ANNUAL
REPORT
AUGUST 31, 1997
WARBURG PINCUS
GROWTH & INCOME FUND
[Square Bullet]
WARBURG PINCUS
BALANCED FUND
WARBURG PINCUS FUNDS (LOGO)
[GRAPHIC OMITTED]
More complete information about the Funds, including charges and expenses, is
provided in the Prospectus, which must precede or accompany this document and
which should be read carefully before investing.You may obtain additional copies
by calling 800-WARBURG (800-927-2874) or by writing to Warburg Pincus Funds,
P.O.Box 9030, Boston,MA 02205-9030.
<PAGE>
FROM TIME TO TIME, THE FUNDS' INVESTMENT ADVISER AND CO-ADMINISTRATORS MAY WAIVE
SOME FEES AND/OR REIMBURSE SOME EXPENSES, WITHOUT WHICH PERFORMANCE WOULD BE
LOWER. WAIVERS AND/OR REIMBURSEMENTS ARE SUBJECT TO CHANGE.
RETURNS ARE HISTORICAL AND INCLUDE CHANGE IN SHARE PRICE AND REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS.
RETURNS AND SHARE PRICE WILL FLUCTUATE, AND REDEMPTION VALUE MAY BE MORE OR LESS
THAN ORIGINAL COST.
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, 1997;
THESE VIEWS AND PORTFOLIO HOLDINGS MAY HAVE CHANGED SUBSEQUENT TO THESE DATES.
NOTHING IN THIS ANNUAL REPORT IS A RECOMMENDATION TO PURCHASE OR SELL
SECURITIES.
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: October 17, 1997
The objective of Warburg Pincus Growth & Income Fund (the "Fund") is
long-term growth of capital and income and a reasonable current return. The Fund
pursues its objective by investing primarily in equity securities and may invest
in various income-producing securities.
For the 12 months ended August 31, 1997, the Fund had a total return of
24.78%, vs. a gain of 40.59% for the S&P 500 Index.* The Fund's respective
five-year and since-inception (on October 6, 1988) average annual total returns
through August 31, 1997 were 17.58% and 14.35%.
The Fund's change in portfolio manager during the reporting period (effective
January 9) resulted in its extensive restructuring. In light of this, the Fund's
performance over the 12 months can be put in terms of three components. Over the
first few months of the period, the Fund lagged its benchmark by a significant
margin, hampered, most notably, by its precious-metals-related holdings. This
weakness largely offset good performances from some of the Fund's other
holdings, such as its financial-services stocks. Then, in the weeks following
the manager change, the Fund more fully participated in the stock market's
continued rise, despite its abnormally high turnover (virtually every stock in
the Fund was replaced during this period). Indeed, our goal throughout the
transition was to keep the Fund's cash to a modest level in order to avoid
sizable "gaps" in market performance. Finally, the Fund was competitive with its
benchmark over the post-restructuring remainder of the period (as indicated by
its year-to-date return of 22.59% through August, vs. a 22.89% gain for the S&P
500 Index), buoyed by its financial, technology and energy holdings in
particular.
In terms of specific strategies, we reoriented the Fund using a total-return
approach, focusing on equities with the best risk-adjusted-return prospects.
Here, we looked for stocks that were temporarily depressed for cyclical or other
identifiable reasons. We particularly emphasized factors such as management
changes, restructurings or new products or services that could improve earnings
and free cash flow. Because of this, many of the Fund's holdings were purchased
at P/E multiples below that of the S&P 500 Index. Examples include
deep-water-drilling stocks Noble Drilling and Reading & Bates, which we bought
early this year, when fears of declining oil prices drove their P/Es down to
about 10 times estimated 1998 earnings. We viewed these securities as oversold,
given the companies' potentially lucrative contracts for projects in the Gulf of
Mexico and the North Sea. It should be stressed, however, that we did not simply
seek out cheap stocks per se. Thus, the Fund's holdings during the period also
included companies such as
1
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- --------------------------------------------------------------------------------
Wal-Mart, which we purchased at a higher P/E ratio of about 15 times estimated
1998 earnings. We saw value in the company's potential for increased return on
assets in the wake of its recent restructuring and its expansion overseas.
Wal-Mart, one of the Fund's largest positions during the period, contributed
positively to its performance.
With regard to sectors, we aligned the Fund's industry weightings more
closely with those of its benchmark during the restructuring. (This was most
noticeable in the financial area, which, having accounted for about a third of
the Fund's assets at the end of 1996, represented approximately 13% of its
assets as of August 31.) Though we remain strictly bottom-up stock selectors,
the narrow valuations among sectors during the period called for, in our view, a
generally balanced approach. That said, the Fund held modest overweightings, vs.
the S&P 500 Index, in the energy, retail and financial-services sectors at the
close of the period.
With the restructuring now fully in place, we will continue to search for
stocks that have what we deem to be the best risk-adjusted total-return
prospects over the longer term. Because we generally take a 12- to 24-month view
when analyzing an investment's potential, we expect that the Fund's turnover
will remain within a reasonable range going forward.
Brian S. Posner
Portfolio Manager
*The S&P 500 Index is an unmanaged index (with no defined investment objective)
of common stocks, includes reinvestment of dividends, and is a registered
trademark of Standard & Poor's Corporation.
2
<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, 1997
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, 1997, assuming the reinvestment of dividends and capital gains at net asset
value, compared to the S&P 500** for the same period.
CHART
[GRAPHIC OMITTED]
Plot Points for Warburg Pincus Growth & Income Fund are as follows:
Fund (Common Shares) S&P 500
12/31/91 $10,000 $10,000
8/31/92 $10,290.1 $10,126.1
8/31/93 $14,526.5 $11,664.5
8/31/94 $16,619.9 $12,301.6
8/31/95 $19,215.7 $14,932.1
8/31/96 $18,534.8 $17,728.3
8/31/97 $23,128.3 $24,924.1
----------------------------------------
Average Annual Total Returns
for periods ending 8/31/97
(Common Shares)
----------------------------------------
1 year
----------------------------------------
24.78%
----------------------------------------
5 year
----------------------------------------
17.58%
----------------------------------------
From 12/31/91*
----------------------------------------
15.93%
----------------------------------------
FUND
--------
1 Year Total Return (9/30/96-9/30/97) .... 33.16%
5 Year Total Return (9/30/92-9/30/97) .... 18.52%
Average Annual Total Return From
12/31/91*-9/30/97 ..................... 16.72%
- ------------------
* Warburg, Pincus Asset Management, 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 (with no defined investment objectives) of
common stock, includes reinvestment of dividends and is a registered
trademark of Standard & Poor's Corporation.
3
<PAGE>
WARBURG PINCUS BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: October 17, 1997
The objective of Warburg Pincus Balanced Fund (the "Fund") is maximum total
return through a combination of long-term growth of capital and current income,
consistent with preservation of capital. The Fund pursues its objective by
investing in a diversified portfolio of equity and debt securities, and employs
a multi-manager approach, using up to five different sector teams.
For the 12 months ended August 31, 1997, the Fund had a total return of
23.03%, vs. gains of 24.57% for the Lipper Balanced Funds Index* and 40.59% for
the S&P 500 Index.** The Fund's respective five-year and since-inception (on
October 6, 1988) average annual total returns through August 31, 1997 were
15.17% and 13.70%.
Supported by relatively stable interest rates and subdued inflation, most
major stock and bond indexes turned in good performances over the 12 months.
Equities, though often volatile, were particularly robust, fueled by continued
strength in corporate profits. Throughout the period, we sought to provide solid
returns at a relatively low level of volatility. In practical terms, this meant
maintaining broad exposure to both the equity and fixed-income markets, making
adjustments as we deemed necessary on a risk-vs.-reward basis.
