 13
MANAGEMENT OF THE FUND .................................... 13
HOW TO PURCHASE SHARES .................................... 15
HOW TO REDEEM AND EXCHANGE
SHARES ................................................. 16
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................ 17
NET ASSET VALUE ........................................... 19
PERFORMANCE ............................................... 19
GENERAL INFORMATION ....................................... 20
SHAREHOLDER SERVICING ..................................... 21
ADBAL-1296
[LOGO]
[ ] WARBURG PINCUS
BALANCED FUND
PROSPECTUS
DECEMBER 30, 1996
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 30, 1996
WARBURG PINCUS BALANCED FUND
P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) WARBURG
CONTENTS
--------
Page
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Investment Objective...........................................................2
Investment Policies............................................................2
Management of the Fund........................................................25
Additional Purchase and Redemption Information................................34
Exchange Privilege............................................................35
Additional Information Concerning Taxes.......................................36
Determination of Performance..................................................38
Independent Accountants and Counsel...........................................40
Miscellaneous.................................................................40
Financial Statements..........................................................42
Appendix - Description of Ratings............................................A-1
This Statement of Additional Information is meant to be read in
conjunction with the combined Prospectus for the Common Shares of Warburg Pincus
Balanced Fund (the "Fund"), Warburg Pincus Growth & Income Fund and Warburg
Pincus Tax Free Fund and with the Prospectus for the Advisor Shares of the Fund,
each dated December 30, 1996, as amended or supplemented from time to time, and
is incorporated by reference in its entirety into those Prospectuses. Because
this Statement of Additional Information is not itself a prospectus, no
investment in shares of the Fund should be made solely upon the information
contained herein. Copies of the Fund's Prospectuses and information regarding
the Fund's current performance may be obtained by calling the Fund at (800)
927-2874. Information regarding the status of shareholder accounts may be
obtained by calling the Fund at (800) 927-2874 or by writing to the Fund, P.O.
Box 9030, Boston, Massachusetts 02205-9030.
<PAGE>
<PAGE>
INVESTMENT OBJECTIVE
The investment objective of the Fund is maximum total return
through a combination of long-term growth of capital and current income
consistent with preservation of capital.
INVESTMENT POLICIES
The following policies supplement the descriptions of the Fund's
investment objective and policies in the Prospectuses.
Options and Futures Transactions
Securities Options. The Fund may write covered call options and
put options on securities, and may purchase such options, that are traded on
exchanges, as well as over-the-counter ("OTC").
The Fund realizes fees (referred to as "premiums") for granting
the rights evidenced by the options it has written. A put option embodies the
right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security at a specified price for a specified time
period or at a specified time. In contrast, a call option embodies the right of
its purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time.
The principal reason for writing covered options on a security is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. In return for a premium, the Fund as
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Fund as a put or call writer retains the risk of a decline in the price of
the underlying security. The size of the premiums that the Fund may receive may
be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option-writing activities.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that the
writer will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer a
loss. This loss should be less than the loss from purchasing the underlying
instrument directly, however, because the premium received for writing the
option should mitigate the effects of the decline.
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In the case of options written by the Fund that are deemed
covered by virtue of the Fund's holding convertible or exchangeable preferred
stock or debt securities, the time required to convert or exchange and obtain
physical delivery of the underlying common stock with respect to which the Fund
has written options may exceed the time within which the Fund must make delivery
in accordance with an exercise notice. In these instances, the Fund may purchase
or temporarily borrow the underlying securities for purposes of physical
delivery. By so doing, the Fund will not bear any market risk, since the Fund
will have the absolute right to receive from the issuer of the underlying
security an equal number of shares to replace the borrowed securities, but the
Fund may incur additional transaction costs or interest expenses in connection
with any such purchase or borrowing.
Additional risks exist with respect to certain of the securities
for which the Fund may write covered call options. For example, if the Fund
writes covered call options on mortgage-backed securities, the mortgage-backed
securities that it holds as cover may, because of scheduled amortization or
unscheduled prepayments, cease to be sufficient cover. If this occurs, the Fund
will compensate for the decline in the value of the cover by purchasing an
appropriate additional amount of mortgage-backed securities.
Options written by the Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of the
options may be below, equal to or above the market values of the underlying
securities at the times the options are written. In the case of call options,
these exercise prices are referred to as "in-the-money," "at-the-money" and
"out-of-the-money," respectively. The Fund may write (i) in-the-money call
options when Warburg, Pincus Counsellors, Inc., the Fund's investment adviser
("Warburg") expects that the price of the underlying security will remain flat
or decline moderately during the option period, (ii) at-the-money call options
when Warburg expects that the price of the underlying security will remain flat
or advance moderately during the option period and (iii) out-of-the-money call
options when Warburg expects that the premiums received from writing the call
option plus the appreciation in market price of the underlying security up to
the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. Out-of-the-money, at-the-money and in-the-money put options
(the reverse of call options as to the relation of exercise price to market
price) may be used in the same market environments that such call options are
used in equivalent transactions. To secure its obligation to deliver the
underlying security when it writes a call option, the Fund will be required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation (the "Clearing Corporation") and of
the securities exchange on which the option is written.
Prior to their expirations, put and call options may be sold in
closing sale or purchase transactions (sales or purchases by the Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which the Fund may realize a profit or loss from
the sale. An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized securities
exchange
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or in the over-the-counter market. When the Fund has purchased an option and
engages in a closing sale transaction, whether the Fund realizes a profit or
loss will depend upon whether the amount received in the closing sale
transaction is more or less than the premium the Fund initially paid for the
original option plus the related transaction costs. Similarly, in cases where
the Fund has written an option, it will realize a profit if the cost of the
closing purchase transaction is less than the premium received upon writing the
original option and will incur a loss if the cost of the closing purchase
transaction exceeds the premium received upon writing the original option. The
Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security with respect to which it has written an option
from being called or put or, in the case of a call option, to unfreeze an
underlying security (thereby permitting its sale or the writing of a new option
on the security prior to the outstanding option's expiration). The obligation of
the Fund under an option it has written would be terminated by a closing
purchase transaction, but the Fund would not be deemed to own an option as a
result of the transaction. So long as the obligation of the Fund as the writer
of an option continues, the Fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the Fund to deliver
the underlying security against payment of the exercise price. This obligation
terminates when the option expires or the Fund effects a closing purchase
transaction. The Fund can no longer effect a closing purchase transaction with
respect to an option once it has been assigned an exercise notice.
There is no assurance that sufficient trading interest will exist
to create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Fund's ability
to terminate options positions established in the over-the-counter market may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in over-the-counter transactions would fail to
meet their obligations to the Fund. The Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as determined
by Warburg, are considered to be investment grade. If, as a covered call option
writer, the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. In either
case, the Fund would continue to be at market risk on the security and could
face higher transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class which may be held
or written, or exercised within certain time periods by an investor or group of
investors acting in concert (regardless of whether the options are written on
the same or different securities exchanges or are held,
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written or exercised in one or more accounts or through one or more brokers). It
is possible that the Fund and other clients of Warburg and certain of its
affiliates may be considered to be such a group. A securities exchange may order
the liquidation of positions found to be in violation of these limits and it may
impose certain other sanctions. These limits may restrict the number of options
the Fund will be able to purchase on a particular security.
Stock Index Options. The Fund may purchase and write
exchange-listed and OTC put and call options on stock indexes. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the stocks included in the index, fluctuating with changes in the market
values of the stocks included in the index. Some stock index options are based
on a broad market index, such as the NYSE Composite Index, or a narrower market
index such as the Standard & Poor's 100. Indexes may also be based on a
particular industry or market segment.
Options on stock indexes are similar to options on stock except
that (i) the expiration cycles of stock index options are monthly, while those
of stock options are currently quarterly, and (ii) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (a) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (b) a fixed "index multiplier." Receipt
of this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the index and the exercise
price of the option times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Stock index options may be offset by entering into closing transactions as
described above for securities options.
OTC Options. The Fund may purchase OTC or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation, such as the Clearing Corporation, assures that all
transactions in such options are properly executed, the responsibility for
performing all transactions with respect to OTC options rests solely with the
writer and the holder of those options. A listed call option writer, for
example, is obligated to deliver the underlying stock to the clearing
organization if the option is exercised, and the clearing organization is then
obligated to pay the writer the exercise price of the option. If the Fund were
to purchase a dealer option, however, it would rely on the dealer from whom it
purchased the option to perform if the option were exercised. If the dealer
fails to honor the exercise of the option by the Fund, the Fund would lose the
premium it paid for the option and the expected benefit of the transaction.
Listed options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the
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dealer to which the Fund originally wrote the option. Although the Fund will
seek to enter into dealer options only with dealers who will agree to and that
are expected to be capable of entering into closing transactions with the Fund,
there can be no assurance that the Fund will be able to liquidate a dealer
option at a favorable price at any time prior to expiration. The inability to
enter into a closing transaction may result in material losses to the Fund.
Until the Fund, as a covered OTC call option writer, is able to effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used to cover the written option until the option expires or is
exercised. This requirement may impair the Fund's ability to sell portfolio
securities at a time when such sale might be advantageous. In the event of
insolvency of the other party, the Fund may be unable to liquidate a dealer
option.
Futures Activities. The Fund may enter into interest rate and
index futures contracts and purchase and write (sell) related options traded on
exchanges designated by the Commodity Futures Trading Commission (the "CFTC") or
consistent with CFTC regulations on foreign exchanges. These transactions may be
entered into for "bona fide hedging" purposes as defined in CFTC regulations and
other permissible purposes including hedging against changes in the value of
portfolio securities due to anticipated changes in interest rates and/or market
conditions and increasing return.
The Fund reserves the right to engage in transactions involving
futures contracts and options on futures contracts to the extent allowed by CFTC
regulations in effect from time to time and in accordance with the Fund's
policies. There is no overall limit on the percentage of Fund assets that may be
at risk with respect to futures activities. The ability of the Fund to trade in
futures contracts and options on futures contracts may be limited by the
requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to a regulated investment company.
Futures Contracts. An interest rate futures contract provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specific interest rate sensitive financial instrument (debt
security) at a specified price, date, time and place. Securities indexes are
capitalization weighted indexes which reflect the market value of the securities
listed on the indexes. An index futures contract is an agreement to be settled
by delivery of an amount of cash equal to a specified multiplier times the
difference between the value of the index at the close of the last trading day
on the contract and the price at which the agreement is made.
No consideration is paid or received by the Fund upon entering
into a futures contract. Instead, the Fund is required to deposit in a
segregated account with its custodian an amount of cash or cash equivalents,
such as U.S. government securities or other liquid high-grade debt obligations,
equal to approximately 1% to 10% of the contract amount (this amount is subject
to change by the exchange on which the contract is traded, and brokers may
charge a higher amount). This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. The broker will have access to
amounts in the margin account if the Fund fails to meet its
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contractual obligations. Subsequent payments, known as "variation margin," to
and from the broker, will be made daily as the financial instrument or index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market." The Fund will also incur brokerage costs in connection with
entering into futures transactions.
At any time prior to the expiration of a futures contract, the
Fund may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the contract. Positions in
futures contracts and options on futures contracts (described below) may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist at
any particular time. Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the day. It is possible that futures contract prices could move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions at an advantageous
price and subjecting the Fund to substantial losses. In such event, and in the
event of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such situations, if the fund had insufficient
cash, it might have to sell securities to meet daily variation margin
requirements at a time when it would be disadvantageous to do so. In addition,
if the transaction is entered into for hedging purposes, in such circumstances
the Fund may realize a loss on a futures contract or option that is not offset
by an increase in the value of the hedged position. Losses incurred in futures
transactions and the costs of these transactions will affect the Fund's
performance.
Options on Futures Contracts. The Fund may purchase and write put
and call options on interest rate and index futures contracts and may enter into
closing transactions with respect to such options to terminate existing
positions. There is no guarantee that such closing transactions can be effected;
the ability to establish and close out positions on such options will be subject
to the existence of a liquid market.
An option on an interest rate or index futures contract, as
contrasted with the direct investment in such a contract, gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration date
of the option. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of an option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures contracts is
limited to the premium paid for the option (plus
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transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of the
Fund.
Hedging. The Fund may enter into options and futures transactions
as hedges to reduce investment risk, generally by making an investment expected
to move in the opposite direction of a portfolio position. A hedge is designed
to offset a loss in a portfolio position with a gain in the hedged position; at
the same time, however, a properly correlated hedge will result in a gain in the
portfolio position being offset by a loss in the hedged position. As a result,
the use of options and futures transactions for hedging purposes could limit any
potential gain from an increase in the value of the position hedged. In
addition, the movement in the portfolio position hedged may not be of the same
magnitude as movement in the hedge. With respect to futures contracts, since the
value of portfolio securities will far exceed the value of the futures contracts
sold by the Fund, an increase in the value of the futures contracts could only
mitigate, but not totally offset, the decline in the value of the Fund's assets.
In hedging transactions based on an index, whether the Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. The risk of imperfect
correlation increases as the composition of the Fund's portfolio varies from the
composition of the index. In an effort to compensate for imperfect correlation
of relative movements in the hedged position and the hedge, the Fund's hedge
positions may be in a greater or lesser dollar amount than the dollar amount of
the hedged position. Such "over hedging" or "under hedging" may adversely affect
the Fund's net investment results if market movements are not as anticipated
when the hedge is established. Stock index futures transactions may be subject
to additional correlation risks. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the stock index and futures markets. Secondly, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market also may cause temporary
price distortions. Because of the possibility of price distortions in the
futures market and the imperfect correlation between movements in a securities
index and movements in the price of index futures, a correct forecast of general
market trends by Warburg still may not result in a successful hedging
transaction.
The Fund will engage in hedging transactions only when deemed
advisable by Warburg, and successful use by the Fund of hedging transactions
will be subject to Warburg's ability to predict trends in interest rates or
securities markets, as the case may be, and to correctly predict movements in
the directions of the hedge and the hedged position and the correlation between
them, which predictions could prove to be inaccurate. This requires
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different skills and techniques than predicting changes in the price of
individual securities, and there can be no assurance that the use of these
strategies will be successful. Even a well-conceived hedge may be unsuccessful
to some degree because of unexpected market behavior or trends. Losses incurred
in hedging transactions and the costs of these transactions will affect the
Fund's performance.
Asset Coverage for Options, Futures and Options on Futures. As
described in the Prospectuses, the Fund will comply with guidelines established
by the Securities and Exchange Commission (the "SEC") with respect to coverage
of options written by the Fund on securities and indexes and interest rate and
index futures contracts and options on these futures contracts. These guidelines
may, in certain instances, require segregation by the Fund of cash or liquid
securities.
For example, a call option written by the Fund on securities may
require the Fund to hold the securities subject to the call (or securities
convertible into the securities without additional consideration) or to
segregate assets (as described above) sufficient to purchase and deliver the
securities if the call is exercised. A call option written by the Fund on an
index may require the Fund to own portfolio securities that correlate with the
index or to segregate assets (as described above) equal to the excess of the
index value over the exercise price on a current basis. A put option written by
the Fund may require the Fund to segregate assets (as described above) equal to
the exercise price. The Fund could purchase a put option if the strike price of
that option is the same or higher than the strike price of a put option sold by
the Fund. If the Fund holds a futures contract, the Fund could purchase a put
option on the same futures contract with a strike price as high or higher than
the price of the contract held. The Fund may enter into fully or partially
offsetting transactions so that its net position, coupled with any segregated
assets (equal to any remaining obligation), equals its net obligation. Asset
coverage may be achieved by other means when consistent with applicable
regulatory policies.
