WARBURG PINCUS BALANCED FUND INC, 485BPOS, 1997-12-31

WARBURG PINCUS BALANCED FUND INC
485BPOS, 1997-12-31

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<PAGE>

As filed with the U.S. Securities and Exchange Commission
on December 30, 1997

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. 4 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 5 [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>

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

[x] immediately upon filing pursuant to paragraph (b)
[ ] on __________, 1997 pursuant to paragraph (b)
[ ] ____ 60 days after filing pursuant to paragraph (a)(1)
[ ] ______ pursuant to paragraph (a)(1)
[ ] days after filing pursuant to paragraph (a)(2)
[ ] _____ 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.

<PAGE>

WARBURG, PINCUS GROWTH & INCOME FUND, INC.

FORM N-1A

CROSS REFERENCE SHEET

Part A Heading for the Common Shares
Item No. and the Advisor Shares Prospectuses
- -------- -----------------------------------
<S> <C> <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

Part B Heading for the Statement of
Item No. Additional Information
- -------- ----------------------------
<S> <C> <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>

13. Investment Objectives and Policies...... Investment Objectives; 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"
</TABLE>
<PAGE>

<TABLE>

1. Underwriters............................ Investment Policies--Portfolio Transactions; See
Prospectuses--"Management of the Fund" and "Shareholder Servicing"

2. Calculation of Performance Data......... Determination of Performance

3. Financial Statements.................... Financial Highlights; Financial Statements

</TABLE>

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>

PROSPECTUS

December 30, 1997

WARBURG PINCUS
GROWTH & INCOME FUND

WARBURG PINCUS
BALANCED FUND

LOGO

<PAGE>

PROSPECTUS December 30, 1997

Warburg Pincus Funds are a family of open-end mutual funds that offer investors
a variety of investment opportunities. Two 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.

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.

NO LOAD CLASS OF COMMON SHARES
- --------------------------------------------------------------------------------

Each Fund 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"). The SEC maintains
a Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information regarding
the Funds. 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. Warburg Pincus Funds maintain a
Web site at www.warburg.com. The Statements of Additional Information relating
to the Funds, 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.

LOW MINIMUM INVESTMENT
- --------------------------------------------------------------------------------

The minimum initial investment in each Fund is $1,000 ($500 for an IRA or
Uniform Transfers/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."

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR ENDORSED
BY ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER 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>

THE FUNDS' EXPENSES
- --------------------------------------------------------------------------------
Warburg Pincus Growth & Income Fund and Warburg Pincus Balanced Fund (each a
"Fund" and together, 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 pay the Fund's
distributor a 12b-1 fee. See "Management of the Funds -- Distributor."

<TABLE>
<CAPTION>
Growth &
Income Balanced
Fund Fund
-------- --------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................ 0 0
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (after fee waivers).......................... .25% .37%+
12b-1 Fees................................................... .00% .25%
Other Expenses (after expense reimbursements)................ .93% .73%+
----- -----
Total Fund Operating Expenses (after fee waivers and expense
reimbursements)............................................ 1.18% 1.35%+
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
3 years....................................................... $ 37 $ 43
5 years....................................................... $ 65 $ 74
10 years....................................................... $143 $162
</TABLE>

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

+ Absent the waiver of fees by the Funds' investment adviser and
co-administrator, Management Fees for the Balanced Fund would equal .90%,
Other Expenses would equal .88%, and Total Fund Operating Expenses would equal
2.03%.

---------------------------
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 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").

<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The tables below set forth certain information concerning the investment
results of the Common Shares of the Warburg Pincus Growth & Income and Balanced
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
fiscal years ended August 31, 1996 and 1997 and for the two months ended October
31, 1997 has been audited by Coopers & Lybrand L.L.P., independent accountants,
whose report dated December 19, 1997 is incorporated by reference to the
Statements of Additional Information. The financial data for each period through
1995 relates solely to the Common Shares of the Funds as investment portfolios
of the RBB Fund and the financial data for each of the years ended August 31,
1992 through 1995 is 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 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. Further information about
the performance of the Funds is contained in the Funds' annual report for the
period ended October 31, 1997, copies of which may be obtained without charge by
calling Warburg Pincus Funds at (800) 927-2874.

<TABLE>
<CAPTION>
WARBURG PINCUS GROWTH & INCOME FUND
For the Two For the Years Ended August 31,
Months Ended -------------------------------------------------------------------------------
October 31, 1997 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 18.44 $ 14.90 $ 16.40 $ 14.56 $ 16.72
-------- -------- -------- ---------- --------
Income from
Investment
Operations:
Net investment
income.......... 0.0239 0.1393 0.1116 0.2224 0.0785
Net gains
(losses) on
securities (both
realized and
unrealized)..... 0.1383 3.5352 (0.6633) 1.9834 1.8151
-------- -------- -------- ---------- --------
Total from
investment
operations...... 0.1622 3.6745 (0.5517) 2.2058 1.8936
-------- -------- -------- ---------- --------
Less
Distributions:
Dividends (from
net investment
income)......... (0.0391) (0.1332) (0.1350) (0.1824) (0.0785)
Distributions
(from capital
gains).......... -- -- (0.8133) (0.1834) (3.9751)
-------- -------- -------- ---------- --------
Total
distributions... (0.0391) (0.1332) (0.9483) (0.3658) (4.0536)
-------- -------- -------- ---------- --------
Net asset value,
end of period.... $ 18.56 $ 18.44 $ 14.90 $ 16.40 $ 14.56
======== ======== ======== ========== ========
Total Returns..... 0.85%(c) 24.78% (3.54)% 15.62% 14.41%
Ratios/Supplemental
Data:
Net assets, end
of period
(000)........... $608,205 $601,159 $727,627 $1,038,193 $410,658