The Fund's equities, 65.20% of its assets at the close of the period,
included a diversified mix of domestic and foreign stocks. Of particular note,
we maintained a substantial weighting in domestic small-cap stocks throughout
the period. These securities initially took a toll on the Fund's performance, as
the market favored the relative safety of larger-cap, more-liquid stocks well
into the reporting period. Sentiment toward smaller companies improved
dramatically over the May-through-August span, however, as investors took note
of small-cap stocks' compelling valuations and earnings-growth rates, and the
Fund's holdings rallied to contribute positively to its return for the 12
months. Elsewhere, we held a sizable position in larger-cap domestic stocks,
which collectively performed well and helped offset the higher volatility of
small caps. We also maintained a modest weighting in foreign equities (note: per
a recent investment-policy change, the Fund may now invest as much as 15% of its
assets in foreign stocks, up from 10% previously). Our foreign holdings, which
continued to be well-diversified by country, on balance contributed positively
to the Fund's return for the period.
4
<PAGE>
WARBURG PINCUS BALANCED FUND
ANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- --------------------------------------------------------------------------------
Within the fixed-income area, we concentrated primarily on Treasuries, as we
continued to find them attractive on a risk-reward basis, though we also
identified select values among mortgage-backed and corporate bonds. Because we
view the Fund's fixed-income component mostly as a provider of income, rather
than as a potential source of capital appreciation, we emphasized
intermediate-term, high-quality securities across the bond market to minimize
interest-rate and credit risk.
We look forward to continuing to provide shareholders with a diversified
portfolio of equity and fixed-income securities chosen on their individual
merits. As ever, the Fund's asset allocation between stocks and bonds will be
based on our view on the markets from a risk-reward perspective.
Dale C. Christensen Anthony G. Orphanos
Co-Portfolio Strategist Co-Portfolio Strategist
*The Lipper Balanced Funds Index is an equal-weighted performance index,
adjusted for capital-gains distributions and income dividends, of the largest
qualifying funds in this investment objective, and is compiled by Lipper
Analytical Services Inc.
**The S&P 500 Index is an unmanaged index (with no defined investment objective)
of common stocks, includes reinvestment of dividends, and is a registered
trademark of Standard & Poor's Corporation.
5
<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, 1997
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,
1997, 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.
CHART
[GRAPHIC OMITTED]
Plot Points for Warburg Pincus Balanced Fund are as follows:
Fund (Common Shares) S&P 500 LBFI
9/30/94 $10,000 $10,000 $10,000
8/31/95 $12,301.5 $12,444.3 $11,340.9
8/31/96 $13,530.5 $14,774.6 $12,522.3
8/29/97 $16,646.4 $20,771.6 $15,600.2
----------------------------------------
Average Annual Total Returns
for periods ending 8/31/97
(Common Shares)
----------------------------------------
1 year
----------------------------------------
23.03%
----------------------------------------
5 year
----------------------------------------
15.17%
----------------------------------------
From 9/30/94*
----------------------------------------
19.06%
----------------------------------------
FUND
--------
1 Year Total Return (9/30/96-9/30/97) ....... 25.90%
5 Year Total Return (9/30/92-9/30/97) ....... 15.85%
Average Annual Total Return From
9/30/94*-9/30/97 ......................... 20.63%
- --------------------
*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 Index is an unmanaged index (with no defined investment
objective) of common stocks, includes reinvestment of dividends, and is a
registered trademark of Standard & Poor's Corporation.
***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.
6
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
----- -----
COMMON STOCK (89.7%)
AEROSPACE & DEFENSE (4.6%)
Gulfstream Aerospace Corp. + 138,500 $ 4,103,062
Litton Industries, Inc. + 167,200 8,339,100
Lockheed Martin Corp. 87,000 9,020,812
Raytheon Co. 180,000 9,900,000
-----------
31,362,974
-----------
BANKS & SAVINGS & LOANS (2.2%)
Bank of New York Co., Inc. 85,000 3,793,125
Citicorp 90,000 11,486,250
-----------
15,279,375
-----------
BUILDING & BUILDING MATERIALS (1.6%)
USG Corp. + 250,000 10,718,750
-----------
BUSINESS SERVICES (0.8%)
Deluxe Corp. 85,000 2,799,687
H & R Block, Inc. 75,000 2,943,750
-----------
5,743,437
-----------
CAPITAL EQUIPMENT (3.4%)
AlliedSignal, Inc. 50,000 4,128,125
Cummins Engine Co., Inc. 80,000 6,155,000
Dresser Industries, Inc. 55,000 2,296,250
Ingersoll-Rand Co. 52,500 3,156,562
ITT Industries, Inc. 240,000 7,560,000
-----------
23,295,937
-----------
CHEMICALS (3.3%)
Ferro Corp. 125,000 4,703,125
Imperial Chemical Industries PLC ADR 81,500 5,348,437
Olin Corp. 135,000 6,007,500
Union Carbide Corp. 125,300 6,429,456
-----------
22,488,518
-----------
COMPUTERS (9.2%)
Automatic Data Processing, Inc. 162,500 7,403,906
Hewlett-Packard Co. 155,000 9,503,437
International Business Machines Corp. 163,000 16,442,625
Quantum Corp. + 289,500 10,150,594
Seagate Technology, Inc. + 288,500 11,017,094
Sun Microsystems, Inc. + 175,000 8,400,000
-----------
62,917,656
-----------
See Accompanying Notes to Financial Statements.
7
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
----- -----
COMMON STOCK (CONT'D)
CONGLOMERATES (0.7%)
Harsco Corp. 110,000 $ 4,956,875
-----------
CONSUMER DURABLES (6.5%)
Chrysler Corp. 572,500 20,109,062
Ford Motor Co. 285,000 12,255,000
Maytag Co. 175,065 4,803,346
Volvo AB ADR 295,000 7,596,250
-----------
44,763,658
-----------
CONSUMER NON-DURABLES (3.3%)
Fruit of the Loom, Inc. + 70,000 1,872,500
RJR Nabisco Holdings Corp. 385,000 13,402,812
Unilever NV 35,000 7,043,750
-----------
22,319,062
-----------
ENERGY (7.0%)
British Petroleum Co. PLC ADR 250,439 21,193,400
Exxon Corp. 240,000 14,685,000
Pioneer Natural Resources Co. + 105,000 4,193,438
Total S.A. - Sponsored ADR 165,000 7,816,875
-----------
47,888,713
-----------
ENVIRONMENTAL SERVICES (0.5%)
Browning-Ferris Industries 72,500 2,532,969
Waste Management, Inc. 25,000 800,000
-----------
3,332,969
-----------
FINANCIAL SERVICES (8.3%)
American Express Co. 54,950 4,272,362
Berkley (W.R.) Corp. 80,000 4,425,000
Equitable of Iowa Companies 40,800 2,657,100
Fannie Mae 160,000 7,040,000
Freddie Mac 127,500 4,151,719
General Re Corp. 20,000 3,877,500
Household International, Inc. 39,300 4,359,844
Lehman Brothers Holdings, Inc. 95,000 4,168,125
MBIA, Inc. 74,550 8,442,787
Provident Companies, Inc. 85,000 5,535,625
Republic New York Corp. 50,000 5,353,125
Terra Nova (Bermuda) Holdings, Ltd. Class A 123,600 2,796,450
-----------
57,079,637
-----------
See Accompanying Notes to Financial Statements.