Additional Information on Other Investment Practices
U.S. Government Securities. The Fund may invest in debt
obligations of varying maturities issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. government securities").
Direct obligations of the U.S. Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. U.S.
government securities also include securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Loan Administration, Export-Import
Bank of the United States, Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal
Land Banks, Federal National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board
and Student Loan Marketing Association. The Fund may also invest in instruments
that are supported by the right of the issuer to borrow from the U.S. Treasury
and instruments that are supported by the credit of the instrumentality. Because
the
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U.S. government is not obligated by law to provide support to an instrumentality
it sponsors, the Fund will invest in obligations issued by such an
instrumentality only if Warburg determines that the credit risk with respect to
the instrumentality does not make its securities unsuitable for investment by
the Fund.
Mortgage-Related and Asset-Backed Debt Securities. The Fund may
invest in mortgage-related securities, such as those issued by GNMA, FNMA, FHLMC
or private organizations. Mortgage-related securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property. The mortgages backing these securities include, among
other mortgage instruments, conventional 30-year fixed-rate mortgages, 15-year
fixed-rate mortgages, graduated payment mortgages and adjustable rate mortgages.
Certain mortgage-related securities issued by certain government-related
issueers are guaranteed by the U.S. government as to the timely payment of
principal and interest. Other mortgage-related securities, including those
issued by private organizations, and asset-backed securities are not guaranteed
by the U.S. government. However, certain mortgage loan and other asset pools may
be supported by various forms of insurance or guarantees. Although there may be
guarantees on the payment of interest and principal of these securities, the
guarantees do not extend to the securities' yield or value, which are likely to
vary inversely with fluctuations in interest rates, nor do the guarantees extend
to the yield or value of the Fund's shares.
These securities generally are "pass-through" instruments,
through which the holders receive a share of all interest and principal payments
from the mortgages underlying the securities, net of certain fees. Some
mortgage-related securities, such as collateralized mortgage obligations
("CMOs"), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate and
repay principal at maturity (like a typical bond). Yields on pass-through
securities are typically quoted by investment dealers and vendors based on the
maturity of the underlying instruments and the associated average life
assumption. The average life of pass-through pools varies with the maturities of
the underlying mortgage loans. A pool's term may be shortened by unscheduled or
early payments of principal on the underlying mortgages. The occurrence of
mortgage prepayments is affected by various factors, including the level of
interest rates, general economic conditions, the location, scheduled maturity
and age of the mortgage and other social and demographic conditions. Because
prepayment rates of individual pools vary widely, it is not possible to predict
accurately the average life of a particular pool. For pools of fixed-rate
30-year mortgages, a common industry practice in the U.S. has been to assume
that prepayments will result in a 12-year average life. At present, pools,
particularly those with loans with other maturities or different
characteristics, are priced on an assumption of average life determined for each
pool. In periods of falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of a pool of
mortgage-related securities. Conversely, in periods of rising rates the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. However, these effects may not be present, or may differ in degree, if the
mortgage loans in the pools have adjustable interest rates or other special
payment terms, such as a prepayment charge. Actual prepayment experience may
cause the yield of mortgage-backed securities to differ from the
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assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the Fund's
yield.
The rate of interest on mortgage-related securities is lower than
the interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders and to any guarantor, such as GNMA, and
due to any yield retained by the issuer. Actual yield to the holder may vary
from the coupon rate, even if adjustable, if the mortgage-related securities are
purchased or traded in the secondary market at a premium or discount. In
addition, there is normally some delay between the time the issuer receives
mortgage payments from the servicer and the time the issuer makes the payments
on the mortgage-related securities, and this delay reduces the effective yield
to the holder of such securities.
The Fund may also invest in asset-backed securities, which
represent participations in, or are secured by and payable from, assets such as
motor vehicle installment sales, installment loan contracts, leases of various
types of real and personal property and receivables from revolving credit
(credit card) agreements. Such assets are securitized through the use of trusts
and special purpose corporations. Payments or distributions of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation.
Asset-backed securities present certain risks that are not
presented by other securities in which the Fund may invest. Automobile
receivables generally are secured by automobiles. Most issuers of automobile
receivables permit the loan servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Because asset-backed securities are relatively
new, the market experience in these securities is limited, and the market's
ability to sustain liquidity through all phases of the market cycle has not been
tested.
Downgraded Debt and Convertible Securities. Although the Fund may
invest only in investment grade securities (as described in the Prospectuses),
it is not required to dispose of securities downgraded below investment grade
subsequent to acquisition by the Fund. While the market values of medium- and
lower-rated securities and unrated securities of comparable quality tend to
react less to fluctuations in interest rate levels than do those of higher-rated
securities, the market values of certain of these securities also tend to be
more
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sensitive to individual corporate developments and changes in economic
conditions than higher-quality securities. In addition, medium- and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. Issuers of medium- and lower-rated securities and unrated
securities are often highly leveraged and may not have more traditional methods
of financing available to them so that their ability to service their
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because medium- and lower-rated securities and unrated
securities generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness.
The market for medium- and lower-rated and unrated securities is
relatively new and has not weathered a major economic recession. Any such
recession could disrupt severely the market for such securities and may
adversely affect the value of such securities and the ability of the issuers of
such securities to repay principal and pay interest thereon.
The Fund may have difficulty disposing of certain of these
securities because there may be a thin trading market. Because there is no
established retail secondary market for many of these securities, the Fund
anticipates that these securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market for
these securities does exist, it generally is not as liquid as the secondary
market for higher-rated securities. The lack of a liquid secondary market, as
well as adverse publicity and investor perception with respect to these
securities, may have an adverse impact on market price and the Fund's ability to
dispose of particular issues when necessary to meet the Fund's liquidity needs
or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund and calculating its
net asset value.
The market value of securities in medium- and lower-rated
categories is more volatile than that of higher quality securities. Factors
adversely impacting the market value of these securities will adversely impact
the Fund's net asset value. The Fund will rely on the judgment, analysis and
experience of Warburg in evaluating the creditworthiness of an issuer. In this
evaluation, Warburg will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
its operating history, the quality of the issuer's management and regulatory
matters. Normally, medium- and lower-rated and comparable unrated securities are
not intended for short-term investment. The Fund may incur additional expenses
to the extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings of such securities. Recent
adverse publicity regarding lower-rated securities may have depressed the prices
for such securities to some extent. Whether investor perceptions will continue
to have a negative effect on the price of such securities is uncertain.
Lending of Portfolio Securities. The Fund may lend portfolio
securities to brokers, dealers and other financial organizations that meet
capital and other credit requirements or other criteria established by the
Fund's Board of Directors (the "Board").
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The Fund will not lend portfolio securities to affiliates of Warburg unless it
has applied for and received specific authority to do so from the SEC. Loans of
portfolio securities will be collateralized by cash, letters of credit or U.S.
government securities, which are maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Fund. From time to time, the
Fund may return a part of the interest earned from the investment of collateral
received for securities loaned to the borrower and/or a third party that is
unaffiliated with the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest and any dividends on the loaned securities as
well as by either investing the collateral received for securities loaned in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. government securities are used as collateral. Although the
generation of income is not an investment objective of the Fund, income received
could be used to pay the Fund's expenses and would increase an investor's total
return. The Fund will adhere to the following conditions whenever its portfolio
securities are loaned: (i) the Fund must receive at least 100% cash collateral
or equivalent securities of the type discussed in the preceding paragraph from
the borrower; (ii) the borrower must increase such collateral whenever the
market value of the securities rises above the level of such collateral; (iii)
the Fund must be able to terminate the loan at any time; (iv) the Fund must
receive reasonable interest on the loan, as well as any dividends, interest or
other distributions on the loaned securities and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower,
provided, however, that if a material event adversely affecting the investment
occurs, the Board must terminate the loan and regain the right to vote the
securities. Loan agreements involve certain risks in the event of default or
insolvency of the other party including possible delays or restrictions upon the
Fund's ability to recover the loaned securities or dispose of the collateral for
the loan.
Foreign Investments. The Fund may invest up to 10% of its total
assets in the securities of foreign issuers. Investors should recognize that
investing in foreign companies involves certain risks, including those discussed
below, which are not typically associated with investing in U.S. issuers. A
change in the value of a foreign currency relative to the U.S. dollar will
result in a corresponding change in the dollar value of the Fund's assets
denominated in that foreign currency. Changes in foreign currency exchange rates
may also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and gains, if any,
to be distributed to shareholders by the Fund. The rate of exchange between the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. Changes in the exchange rate may result
over time from the interaction of many factors directly or indirectly affecting
economic and political conditions in the United States and a particular foreign
country, including economic and political developments in other countries. Of
particular importance are rates of inflation, interest rate levels, the balance
of payments and the extent of government surpluses or deficits in the United
States and the particular foreign country, all of
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which are in turn sensitive to the monetary, fiscal and trade policies pursued
by the governments of the United States and foreign countries important to
international trade and finance. Governmental intervention may also play a
significant role. National governments rarely voluntarily allow their currencies
to float freely in response to economic forces. Sovereign governments use a
variety of techniques, such as intervention by a country's central bank or
imposition of regulatory controls or taxes, to affect the exchange rates of
their currencies.
Many of the foreign securities held by the Fund will not be
registered with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available information about
the securities and about the foreign company or government issuing them than is
available about a domestic company or government entity. Foreign companies are
generally not subject to uniform financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies. In addition, with
respect to some foreign countries, there is the possibility of expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or domestic developments which could
affect U.S. investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments positions. The
Fund may invest in securities of foreign governments (or agencies or
instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
Securities of some foreign companies are less liquid and their
prices are more volatile than securities of comparable U.S. companies. Certain
foreign countries are known to experience long delays between the trade and
settlement dates of securities purchased or sold. Due to the increased exposure
of the Fund to market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on Fund liquidity, the Fund
will avoid investing in countries which are known to experience settlement
delays which may expose the Fund to unreasonable risk of loss.
Dollar-Denominated Debt Securities of Foreign Issuers. The
returns on foreign debt securities reflect interest rates and other market
conditions prevailing in those countries. The relative performance of various
countries' fixed income markets historically has reflected wide variations
relating to the unique characteristics of each country's economy. Year-to-year
fluctuations in certain markets have been significant, and negative returns have
been experienced in various markets from time to time.
Short Sales "Against the Box." In a short sale, the Fund sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. The seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
If the Fund engages in a short sale, the collateral for the short position will
be maintained by the Fund's custodian or qualified sub-custodian. While the
short sale is open, the Fund will maintain in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or
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exchangeable for such equivalent securities. These securities constitute the
Fund's long position.
While a short sale is made by selling a security the Fund does
not own, a short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain, at no added cost, securities
identical to those sold short. The Fund does not intend to engage in short sales
against the box for investment purposes. The Fund may, however, make a short
sale as a hedge, when it believes that the price of a security may decline,
causing a decline in the value of a security owned by the Fund (or a security
convertible or exchangeable for such security), or when the Fund wants to sell
the security at an attractive current price, but also wishes to defer
recognition of gain or loss for U.S. federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in the Fund's long
position should be offset by a gain in the short position and, conversely, any
gain in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Fund owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Fund will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.
Securities of Smaller Companies. The Fund's investments in small
companies involve considerations that are not applicable to investing in
securities of established, larger-capitalization issuers, including reduced and
less reliable information about issuers and markets, less stringent accounting
standards, illiquidity of securities and markets, higher brokerage commissions
and fees and greater market risk in general. In addition, securities of smaller
companies may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile.
Warrants. The Fund may invest up to 5% of net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase).
Because a warrant does not carry with it the right to dividends or voting rights
with respect to the securities which it entitles a holder to purchase, and
because it does not represent any rights in the assets of the issuer, warrants
may be considered more speculative than certain other types of investments.
Also, the value of a warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not exercised
prior to its expiration date.
Non-Publicly Traded and Illiquid Securities. The Fund may not
invest more than 15% of its net assets in illiquid securities, including
securities that are illiquid by virtue of the absence of a readily available
market, time deposits maturing in more than seven days, certain Rule 144A
Securities (as defined below) and repurchase agreements which have a maturity of
longer than seven days. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. Repurchase agreements subject to demand are deemed
to have a maturity equal to the notice period.
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Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which have
not been registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
Rule 144A Securities. Rule 144A under the Securities Act adopted
by the SEC allows for a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. Warburg
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and use of automated systems for the trading, clearance and
settlement of unregistered securities of domestic and foreign issuers, such as
the PORTAL System sponsored by the National Association of Securities Dealers,
Inc.
An investment in Rule 144A Securities will be considered illiquid
and therefore subject to the Fund's limit on the purchase of illiquid securities
unless the Board or its delegates determines that the Rule 144A Securities are
liquid. In reaching liquidity decisions, the Board and its delegates may
consider, inter alia, the following factors: (i) the unregistered nature of the
security; (ii) the frequency of trades and quotes for the security; (iii) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (iv) dealer undertakings to make a market in the
security and (v) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
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Borrowing. The Fund may borrow up to 30% of its total assets for
temporary or emergency purposes, including to meet portfolio redemption requests
so as to permit the orderly disposition of portfolio securities or to facilitate
settlement transactions on portfolio securities, so long as there is asset
coverage of at least 300% for all borrowings of the Fund. Additional investments
(including roll-overs) will not be made when borrowings exceed 5% of the Fund's
net assets. Although the principal of such borrowings will be fixed, the Fund's
assets may change in value during the time the borrowing is outstanding. The
Fund expects that some of its borrowings may be made on a secured basis. In such
situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or liquid
high-grade debt securities having a value not less than the repurchase price
(including accrued interest). The assets contained in the segregated account
will be marked-to-market daily and additional assets will be placed in such
account on any day in which the assets fall below the repurchase price (plus
accrued interest). The Fund's liquidity and ability to manage its assets might
be affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale may decline below the price of
the securities the Fund has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce a Fund's obligation
to repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such decision.
Municipal Obligations. Municipal Obligations (as defined in the
Prospectuses) are 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 bonds that are issued by or on behalf of public
authorities to finance various privately-owned facilities are included within
the term Municipal Obligations if the interest paid thereon is exempt from
federal income tax. See the Prospectuses, "Certain Investment Strategies -
Municipal Obligations".
Among other instruments, the 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.
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There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations 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 Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Group ("S&P") represent their opinions as to the quality of Municipal
Obligations. It should be emphasized, however, that the ratings are general and
are not absolute standards of quality, and Municipal Obligations with the same
maturity, interest rate and rating may have different yields, while Municipal
Obligations of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to its purchase by the Fund, an issue of
Municipal Obligations may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. Warburg 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 the rating
of Moody's and S&P and their significance.
Municipal Obligations are also subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, the laws, if any, which may be
enacted by Congress 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 the 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 Obligations may be materially affected.
Variable Rate Notes. Variable rate demand notes ("VRDN's") are
tax exempt obligations which contain a floating or variable interest rate
adjustment formula and an unconditional right of demand to receive payment of
the unpaid principal balance plus accrued interest upon a short notice period.
The interest rates are adjustable at intervals ranging from daily to up to every
six months to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment rate. The
adjustments are typically based upon the prime rate of a bank or some other
appropriate interest rate adjustment index.
When Issued Securities and Delayed Delivery Transactions. The
Fund may use its assets to purchase securities on a "when-issued" basis or
purchase or sell securities for delayed delivery (i.e., payment or delivery
occur beyond the normal settlement date at a stated price and yield). The Fund
will enter into a when-issued transaction for the purpose of acquiring portfolio
securities and not for speculative purposes, but may sell the securities before
the settlement date if Warburg deems it advantageous to do so. The payment
obligation and the interest rate that will be received on when-issued and
delayed-delivery securities are fixed at the time the buyer enters into the
commitment. Due to fluctuations in the value of securities purchased or sold on
a when-issued or delayed-delivery basis, the yields obtained on
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such securities may be higher or lower than the yields available in the market
on the dates when the investments are actually delivered to the buyers.
When the Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash, U.S. government securities or
other liquid high-grade debt obligations or other securities that are acceptable
as collateral to the appropriate regulatory authority equal to the amount of the
commitment in a segregated account. 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. When the Fund
engages in when-issued or delayed-delivery transactions, it relies on the other
party 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.
Other Investment Limitations
The investment limitations numbered 1 through 11 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 the 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 12 through 18 may be
changed by a vote of the Board at any time.
The Fund may not:
1. Borrow money except that the Fund may (a) borrow from banks
for temporary or emergency purposes and (b) enter into reverse repurchase
agreements; provided that reverse repurchase agreements and any other
transactions constituting borrowing by the Fund may not exceed 30% of the value
of the Fund's total assets at the time of such borrowing and only if after such
borrowing there is assets coverage of at least 300% for all borrowings of the
Fund. For purposes of this restriction, the entry into options, futures
contracts and options on futures contracts shall not constitute borrowing.
2. Purchase the securities of any issuer if as a result more than
5% of the value of the Fund's total assets would be invested in the securities
of such issuer or more than 10% of the outstanding voting securities of such
issuer would be owned by the Fund, except that this 5% limitation does not apply
to U.S. government securities and except that up to 25% of the value of the
Fund's total assets may be invested without regard to this 5% limitation.
3. Make loans, except that the Fund may purchase or hold
fixed-income securities, lend portfolio securities and enter into repurchase
agreements in accordance with its investment objectives, policies and
limitations.
19
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4. Underwrite any securities issued by others except to the
extent that the investment in restricted securities and the sale of securities
or the purchase of securities directly from the issuer in accordance with the
Fund's investment objectives, policies and limitations may be deemed to be
underwriting.
5. Purchase or sell real estate, except that the Fund may invest
in (a) securities secured by real estate, mortgages or interests therein or (b)
issued by companies which invest in real estate or interests therein.
6. Make short sales of securities or maintain a short position,
except that the Fund may maintain short positions in options on currencies,
securities and stock indexes, futures contracts and options on futures contracts
and enter into short sales "against the box."
7. Purchase securities on margin, except that the Fund may obtain
any short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in options, futures
contracts and options on futures contracts will not be deemed to be a purchase
of securities on margin.
8. Invest in commodities, except that the Fund may purchase and
sell futures contracts and options on futures contracts, currencies, securities
or indexes.
9. Pledge, mortgage or hypothecate its assets, except (a) to the
extent necessary to secure permitted borrowings and (b) to the extent related to
the deposit of assets in escrow in connection with collateral and initial or
variation margin arrangements with respect to options, futures contracts, and
options on futures contracts and in amounts not in excess of 125% of the dollar
amount borrowed.
10. Invest more than 15% of the Fund's net assets in securities
which may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities.
11. Make additional investments (including roll-overs) if the
Fund's borrowings exceed 5% of its net assets.
12. Make investments for the purpose of exercising control or
management.
13. Purchase any securities which would cause 25% or more 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 U.S.
government securities.
20
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<PAGE>
14. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition, reorganization or offer of
exchange.
15. Purchase any security if as a result the Fund would then have
more than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
16. Invest in oil, gas or mineral exploration or development
programs, except that the Fund may invest in securities of companies that invest
in or sponsor oil, gas or mineral exploration or development programs.
17. Purchase or retain securities of any company if any of the
Fund's officers or Directors or any officer or director of Warburg individually
owns more than 1/2 of 1% of the outstanding securities of such company and
together they own beneficially more than 5% of the securities.
18. Invest in warrants (other than warrants acquired by the Fund
as part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 5%
of the value of the Fund's net assets.
Certain non-fundamental investment limitations are currently
required by one or more states in which shares of the Fund are sold. These may
be more restrictive than the limitations set forth above. Should the Fund
determine that any such commitment is no longer in the best interest of the Fund
and its shareholders, the Fund will revoke the commitment by terminating the
sale of Fund shares in the state involved. In addition, the relevant state may
change or eliminate its policy regarding such investment limitations.
If a percentage restriction (other than the percentage limitation
set forth in No. 1 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
The Prospectuses discuss the time at which the net asset value of
the Fund is determined for purposes of sales and redemptions. The following is a
description of the procedures used by the Fund in valuing its assets.
Securities listed on a U.S. securities exchange (including
securities traded through the Nasdaq National Market System) or foreign
securities exchange or traded in an over-the-counter market will be valued at
the most recent sale as of the time the valuation is made or, in the absence of
sales, at the mean between the bid and asked quotations. If there are no such
quotations, the value of the securities will be taken to be the highest bid
quotation on the exchange or market. Options and futures contracts will be
valued similarly. A security which is listed or traded on more than one exchange
is valued at the quotation on the exchange
21
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<PAGE>
determined to be the primary market for such security. Short-term obligations
with maturities of 60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Board. Amortized cost involves
valuing a portfolio instrument at its initial cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. The
amortized cost method of valuation may also be used with respect to other debt
obligations with 60 days or less remaining to maturity. In determining the
market value of portfolio investments, the Fund may employ outside organizations
(a "Pricing Service") which may use a matrix, formula or other objective method
that takes into consideration market indexes, matrices, yield curves and other
specific adjustments. The procedures of Pricing Services are reviewed
periodically by the officers of the Fund under the general supervision and
responsibility of the Board, which may replace a Pricing Service at any time.
Securities, options and futures contracts for which market quotations are not
available and other assets of the Fund will be valued at their fair value as
determined in good faith pursuant to consistently applied procedures established
by the Board. In addition, the Board or its delegates may value a security at
fair value if it determines that such security's value determined by the
methodology set forth above does not reflect its fair value.
Trading in securities in certain foreign countries is completed
at various times prior to the close of business on each business day in New York
(i.e., a day on which the NYSE is open for trading). In addition, securities
trading in a particular country or countries may not take place on all business
days in New York. Furthermore, trading takes place in various foreign markets on
days which are not business days in New York and days on which the Fund's net
asset value is not calculated. As a result, calculation of the Fund's net asset
value may not take place contemporaneously with the determination of the prices
of certain portfolio securities used in such calculation. Events affecting the
values of portfolio securities that occur between the time their prices are
determined and the close of regular trading on the NYSE will not be reflected in
the Fund's calculation of net asset value unless the Board or its delegates
deems that the particular event would materially affect net asset value, in
which case an adjustment may be made. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values
at the prevailing rate as quoted by a Pricing Service. If such quotations are
not available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.
Portfolio Transactions
Warburg is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and
22
<PAGE>
<PAGE>
asked price, which includes a dealer's mark-up or mark-down. Transactions on
U.S. stock exchanges and some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. On most
foreign exchanges, commissions are generally fixed. There is generally no stated
commission in the case of securities traded in domestic or foreign
over-the-counter markets, but the price of securities traded in over-the-counter
markets includes an undisclosed commission or mark-up. U.S. government
securities are generally purchased from underwriters or dealers, although
certain newly issued U.S. government securities may be purchased directly from
the U.S. Treasury or from the issuing agency or instrumentality.
Warburg will select specific portfolio investments and effect
transactions for the Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions,
Warburg will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. Warburg may, in its discretion, effect transactions in portfolio
securities with dealers who provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to
the Fund and/or other accounts over which Warburg exercises investment
discretion. Warburg may place portfolio transactions with a broker or dealer
with whom it has negotiated a commission that is in excess of the commission
another broker or dealer would have charged for effecting the transaction if
Warburg determines in good faith that such amount of commission was reasonable
in relation to the value of such brokerage and research services provided by
such broker or dealer viewed in terms of either that particular transaction or
of the overall responsibilities of Warburg. Research and other services received
may be useful to Warburg in serving both the Fund and its other clients and,
conversely, research or other services obtained by the placement of business of
other clients may be useful to Warburg in carrying out its obligations to the
Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading markets and
methods, legislative developments, changes in accounting practices, economic
factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts, economists and government
officials; comparative performance evaluation and technical measurement services
and quotation services; and products and other services (such as third party
publications, reports and analyses, and computer and electronic access,
equipment, software, information and accessories that deliver, process or
otherwise utilize information, including the research described above) that
assist Warburg in carrying out its responsibilities. For the fiscal period ended
August 31, 1996, $23,592 of total brokerage commissions were paid by the Fund to
brokers and dealers who provided such research and other services. Research
received from brokers or dealers is supplemental to Warburg's own research
program. The fees to Warburg under its
23
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<PAGE>
advisory agreement with the Fund are not reduced by reason of its receiving
any brokerage and research services.
During the fiscal years ended August 31, 1996, 1995 and 1994 the
Fund, and, for relevant periods, the Warburg Pincus Balanced Fund investment
portfolio of The RBB Fund (the "RBB Fund") paid brokerage commissions of
$61,926, $8,122 and $506, respectively. (The Fund is the successor to the
Warburg Pincus Balanced Fund investment portfolio of the RBB Fund, having
acquired its assets and liabilities on May 3, 1996.)
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by
Warburg. 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 Warburg
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, Warburg may aggregate the securities to be sold or purchased
for the Fund with those to be sold or purchased for such other investment
clients in order to obtain best execution.
Any portfolio transaction for the Fund may be executed through
Counsellors Securities Inc., the Fund's distributor ("Counsellors Securities"),
if, in Warburg's judgment, the use of Counsellors Securities is likely to result
in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Counsellors Securities charges the Fund a
commission rate consistent with those charged by Counsellors Securities to
comparable unaffiliated customers in similar transactions. All transactions with
affiliated brokers will comply with Rule 17e-1 under the 1940 Act.
In no instance will portfolio securities be purchased from or
sold to Warburg or Counsellors Securities or any affiliated person of such
companies. In addition, the Fund will not give preference to any institutions
with whom the Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services. See the
Prospectuses, "Shareholder Servicing."
Transactions for the Fund may be effected on foreign securities
exchanges. In transactions for securities not actively traded on a foreign
securities exchange, the Fund will deal directly with the dealers who make a
market in the securities involved, except in those circumstances where better
prices and execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Such portfolio securities are generally traded on a
net basis and do not normally involve brokerage commissions. Securities firms
may receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options.
24
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The Fund may participate, if and when practicable, in bidding for
the purchase of securities for the Fund's portfolio directly from an issuer 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, in
its sole discretion, believes such practice to be otherwise in the Fund's
interest.
Portfolio Turnover
The Fund does not intend to seek profits through short-term
trading, but the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. The Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the date
of acquisition are excluded from the calculation.
Certain practices that may be employed by the Fund could result
in high portfolio turnover. For example, options on securities may be sold in
anticipation of a decline in the price of the underlying security (market
decline) or purchased in anticipation of a rise in the price of the underlying
security (market rise) and later sold. To the extent that its portfolio is
traded for the short-term, the Fund will be engaged essentially in trading
activities based on short-term considerations affecting the value of an issuer's
stock instead of long-term investments based on fundamental valuation of
securities. Because of this policy, portfolio securities may be sold without
regard to the length of time for which they have been held.
MANAGEMENT OF THE FUND
Officers and Board of Directors
The names (and ages) of the Fund's Directors and officers, their
addresses, present positions and principal occupations during the past five
years and other affiliations are set forth below.
<TABLE>
<S> <C>
Richard N. Cooper (62).............. Director
Harvard University.................. National Intelligence Counsel;
1737 Cambridge Street............... Professor at Harvard University;
Cambridge, MA 02138 Director or Trustee of Circuit City Stores, Inc.
(retail electronics and appliances) and Phoenix
Home Mutual Life Insurance Company.
Donald J. Donahue (72).............. Director
27 Signal Road...................... Chairman of Magma Copper Company
Stamford, Connecticut 06830......... from December 1987 until December 1995;
Chairman and Director of NAC Holdings from
September 1990-June 1993; Director of Chase
</TABLE>
25
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<PAGE>
<TABLE>
<S> <C>
Brass Industries, Inc. since December 1994; Director of
Pioneer Companies, Inc. (chlor-alkali chemicals)
and predecessor companies since 1990 and Vice
Chairman since December 1995.
Jack W. Fritz (69).................. Director
2425 North Fish Creek Road.......... Private investor; Consultant and
P.O. Box 483........................ Director of Fritz Broadcasting, Inc. and
Wilson, Wyoming 83014............... Fritz Communications (developers and operators of
radio stations); Director of Advo, Inc. (direct
mail advertising).
John L. Furth* (65)................. Chairman of the Board
466 Lexington Avenue................ Vice Chairman and Director of E.M. Warburg,
New York, New York 10017-3147....... Pincus & Co., Inc. ("EMW"); Associated
with EMW since 1970; President of
The Grant Street Settlement; officer
of other investment companies
advised by Warburg.
Thomas A. Melfe (64)................ Director
30 Rockefeller Plaza................ Partner in the law firm of Donovan Leisure
New York, New York 10112............ Newton & Irvine; Chairman of the Board, Municipal
Fund for New York Investors, Inc.
Alexander B. Trowbridge (66)........ Director
1317 F Street, N.W., 5th Floor...... President of Trowbridge Partners, Inc.
Washington, DC 20004................ (business consulting) from January 1990-
November 1996; President of the National
Association of Manufacturers from 1980-1990;
Director or Trustee of New England Mutual Life
Insurance Co., ICOS Corporation
(biopharmaceuticals), WMX Technologies Inc.
(solid and hazardous waste collection and
disposal), The Rouse Company (real estate
development), Harris Corp. (electronics and
communications equipment), The Gillette Co.
(personal care products) and Sun Company Inc.
(petroleum refining and marketing).
Arnold M. Reichman* (48)............ President and Director
466 Lexington Avenue................ Managing Director and Assistant Secretary
</TABLE>
- --------------
* Indicates a Director who is an "interested person" of the Fund as defined in
the 1940 Act.
26
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<TABLE>
<S> <C>
New York, New York 10017-3147....... of EMW; Associated with EMW since 1984; Senior
Vice President, Secretary and Chief
Operating Officer of Counsellors
Securities; Officer of other
investment companies advised by
Warburg.
Eugene L. Podsiadlo (39)............ Senior Vice President
466 Lexington Avenue................ Managing Director of EMW;
New York, New York 10017-3147....... Associated with EMW since 1991; Vice President of
Citibank, N.A. from 1987-1991; Senior Vice
President of Counsellors Securities and officer
of other investment companies advised by Warburg.