8
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
----- -----
COMMON STOCK (CONT'D)
FOOD, BEVERAGES & TOBACCO (6.6%)
Anheuser-Busch Companies, Inc. 250,000 $10,656,250
PepsiCo, Inc. 190,000 6,840,000
Philip Morris Companies, Inc. 337,000 14,701,625
Ralston Purina Group 42,500 3,825,000
Sara Lee Corp. 147,500 5,936,875
Swedish Match Co. ADR 119,700 3,605,963
-----------
45,565,713
-----------
HEALTHCARE (4.7%)
Baxter International, Inc. 133,000 7,073,938
Columbia/HCA Healthcare Corp. 92,500 2,919,531
Foundation Health Systems, Inc. + 164,500 5,233,156
McKesson Corp. 25,000 2,342,188
Tenet Healthcare Corp. + 185,000 5,041,250
United Healthcare Corp. 80,000 3,890,000
Wellpoint Health Networks, Inc. + 100,200 5,448,375
-----------
31,948,438
-----------
INDUSTRIAL MFG. & PROCESSING (0.7%)
Eaton Corp. 55,000 4,953,438
-----------
LEISURE & ENTERTAINMENT (1.2%)
Circus Circus Enterprises, Inc. + 100,000 2,393,750
Polaroid Corp. 107,500 5,677,344
-----------
8,071,094
-----------
METALS & MINING (2.4%)
Alumax, Inc. + 255,000 10,566,563
Aluminum Company of America 75,000 6,168,750
-----------
16,735,313
-----------
OFFICE EQUIPMENT & SUPPLIES (1.8%)
Pitney Bowes, Inc. 160,000 12,220,000
-----------
OIL SERVICES (4.8%)
Noble Drilling Corp. + 315,000 8,957,813
Reading & Bates Corp. + 185,000 6,717,813
Transocean Offshore, Inc. 100,000 9,506,250
Western Atlas, Inc. + 97,500 7,726,875
-----------
32,908,751
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
----- -----
COMMON STOCK (CONT'D)
PHARMACEUTICALS (1.7%)
Bristol-Myers Squibb Co. 90,000 $ 6,840,000
Schering-Plough Corp. 95,000 4,560,000
-----------
11,400,000
-----------
RETAIL (7.1%)
Carson Pirie Scott & Co. + 110,000 3,905,000
Federated Department Stores, Inc. + 255,000 10,710,000
May Department Stores Co. 95,000 5,112,188
Neiman-Marcus Group, Inc. + 125,000 3,859,375
Payless ShoeSource, Inc. + 125,000 8,015,625
Rite Aid Corp. 102,500 5,131,406
Sotheby's Holdings, Inc. 195,500 3,702,281
Wal-Mart Stores, Inc. 240,000 8,520,000
-----------
48,955,875
-----------
TELECOMMUNICATIONS & EQUIPMENT (3.9%)
Alltel Corp. 80,000 2,530,000
Ameritech Corp. 92,500 5,798,594
Bell Atlantic Corp. 145,920 10,560,960
SBC Communications, Inc. 150,000 8,156,250
-----------
27,045,804
-----------
TRANSPORTATION (1.5%)
Burlington Northern Santa Fe Corp. 47,500 4,355,156
CSX Corp. 110,000 6,290,625
-----------
10,645,781
-----------
UTILITIES- ELECTRIC (1.9%)
Allegheny Power System, Inc. 75,000 2,179,688
American Electric Power Co. Inc. 95,000 4,150,313
DQE, Inc. 50,000 1,587,500
Entergy Corp. 110,000 2,729,375
Illinova Corp. 100,000 2,300,000
-----------
12,946,876
-----------
TOTAL COMMON STOCK (Cost $524,750,128) 615,544,644
-----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----- -----
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK (3.9%)
BUSINESS SERVICES (0.5%)
Merrill Lynch Series IGL6.25% (Callable 07/01/01 @ $46.28) 100,000 $ 3,737,500
-----------
FINANCIAL SERVICES (2.3%)
Aetna, Inc. Class C 6.25% (Callable 07/19/00 @ $92.869) 40,000 3,520,000
Allstate Corp.Exchangable Notes 6.764% (Callable 04/15/98 @ $41.50) 255,000 12,399,375
-----------
15,919,375
-----------
HEALTHCARE (0.5%)
McKesson Corp. Series 2.50% (Callable 06/01/27 @ $74.53) 50,000 3,456,250
-----------
TELECOMMUNICATIONS & EQUIPMENT (0.6%)
AirTouch Communications, Inc. Series B 6.00% (Callable 08/16/99 @ $35.96) 115,000 3,766,250
-----------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost $25,476,527) 26,879,375
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
RATE MATURITY (000)
---- ------ ----
<S> <C> <C> <C> <C>
CORPORATE BOND (0.4%)
ENVIRONMENTAL SERVICES (0.4%)
WMX Technologies, Inc. Convertible
Subordinate Notes (Callable 3/15/00 @ $84.30)
(Baa1, BBB+) (Cost $2,794,273)# 2.00% 01/24/05 $3,000 2,767,500
-----------
ZERO COUPON BONDS (0.8%)
INSURANCE (0.5%)
USF&G Corp. Convertible Notes (Callable 03/03/99 @ $64.08)
(Baa3, BBB-)# 03/03/09 4,900 3,393,250
RETAIL (0.3%)
Costco Companies, Inc. Convertible Subordinate Notes#
(Putable 08/19/02 @ $59.42) (A3, BBB+) 08/19/17 4,000 2,105,000
-----------
TOTAL ZERO COUPON BONDS (Cost $5,396,699) 5,498,250
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
11
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
PAR
(000) VALUE
---- -----
REPURCHASE AGREEMENT (5.1%)
Repurchase agreement with Goldman Sachs & Co. dated
08/29/97 at 5.51%to be repurchased at $34,584,160 on
09/02/97. (Collateralized by $12,900,000 U.S. Treasury
Note 5.625% due 02/28/01, $12,900,000 U.S. Treasury
Notes 5.50% due 12/31/00 and $8,471,430 U.S. Treasury
Note 7.875% due 11/15/04. Total market value of collateral
is $35,271,830) (Cost $34,563,000) $34,563 $ 34,563,000
------------
TOTAL INVESTMENTS AT VALUE (99.9%) (Cost $592,980,627*) 685,252,769
OTHER ASSETS IN EXCESS OF LIABILITIES (0.1%) 773,589
------------
NET ASSETS (100%) (applicable to 32,600,972 Common Shares
and 4,607,320 Advisor Shares) $686,026,358
============
NET ASSET VALUE, offering and redemption price per Common
Share ($601,159,458 (DIVIDE) 32,600,972) $18.44
============
NET ASSET VALUE, offering and redemption price per Advisor
Share ($84,866,900 (DIVIDE) 4,607,320) $18.42
============
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
+ Non-income producing security.
# Credit ratings given by Moody's Investors Service Inc. and Standard &Poor's
Ratings Group are unaudited.
* Cost for federal income tax purposes at August 31, 1997 is $593,124,808.
The gross appreciation (depreciation) on a tax basis is as follows:
Gross Appreciation $95,339,353
Gross Depreciation (3,211,392)
-----------
Net Appreciation $92,127,961
===========
See Accompanying Notes to Financial Statements.
12
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
----- -----
U.S. COMMON STOCK (54.0%)
AEROSPACE & DEFENSE (1.0%)
Loral Space & Communications, Ltd. 9,200 $ 161,000
Raytheon Co. 1,600 88,000
Tracor, Inc. + 4,400 132,550
-----------
381,550
-----------
AGRICULTURE (0.6%)
Archer-Daniels Midland Co. 4,200 90,825
Monsanto Co. 3,600 158,175
-----------
249,000
-----------
BANKS & SAVINGS & LOANS (2.6%)
Bank of New York Co., Inc. 2,400 107,100
Bank United Corp. Class A 1,300 46,962
Chase Manhattan Corp. 1,300 144,544
Citicorp 800 102,100
First Chicago NBD Corp. 1,500 107,625
Pacific Century Financial Corp. 1,100 54,244
Quaker City Bancorp., Inc.+ 8,000 164,000
Texas Regional Bancshares, Inc. 4,350 110,925
Washington Mutual, Inc. 3,150 188,606
-----------
1,026,106
-----------
BUSINESS SERVICES (1.0%)
AccuStaff, Inc. + 1,000 26,562
First Data Corp. 3,000 123,187
Gartner Group, Inc. Class A + 1,000 26,437
Robert Half International, Inc. + 2,000 116,750
Sterling Commerce, Inc. + 2,000 66,125
SunGard Data Systems, Inc. + 800 41,700
-----------
400,761
-----------
CAPITAL EQUIPMENT (0.8%)
Allied Products Corp. 4,900 173,031
Avondale Industries, Inc. + 5,250 120,094
-----------
293,125
-----------
CHEMICALS (0.9%)
Avery-Dennison Corp. 5,200 213,525
Du Pont (E.I.) De Nemours & Co. 1,300 81,006
Morton International, Inc. 2,000 66,500
-----------
361,031
-----------
See Accompanying Notes to Financial Statements.