Stephen Distler (43)................ Vice President
466 Lexington Avenue................ Managing Director, Controller and Assistant
New York, New York 10017-3147...... Secretary of EMW; Associated with EMW since 1984;
Treasurer of Counsellors Securities; Vice
President of other investment companies advised
by Warburg.
Eugene P. Grace (44)................ Vice President and Secretary
466 Lexington Avenue................ Associated with EMW since April 1994;
New York, New York 10017-3147....... Attorney-at-law from September 1989-April 1994;
life insurance agent, New York Life
Insurance Company from 1993-1994;
General Counsel and Secretary, Home
Unity Savings Bank from 1991-1992;
Vice President, Chief Compliance
Officer and Assistant Secretary of
Counsellors Securities; Vice
President and Secretary of other
investment companies advised by
Warburg.
Howard Conroy (42).................. Vice President and Chief
466 Lexington Avenue................ Financial Officer
New York, New York 10017-3147....... Associated with EMW since 1992;
Associated with Martin Geller, C.P.A. from
1990-1992; Vice President, Finance with
Gabelli/Rosenthal & Partners, L.P. until 1990;
Vice President and Chief Financial Officer of
other investment companies advised by Warburg.
Daniel S. Madden, CPA (31) Treasurer and Chief Accounting Officer
466 Lexington Avenue Associated with EMW since 1995; Associated with
New York, New York 10017-3147 BlackRock Financial Management, Inc. from
September 1994 to October 1996;
</TABLE>
27
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<PAGE>
<TABLE>
<S> <C>
Associated with BEA Associates from
April 1993 to September 1994;
Associated with Ernst & Young LLP
from 1990 to 1993; Treasurer and
Chief Accounting Officer of other
investment companies advised by
Warburg.
Janna Manes (29).................... Assistant Secretary
466 Lexington Avenue................ Associated with EMW since March 1996;
New York, New York 10017-3147...... Associated with the law firm of Willkie Farr &
Gallagher from 1993-1996; Assistant
Secretary of other investment
companies advised by Warburg.
</TABLE>
No employee of Warburg or PFPC Inc., the Fund's co-administrator
("PFPC"), or any of their affiliates receives any compensation from the Fund for
acting as an officer or director of the Fund. Each Director who is not a
director, trustee, officer or employee of Warburg, PFPC or any of their
affiliates receives an annual fee of $500, and $250 for each meeting of the
Board attended by him for his services as Director and is reimbursed for
expenses incurred in connection with his attendance at Board meetings.
Directors' Compensation
(For the fiscal year ended August 31, 1996)
<TABLE>
<CAPTION>
Total Total Compensation from
Compensation from all Investment Companies
Name of Director Fund Managed by Warburg*
---------------- ----------------- -------------------------
<S> <C> <C>
John L. Furth None** None**
Arnold M. Reichman None** None**
Richard N. Cooper $1,500 $47,000
Donald J. Donahue $1,500 $47,000
Jack W. Fritz $1,500 $47,000
Thomas A. Melfe $1,500 $47,000
Alexander B. Trowbridge $1,500 $47,000
</TABLE>
- --------------
* Each Director also serves as a Director or Trustee of 22 other
investment companies advised by Warburg.
28
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<PAGE>
** Mr. Furth and Mr. Reichman are considered to be interested persons of
the Fund and Warburg, as defined under Section 2(a)(19) of the 1940 Act,
and, accordingly, receive no compensation from the Fund or any other
investment company managed by Warburg.
As of December 20, 1996, Directors or officers of the Fund as a group
owned less than 1% of the outstanding shares of the Fund.
Portfolio Managers
Mr. Anthony G. Orphanos is an overall portfolio strategist for
the Fund and the manager of the U.S. Value Sector. Mr. Orphanos is also
portfolio manager of Warburg Pincus Strategic Value Fund and senior portfolio
manager of Warburg's institutional value product. He has 23 years of investment
experience. Prior to joining Warburg, Mr. Orphanos was vice president and
investment officer of Dreyfus Leverage Fund, Inc. from 1972 to 1977. He received
his A.B. degree from Harvard University and his M.B.A. from New York University.
Mr. Dale C. Christensen is an overall portfolio strategist for
the Fund and the manager of the Fixed Income Sector. Mr. Christensen is also the
president and co-portfolio manager of Warburg Pincus Fixed Income, Global Fixed
Income, Intermediate Maturity Government and New York Intermediate Municipal
Funds. He also directs the fixed income group at Warburg, which he joined in
1989, providing portfolio management for institutional clients around the world.
Mr. Christensen was a vice president in the International Private Banking
division at Citicorp from 1984 to 1989. Prior to that, Mr. Christensen was a
fixed income portfolio manager at CIC Asset Management from 1982 to 1984. Mr.
Christensen earned a B.S. in Agriculture from the University of Alberta and a
B.Ed. in Mathematics from the University of Calgary, both located in Canada.
Ms. Elizabeth B. Dater, co-manager of the U.S. Small Company
Sector, is also co-president and co-portfolio manager of Warburg Pincus Emerging
Growth Fund and co-portfolio manager of Warburg Pincus Post-Venture Capital Fund
and the Small Company Growth Portfolios of Warburg Pincus Institutional Fund,
Inc. and Warburg Pincus Trust. Ms. Dater also manages an institutional
post-venture capital fund and is the former director of research for Warburg's
investment management activities. Prior to joining Warburg in 1978, she was a
vice president of research at Fiduciary Trust Company of New York and an
institutional sales assistant at Lehman Brothers. Ms. Dater has been a regular
panelist on Maryland Public Television's Wall Street Week with Louis Rukeyser
since 1976. Ms. Dater earned a B.A. degree from Boston University in
Massachusetts.
Mr. Stephen J. Lurito, co-manager of the U.S. Small Company
Sector, is also portfolio manager of Warburg Pinus Small Company Growth Fund and
co-portfolio manager of Warburg Pincus Emerging Growth Fund and the Small
Company Growth Portfolio of Warburg Pincus Trust. Mr. Lurito, also the research
coordinator and a portfolio manager for micro-cap equity and post-venture
products, has been with Warburg since 1987.
29
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Prior to that he was a research analyst at Sanford C. Bernstein & Company, Inc.
Mr. Lurito earned a B.A. degree from the University of Virginia and an M.B.A.
from The Wharton School of the University of Pennsylvania.
Mr. Kyle F. Frey is associate portfolio manager and research
analyst of the U.S. Small Company Sector. Mr. Frey is also a research analyst
and assistant portfolio manager for Warburg Pincus Small Company Value Fund.
Prior to joining Warburg in 1989, Mr. Frey was with Goldman, Sachs & Co. in
the institutional sales division. Mr. Frey earned a B.S. degree from the
University of New Hampshire and an M.B.A. from New York University.
Mr. George Wyper, co-manger of the U.S. Mid-Cap Sector, is also
co-president and co-portfolio manager of Warburg Pincus Capital Appreciation
Fund and portfolio manager of Warburg Pincus Small Company Value Fund. From 1987
until 1990 Mr. Wyper was the director of fixed income investments at Fireman's
Fund Insurance Company, and from 1990 until 1993 he was chief investment officer
of Fund American Enterprises, Inc. Mr. Wyper was chief investment officer of
White River Corporation and president of Hanover Advisers, Inc. from 1993 until
he joined Warburg in August 1994. Mr. Wyper earned a B.S. degree in economics
from The Wharton School of Business of the University of Pennsylvania and a
Masters of Management from Yale University.
Ms. Susan L. Black is co-manager of the U.S. Mid Cap Sector, as
well as co-president and co-portfolio manager of Warburg Pincus Capital
Appreciation Fund and Warburg Pincus Health Sciences Fund and the director of
research and a senior portfolio manager of the institutional growth equity
product at Warburg. From 1961 until 1973 Ms. Black was employed by Argus
Research, first as a securities analyst, then as director of research. From 1973
until 1977 and from 1978 until 1979 she was a vice president of research at
Drexel Burnham Lambert. From 1977 until 1978 she was a vice president of
Research at Donaldson, Lufkin and Jenrette, and from 1979 until 1985 Ms. Black
was a partner at Century Capital Associates. Ms. Black received a B.A. degree
from Mount Holyoke College.
Mr. Richard H. King, co-manager of the International Equity
Sector is also a portfolio manager of Warburg Pincus International Equity Fund
and co-portfolio manager of Warburg Pincus Japan OTC Fund and Warburg Pincus
Emerging Markets Fund and the International Equity Portfolios of Warburg Pincus
Institutional Fund, Inc. and Warburg Pincus Trust. From 1968 to 1982 he worked
at W.I. Carr Sons & Company (Overseas), a leading international brokerage firm.
He resided in the Far East as an investment analyst from 1970 to 1977, became
director, and later relocated to the U.S. where he became founder and president
of W.I. Carr (America), based in New York. From 1982 to 1984 Mr. King was a
director in charge of the Far East equity investments at N.M. Rothschild
International Asset Management, a London merchant bank. In 1984 Mr. King became
chief investment officer and director for all international investment strategy
with Fiduciary Trust Company International S.A., in London. He managed an EAFE
mutual fund (FTIT) 1985-1986 which grew from $3 million to over $100 million
during this two-year period. Mr. King earned a B.A. degree from Durham
University in England.
Ms. Nancy Nierman, co-manager of the International Equity
Sector, is also a vice president of Warburg. She has been with Warburg
since April 1996, before which time she was an analyst with Fiduciary
Trust Company International.
30
<PAGE>
<PAGE>
Investment Adviser and Co-Administrators
Warburg serves as investment adviser to the Fund pursuant to a
written agreement (the "Advisory Agreement"). Counsellors Funds Service, Inc.
("Counsellors Service") and PFPC both serve as co-administrators to the Fund
pursuant to separate written agreements (the "Counsellors Service
Co-Administration Agreement" and the "PFPC Co-Administration Agreement,"
respectively). Prior to October 1, 1994, PNC Institutional Management Corp.
("PIMC") and PNC rendered advisory and sub-advisory services, respectively, to
the predecessor of the Fund, the Warburg Pincus Balanced Fund investment
portfolio of the RBB Fund. Subadvisory fees were paid by the advisor and not the
Fund. The services provided by, and the fees payable by the Fund to, Warburg
under the Advisory Agreement, Counsellors Service under the Counsellors Service
Co-Administration Agreement and PFPC under the PFPC Co-Administration Agreement
are described in the Prospectuses. Each class of shares of the Fund bears its
proportionate share of fees payable to Warburg, Counsellors Service and PFPC in
the proportion that its assets bear to the aggregate assets of the Fund at the
time of calculation.
For the fiscal year ended August 31, 1996, Warburg earned $25,040
($170,672 without waivers) in investment advisory fees. For the fiscal year
ended August 31, 1995, Warburg received $0 ($14,367 without waivers) in advisory
fees with respect to the Warburg Pincus Balanced Fund investment portfolio of
the RBB Fund and PIMC also received $0 ($362 without waivers). For the fiscal
year ended August 31, 1994, PIMC also waived its entire advisory fees in the
amount of $4,251. Under the Counsellors Service Co-Administration Agreement, for
the fiscal years ended August 31, 1996 and 1995, Counsellors Service was paid
$18,949 and $1,597, respectively. Counsellors Service did not waive any fees
during those fiscal years. Under the PFPC Co-Administration Agreement, for the
fiscal year ended August 31, 1995, PFPC waived its entire co-administration fee
in the amount of $2,394. There was no co-administrator prior to September 30,
1994.
Custodians and Transfer Agent
PNC Bank, National Association ("PNC") and State Street Bank and
Trust Company serve as custodians of the Fund's U.S. and foreign assets,
respectively, pursuant to separate custodian agreements (the "Custodian
Agreements"). Under the Custodian Agreements, PNC and State Street each (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 for the account of the Fund's
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portfolio securities held by it and (v) makes periodic reports to the Board
concerning the Fund's custodial arrangements. PNC may delegate its duties under
its Custodian Agreement with the Fund to a wholly owned direct or indirect
subsidiary of PNC or PNC Bank Corp. upon notice to the Fund and upon the
satisfaction of certain other conditions. With the approval of the Board, State
Street is authorized to select one or more foreign banking institutions and
foreign securities depositories to serve as sub-custodian on behalf of the Fund.
PNC is an indirect, wholly owned subsidiary of PNC Bank Corp. and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19101. The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110.
State Street also acts as the shareholder servicing, transfer and
dividend disbursing agent of the Fund 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 Fund
shares, including reports to shareholders, dividend and distribution notices and
proxy material for its meetings of shareholders, (iii) maintains shareholder
accounts and, if requested, sub-accounts and (iv) makes periodic reports to the
Board concerning the transfer agent's operations with respect to the Fund. State
Street has delegated to Boston Financial Data Services, Inc., a 50% owned
subsidiary ("BFDS"), responsibility for most shareholder servicing functions.
BFDS's principal business address is 2 Heritage Drive, Boston, Massachusetts
02171.
Organization of the Fund
The Fund was incorporated on January 29, 1996, under the laws of
the State of Maryland under the name Warburg, Pincus Balanced Fund, Inc. The
Fund's charter authorizes the Board to issue three billion full and fractional
shares of common stock, $.001 par value per share ("Common Shares"), of which
one billion shares are designated Common Stock and two billion shares are
designated Advisor Shares.
All shareholders of the Fund in each class, upon liquidation,
will participate ratably in the Fund's net assets. Shares do not have cumulative
voting rights, which means that holders of more than 50% of the shares voting
for the election of Directors can elect all Directors. Shares are transferable
but have no preemptive, conversion or subscription rights.
Distribution and Shareholder Servicing
Common Shares. The Fund has entered into a Shareholder Servicing
and Distribution Plan (the "12b-1 Plan"), pursuant to Rule 12b-1 under the 1940
Act, pursuant to which the Fund will pay Counsellors Securities, in
consideration for Services (as defined below), a fee calculated at an annual
rate of .25% of the average daily net assets of the Common Shares of the Fund.
Services performed by Counsellors Securities include (i) the sale of the Common
Shares, as set forth in the 12b-1 Plan ("Selling Services"), (ii) ongoing
servicing and/or maintenance of the accounts of Common Shareholders of the Fund,
as set forth in the 12b-1 Plan ("Shareholder Services"), and (iii) sub-transfer
agency services, subaccounting services or administrative services related to
the sale of the Common Shares, as
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set forth in the 12b-1 Plan ("Administrative Services" and collectively with
Selling Services and Administrative Services, "Services") including, without
limitation, (a) payments reflecting an allocation of overhead and other office
expenses of Counsellors Securities related to providing Services; (b) payments
made to, and reimbursement of expenses of, persons who provide support services
in connection with the distribution of the Common Shares including, but not
limited to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Fund, and providing any other Shareholder Services; (c)
payments made to compensate selected dealers or other authorized persons for
providing any Services; (d) costs relating to the formulation and implementation
of marketing and promotional activities for the Common Shares, including, but
not limited to, direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, and related travel and entertainment
expenses; (e) costs of printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective shareholders of
the Fund; and (f) costs involved in obtaining whatever information, analyses and
reports with respect to marketing and promotional activities that the Fund may,
from time to time, deem advisable.
Pursuant to the 12b-1 Plan, Counsellors Securities provides the
Board with periodic reports of amounts expended under the 12b-1 Plan and the
purpose for which the expenditures were made.
For the fiscal years ended August 31, 1996, distribution fees of
$47,438 were paid to Counsellors Securities, on behalf of the Common Shares of
the Fund for printing and fulfillment of marketing literature.