13
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------ -----
U.S. COMMON STOCK (CONT'D)
COMMUNICATIONS & MEDIA (1.7%)
@Entertainment, Inc. + 5,000 $ 76,875
At Home Corp. Series A + 1,500 28,687
Dow Jones & Co., Inc. 500 21,406
General Cable Corp. + 4,000 138,500
Harte-Hanks Communications, Inc. 4,000 121,750
U.S. West, Inc. - Media Group 7,700 154,000
Viacom, Inc. Class B 4,100 121,462
-----------
662,680
-----------
COMPUTERS (5.1%)
Adobe Systems, Inc. 500 19,687
BMC Software, Inc. + 1,200 75,150
Citrix Systems, Inc. + 2,000 101,000
Comdisco, Inc. 2,500 67,969
COMPAQ Computer Corp. + 3,250 212,875
Computer Horizons Corp. + 1,500 59,625
Data Dimensions, Inc. + 2,500 83,437
Harbinger Corp. + 1,500 52,500
Hewlett Packard Co. 2,700 165,544
Information Analysis, Inc. + 1,000 28,250
Internationl Business Machines Corp. 4,400 443,850
McAfee Associates, Inc. + 1,200 67,950
National Instruments Corp. + 2,000 82,500
PeopleSoft, Inc. + 1,500 84,375
Peritus Software Services, Inc. + 500 12,500
Quantum Corp . + 3,700 129,731
Rational Software Corp. + 3,000 49,500
Seagate Technology, Inc. + 3,400 129,837
Sun Microsystems, Inc. + 2,500 120,000
-----------
1,986,280
-----------
CONGLOMERATES (1.0%)
Oglebay Norton Co. 1,800 94,500
United Technologies Corp. 1,600 124,900
Westinghouse Electric Corp. 6,840 176,130
-----------
395,530
-----------
CONSUMER DURABLES (0.8%)
Autoliv, Inc. 682 26,641
Citation Corp. + 7,500 131,250
Triangle Pacific Corp. + 4,300 135,450
-----------
293,341
-----------
See Accompanying Notes to Financial Statements.
14
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------ -----
U.S. COMMON STOCK (CONT'D)
CONSUMER NON-DURABLES (1.7%)
American Safety Razor Corp. + 6,000 $ 111,750
Gibson Greetings, Inc. + 4,700 105,750
Home Products International, Inc. + 3,400 45,475
Sola International, Inc. + 1,200 37,200
Standex International Corp. 4,400 138,875
USA Detergents, Inc. 5,900 69,325
Westpoint Stevens, Inc. + 1,600 64,000
Zag Industries, Ltd. + 8,200 82,000
-----------
654,375
-----------
CONSUMER SERVICES (0.4%)
DeVRY, Inc. + 4,000 108,500
ITT Educational Services, Inc. + 1,650 33,000
-----------
141,500
-----------
ELECTRONICS (4.3%)
AMP, Inc. 1,300 65,000
Atmel Corp. + 2,500 88,437
Avant! Corp. + 2,400 69,750
Burr-Brown Corp. + 1,500 53,250
Cypress Semiconductor + 4,500 79,875
EA Industries, Inc. + 27,300 221,812
Etec Systems, Inc. + 1,500 100,500
Intel Corp. 2,200 202,675
KLA - Tencor Corp. + 1,600 113,400
Lam Research Corp. + 1,000 56,500
Linear Technology Corp. 1,500 98,344
LSI Logic Corp. + 1,800 57,937
Maxim Integrated Products, Inc. + 2,600 179,725
Microchip Technology, Inc. + 1,500 60,656
Synopsys, Inc. + 1,800 62,325
Texas Instruments, Inc. + 900 102,262
Xilinx, Inc. + 1,400 66,500
-----------
1,678,948
-----------
See Accompanying Notes to Financial Statements.
15
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------ -----
U.S. COMMON STOCK (CONT'D)
ENERGY (3.2%)
Amoco Corp. 1,400 $ 132,387
Anadarko Petroleum Corp. 1,300 95,469
Chevron Corp. 2,100 162,619
Forcenergy, Inc. + 3,600 130,500
Forest Oil Corp. + 9,650 154,400
KCS Energy, Inc. 7,000 186,812
Meridian Resource Corp. + 12,500 136,719
Pioneer Natural Resources Co. + 2,300 91,856
United Meridian Corp. Series A + 3,500 137,156
-----------
1,227,918
-----------
ENGINEERING & CONSTRUCTION (0.3%)
Gradall Industries, Inc. + 6,900 105,225
-----------
ENTERTAINMENT (0.3%)
SCP Pool Corp. + 4,400 101,200
-----------
ENVIRONMENTAL SERVICES (0.5%)
Allied Waste Industries, Inc. + 4,000 60,250
USA Waste Services, Inc. + 3,500 147,000
-----------
207,250
-----------
FINANCIAL SERVICES (9.5%)
Allstate Corp. 1,000 73,062
Berkshire Hathaway, Inc. Class B + 100 139,200
City National Corp. 2,700 75,431
Commerce Group, Inc. - Mass 4,600 128,512
Crawford & Co. Class B 3,500 73,937
Delphi Financial Group Class A + 3,000 131,437
Freddie Mac 6,400 208,400
Fidelity National Financial, Inc. 3,500 60,812
Fund American Enterprises Holdings, Inc. 700 73,850
Household International, Inc. 600 66,563
Interstate/Johnson Lane, Inc. 5,600 145,600
Legg Mason, Inc. 5,000 308,750
Life Re Corp. 1,000 51,313
NAC Re Corp. 2,850 134,306
National Western Life Insurance Co. Class A + 1,500 132,750
Nationwide Financial Services, Inc. 1,600 44,400
Ocwen Asset Investment Corp. 22,000 514,250
Penncorp Financial Group, Inc. 1,500 48,094
PICO Holdings, Inc. + 14,800 75,850
See Accompanying Notes to Financial Statements.
16
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------ -----
U.S. COMMON STOCK (CONT'D)
FINANCIAL SERVICES (CONT'D)
Provident Co., Inc. 1,400 $ 91,175
ReliaStar Financial Corp. 5,893 440,502
Salomon, Inc. 1,300 77,838
SLM Holding Corp. 1,000 135,500
Terra Nova (Bermuda) Holdings, Ltd. Class A 6,550 148,194
Transactions Systems Architects, Inc. Class A + 4,800 166,200
United Companies Finance Corp. 2,900 82,650
White River Corp. + 1,400 94,500
-----------
3,723,076
-----------
FOOD, BEVERAGES & TOBACCO (0.2%)
Consolidated Cigar Holdings, Inc. + 1,500 49,688
Smucker (J.M.) Co. Class A 900 23,794
-----------
73,482
-----------
HEALTHCARE (1.5%)
ALZA Corp. + 3,000 87,000
Ballard Medical Products 2,500 57,813
Becton, Dickinson & Co. 3,200 153,400
Emcare Holdings, Inc. + 2,200 83,325
HealthCare COMPARE Corp. + 3,000 167,250
U.S. Surgical Corp. 1,500 49,406
-----------
598,194
-----------
INDUSTRIAL MFG. & PROCESSING (0.5%)
Goodrich (B.F.) Co. 1,500 63,188
Roanoke Electric Steel Corp. 700 15,225
Schnitzer Steel Industries, Inc. Class A 4,100 134,275
-----------
212,688
-----------
LODGING & RESTAURANTS (1.0%)
CKE Restaurants, Inc. 2,100 67,725
Doubletree Corp. + 2,000 100,000
McDonald's Corp. 2,600 123,013
Morton's Restaurant Group, Inc. + 4,550 91,000
Shells Seafood Restaurants, Inc. + 1,500 20,250
-----------
401,988
-----------
METALS & MINING (1.0%)
Reynolds Metals Co. 2,800 197,925
Universal Stainless & Alloy Products, Inc. + 12,000 173,250
-----------
371,175
-----------
See Accompanying Notes to Financial Statements.
17
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------ -----
U.S. COMMON STOCK (CONT'D)
OFFICE EQUIPMENT & SUPPLIES (0.1%)
New England Business Service, Inc. 1,800 $ 54,900
-----------
OIL SERVICES (2.5%)
Global Industries, Ltd. + 4,000 145,750
Halliburton Co. 500 23,875
Nabors Industries, Inc. + 3,000 103,313
Pride International, Inc. + 3,000 96,000
Smith International, Inc. + 8,000 582,000
Varco International, Inc. + 800 31,800
-----------
982,738
-----------
PHARMACEUTICALS (2.1%)
American Home Products Corp. 2,200 158,400
Bristol-Myers Squibb Corp. 2,700 205,200
Columbia Laboratories, Inc. + 3,500 59,938
Dura Pharmaceuticals, Inc. + 1,000 35,625
Elan Corp. PLC ADR + 1,000 45,500
Forest Laboratories, Inc. + 1,000 41,063
Gilead Sciences, Inc. + 2,000 64,750
Human Genome Sciences, Inc. + 3,000 111,750
Merck & Co., Inc. 1,100 100,994
-----------
823,220
-----------
REAL ESTATE (1.9%)
Berkshire Realty Co., Inc. 9,000 101,813
Equity Inns, Inc. 3,500 50,750
Healthcare Realty Trust 7,500 213,281
NHP, Inc. + 5,700 143,569
Walden Residential Properties, Inc. 2,500 59,688
Weeks Corp. 1,700 53,550
Western Water Co. + 7,400 113,313
-----------
735,964
-----------
See Accompanying Notes to Financial Statements.
18
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------ -----
U.S. COMMON STOCK (CONT'D)
RETAIL (4.1%)
Borders Group, Inc. + 6,000 $ 142,875
CUC International, Inc. + 2,000 47,000
CVS Corp. 2,300 129,663
Family Dollar Stores, Inc. 1,800 38,250
Filene's Basement Corp. + 7,600 62,700
Fingerhut Co., Inc. 6,100 123,525
Home Depot, Inc. 1,950 92,016
Galoob (Lewis) Toys, Inc. + 5,000 103,750
Neiman-Marcus Group, Inc. + 5,000 154,375
Payless Shoesource, Inc. + 1,200 76,950
Rite Aid Corp. 2,500 125,156
Sotheby's Holdings, Inc. Class A 10,200 193,163
Staples, Inc. + 2,000 47,000
Wal-Mart Stores, Inc. 8,000 284,000
-----------
1,620,423
-----------
TELECOMMUNICATIONS & EQUIPMENT (1.6%)
Bay Networks, Inc. + 4,400 155,650
DSC Communication Corp. + 4,000 116,500
GTE Corp. 1,500 66,844
Intermedia Communications of Florida, Inc. + 1,500 53,625
McLeod USA Inc. Class A + 1,500 50,813
QUALCOMM, Inc. + 1,200 55,500
WorldCom, Inc. + 4,200 125,738
-----------
624,670
-----------
TRANSPORTATION (1.8%)
Allied Holdings, Inc. + 4,600 71,875
Atlas Air, Inc. + 4,100 113,775
Coach USA, Inc. + 2,000 51,875
Heartland Express, Inc. + 2,250 55,688
M.S. Carriers, Inc. 2,500 58,750
Mark VII, Inc. + 3,000 91,500
MTL, Inc. + 4,450 115,700
OMI Corp. + 13,900 147,688
-----------
706,851
-----------
TOTAL U.S. COMMON STOCK (Cost $16,060,312) 21,095,189
-----------
See Accompanying Notes to Financial Statements.
19
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------ -----
FOREIGN COMMON STOCK (9.6%)
AUSTRALIA (0.4%)
Boral, Ltd. 59,700 $ 174,083
-----------
AUSTRIA (0.9%)
Radex-Heraklith Industries 3,700 142,582
VA Technologie AG 1,165 213,408
-----------
355,990
-----------
BRAZIL (0.3%)
CIA Saneamento 175,000 45,702
Telebras ADR 540 63,720
-----------
109,422
-----------
DENMARK (0.3%)
ISS International Service System B 3,400 100,410
SAS Danmark AS 2,200 33,926
-----------
134,336
-----------
FINLAND (0.3%)
Rauma OY 5,340 108,982
-----------
FRANCE (0.3%)
Compagnie Francaise de Petroleum Total 1,355 126,921
-----------
GERMANY (0.3%)
Hoechst AG 3,200 125,007
-----------
HONG KONG (0.4%)
Guangshen Railway Co., Ltd. 44,500 18,519
Guangshen Railway Co., Ltd. ADR 2,800 59,675
Hong Kong Land Holdings 26,424 76,365
-----------
154,559
-----------
INDONESIA (0.3%)
Indonesian Satellite Corp. ADR 5,500 119,281
-----------
ISRAEL (0.2%)
Orbotech, Ltd. 2,000 99,750
-----------
ITALY (0.3%)
Assicurazioni Generali SPA 5,500 115,878
-----------
See Accompanying Notes to Financial Statements.
20
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------ -----
FOREIGN COMMON STOCK (CONT'D)
JAPAN (2.2%)
Fujitsu, Ltd. 7,000 $ 83,458
Kao Corp. 7,000 103,163
Orix Corp. 2,000 148,203
Sankyo Company, Ltd. 3,000 90,909
Sony Corp. 1,700 147,789
Sumitomo Bank, Ltd. 6,000 88,425
Tokyo Electronics, Ltd. 3,300 178,962
-----------
840,909
-----------
MEXICO (0.1%)
PanAmerican Beverages, Inc. Class A 1,900 57,119
-----------
NETHERLANDS (0.4%)
Philips Electronics NV 2,100 149,506
-----------
NEW ZEALAND (0.5%)
Brierley Investments, Ltd. 225,500 193,056
-----------
NORWAY (0.4%)
SAS Norge ASA Class B 2,000 28,656
Smedvig ASA ADR Class B + 4,000 111,500
-----------
140,156
-----------
PHILIPPINES (0.3%)
Millicom International Cellular SA 2,035 103,785
-----------
PORTUGAL (0.5%)
Portugal Telecommunications SA ADR + 5,200 191,100
-----------
SOUTH KOREA (0.4%)
Samsung Electronics GDR 86 4,734
Samsung Electronics GDR + 5,300 136,475
-----------
141,209
-----------
SWITZERLAND (0.4%)
Julius Baer Holdings AG Class B 120 169,298
-----------
UNITED KINGDOM (0.4%)
Hanson PLC 31,750 152,351
-----------
TOTAL FOREIGN COMMONSTOCK (Cost $3,369,970) 3,762,698
-----------
See Accompanying Notes to Financial Statements.