Advisor Shares. The Fund may, in the future, enter into
agreements ("agreements") with institutional shareholders of record,
broker-dealers, financial institutions, depository institutions, retirement
plans and financial intermediaries ("Institutions") to provide certain
distribution, shareholder servicing, administrative and accounting services for
their clients or customers (or participants in the case of retirement plans)
("Customers") who are beneficial owners of Advisor Shares. See the Advisor
Prospectus, "Shareholder Servicing." Agreements will be governed by a
distribution plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
1940 Act. The Distribution Plan requires the Board, at least quarterly, to
receive and review written reports of amounts expended under the Distribution
Plan and the purposes for which such expenditures were made.
An Institution with which the Fund has entered into an Agreement
with respect to its Advisor Shares may charge a Customer one or more of the
following types of fees, as agreed upon by the Institution and the Customer,
with respect to the cash management or other services provided by the
Institution: (i) account fees (a fixed amount per month or per year); (ii)
transaction fees (a fixed amount per transaction processed); (iii) compensation
balance requirements (a minimum dollar amount a Customer must maintain in order
to obtain the services offered); or (iv) account maintenance fees (a periodic
charge based upon the percentage of assets in the account or of the dividend
paid on those assets). Services provided by an Institution to Customers are in
addition to, and not duplicative of, the services to be provided under the
Fund's co-administration and distribution and shareholder servicing
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<PAGE>
arrangements. A Customer of an Institution should read the relevant Prospectus
and this Statement of Additional Information in conjunction with the Agreement
and other literature describing the services and related fees that would be
provided by the Institution to its Customers prior to any purchase of Fund
shares. Prospectuses are available from the Fund's distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for the
instruments of Institutions.
For the fiscal year ended August 31, 1996, distribution fees of
$14 were expended on behalf of the Advisor Shares of the Fund for advertising.
General. The Distribution Plan and the 12b-1 Plan will continue
in effect for so long as their continuance is specifically approved at least
annually by the Board, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Distribution Plan or the 12b-1 Plan
("Independent Directors"). Any material amendment of the Distribution Plan or
the 12b-1 Plan would require the approval of the Board in the same manner.
Neither the Distribution Plan nor the 12b-1 Plan may be amended to increase
materially the amount to be spent thereunder without shareholder approval of the
relevant class of shares. The Distribution Plan or the 12b-1 Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors or by a vote of a majority of the outstanding voting
securities of the relevant class of shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The offering price of the Fund's shares is equal to the per share
net asset value of the relevant class of shares of the Fund. Information on how
to purchase and redeem Fund shares and how such shares are priced is included in
the Prospectuses under "Net Asset Value."
Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
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) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (The Fund may also suspend or postpone the recordation of an
exchange of its shares upon the occurrence of any of the foregoing conditions.)
If the Board determines that conditions exist which make payment
of redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in
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<PAGE>
disposing of the redemption proceeds. The Fund will comply with Rule 18f-1
promulgated under the 1940 Act with respect to redemptions in kind.
Automatic Cash Withdrawal Plan. An automatic cash withdrawal plan
(the "Plan") is available to shareholders who wish to receive specific amounts
of cash periodically. Withdrawals may be made under the Plan by redeeming as
many shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. To the extent that withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment and continued withdrawal
payments may reduce the shareholder's investment and ultimately exhaust it.
Withdrawal payments should not be considered as income from investment in the
Fund. All dividends and distributions on shares in the Plan are automatically
reinvested at net asset value in additional shares of the Fund.
EXCHANGE PRIVILEGE
An exchange privilege with certain other funds advised by Warburg
is available to investors in the Fund. The funds into which exchanges of Common
Shares currently can be made are listed in the Common Share Prospectus.
Exchanges may also be made between certain Warburg Pincus Advisor Funds.
The exchange privilege enables shareholders to acquire shares in
a fund with a different investment objective when they believe that a shift
between funds is an appropriate investment decision. This privilege is available
to shareholders residing in any state in which the Common Shares or Advisor
Shares being acquired, as relevant, may legally be sold. Prior to any exchange,
the investor should obtain and review a copy of the current prospectus of the
relevant class of each fund into which an exchange is being considered.
Shareholders may obtain a prospectus of the relevant class of the fund into
which they are contemplating an exchange from Counsellors Securities.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value of the relevant class and the proceeds are invested on the same day,
at a price as described above, in shares of the relevant class of the fund being
acquired. Warburg reserves the right to reject more than three exchange requests
by a shareholder in any 30-day period. The exchange privilege may be modified or
terminated at any time upon 60 days' notice to shareholders.
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ADDITIONAL INFORMATION CONCERNING TAXES
The discussion set out below of tax considerations generally
affecting the Fund and its shareholders is intended to be only a summary and is
not intended as a substitute for careful tax planning by prospective
shareholders. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
The Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Code. If it qualifies as a regulated
investment company, the Fund will pay no federal income taxes on its taxable net
investment income (that is, taxable income other than net realized capital
gains) and its net realized capital gains that are distributed to shareholders.
To qualify under Subchapter M, the Fund must, among other things: (i) distribute
to its shareholders at least 90% of its taxable net investment income (for this
purpose consisting of taxable net investment income and net realized short-term
capital gains); (ii) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of securities, gains from the sale or
other disposition of securities, or other income (including, but not limited to,
gains from options and futures contracts) derived with respect to the Fund's
business of investing in securities; (iii) derive less than 30% of its annual
gross income from the sale or other disposition of securities, options, futures
or forward contracts held for less than three months; and (iv) diversify its
holdings so that, at the end of each fiscal quarter of the Fund (a) at least 50%
of the market value of the Fund's assets is represented by cash, U.S. government
securities and other securities, with those other securities limited, with
respect to any one issuer, to an amount no greater in value than 5% of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of the issuer, and (b) not more than 25% of the market value of the
Fund's assets is invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated investment companies) or
of two or more issuers that the Fund controls and that are determined to be in
the same or similar trades or businesses or related trades or businesses. In
meeting these requirements, the Fund may be restricted in the selling of
securities held by the Fund for less than three months and in the utilization of
certain of the investment techniques described above and in the Fund's
Prospectuses. 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.
The Fund's transactions, if any, in options and futures contracts
will be subject to special provisions of the Code that, among other things, may
affect the character of gains and losses recognized by the Fund (i.e., may
affect whether gains or losses are ordinary or
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capital), accelerate recognition of income to the Fund, defer Fund losses and
cause the Fund to be subject to hyperinflationary currency rules. These rules
could therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (i) will require the Fund to mark-to-market
certain types of its positions (i.e., treat them as if they were closed out) and
(ii) may cause the Fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any option or
futures contract or hedged investment so that (a) neither the Fund nor its
shareholders will be treated as receiving a materially greater amount of capital
gains or distributions than actually realized or received, (b) the Fund will be
able to use substantially all of its losses for the fiscal years in which the
losses actually occur and (c) the Fund will continue to qualify as a regulated
investment company.
Upon the sale or exchange of shares, a shareholder will realize a
taxable gain or loss depending upon the amount realized and the basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and, as described in the
Prospectuses, will be long-term or short-term depending upon the shareholder's
holding period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvestment of dividends and capital gains
distributions in the Fund, within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be increased to reflect the disallowed loss.
A shareholder of the Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as receiving
a distribution in an amount equal to the amount of money that a shareholder
receiving cash dividends or distributions receives, and should have a cost basis
in the shares received equal to that amount Investors considering buying shares
just prior to a dividend or capital gain distribution should be aware that,
although the price of shares purchased at that time may reflect the amount of
the forthcoming distribution, those who purchase just prior to a distribution
will receive a distribution that will nevertheless be taxable to them. Pending
legislation would reduce the dividends received deduction available to
corporations (as discussed in the Prospectuses) from 70% to 50% of dividends
received.
Each shareholder will receive an annual statement as to the
federal income tax status of his dividends and distributions from the Fund for
the prior calendar year. Furthermore, shareholders will also receive, if
appropriate, various written notices after the close of the Fund's taxable year
regarding the federal income tax status of certain dividends and distributions
that were paid (or that are treated as having been paid) by the Fund to its
shareholders during the preceding year.
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 "backup withholding," the
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shareholder may be subject to a 31% "backup withholding" tax with respect to (i)
taxable dividends and distributions and (ii) the proceeds of any sales or
repurchases of shares of the Fund. 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. Dividends and distributions also may
be subject to state and local taxes depending on each shareholder's particular
situation.
Investment in Passive Foreign Investment Companies
If the Fund purchases shares in certain foreign entities
classified under the Code as "passive foreign investment companies" ("PFICs"),
the Fund may be subject to federal income tax on a portion of an "excess
distribution" or gain from the disposition of the shares, even though the income
may have to be distributed as a taxable dividend by the Fund to its
shareholders. In addition, gain on the disposition of shares in a PFIC generally
is treated as ordinary income even though the shares are capital assets in the
hands of the Fund. Certain interest charges may be imposed on either the Fund or
its shareholders with respect to any taxes arising from excess distributions or
gains on the disposition of shares in a PFIC.
The Fund may be eligible to elect to include in its gross income
its share of earnings of a PFIC on a current basis. Generally, the election
would eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did not
make the election. In addition, information required to make such an election
may not be available to the Fund.
On April 1, 1992 proposed regulations of the Internal Revenue
Service (the "IRS") were published providing a mark-to-market election for
regulated investment companies. The IRS subsequently issued a notice indicating
that final regulations will provide that regulated investment companies may
elect the mark-to-market election for tax years ending after March 31, 1992 and
before April 1, 1993. Whether and to what extent the notice will apply to
taxable years of the Fund is unclear. If the Fund is not able to make the
foregoing election, it may be able to avoid the interest charge (but not the
ordinary income treatment) on disposition of the stock by electing, under
proposed regulations, each year to mark-to-market the stock (that is, treat it
as if it were sold for fair market value). Such an election could result in
acceleration of income to the Fund. Recently proposed legislation would codify
the mark-to market election for regulated investment companies.
DETERMINATION OF PERFORMANCE
From time to time, the Fund may quote the total return of its
Common Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. The average annual total return of the Common
Shares of the Fund for the fiscal year ended August 31, 1996 was 9.99% (9.04%
without waivers), and for
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Advisor Shares it was 9.56% (-41.13% without waivers). The average annual total
return for the Common Shares for the five-year period ended August 31, 1996, was
12.22% (10.93% without waivers). For the period beginning on the commencement of
the predecessor fund's operations (October 1988) and ending August 31, 1996, the
average annual total return for the Common Shares was 12.57% (10.92%, without
waivers). For the period beginning on the commencement of the predecessor fund's
offering of Advisor Shares (July 1995) and ending on August 31, 1996, the
average annual total return for the Advisor Shares was 12.54% (-41.77% without
waivers). Average annual total return is calculated by finding the average
annual compounded rates of return for the one-, five- and ten- (or such shorter
period as the relevant class of shares has been offered) year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula: P (1 + T)n = ERV. For purposes of this formula, "P" is a
hypothetical investment of $1,000; "T" is average annual total return; "n" is
number of years; and "ERV" is the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the one-, five- or ten-year periods (or
fractional portion thereof). Total return or "T" is computed by finding the
average annual change in the value of an initial $1,000 investment over the
period and assumes that all dividends and distributions are reinvested during
the period.
The Fund may advertise, from time to time, comparisons of the
performance of its Common Shares and/or Advisor Shares with that of one or more
other mutual funds with similar investment objectives. The Fund may advertise
average annual calendar year-to-date and calendar quarter returns, which are
calculated according to the formula set forth in the preceding paragraph, except
that the relevant measuring period would be the number of months that have
elapsed in the current calendar year or most recent three months, as the case
may be. Investors should note that this performance may not be representative of
the Fund's total return in longer market cycles.
The Fund may also advertise its yield. The yield for the Common
Shares of the Warburg Pincus Balanced Fund for the thirty-day period ended
August 31, 1996 was 2.04%, and for the Advisor Shares was 1.77%. Yield is
calculated by annualizing the net investment income generated by the Fund over
a specified thirty-day period according to the following formula:
YIELD = 2[( a-b + 1)'pp'6 -1]
---
cd
For purposes of this formula: "a" is dividends and interest earned during the
period; "b" is expenses accrued for the period (net of reimbursements); "c" is
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per share
on the last day of the period.
The performance of a class of Fund shares will vary from time to
time depending upon market conditions, the composition of the Fund's portfolio
and operating expenses allocable to it. As described above, total return is
based on historical earnings and is not intended to indicate future performance.
Consequently, any given performance quotation
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should not be considered as representative of performance for any specified
period in the future. Performance information may be useful as a basis for
comparison with other investment alternatives. However, the Fund's performance
will fluctuate, unlike certain bank deposits or other investments which pay a
fixed yield for a stated period of time. Any fees charged by Institutions or
other institutional investors directly to their customers in connection with
investments in Fund shares are not reflected in the Fund's total return, and
such fees, if charged, will reduce the actual return received by customers on
their investments.
In addition, reference may be made in advertising a class of Fund
shares to opinions of Wall Street economists and analysts regarding economic
cycles and their effects historically on the performance of small companies,
both as a class and relative to other investments. The Fund may also discuss its
beta, or volatility relative to the market, and make reference to its relative
performance in various market cycles in the United States.
INDEPENDENT ACCOUNTANTS AND COUNSEL
Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), with principal
offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as
independent accountants for the Fund. Willkie Farr & Gallagher serves as counsel
for the Fund as well as counsel to Warburg, Counsellors Service and Counsellors
Securities.
MISCELLANEOUS
As of November 29, 1996, the names, addresses and percentage
ownership of each person that owned 5% or more of the outstanding shares of the
corresponding Warburg Pincus Balanced Fund investment portfolio of the RBB Fund
were as follows:
<TABLE>
<CAPTION>
Percent Owned as of
Type of Shares Name and Address November 29, 1996
- -------------- ---------------- --------------------
<S> <C> <C>
Common Shares Charles Schwab & Co. Inc. 33.25%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery St.
San Francisco, CA 94104-4122
Nat'l Financial Svcs Corp. 23.20%
FBO Customers
PO Box 3908
Church St. Station
New York, NY 10008-3908
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
LaSalle National Trust NA 5.45%
TTEE for Various Defined
Contribution Plan-Omnibus Acct.
PO Box 1443
Chicago, IL 60690-1443
Advisor Shares Olcoba & Co. 78.62%
Marquette Trust
PO Box 1000
Minneappolis, MN 55480-1000
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<PAGE>
</TABLE>
<TABLE>
<S> <C> <C>
Donaldson Lufkin & Jenrette Secs 16.52%
PO Box 2052
Jersey City, NJ 07303-2052
</TABLE>
FINANCIAL STATEMENTS
The Fund's financial statements follow the Report of Independent
Accountants.
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APPENDIX
DESCRIPTION OF RATINGS
Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's Ratings Group
("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. ("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 Note Ratings
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 plus sign
designation.
SP-2 - Loans bearing this designation evidence a satisfactory
capacity to pay principal and interest..
The following summarizes the two highest ratings used by Moody's
for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1 - Obligations bearing these designations are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2/VMIG-2 - Obligations bearing these designations are of high
quality with margins of protection ample although not so large as in the
preceding group.
A-1
<PAGE>
<PAGE>
Corporate Bond and Municipal Obligations Ratings
The following summarizes the ratings used by S&P for corporate
bonds and Municipal Obligations:
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.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB - This is the lowest investment grade. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Although it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
BB, B, CCC, CC and C - Debt rated BB and B are regarded, on
balance, as predominately speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
represents a lower degree of speculation than B, and CCC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which could
lead to inadequate capacity to meet timely interest and principal payments. The
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability
to default and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal.
A-2
<PAGE>
<PAGE>
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC - This rating is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
Additionally, the rating CI is reserved for income bonds on which
no interest is being paid. Such debt is rated between debt rated C and debt
rated D.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The following summarizes the ratings used by Moody's for
corporate bonds and Municipal Obligations:
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 edged." 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 Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. 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.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
A-3
<PAGE>
<PAGE>
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
desirable investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
the bonds rated "Aa" through "B." 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.
Caa - Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-4
<PAGE>
<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.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 18, 1996
<PAGE>
<PAGE>
ANNUAL
REPORT
AUGUST 31, 1996
WARBURG PINCUS
GROWTH & INCOME FUND
/ /
WARBURG PINCUS
BALANCED FUND
/ /
WARBURG PINCUS
TAX FREE FUND
[LOGO]
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-WARBURG
(800-927-2874) or by writing to Warburg Pincus Funds, P.O. Box 9030, Boston, MA
02205-9030. Investors should read the Prospectus carefully before investing.
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>
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT
- ---------------------------------------------------------------------
Dear Shareholder: October 21, 1996
For the 12 months ended August 31, 1996, Warburg Pincus Growth & Income Fund
(the "Fund") had a total return of -3.54%, 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>
<PAGE>
WARBURG PINCUS 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>
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- ---------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS GROWTH & INCOME
FUND FROM DECEMBER 31, 1991* AS OF AUGUST 31, 1996
The graph below illustrates the hypothetical investment of $10,000 in Common
Shares of Warburg Pincus Growth & Income Fund from December 31, 1991* 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>
GROWTH & INCOME S & P 500
<S> <C> <C>
12/31/91 10,000 10,000
08/31/92 10,290.06 10,126.08
08/31/93 14,526.46 11,664.53
08/31/94 16,519.88 12,301.65
08/31/95 19,215.65 14,932.13
08/31/96 18,534.77 17,728.30
Average Annual Total Returns
for periods ending 8/31/96
(Common Shares)
1 year -3.54%
From 12/31/91* 14.12%
</TABLE>
<TABLE>
<CAPTION>
FUND
---------
<S> <C>
1 Year Total Return (9/30/95-9/30/96)........... -3.60%
Average Annual Total Return From
12/31/91*-9/30/96............................. 13.53%
</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.
- ------------
*Warburg, Pincus Counsellors, Inc. ("Warburg") began to provide advisory
services to the Fund in late December 1991. Previous periods during which the
Fund was not advised by Warburg are not shown.
**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>
<PAGE>
WARBURG PINCUS BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT
- -----------------------------------------------------------------------------
Dear Shareholder: October 21, 1996
For the 12 months ended August 31, 1996, Warburg Pincus Balanced Fund (the
"Fund") gained 9.99%, 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.
Dale C. Christensen Anthony G. Orphanos
Co-Portfolio Strategist Co-Portfolio Strategist
4
<PAGE>
<PAGE>
WARBURG PINCUS BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- ---------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN COMMON SHARES OF WARBURG PINCUS BALANCED FUND FROM
SEPTEMBER 30, 1994* AS OF AUGUST 31, 1996
The graph below illustrates the hypothetical investment of $10,000 in Common
Shares of Warburg Pincus Balanced Fund from September 30, 1994* 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 (COMMON SHARES) S & P 500 LBFI
<S> <C> <C> <C>
09/30/94 10,000 10,000 10,000
08/31/95 12,301.46 12,444.32 11,549.13
08/31/96 13,530.53 14,774.62 12,752.19
Average Annual Total Returns
for periods ending 8/31/96
(Common Shares)
1 year 9.99%
From 9/30/94* 17.05%
</TABLE>
<TABLE>
<CAPTION>
FUND
---------
<S> <C>
1 Year Total Return (9/30/95-9/30/96)............ 12.02%
Average Annual Total Return From
9/30/94*-9/30/96............................... 18.08%
</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.
- ------------
*Warburg began to provide advisory services to the Fund in late September 1994.
Previous periods during which the Fund was not advised by Warburg are not
shown.
**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>
<PAGE>
WARBURG PINCUS TAX FREE FUND
ANNUAL INVESTMENT ADVISER'S REPORT
- ---------------------------------------------------------------------
Dear Shareholder: October 21, 1996
For the 12 months ended August 31, 1996, Warburg Pincus Tax Free Fund (the
"Fund") gained 4.42%, vs. a gain of 8.07% for the Lehman Brothers Municipal Long
Bond Index. The Fund's 30-day current annualized yield at the end of the period
was 4.73%.
The 12 months proved to be a mixed environment for municipal bonds. The first
four months of the reporting period -- September 1995 through December
1995 -- were characterized by falling interest rates, reflecting investors'
bullish expectations for the economy and inflation. This resulted in price gains
for municipal securities. The Fund maintained an average maturity of
approximately 15 years during the four months, allowing it to take advantage of
the decline in rates.
During the last eight months of the reporting period, however, concerns of
overheating in the economy, mounting inflationary pressures and the potential
for a significant Federal Reserve tightening of credit pushed interest rates
considerably higher, which had a proportionately negative impact on
municipal-bond prices. Through the latter portion of the reporting period we
positioned the Fund more neutrally in terms of its interest-rate exposure (as of
August 31, the Fund's average maturity was 11.20 years) in an effort to preserve
principal while still providing an attractive level of tax-free income.
We maintained our focus on high-quality (AA- and AAA-rated) municipal
securities throughout the period, as yield spreads between these and lower-grade
bonds remained relatively narrow and there was thus little incentive for buying
low-quality issues in pursuit of higher yield. As of August 31, the Fund's
average credit quality was AA.
One factor that supported municipal bonds through the months of rising
interest rates was the relative shortage of new supply. Municipal issuance in
the first eight months of 1996 was lower than it had been in previous periods
(e.g., 1993), reflecting both the interest-rate environment and fiscal
conservatism on the part of municipalities. This scarcity of new supply, coupled
with ongoing demand for municipals due to their relatively attractive
tax-adjusted yields, resulted in a strong performance for municipal securities
vs. most taxable bonds.
This supply/demand imbalance should continue to support municipal bonds
through the remainder of 1996 and into 1997, hence we remain generally positive
in our outlook. That said, however, there are several areas of potential
concern. One is the possible impact of welfare reform on municipal issuers. The
recently passed welfare legislation effectively shifts the financing burden of
welfare from the federal government to the individual state governments. This
6
<PAGE>
<PAGE>
WARBURG PINCUS TAX FREE FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- ---------------------------------------------------------------------
may prove to be a significant strain financially for certain states, an obvious
concern for municipal bondholders who expect to receive coupon income and
principal on a timely basis. Hence an even greater premium will be placed on
thorough credit research in an effort to maximize performance.
Another potential concern is politics. The Republican presidential platform
centers on tax reform, and there is the threat that any such reform might reduce
the relative attractiveness of municipal bonds vs. their taxable counterparts.
Though the Dole/Kemp ticket appears unlikely, at this point, to prevail in its
effort to win the White House, some strain of the party's platform may yet work
its way into legislation. Hence the situation bears watching.
Dale C. Christensen Sharon B. Parente
Co-Portfolio Manager Co-Portfolio Manager
7
<PAGE>
<PAGE>
WARBURG PINCUS TAX FREE FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- ---------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN WARBURG PINCUS TAX FREE FUND
FROM APRIL 30, 1995* AS OF AUGUST 31, 1996
The graph below illustrates the hypothetical investment of $10,000 in Warburg
Pincus Tax Free Fund from April 30, 1995* to August 31, 1996, assuming the
reinvestment of dividends and capital gains at net asset value, compared to the
Lehman Brothers Municipal Long Bond Index (LBMBI)** for the same time period.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FUND LBMBI
<S> <C> <C>
4/30/95 10000 10000
5/31/95 10329 10426
6/30/95 10244 10234
7/31/95 10288 10286
8/31/95 10431 10432
9/28/95 10505 10513
10/31/95 10629 10787
11/30/95 10822 11045
12/29/95 10948 11217
1/31/96 11032 11266
2/28/96 10902 11128
3/29/96 10789 10925
4/30/96 10719 10881
5/31/96 10712 10886
6/28/96 10806 11054
7/31/96 10901 11164
8/30/96 10892 11148
Average Annual Total Returns
for periods ending 8/31/96
1 year 4.42%
From 4/30/95* 6.59%
</TABLE>
<TABLE>
<CAPTION>
FUND
---------
<S> <C>
1 Year Total Return (9/30/95-9/30/96)............ 5.10%
Average Annual Total Return From
4/30/95*-9/30/95............................... 7.21%
</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.
- ------------
*Warburg began to provide advisory services to the Fund in April 1995. Previous
periods during which the Fund was not advised by Warburg are not shown.
**The Lehman Brothers Municipal Long Bond Index is an index of municipal bonds
with a minimum credit rating of Baa and a maturity of greater than 22 years
that is compiled by Lehman Brothers, Inc. It is unmanaged with no defined
investment objective.
8
<PAGE>
<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.
9
<PAGE>
<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.
10
<PAGE>
<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.
11
<PAGE>
<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
Bank of Boston Corp. 2,200 116,050
BankAmerica Corp. 1,300 100,750
Bankers Trust New York Corp. 1,500 116,625
Bank of New York Co., Inc. 6,900 192,338
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.
12
<PAGE>
<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.
13
<PAGE>
<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.
14
<PAGE>
<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.
15
<PAGE>
<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.
16
<PAGE>
<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.
17
<PAGE>
<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.
18
<PAGE>
<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.
19
<PAGE>
<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.
20
<PAGE>
<PAGE>
WARBURG PINCUS TAX FREE FUND
STATEMENT OF NET ASSETS
August 31, 1996
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
RATE MATURITY (000) VALUE
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (99.5%)
ARIZONA (2.3%)
Phoenix GO Bond [Aa, AA+] 6.375 % 07/01/13 $ 100 $ 105,125
----------
CALIFORNIA (3.9%)
California State RAN Series A [MIG-1, SP1+] 4.500 06/30/97 175 175,973
----------
DELAWARE (3.5%)
Delaware River & Bay Authority RB [Aaa, AAA] 6.000 01/01/06 150 158,813
----------
MARYLAND (17.7%)
Baltimore Maryland Consolidated Public Improvement
Series C Series 1991C [Aaa, AAA] (FGIC Insurance) 7.500 10/15/09 400 476,000
Montgomery County Parking RB (Silver Spring Group)/(FGIC
Insurance) [Aaa, AAA] 6.250 06/01/07 300 321,000
----------
797,000
----------
MASSACHUSETTS (8.8%)
Massachusetts Bay Transportation Authority (General
Transportation Systems) Series A [A1, A+] 6.250 03/01/05 200 217,250
Massachusetts State Water Authority Series B [Aaa, AAA] 5.000 12/01/16 200 179,000
----------
396,250
----------
MICHIGAN (4.3%)
Detroit Michigan Water Supply Systems Second Lien-Series
A [Aaa, AAA] 5.500 07/01/15 200 191,750
----------
NEW JERSEY (15.7%)
Middlesex County, New Jersey Utilities Authority Sewer
Revenue Series A [Aaa, AAA] 6.500 03/15/01 250 272,500
New Jersey State Turnpike Authority RB Refunding Series
1991/(MBIA Insurance) [Aaa, AAA] 6.500 01/01/16 400 437,500
----------
710,000
----------
NEW YORK (23.2%)
New York City GO Series A [Baa1, BBB+] 6.000 08/01/04 200 201,000
New York State Dormitory Authority State University
Educational Facility Series A [Baa1, BBB] 6.500 05/15/06 200 211,500
New York State Local Government Assistance Corp. Series
D [Aaa, AAA] 6.750 04/01/02 200 221,750
New York State Thruway Authority (Service Contract
Highway & Bridges) Series A [Aaa, AAA] 6.000 01/01/04 205 217,812
New York State Urban Development RB (MBIA Insurance)
[Baa1, BBB] 5.750 04/01/11 200 195,750
----------
1,047,812
----------
NORTH CAROLINA (4.6%)
North Carolina Municipal Power Agency (Catawba Electric)
RB/ (MBIA Insurance) [Aaa, AAA] 6.000 01/01/10 200 209,000
----------
PENNSYLVANIA (4.7%)
Philadelphia Water & Waste Water RB [Aaa, AAA] 6.250 08/01/09 200 214,250
----------
PUERTO RICO (6.2%)
Puerto Rico Commonwealth GO [Aaa, AAA] 6.500 07/01/08 250 278,125
----------
</TABLE>
See Accompanying Notes to Financial Statements.
21
<PAGE>
<PAGE>
WARBURG PINCUS TAX FREE FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1996
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
RATE MATURITY (000) VALUE
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (CONT'D)
SOUTH CAROLINA (2.4%)
South Carolina Public Service Authority RB (Santee
Cooper) Series D [AAA, AAA] 6.500 % 07/01/02 $ 100 $ 110,000
----------
TEXAS (2.2%)
Harris County Health Facilities Development Corp.
Special Facilities RB (MBIA Insurance) VRDN+ [VMIG-1,
A-1+] 4.000 09/03/96 100 100,000
----------
TOTAL MUNICIPAL BONDS (cost $4,380,486) 4,494,098
----------
TOTAL INVESTMENTS AT VALUE (99.5%) (cost $4,380,486*) 4,494,098
----------
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%) 24,845
----------
NET ASSETS (100.0%) (Applicable to 436,257 Shares) $4,518,943
----------
----------
NET ASSET VALUE, offering and redemption price per share ($4,518,943 DIVIDED BY 436,257) $10.36
</TABLE>
INVESTMENT ABBREVIATIONS
GO = General Obligations
RAN = Revenue Anticipation Notes
RB = Revenue Bond
VRDN = Variable Rate Demand Note
- --------------------------------------------------------------------------------
+ Variable Rate Demand Notes--The interest rate shown is the rate as of August
31, 1996 and the maturity date shown is the longer of the next interest
readjustment date or the date the principal amount can be recovered through
demand
* Also cost for Federal income tax purposes. The gross appreciation
(depreciation) on a tax basis is as follows:
<TABLE>
<S> <C>
Gross Appreciation $145,589
Gross Depreciation (31,977)
--------
Net Appreciation $113,612
--------
--------
</TABLE>
The Moody's Investors Service, Inc. and Standard & Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants and,
therefore, are not covered by the Report of Independent Accountants
See Accompanying Notes to Financial Statements.