21
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------ -----
<S> <C> <C>
PREFERRED STOCK (1.6%)
REAL ESTATE (1.6%)
Equity Residential Properties Trust Series C
9.125% (Callable 09/09/06 @ $25.00) 10,000 $ 266,875
MEPC International Capital Series A 9.125%
(Callable 09/21/05 @ $25.00) 5,000 119,813
Oasis Residential, Inc. Series A 9.000%
(Callable 04/30/01 @ $25.00) 5,000 128,125
Security Capital Industries Series C 8.540%
(Callable 11/13/26 @ $50.00) 2,000 102,750
-----------
TOTAL PREFERRED STOCK (Cost $606,320) 617,563
-----------
</TABLE>
<TABLE>
PAR
RATE MATURITY (000)
--- ------ ----
<S> <C> <C> <C> <C>
U.S. CORPORATEBONDS (2.7%)
FINANCIAL SERVICES (0.6%)
First Union Corp. Subordinated Debentures
(Putable 10/15/05 @ $100.00) (A2, A-)# 6.550% 10/15/35 250 245,938
INDUSTRIAL (0.4%)
Lowe's Companies Medium Term Note
(Putable 05/15/07 @$100.00) (A2, A)# 7.110% 05/15/37 160 163,600
RETAIL (0.8%)
Penney (J.C.) & Co. Debentures
(Putable 08/15/03 @ $100.00) (A2, A)# 6.900% 08/15/26 325 331,500
UTILITIES-ELECTRIC (0.9%)
Korea Electric Power Debentures
(Putable 12/01/01 @ $100.00) (A1, AA-)# 6.000% 12/01/26 325 318,906
-----------
TOTAL CORPORATE BONDS (Cost $1,051,553) 1,059,944
-----------
CALL OPTIONS (0.0%)
SINGAPORE (0.0%)
DBS 50 Index 01/26/98, (Strike Price $407.39) + 384 46
-----------
THAILAND (0.0%)
SET 50 Index 01/26/98, (Strike Price $2.48) + 41,467 0
-----------
TOTAL CALL OPTIONS (Cost $30,000) 46
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
PAR
RATE MATURITY (000) VALUE
---- -------- ----- -----
U.S. TREASURY OBLIGATIONS (28.0%)
U.S. TREASURY NOTE 8.500% 11/15/00 $5,800 $ 6,196,836
U.S. TREASURY NOTE 8.000% 05/15/01 1,500 1,589,415
U.S. TREASURY NOTE 6.500% 05/31/01 1,500 1,516,140
U.S. TREASURY NOTE 7.500% 02/15/05 1,525 1,626,839
-----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $10,868,396) 10,929,230
-----------
MORTGAGE BACKED SECURITIES (2.7%)
Government National Mortgage Association Pass Through
(Aaa, AAA)# 6.500% 08/15/03 9 8,731
GE Capital Mortgage Services, Inc. Series 1994-7 Class A10
(Aaa, AAA)# 6.000% 02/25/09 484 462,374
Morgan Stanley Mortgage Trust Series 40 Class 8
(NR, AAA)# 7.000% 07/20/21 600 580,422
-----------
TOTAL MORTGAGE BACKED SECURITIES (Cost $1,065,496) 1,051,527
-----------
FOREIGN CORPORATE BONDS (0.0%)
THAILAND (0.0%)
Bangkok Bank Public Co., Ltd. (Convertible) (NR, NR)
(Cost $25,946)# 3.250% 03/03/04 27 14,648
-----------
See Accompanying Notes to Financial Statements.
23
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
PAR
RATE MATURITY (000) VALUE
---- -------- ----- -----
REPURCHASE AGREEMENT (0.8%)
Repurchase agreement with Goldman Sachs & Co. dated
08/29/97 at 5.51% to be repurchased at $293,179 on
09/02/97. (Collateralized by $109,350 U.S. Treasury
Note 5.625% due 02/28/01, $109,350 U.S. Treasury
5.50% due 12/31/00 and $71,810 U.S. Treasury Note
7.875% due 11/15/04. Total market value of collateral
is $296,130) (Cost $293,000) 5.510% 09/02/97 $293 $ 293,000
-----------
TOTAL INVESTMENTS ATVALUE (99.4%) (Cost $33,370,993*) 38,823,845
OTHER ASSETS IN EXCESS OF LIABILITIES (0.6%) 251,768
-----------
NET ASSETS (100.0%) (applicable to 2,734,117
Common Shares and 10,499 Advisor Shares) $39,075,613
===========
NET ASSET VALUE, offering and redemption price per
Common Share ($38,926,294 (DIVIDE) 2,734,117) $14.24
===========
NET ASSET VALUE, offering and redemption price per Advisor
Share ($149,319 (DIVIDE) 10,499) $14.22
===========
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
GDR = Global Depository Receipt
- --------------------------------------------------------------------------------
+Non-income producing security.
#Credit ratings given by Moody's Investors Service Inc., and Standard & Poor's
Ratings Group are unaudited.
*Cost for federal income tax purposes at August 31, 1997 is $33,410,809.
The gross appreciation (depreciation) on a tax basis is as follows:
Gross Appreciation $5,781,782
Gross Depreciation (368,746)
----------
Net Appreciation $5,413,036
==========
See Accompanying Notes to Financial Statements.
24
<PAGE>
WARBURG PINCUS FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended August 31, 1997
- --------------------------------------------------------------------------------
WARBURG PINCUS WARBURG PINCUS
GROWTH & INCOME FUND BALANCED FUND
-------------------- --------------
INVESTMENT INCOME:
Dividends $ 10,144,739 $ 312,837
Interest 2,121,388 791,393
Foreign taxes withheld (168,513) (4,015)
------------ ----------
Total investment income 12,097,614 1,100,215
------------ ----------
EXPENSES:
Investment advisory 4,637,851 319,264
Administrative services 1,483,450 88,685
Custodian/Sub-custodian 121,205 34,614
Directors 7,500 10,269
Distribution and shareholder services 372,841 88,903
Insurance 50,579 1,576
Interest 27,426 309
Printing 161,821 11,100
Professional 10,350 14,752
Transfer agent 503,805 45,571
Miscellaneous 41,233 57,964
------------ ----------
7,418,061 673,007
Less fees waived and expenses reimbursed (6,724) (193,893)
------------ ----------
Total expenses 7,411,337 479,114
------------ ----------
Net investment income 4,686,277 621,101
------------ ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS AND FOREIGN CURRENCY
RELATED ITEMS:
Net realized gain from security transactions 88,134,951 2,259,328
Net realized loss from foreign currency related
items 0 (1,211)
Net change in unrealized appreciation from
investments and foreign currency related items 41,534,862 4,514,953
------------ ----------
Net realized and unrealized gain
from investments and foreign currency
related items 129,669,813 6,773,070
------------ ----------
Net increase in net assets resulting from
operations $134,356,090 $7,394,171
============ ==========
See Accompanying Notes to Financial Statements.
25
<PAGE>
WARBURG PINCUS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS
GROWTH & INCOME FUND BALANCED FUND
------------------------------ ------------------------------
FOR THE YEARS ENDED AUGUST 31, FOR THE YEARS ENDED AUGUST 31,
------------------------------ ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 4,686,277 $ 6,958,699 $ 621,101 $ 314,297
Net realized gain from security transactions 88,134,951 20,871,086 2,259,328 490,109
Net realized gain (loss) from foreign currency
related items 0 0 (1,211) 37
Net change in unrealized appreciation from
investments and foreign currency
related items 41,534,862 (67,018,131) 4,514,953 472,314
------------ -------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 134,356,090 (39,188,346) 7,394,171 1,276,757
------------ -------------- ----------- -----------
FROM DISTRIBUTIONS:
Dividends to shareholders from net
investment income:
Common Shares (4,434,607) (8,430,598) (655,603) (212,883)
Advisor Shares (348,996) (306,084) (1,449) (10)
Distributions from realized gains:
Common Shares 0 (49,915,078) (395,800) (149,992)
Advisor Shares 0 (3,362,883) (809) (16)
------------ -------------- ----------- -----------
Net decrease in net assets from
distributions (4,783,603) (62,014,643) (1,053,661) (362,901)
------------ -------------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares 276,013,445 370,678,850 19,977,419 33,327,987
Reinvested dividends 4,560,726 58,584,414 1,014,239 345,753
Net asset value of shares redeemed (531,312,507) (615,963,314) (19,120,778) (9,065,222)
------------ -------------- ----------- -----------
Net increase (decrease) in net assets
from capital share transactions (250,738,336) (186,700,050) 1,870,880 24,608,518
------------ -------------- ----------- -----------
Total increase (decrease) in net assets (121,165,849) (287,903,039) 8,211,390 25,522,374
NET ASSETS:
Beginning of year 807,192,207 1,095,095,246 30,864,223 5,341,849
------------ -------------- ----------- -----------
End of year $686,026,358 $ 807,192,207 $39,075,613 $30,864,223
============ ============== =========== ===========
Undistributed Net Investment Income $ 577,858 $ 675,184 $ 71,417 $ 108,542
============ ============== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
26
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of theFund Outstanding Throughout the Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,BEGINNING OF YEAR $ 14.90 $ 16.40 $ 14.56 $ 16.72 $ 11.99
------- ------- -------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.1393 0.1116 0.2224 0.0785 0.0464
Net Gains (Losses) on Securities (both
realized and unrealized) 3.5352 (0.6633) 1.9834 1.8151 4.8499
------- ------- -------- ------- --------
Total from Investment Operations 3.6745 (0.5517) 2.2058 1.8936 4.8963
------- ------- -------- ------- --------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (0.1332) (0.1350) (0.1824) (0.0785) (0.0875)
Distributions from Realized Gains -- (0.8133) (0.1834) (3.9751) (0.0788)
------- ------- -------- ------- --------
Total Distributions (0.1332) (0.9483) (0.3658) (4.0536) (0.1663)
------- ------- -------- ------- --------
NET ASSET VALUE, END OF YEAR $ 18.44 $ 14.90 $ 16.40 $ 14.56 $ 16.72
======= ======= ======== ======= ========
Total Returns 24.78% (3.54%) 15.62% 14.41% 41.17%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $601,159 $727,627 $1,038,193 $410,658 $60,689
Ratios of Expenses to Average Net Assets 1.15%(a) 1.21% 1.22% 1.28%(a) 1.14%(a)
Ratios of Net Investment Income to Average
Net Assets 0.80% 0.69% 1.64% 0.41% 0.30%
Portfolio Turnover Rate 148% 94% 109% 150% 344%
Average CommissionRate (b) $0.0587 $0.0596 -- -- --
<FN>
- ---------------------------------------------------------------------------------------------------
(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 1.15%, 1.28% and 1.14% for the years ended August
31, 1997, 1994 and 1993, 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. The Average
Commission Rate is not required for fiscal periods beginning before September 1, 1995.