22
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended August 31, 1996
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG WARBURG
GROWTH & INCOME PINCUS PINCUS
FUND BALANCED FUND TAX FREE FUND
------------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 12,111,169 $ 158,025 --
Interest 7,930,958 447,676 $ 232,697
Foreign taxes withheld -- (1,541) --
------------------- ------------- -------------
Total investment income 20,042,127 604,160 232,697
------------------- ------------- -------------
EXPENSES:
Investment advisory 7,914,238 170,672 21,824
Administration services 2,638,080 47,394 10,912
Distribution 377,281 47,452 10,912
Custodian 199,178 45,684 13,305
Transfer agent 1,175,942 41,073 12,413
Legal 237,132 24,919 19,784
Audit 38,690 498 561
Registration 234,965 72,482 27,904
Insurance 26,671 432 105
Printing 176,153 7,613 6,618
Other 65,098 9,526 8,185
------------------- ------------- -------------
13,083,428 467,745 132,523
Less fees waived and expenses reimbursed 0 (177,882) (110,644)
------------------- ------------- -------------
Total expenses 13,083,428 289,863 21,879
------------------- ------------- -------------
Net investment income 6,958,699 314,297 210,818
------------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS AND FOREIGN CURRENCY RELATED
ITEMS:
Net realized gain from investment
transactions 20,871,086 490,109 102,614
Net realized gain from foreign currency
related items 0 37 0
Net change in unrealized appreciation
from investments and foreign currency
related items (67,018,131) 472,314 (127,100)
------------------- ------------- -------------
Net realized and unrealized gain
(loss) from investments and foreign
currency related items (46,147,045) 962,460 (24,486)
------------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations $ (39,188,346) $ 1,276,757 $ 186,332
------------------- ------------- -------------
------------------- ------------- -------------
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
WARBURG PINCUS
GROWTH & INCOME FUND
------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,958,699 $ 12,539,769
Net realized and unrealized gain (loss) from investments and
foreign currency related items (46,147,045) 135,061,213
-------------- --------------
Net increase (decrease) in net assets resulting from
operations (39,188,346) 147,600,982
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends to shareholders from net investment income:
Common shares (8,430,598) (9,949,389)
Advisor shares (306,084) (137,213)
Distributions to shareholders from net realized capital gains:
Common shares (49,915,078) (8,067,592)
Advisor shares (3,362,883) --
-------------- --------------
Total distributions to shareholders (62,014,643) (18,154,194)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares 370,678,850 722,996,657
Reinvested dividends 58,584,414 233,504
Net asset value of shares redeemed (615,963,314) (168,239,331)
-------------- --------------
Net increase (decrease) in net assets from capital share
transactions (186,700,050) 554,990,830
-------------- --------------
Total increase (decrease) in net assets (287,903,039) 684,437,618
NET ASSETS:
Beginning of year 1,095,095,246 410,657,628
-------------- --------------
End of year $ 807,192,207 $1,095,095,246
-------------- --------------
-------------- --------------
</TABLE>
24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
WARBURG PINCUS WARBURG PINCUS
BALANCED FUND TAX FREE 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>
$ 314,297 $ 38,382 $ 210,818 $ 252,434
962,460 495,992 (24,486) 107,773
- -------------- -------------- -------------- --------------
1,276,757 534,374 186,332 360,207
- -------------- -------------- -------------- --------------
(212,883) (38,909) (210,818) (252,796)
(10) -- -- --
(149,992) (111,945) -- (137,718)
(16) -- -- --
- -------------- -------------- -------------- --------------
(362,901) (150,854) (210,818) (390,514)
- -------------- -------------- -------------- --------------
33,327,987 4,349,805 1,007,497 172,004
345,753 148,491 129,529 240,772
(9,065,222) (347,995) (720,710) (1,720,315)
- -------------- -------------- -------------- --------------
24,608,518 4,150,301 416,316 (1,307,539)
- -------------- -------------- -------------- --------------
25,522,374 4,533,821 391,830 (1,337,846)
5,341,849 808,028 4,127,113 5,464,959
- -------------- -------------- -------------- --------------
$ 30,864,223 $ 5,341,849 $ 4,518,943 $ 4,127,113
- -------------- -------------- -------------- --------------
- -------------- -------------- -------------- --------------
</TABLE>
See Accompanying Notes to Financial Statements.
25
<PAGE>
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout Each Year)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
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 calendar 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.
See Accompanying Notes to Financial Statements.
26
<PAGE>
<PAGE>
WARBURG PINCUS BALANCED FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout Each Year)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
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 calendar 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.
See Accompanying Notes to Financial Statements.
27
<PAGE>
<PAGE>
WARBURG PINCUS TAX FREE FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Year)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.41 $10.40 $11.53 $11.04 $10.46
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.5097 0.5426 0.6026 0.6385 0.6771
Net Gains (Losses) on Securities (both
realized and unrealized) (0.0541) 0.3077 (0.6259) 0.8654 0.6145
------- ------- ------- ------- -------
Total from Investment Operations 0.4556 0.8503 (0.0233) 1.5039 1.2916
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.5056) (0.5426) (0.6092) (0.6725) (0.6345)
Distributions from Excess Net Investment
Income -- -- (0.0135) -- --
Distributions from Capital Gains 0.0000 (0.2977) (0.4886) (0.3414) (0.0771)
------- ------- ------- ------- -------
Total Distributions (0.5056) (0.8403) (1.1113) (1.0139) (0.7116)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $10.36 $10.41 $10.40 $11.53 $11.04
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Returns 4.42% 8.89% (0.30%) 14.45% 12.77%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $4,519 $4,127 $5,465 $6,631 $6,491
Ratios of Expenses to Average Net Assets .50%(a) .48%(a) .15%(a) .17%(a) .33%(a)
Ratios of Net Investment Income to Average Net
Assets 4.83% 5.53% 5.51% 5.71% 6.21%
Portfolio Turnover Rate 82% 38% 20% 70% 78%
</TABLE>
- ---------------------------------------------------------------------
(a)Without the waiver of advisory, administration and custody fees and without
the reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Warburg Pincus Tax Free Fund would have been
3.17%,, 2.12%, 1.84%, 1.76% and 1.61% for the years ended August 31, 1996,
1995, 1994, 1993 and 1992, respectively.
TAX STATUS OF 1996 DIVIDENDS (UNAUDITED)
Dividends paid by the Fund taxable as ordinary income amounted to $0.5056 per
share.
Because the Fund's fiscal year is not the calendar 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.
See Accompanying Notes to Financial Statements.
28
<PAGE>
<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"), Warburg Pincus
Balanced Fund (the "Balanced Fund") and Warburg Pincus Tax Free Fund (the "Tax
Free 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, the Balanced Fund and the Tax Free 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"), Warburg Pincus Balanced Fund (the "Acquired Balanced Fund") and
Warburg Pincus Tax Free Fund (the "Acquired Tax Free 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;
2,135,930 Common Shares and 111 Advisor Shares, in the case of the Acquired
Balanced Fund; and 422,797 Common Shares, in the case of the Acquired Tax Free
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; $25,721,368 in the case of the Balanced Fund,
including $1,465,365 of unrealized appreciation; and $4,343,839 in the case of
the Tax Free Fund, including $99,263 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
29
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
- ---------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
both financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Dividends are recorded on the ex-dividend date. Income,
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.
For the Growth & Income and the Balanced Funds, dividends from net investment
income, if any, are declared and paid at least quarterly. For the Tax Free Fund,
dividends from net investment income, if any, are declared daily and paid
monthly. For all Funds, any net realized capital gains 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
30
<PAGE>
<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
Tax Free Fund .50% 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
ADVISORY ADVISORY EXPENSE
FEE WAIVER 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)
Tax Free Fund 21,824 (21,824) -- (82,273)
</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 and Tax Free Funds, 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
Tax Free Fund 10,912 (6,547) 4,365
</TABLE>
31
<PAGE>
<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 and the Tax Free Funds'
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
--------------
--------------
Tax Free Fund
Common Shares $ 10,912
--------------
--------------
</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
Tax Free Fund 3,813,005 3,318,389
</TABLE>
4. CAPITAL SHARES
The Growth & Income Fund, the Balanced Fund and the Tax Free 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 the Growth & Income
Fund and the Balanced Fund are designated as Advisor Shares.
32
<PAGE>
<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 45,037 535,614 110 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 (decrease) 2,105,027 $24,608,518 406,792 $4,150,301
----------- ----------- --------- ----------
----------- ----------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
TAX FREE 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 Class 96,011 $1,007,497 16,896 $ 172,004
Shares issued in reinvestment of dividends:
Common Class 12,332 129,529 24,384 240,772
Shares repurchased:
Common Class (68,556) (720,710) (170,342) (1,720,315)
----------- ---------- --------- -----------
Net increase (decrease) 39,787 $ 416,316 (129,062) $(1,307,539)
----------- ---------- --------- -----------
----------- ---------- --------- -----------
</TABLE>
33
<PAGE>
<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 FUND BALANCED FUND TAX FREE FUND
-------------------------- ---------------- ---------------
<S> <C> <C> <C>
Capital paid-in $ 757,260,246 $ 29,416,934 $ 4,351,342
Undistributed net investment
income 675,184 108,542 --
Amortized market discount -- -- 2,419
Accumulated net realized gain
(loss) on investments
transactions, futures contracts
and foreign exchange
transactions (1,480,503) 400,936 51,570
Unrealized appreciation on
investments 50,737,280 937,811 113,612
------------ ---------------- ---------------
$ 807,192,207 $ 30,864,223 $ 4,518,943
------------ ---------------- ---------------
------------ ---------------- ---------------
</TABLE>
34
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
6. OTHER FINANCIAL HIGHLIGHTS
The Growth & Income and the Balanced Funds currently offer one other class of
shares, Advisor Shares representing an additional interest in each of the Funds.
The financial highlights of each of the Advisor Shares are as follows:
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISOR SHARES
-------------------------------------------------------------------------------
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 .0800 0.0236 0.3689 0.0170
Net Gains (Losses) on Securities (both
realized and unrealized) (.6931) 1.5323 0.6815 0.3930
------ ------ ------ ------
Total from Investment Operations (.6131) 1.5559 1.0504 0.4100
------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends (from net investment income) (.0736) (0.0459) (0.0942) 0.0000
Distributions (from capital gains) (.8133) -- (0.1462) 0.0000
------ ------ ------ ------
Total Distributions (.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.
See Accompanying Notes to Financial Statements.
35
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1996
6. OTHER FINANCIAL HIGHLIGHTS (CONT'D)
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 11.97% of ordinary income dividends for the Growth & Income Fund 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.
36
<PAGE>
<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.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 18, 1996
37
<PAGE>
<PAGE>
[LOGO]
P.O. Box 9030, Boston, MA 02205-9030
800-WARBURG (800-927-2874)
COUNSELLORS SECURITIES INC., DISTRIBUTOR WPGBT-2-0896
<PAGE>
<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
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>
<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>
<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>
<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>
<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.
Dale C. Christensen Anthony G. Orphanos
Co-Portfolio Strategist Co-Portfolio Strategist
4
<PAGE>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<PAGE>
WARBURG PINCUS
ADVISOR FUNDS
COUNSELLORS
SECURITIES INC.,
DISTRIBUTOR
800-369-2728
WARBURG PINCUS
INVESTMENTS
<PAGE>
<PAGE>
Part C
Information required to be included in Part C is set forth
after the appropriate item, so numbered, in Part C to this Registration
Statement.
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<C> <S>
1 Articles of Incorporation.(1)
2 By-Laws.(1)
3 Not applicable.
4 Forms of Share Certificates.(2)
5 Form of Investment Advisory Agreement.(3)
6 Form of Distribution Agreement.(3)
7 Not applicable.
8(a) Form of Custodian Agreement with PNC Bank, National Association.(2)
(b) Form of Custodian Agreement with State Street Bank and Trust Company.(4)
9(a) Form of Transfer Agency Agreement.(2)
(b) Form of Co-Administration Agreement with Counsellors Funds Service,
Inc.(2)
(c) Form of Co-Administration Agreement with PFPC Inc.(2)
(d) Forms of Services Agreements.(2)
10(a) Consent of Willkie Farr & Gallagher, counsel to the FUND.(5)
(b) OPINION OF WILLKIE FARR & GALLAGHER, COUNSEL TO THE FUND.(8)
(C) Opinion and Consent of Venable, Baetjer and Howard, LLP, Maryland
counsel to the Fund.(3)
11 Consent of Coopers & Lybrand L.L.P., Independent Accountants.(5)
12 Not Applicable.
</TABLE>
C-1
<PAGE>
<PAGE>
<TABLE>
<C> <S>
13 Form of Purchase Agreement.(6)
14 Not applicable.
15(a) Form of Shareholder Servicing and Distribution Plan.(2)
(b) Form of Distribution Plan.(7)
(c) Rule 18f-3 PLAN.(5)
16 Schedule for Performance Information.(5)
17 FINANCIAL DATA SCHEDULE.(5)
</TABLE>
(1) Incorporated by reference to Registrant's Registration Statement on Form
N-1A, filed on January 30, 1996.
(2) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A
of Warburg, Pincus Post-Venture Capital Fund, Inc., filed on September 22,
1995 (Securities Act File No. 33-61225).
(3) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A, filed March 1, 1996 (Securities
Act File No. 333-00533).
(4) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A
of Warburg, Pincus Trust filed on June 14, 1995 (Securities Act File No.
33-58125).
(5) Filed herewith.
(6) Incorporated by reference; material provisions of this exhibit
substantially similar to those of the corresponding exhibit in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A
of Warburg, Pincus Growth & Income Fund, Inc., filed on March 1, 1996
(Securities Act File No. 333-00527).
(7) Incorporated by reference; material provisions of this exhibit
substantially similar to the corresponding exhibit in Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of Warburg,
Pincus Japan Growth Fund, Inc., filed on December 18, 1995 (Securities Act
File No. 33-63655).
C-2
<PAGE>
<PAGE>
(8) INCORPORATED BY REFERENCE TO THE OPINION OF WILLKIE FARR & GALLAGHER FILED
WITH THE FUND'S RULE 24f-2 NOTICE FILED ON OCTOBER 31, 1996.
Item 25. Persons Controlled by or Under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
ON NOVEMBER 29, 1996, THERE WERE 902 holders of Common Shares and
9 holders of Advisor Shares of the REGISTRANT.
Item 27. Indemnification
Registrant, officers and directors of Warburg, of Counsellors
Securities Inc. ("Counsellors Securities") and of 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 on Form N-1A of
Warburg, Pincus Small Company Value Fund, Inc. (Securities Act No. 33-63653;
Investment Company Act No. 811-07375), filed on October 25, 1995.
Item 28. Business and Other Connections of
Investment Adviser
Warburg is a wholly owned subsidiary of Warburg, Pincus
Counsellors G.P., 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 28 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. 801-07321).
Item 29. Principal Underwriter
(a) Counsellors Securities will act as distributor for
Registrant. Counsellors Securities currently acts as distributor for The RBB
Fund, Inc.; Warburg Pincus Capital Appreciation Fund; Warburg Pincus Cash
Reserve Fund; Warburg Pincus Emerging Growth Fund; Warburg Pincus Emerging
Markets Fund; Warburg Pincus Fixed Income Fund; Warburg Pincus Global Fixed
Income Fund; Warburg Pincus Growth & Income Fund; WARBURG PINCUS HEALTH SCIENCES
FUND; Warburg Pincus Institutional Fund, Inc.; Warburg Pincus Intermediate
Maturity Government Fund; Warburg Pincus International Equity Fund; Warburg
Pincus Japan Growth Fund; Warburg Pincus Japan OTC Fund; Warburg Pincus New York
Intermediate Municipal Fund; Warburg Pincus New York Tax Exempt
C-3
<PAGE>
<PAGE>
Fund; Warburg Pincus Post-Venture Capital Fund; WARBURG PINCUS SMALL COMPANY
GROWTH FUND; Warburg Pincus Small Company Value Fund; WARBURG PINCUS STRATEGIC
VALUE FUND; Warburg Pincus Tax Free Fund and Warburg Pincus Trust.