TAX STATUS OF 1997 DIVIDENDS (UNAUDITED)
Dividends paid by the Fund taxable as ordinary income amounted to $0.1332 per share; 100.00% 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
1998.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
27
<PAGE>
WARBURG PINCUS BALANCED FUND
FINANCIAL HIGHLIGHTS
(For a Common Share of the Fund Outstanding Throughout the Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.94 $ 11.12 $ 11.01 $ 11.71 $ 12.04
------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.2275 0.1573 0.2080 0.4132 0.5555
Net Gains on Securities (both
realized and unrealized) 2.4649 0.9389 1.7225 0.3248 1.1253
------- -------- -------- -------- --------
Total from Investment Operations 2.6924 1.0962 1.9305 0.7380 1.6808
------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (0.2429) (0.1300) (0.3136) (0.4586) (0.5412)
Distributions from Realized Gains (0.1511) (0.1462) (1.5069) (0.9794) (1.4696)
------- -------- -------- -------- --------
Total Distributions (0.3940) (0.2762) (1.8205) (1.4380) (2.0108)
------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 14.24 $ 11.94 $ 11.12 $ 11.01 $ 11.71
======= ======== ======== ======== ========
Total Returns 23.03% 9.99% 21.56% 6.86% 15.27%(c)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000) $38,926 $30,853 $5,342 $808 $762
Ratios of Expenses to Average Net Assets (a) 1.35% 1.53% 1.53% 0% 0%
Ratios of Net Investment Income to Average
Net Assets 1.76% 1.66% 2.30% 3.76% 4.13%
Portfolio Turnover Rate 120% 108% 107% 32% 30%
Average CommissionRate (b) $0.0400 $0.0453 -- -- --
<FN>
- --------------------------------------------------------------------------------------------------
(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 1.90%, 2.43%, 6.04%, 5.46% and 5.37% for the years ended
August 31, 1997, 1996, 1995, 1994 and 1993, 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. The Average
Commission Rate is not required for fiscal periods beginning before September 1, 1995.
(c) Sales load not reflected in total return. The sales load was eliminated effective August 31,
1994.
TAX STATUS OF 1997 DIVIDENDS (UNAUDITED)
Dividends paid by the Fund taxable as ordinary income amounted to $0.3671 per share; long-term
capital gains amounted to $0.0269 per share; 31.52% 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
1998.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
28
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
- --------------------------------------------------------------------------------
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. Each Fund offers two classes of shares, one
class being referred to as Common shares and one class being referred to as
Advisor shares. Common and Advisor shares in each Fund represent an equal pro
rata interest in such Fund, except that they bear different expenses which
reflect the difference in the range of services provided to them.
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
the 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 generally 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' Board.
Short-term obligations that mature in 60 days or less are valued at amortized
cost, which approximates market value.
The books and records of the Funds are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
29
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are reported in the results of
operations for the current period. The Funds do not isolate that portion of
gains and losses on investments in equity securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
equity securities. The Funds isolate that portion of gains and losses on
investments in debt securities which are due to changes in the foreign exchange
rate from at that which are due to changes in market prices of debt securities.
Security transactions are accounted for on a trade date basis. 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.
The cost of investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes.
Dividends from net investment income, if any, are declared and paid at least
quarterly. 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.
The Funds, together with other funds advised by Warburg Pincus Asset
Management, Inc., the Funds' investment adviser ("Warburg") (collectively the
"Warburg Funds"), have established committed and uncommitted line of credit
facilities with certain banks for temporary or emergency purposes primarily
relating to fund share redemptions and funding payments of dividend or capital
gain distributions.Under the terms of the committed line of credit, the Warburg
Funds with access to the facility pay a commitment fee at a rate of .10% per
annum on the amount of the line of credit.In addition, under the terms of both
the committed and uncommitted facilities, the Warburg Funds
30
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
will pay interest on borrowings at the banks base rate plus .55%. Aggregate
borrowings for each fund under these credit facilities may not exceed the lower
of (a) the maximum amount permitted by such fund's investment policies and
restrictions or (b) thirty three and one-third percent (331/3%) of such fund's
total assets. During the fiscal year ended August 31, 1997, the amount
outstanding under the line of credit agreement for the Growth & Income Fund
averaged approximately $378,000 with an approximate interest rate of 5.90%. At
August 31, 1997, there were no outstanding balances under these line of credit
facilities for any of the funds.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, each Fund, along with other Warburg Funds, transfers uninvested cash
balances to a Pooled Cash Account, which is invested in repurchase agreements
secured by U.S. government securities.Securities pledged as collateral for
repurchase agreements are held by the Funds' custodian bank until the agreements
mature. Each agreement requires that the market value of the collateral be
sufficient to cover payments of interest and principal; however, in the event of
default or bankruptcy by the other party to the agreement, retention of the
collateral may be subject to legal proceedings.
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.
Beginning September 1, 1997 the Growth & Income Fund and the Balanced Fund
have each changed their fiscal and tax year-ends from August 31st to October
31st.
The Funds have an arrangement with their transfer agent whereby interest
earned on uninvested cash balances was used to offset a portion of the transfer
agent expense. For the year ended August 31, 1997, the Funds received credits or
reimbursements under this arrangement as follows:
FUND AMOUNT
---- --------
Growth & Income $6,724
Balanced 213
31
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISOR, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg is indirectly controlled by Warburg Pincus & Co. serves as each
Fund's 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:
FUND ANNUAL RATE
---- -----------
Growth & Income Fund .75% average daily net assets
Balanced Fund .90% average daily net assets
For the year ended August 31, 1997, investment advisory fees, waivers and
expense reimbursements were as follows:
GROSS NET
ADVISORY FEE WAIVER ADVISORY FEE
------------ ------ ------------
Growth & Income Fund $4,637,851 $ 0 $4,637,851
Balanced Fund 319,264 (140,469) 178,795
PFPC Inc.("PFPC"), an indirect wholly owned subsidiary of PNC Bank Corp., and
Counsellors Funds Service, Inc. ("CFSI"), a wholly owned subsidiary of Warburg,
serve as co-administrators for each of the Funds. The Growth & Income Fund pays
CFSI 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 Fund pays CFSI a fee calculated at an annual rate of .10%
of the Fund's average daily net assets. For the year ended August 31, 1997,
administrative service fees earned by CFSI were as follows:
GROSS
CO-ADMINISTRATION FEES
----------------------
Growth & Income Fund $555,880
Balanced Fund 35,474
The 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. For the year ended August 31, 1997, administration
services fees and waivers by PFPC were as follows:
GROSS NET
CO-ADMINISTRATION FEES WAIVERS CO-ADMINISTRATION FEES
---------------------- ------- ----------------------
Growth & Income Fund $927,570 $ 0 $927,570
Balanced Fund 53,211 (53,211) 0
32
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
Counsellors Securities Inc. ("CSI"), also a wholly owned subsidiary of
Warburg, serves as each Fund's distributor. For its shareholder servicing and
distribution services, CSI receives a fee at an annual rate of .25% of the
average daily net assets of the Balanced Fund Common Shares pursuant to a share
holder servicing and distribution plan adopted by the Balanced Fund pursuant to
Rule 12b-1 under the 1940 Act. No compensation is payable by the Growth & Income
Common Shares for distribution services. For its shareholder servicing and
distribution services, CSI receives a fee at an annual rate of .50%,
respectively, of the average daily net assets of each of the Growth & Income and
Balanced Funds' Advisor Shares pursuant to distribution plan adopted by each
Fund pursuant to Rule 12b-1 under the 1940 Act. For the year ended August 31,
1997, distribution fees were as follows:
DISTRIBUTION FEES
-----------------
Growth & Income Fund
Advisor Shares $372,841
========
Balanced Fund
Common Shares $ 88,466
Advisor Shares 437
--------
$ 88,903
========
3. INVESTMENT IN SECURITIES
For the year ended August 31, 1997, purchases and sales of investment
securities (excluding short-term investments) were as follows:
INVESTMENT SECURITIES
--------------------------------
PURCHASES SALES
--------- -----
Growth & Income Fund $867,793,308 $1,091,576,907
Balanced Fund 44,191,514 39,868,397
4. CAPITAL SHARES TRANSACTIONS
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 Common Shares and
two billion are designated Advisor Shares.