(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.
(c) None.
Item 30. Location of Accounts and Records
(1) Warburg, Pincus Balanced Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(Registrant's Articles of Incorporation, By-laws and
minute books)
(2) Warburg, Pincus Counsellors, Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as investment
adviser)
(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
co-administrator)
(5) Counsellors Securities Inc.
466 Lexington Avenue
New York, New York 10017-3147
(records relating to its functions as distributor)
(6) PNC Bank, National Association
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19101
(records relating to its functions as custodian)
(7) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
C-4
<PAGE>
<PAGE>
(records relating to its functions as custodian,
shareholder servicing agent, transfer agent and
dividend disbursing agent)
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of its
shareholders for the purpose of voting upon the question of removal of a
director or directors of Registrant when requested in writing to do so by the
holders of at least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to comply with the
provisions of Section 16(c) of the 1940 Act relating to communications with the
shareholders of certain common-law trusts.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
C-5
<PAGE>
<PAGE>
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 the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to the Registration Statement 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 30TH day of DECEMBER, 1996.
WARBURG, PINCUS BALANCED FUND, INC.
By:/s/ Arnold M. Reichman
______________________________
Arnold M. Reichman
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 December 30, 1996
- ---------------------------
John L. Furth Board of Directors
/s/ Arnold M. Reichman President and December 30, 1996
- ---------------------------
Arnold M. Reichman Director
/s/ Stephen Distler Vice President December 30, 1996
- ---------------------------
Stephen Distler
/s/ Howard Conroy Vice President December 30, 1996
- --------------------------- and Chief
Howard Conroy FINANCIAL Officer
/s/ Richard N. Cooper Director December 30, 1996
- ---------------------------
Richard N. Cooper
/s/ Donald J. Donahue Director December 30, 1996
- ---------------------------
Donald J. Donahue
/s/ Jack W. Fritz Director December 30, 1996
- ---------------------------
Jack W. Fritz
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Thomas A. Melfe Director December 30, 1996
- ---------------------------
Thomas A. Melfe
/s/ Alexander B. Trowbridge Director December 30, 1996
- ---------------------------
Alexander B. Trowbridge
</TABLE>
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<C> <S>
10(a) Consent of Willkie Farr & Gallagher, Counsel to the Fund.
11 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
15(c) Rule 18f-3 PLAN
16 Schedule for Performance Information.
17 Financial Data Schedule.
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
Characters normally expressed as superscript shall be preceded by ........'pp'
The trademark symbol shall be expressed as ...............................'tm'
The dagger symbol shall be expressed as ..................................`D'
<PAGE>
<PAGE>
CONSENT OF COUNSEL
Warburg, Pincus Balanced Fund, Inc.
We hereby consent to being named in the Statement of Additional
Information included in Post-Effective Amendment No. 2 (the "Amendment") to the
Registration Statement on Form N-1A (Securities Act File No. 333-00533,
Investment Company Act File No. 811-07517) of Warburg, Pincus Balanced Fund,
Inc. (the "Fund") under the caption "Independent Accountants and Counsel" and to
the Fund's filing a copy of this Consent as an exhibit to the Amendment.
/s/ Willkie Farr & Gallagher
_________________________________________
Willkie Farr & Gallagher
New York, New York
December 30, 1996
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 2 to the Registration Statement under the Securities Act of 1933 on Form
N-1A (File No. 333-00533) of our report dated October 18, 1996 on our audit of
the financial statements and financial highlights of the Warburg, Pincus
Balanced Fund, Inc. We also consent to the reference to our Firm under the
caption "Financial Highlights" in the Prospectus and under the caption
"Independent Accountants and Counsel" in the Statement of Additional
Information.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 23, 1996
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS
Rule 18f-3 Plan
Rule 18f-3 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), requires that the Board of an investment company
desiring to offer multiple classes pursuant to the Rule adopt a plan setting
forth the separate arrangement and expense allocation of each class (a "Class"),
and any related conversion features or exchange privileges. The differences in
distribution arrangements and expenses among these classes of shares, and the
exchange features of each class, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the governing documents
of each fund that adopts this Plan (the "Fund" and together the "Funds"), by
action of the governing Board of the Fund.
The governing Board, including a majority of the non-interested Board
members, of each Fund, or series thereof, which desires to offer multiple
classes has determined that the following Plan is in the best interests of each
class individually and the Fund as a whole:
1. Class Designation. Shares of a Fund or series of a Fund shall be
divided into Common Shares and Advisor Shares.
2. Differences in Services. Counsellors Securities Inc. ("CSI") will
provide shareholder servicing and distribution services to holders of Common
Shares and Advisor Shares. Institutional shareholders of record may also provide
distribution services, shareholder services and/or administrative and accounting
services to or on behalf of their clients or customers who beneficially own
Advisor Shares.
3. Differences in Distribution Arrangements.
Common Shares. Common Shares are sold to the general public and are not
subject to any annual distribution fee, except for Funds that have adopted a
Shareholder Servicing and Distribution Plan adopted pursuant to Rule 12b-1 under
the 1940 Act, which Funds pay CSI .25% per annum for services under that Plan.
Specified minimum initial and subsequent purchase amounts are applicable to the
Common Shares. Common Shares are available through certain organizations that
may or may not charge their customers administrative charges or other direct
fees in connection with investing in Common Shares. CSI may pay certain
financial institutions, broker-dealers and recordkeeping organizations a fee
based on the value of accounts maintained by such organizations in Common Shares
of a Fund.
<PAGE>
<PAGE>
Advisor Shares. Advisor Shares are available for purchase by financial
institutions, retirement plans, broker-dealers, depository institutions and
other financial intermediaries (collectively, "Institutions"). Advisor Shares
may be charged a shareholder service fee (the "Shareholder Service Fee") payable
at an annual rate of up to .25%, and a distribution fee (the "Distribution
Service Fee") payable at an annual rate of up to .50%, of the average daily net
assets of such Class under a Distribution Plan adopted pursuant to Rule 12b-1
under the 1940 Act. Payments may be made directly out of the assets of the Fund
or by CSI on its behalf. Additional payments may be made by CSI or an affiliate
thereof from time to time to Institutions for providing distribution,
administrative, accounting and/or other services with respect to Advisor Shares.
Payments by the Fund shall not be made to an Institution pursuant to the Plan
with respect to services for which Institutions are otherwise compensated by CSI
or an affiliate thereof. There is no minimum amount of initial or subsequent
purchases of Advisor Shares imposed on Institutions.
General. CSI or an affiliate thereof may pay certain Fund transfer agent
fees and expenses related to accounts of customers of organizations that have
entered into agreements with CSI or the Fund. An organization may use a portion
of the fees paid pursuant to the Plan to compensate the Fund's custodian or
transfer agent for costs related to accounts of customers of the organization
that hold Common Shares or Advisor Shares.
Payments may be made to organizations the customers or clients of which
invest in a Fund's Common Shares or Advisor Shares by CSI or an affiliate
thereof from such entity's own resources, which may include a fee it receives
from the Fund.
4. Expense Allocation. The following expenses shall be allocated, to the
extent practicable, on a Class-by-Class basis: (a) fees under the Shareholder
Servicing and Distribution Plan or Distribution Plan, as applicable; (b)
transfer agent fees identified by the Fund's transfer agent as being
attributable to a specific Class; and (c) expenses incurred in connection with
shareholders' meetings as a result of issues relating to a specific Class.
The distribution, administrative and shareholder servicing fees and
other expenses listed above which are attributable to a particular Class are
charged directly to the net assets of the particular Class and, thus, are borne
on a pro rata basis by the outstanding shares of that Class; provided, however,
that money market funds and other funds making daily distributions of their net
investment income may allocate these items to each share regardless of class or
on the basis of relative net assets (settled shares), applied in each case
consistently.
<PAGE>
<PAGE>
5. Conversion Features. No Class shall be subject to any automatic
conversion feature.
6. Exchange Privileges. Shares of a Class shall be exchangeable only for
(a) shares of the same Class of other investment companies advised by Warburg,
Pincus Counsellors, Inc. that are part of the same group of investment companies
and (b) shares of certain other investment companies specified from time to
time.
7. Additional Information. This Plan is qualified by and subject to the
terms of the then current prospectus for the applicable Class; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the applicable Fund's multiple class structure.
Dated: November 4, 1996
<PAGE>
<PAGE>
WARBURG PINCUS BALANCED FUND (COMMON SHARES)
SCHEDULE 16 CALCULATIONS
For the One Year Ended August 31, 1996
ANNUALIZED RETURN WITH WAIVERS:
((10,999/10,000)'pp'1/1 - 1) = 9.99%
ANNUALIZED RETURN WITHOUT WAIVERS:
((10,904/10,000)'pp'1/1 - 1) = 9.04%
AGGREGATE RETURN WITH WAIVERS:
((10,999 - 10,000)/10,000) = 9.99%
AGGREGATE RETURN WITHOUT WAIVERS:
((10,904 - 10,000)/10,000) = 9.04%
For the Five Years Ended August 31, 1996
ANNUALIZED RETURN WITH WAIVERS:
((17,799/10,000)'pp'1/5 - 1) = 12.22%
ANNUALIZED RETURN WITHOUT WAIVERS:
((16,801/10,000)'pp'1/5 - 1) = 10.93%
AGGREGATE RETURN WITH WAIVERS:
((17,799 - 10,000)/10,000) = 77.99%
AGGREGATE RETURN WITHOUT WAIVERS:
((16,801 - 10,000)/10,000) = 68.01%
Inception Through August 31, 1996
ANNUALIZED RETURN WITH WAIVERS:
((25,517/10,000)'pp'1/7.90959 - 1) = 12.57%
ANNUALIZED RETURN WITHOUT WAIVERS:
((22,699/10,000)'pp'1/7.90959 - 1) = 10.92%
AGGREGATE RETURN WITH WAIVERS:
((25,517 - 10,000)/10,000) = 155.17%
AGGREGATE RETURN WITHOUT WAIVERS:
((22,699 - 10,000)/10,000) = 126.99%
<PAGE>
<PAGE>
WARBURG PINCUS BALANCED FUND (ADVISOR SHARES)
SCHEDULE 16 CALCULATIONS
For the One Year Ended August 31, 1996
ANNUALIZED RETURN WITH WAIVERS:
((10,956/10,000)'pp'1/1 - 1) = 9.56%
ANNUALIZED RETURN WITHOUT WAIVERS:
((5,887/10,000)'pp'1/1 -1) = -41.13%
AGGREGATE RETURN WITH WAIVERS:
((10,956 - 10,000)/10,000) = 9.56%
AGGREGATE RETURN WITHOUT WAIVERS:
((5,887 - 10,000)/10,000) = -41.13%
Inception Through August 31, 1996
ANNUALIZED RETURN WITH WAIVERS:
((11,375/10,000)'pp'1/1.09041 - 1) = 12.54%
ANNUALIZED RETURN WITHOUT WAIVERS:
((5,545/10,000)'pp'1/1.09041 -1) = -41.77%
AGGREGATE RETURN WITH WAIVERS:
((11,375 - 10,000)/10,000) = 13.75%
AGGREGATE RETURN WITHOUT WAIVERS:
((5,545 - 10,000)/10,000) = -44.55%
<PAGE>
[ARTICLE] 6
[CIK] 0001006235
[NAME] WARBURG PINCUS BALANCED FUND, INC.
[SERIES]
[NUMBER] 001
[NAME] COMMON CLASS
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] AUG-31-1996
[PERIOD-END] AUG-31-1996
[INVESTMENTS-AT-COST] 29914917
[INVESTMENTS-AT-VALUE] 30852243
[RECEIVABLES] 314377
[ASSETS-OTHER] 10409
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 31177029
[PAYABLE-FOR-SECURITIES] 213699
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 99107
[TOTAL-LIABILITIES] 312806
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 29416934
[SHARES-COMMON-STOCK] 2584219
[SHARES-COMMON-PRIOR] 480061
[ACCUMULATED-NII-CURRENT] 108685
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 400936
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 937668
[NET-ASSETS] 30864223
[DIVIDEND-INCOME] 156484
[INTEREST-INCOME] 447677
[OTHER-INCOME] 0
[EXPENSES-NET] 289864
[NET-INVESTMENT-INCOME] 314297
[REALIZED-GAINS-CURRENT] 490146
[APPREC-INCREASE-CURRENT] 472314
[NET-CHANGE-FROM-OPS] 1276757
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 212893
[DISTRIBUTIONS-OF-GAINS] 150008
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 33327987
[NUMBER-OF-SHARES-REDEEMED] 29416933
[SHARES-REINVESTED] 345753
[NET-CHANGE-IN-ASSETS] 25522374
[ACCUMULATED-NII-PRIOR] 7138
[ACCUMULATED-GAINS-PRIOR] 60835
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 170672
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 467746
[AVERAGE-NET-ASSETS] 18945142
[PER-SHARE-NAV-BEGIN] 11.12
[PER-SHARE-NII] .157
[PER-SHARE-GAIN-APPREC] .939
[PER-SHARE-DIVIDEND] .13
[PER-SHARE-DISTRIBUTIONS] .146
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.94
[EXPENSE-RATIO] 1.53
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0001006235
[NAME] WARBURG PINCUS BALANCED FUND, INC.
[SERIES]
[NUMBER] 002
[NAME] ADVISOR CLASS
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] AUG-31-1996
[PERIOD-END] AUG-31-1996
[INVESTMENTS-AT-COST] 29914917
[INVESTMENTS-AT-VALUE] 30852243
[RECEIVABLES] 314377
[ASSETS-OTHER] 10409
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 31177029
[PAYABLE-FOR-SECURITIES] 213699
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 99107
[TOTAL-LIABILITIES] 312806
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 29416934
[SHARES-COMMON-STOCK] 979
[SHARES-COMMON-PRIOR] 110
[ACCUMULATED-NII-CURRENT] 108685
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 400936
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 937668
[NET-ASSETS] 30864223
[DIVIDEND-INCOME] 156484
[INTEREST-INCOME] 447677
[OTHER-INCOME] 0
[EXPENSES-NET] 289864
[NET-INVESTMENT-INCOME] 314297
[REALIZED-GAINS-CURRENT] 490146
[APPREC-INCREASE-CURRENT] 472314
[NET-CHANGE-FROM-OPS] 1276757
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 212893
[DISTRIBUTIONS-OF-GAINS] 150008
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 33327987
[NUMBER-OF-SHARES-REDEEMED] 29416933
[SHARES-REINVESTED] 345753
[NET-CHANGE-IN-ASSETS] 25522374
[ACCUMULATED-NII-PRIOR] 7138
[ACCUMULATED-GAINS-PRIOR] 60835
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 170672
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 467746
[AVERAGE-NET-ASSETS] 2577
[PER-SHARE-NAV-BEGIN] 11.13
[PER-SHARE-NII] .369
[PER-SHARE-GAIN-APPREC] .682
[PER-SHARE-DIVIDEND] .094
[PER-SHARE-DISTRIBUTIONS] .146
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.94
[EXPENSE-RATIO] 1.71
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