33
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
4. CAPITAL SHARES TRANSACTIONS (CONT'D)
Transactions in capital shares for each year were as follows:
<TABLE>
<CAPTION>
WARBURG PINCUS GROWTH & INCOME FUND
-------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------
1997 1996
---- ----
SHARES VALUE SHARES VALUE
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Common Shares 16,219,671 $ 263,366,857 20,913,915 $336,297,357
Advisor Shares 739,244 12,646,588 2,135,316 34,381,493
Shares issued in reinvestment of dividends:
Common Shares 261,793 4,211,791 3,538,291 54,915,454
Advisor Shares 20,096 348,935 237,054 3,668,960
Shares repurchased:
Common Shares (32,720,263) (508,011,387) (38,907,636) (608,244,172)
Advisor Shares (1,497,975) (23,301,120) (499,292) (7,719,142)
----------- ------------- ----------- -------------
Net decrease (16,977,434) $(250,738,336) (12,582,352) $(186,700,050)
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
WARBURG PINCUS BALANCED FUND
-------------------------------------------
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------
1997 1996
---- ----
SHARES VALUE SHARES VALUE
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Common Shares 1,550,047 $ 19,842,484 2,799,590 $32,792,373
Advisor Shares 10,558 134,935 45,037 535,614
Shares issued in reinvestment of dividends:
Common Shares 80,179 1,012,371 29,938 345,728
Advisor Shares 146 1,868 2 25
Shares repurchased:
Common Shares (1,480,328) $(19,105,605) (725,370) (8,530,390)
Advisor Shares (1,184) (15,173) (44,170) (534,832)
---------- ------------ ---------- -----------
Net increase 159,418 $ 1,870,880 2,105,027 $24,608,518
========== ============ ========= ===========
</TABLE>
34
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
5. LIABILITIES
At August 31, 1997, each Fund had the following liabilities:
<TABLE>
<CAPTION>
GROWTH & INCOME FUND BALANCED FUND
-------------------- -------------
<S> <C> <C>
Payable for securities purchased (at value) $ 0 $ 20,743
Investment advisory fee payable 469,354 19,130
Fund share redeemed payable 245,410 18,540
</TABLE>
6. NET ASSETS
Net Assets at August 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
GROWTH & INCOME FUND BALANCED FUND
-------------------- -------------
<S> <C> <C>
Capital contributed, net $506,521,910 $31,287,814
Undistributed net investment income 577,858 71,417
Accumulated net realized gain from security transactions 86,654,448 2,263,655
Net unrealized appreciation from investments and
foreign currency related items 92,272,142 5,452,727
------------ -----------
Net assets $686,026,358 $39,075,613
============ ===========
</TABLE>
35
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
7. 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 Fund's Advisor Shares are as follows:
<TABLE>
<CAPTION>
ADVISOR SHARES
---------------------------------------------------
WARBURG PINCUS
GROWTH & INCOME FUND
---------------------------------------------------
FOR THE PERIOD
MAY 15, 1995
FOR THE YEARS ENDED AUGUST 31, (COMMENCEMENT)
--------------------------------- OF OPERATIONS TO
1997 1996 AUGUST 31, 1995
---- ---- ---------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.88 $16.38 $14.87
------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.0727 .0800 0.0236
Net Gains (Losses) on Securities (both
realized and unrealized) 3.5474 (.6931) 1.5323
------- ------ -------
Total from Investment Operations 3.6201 (.6131) 1.5559
------- ------ -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (0.0808) (.0736) (0.0459)
Distributions from Realized Gains -- (.8133) --
------- ------ -------
Total Distributions (0.0808) (.8869) (0.0459)
------- ------ -------
NET ASSET VALUE, END OF PERIOD $18.42 $14.88 $16.38
======= ====== =======
Total Returns 24.37% (3.92%) 10.49%(c)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $84,867 $79,565 $56,902
Ratios of Expenses to Average Net Assets 1.54% 1.59% 1.92%(b)
Ratios of Net Investment Income to
Average Net Assets 0.43% 0.28% 0.43%(b)
Portfolio Turnover Rate 148% 94% 109%(b)
Average Commission Rate (a) $0.0587 $0.0596 --
<FN>
- -----------------------------------------------------------------------------------------------
(a) 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. The Average
Commission Rate is not required for fiscal periods beginning before September 1, 1995.
(b) Annualized.
(c) Non annualized.
TAX STATUS OF 1997 DIVIDENDS (UNAUDITED)
Dividends paid by the Fund taxable as ordinary income amounted to $0.0808 per share; 100.00%
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 1998.
</FN>
</TABLE>
36
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISOR SHARES
----------------------------------------------------
WARBURG PINCUS
BALANCED FUND
----------------------------------------------------
FOR THE PERIOD
JULY 31, 1995
FOR THE YEAR ENDED AUGUST 31, (COMMENCEMENT)
-------------------------------- OF OPERATIONS TO
1997 1996 AUGUST 31, 1995
---- ---- --------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.94 $11.13 $10.72
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (0.0233) 0.3689 0.0170
Net Gains (Losses) on Securities (both
realized and unrealized) 2.6774 0.6815 0.3930
------ ------ ------
Total from Investment Operations 2.6541 1.0504 0.4100
------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (0.2226) (0.0942) 0.0000
Distributions from Realized Gains (0.1511) (0.1462) 0.0000
------ ------ ------
Total Distributions (0.3737) (0.2404) 0.0000
------ ------ ------
NET ASSET VALUE, END OF PERIOD $14.22 $11.94 $11.13
====== ====== ======
Total Returns 22.66% 9.56% 3.82%(d)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $149 $12 $1
Ratios of Expenses to Average Net Assets 1.60%(a) 1.71%(a) 1.76%(a)(c)
Ratios of Net Investment Income to
Average Net Assets 1.53% (4.11%) 2.00%(c)
Portfolio Turnover Rate 120% 108% 107%(c)
Average Commission Rate (b) $0.0400 $0.0453 --
<FN>
- -----------------------------------------------------------------------------------------------
(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 2.81%, 205.06% and 628.47% for the periods ending
August 31, 1997, 1996 and 1995, 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. The Average
Commission Rate is not required for fiscal periods beginning before September 1, 1995.
(c) Annualized.
(d) Non annualized.
TAX STATUS OF 1997 DIVIDENDS (UNAUDITED)
Dividends paid by the Fund taxable as ordinary income amounted to $0.3468 per share; long-term
capital gains amounted to $0.0269 per share; 31.52% 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 1998.
</FN>
</TABLE>
37
<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, 1997, 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, 1997, 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, 1997, and the results of their operations for the year then ended,
the changes in their net assets for each of the two years of 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 17, 1997
38
<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
WARBURG PINCUS FUNDS (LOGO)
[GRAPHIC OMITTED]
P.O. BOX 9030, BOSTON,MA 02205-9030
800-WARBURG (800-927-2874)
WWW.WARBURG.COM
COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPGBT-2-0897