Ratios of
operating
expenses to
average net
assets.......... 1.18%(b)(d) 1.15(d) 1.21%(d) 1.22% 1.28%

Ratios of net
investment
income to
average net
assets.......... .75%(b) .80% .69% 1.64% .41%
Portfolio turnover
rate............. 19%(c) 148% 94% 109% 150%

Average commission
rate............. $0.0600(f) $0.0587(f) $0.0596(f) N/A N/A

<CAPTION>
For the
Period
October 6,
1988
(Commencement
of
WARBURG PINCUS GRO Operations)
to
August 31,
1993 1992 1991 1990 1989
---------------- ---------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 11.99 $ 12.11 $ 11.00 $ 11.53 $ 10.00
------- ------- ------- ------ ------
Income from
Investment
Operations:
Net investment
income.......... 0.0464 0.1912 0.3744 0.3574 0.3876
Net gains
(losses) on
securities (both
realized and
unrealized)..... 4.8499 0.0402 1.6891 (0.1856) 1.4225
------- ------- ------- ------ ------
Total from
investment
operations...... 4.8963 0.2314 2.0635 0.1718 1.8101
------- ------- ------- ------ ------
Less
Distributions:
Dividends (from
net investment
income)......... (0.0875) (0.1871) (0.4043) (0.3951) (0.2833)
Distributions
(from capital
gains).......... (0.0788) (0.1643) (0.5492) (0.3067) --
------- ------- ------- ------ ------
Total
distributions... (0.1663) (0.3514) (0.9535) (0.7018) (0.2833)
------- ------- ------- ------ ------
Net asset value,
end of period.... $ 16.72 $ 11.99 $ 12.11 $ 11.00 $ 11.53
======= ======= ======= ====== ======
Total Returns..... 41.17%(e) 1.99%(e) 19.91%(e) 1.48%(e) 18.48%(c)(e)
Ratios/Supplementa
Data:
Net assets, end
of period
(000)........... $60,689 $28,976 $24,726 $1,396 $1,150
Ratios of
operating
expenses to
average net
assets.......... 1.14% 1.25%(a) 1.30%(a) 1.40%(a) 1.40%(a)(b)

Ratios of net
investment
income to
average net
assets.......... .30% 1.66% 3.42% 3.32% 4.32%(b)
Portfolio turnover
rate............. 344% 175% 41% 98% 111%(c)
Average commission
rate............. 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%, 2.17% and 3.81% for the years ended August 31, 1992, 1991 and
1990, respectively, and 2.82% annualized for the period ended August 31,
1989.

(b) Annualized.
(c) Non-annualized.

(d) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the Fund's
net expense ratio.

(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. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.

<PAGE>

WARBURG PINCUS BALANCED FUND

<TABLE>
<CAPTION>
For the Two For the Years Ended August 31,
Months Ended -------------------------------------------------------------------------------
October 31, 1997 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 14.24 $ 11.94 $ 11.12 $ 11.01 $ 11.71
------- ------- ------- ------ ----
Income from
Investment
Operations:
Net investment
income.............. 0.0348 0.2275 0.1573 0.2080 0.4132
Net gains (losses) on
securities (both
realized and
unrealized)......... 0.1521 2.4649 0.9389 1.7225 0.3248
------- ------- ------- ------ ----
Total from investment
operations.......... 0.1869 2.6924 1.0962 1.9305 0.7380
------- ------- ------- ------ ----
Less Distributions:
Dividends (from net
investment
income)............. (0.0468) (0.2429) (0.1300) (0.3136) (0.4586)
Distributions (from
capital gains)...... -- (0.1511) (0.1462) (1.5069) (0.9794)
------- ------- ------- ------ ----
Total
distributions....... (0.0468) (0.3940) (0.2762) (1.8205) (1.4380)
------- ------- ------- ------ ----
Net asset value, end
of period............ $ 14.38 $ 14.24 $ 11.94 $ 11.12 $ 11.01
======= ======= ======= ====== ====
Total Returns......... 1.30%(c) 23.03% 9.99% 21.56% 6.86%(e)
Ratios/Supplemental
Data:
Net assets, end of
period (000)........ $38,294 $38,926 $30,853 $5,342 $808
Ratios of operating
expenses to average
net assets.......... 1.35%(a)(b)(d) 1.35%(d) 1.53%(a)(d) 1.53%(a) %0(a)

Ratios of net
investment income to
average net
assets.............. 1.38%(b) 1.76% 1.66% 2.30% 3.76%

Portfolio turnover
rate................. 15%(c) 120% 108% 107% 32%
Average commission
rate................. $ 0.0430(f) $0.0400(f) $0.0453(f) N/A N/A

<CAPTION>
For the
Period
October 6,
1988
(Commencement
of
Operations)
to
August 31,
1993 1992 1991 1990 1989
---------------- ---------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 12.04 $ 12.05 $ 10.60 $ 11.32 $ 10.00
---- ------ ------ ------ ------
Income from
Investment
Operations:
Net investment
income.............. 0.5555 0.4408 0.4213 0.4080 0.4371
Net gains (losses) on
securities (both
realized and
unrealized)......... 1.1253 0.5155 1.7196 (0.2785) 1.2239
---- ------ ------ ------ ------
Total from investment
operations.......... 1.6808 0.9563 2.1409 0.1295 1.6610
---- ------ ------ ------ ------
Less Distributions:
Dividends (from net
investment
income)............. (0.5412) (0.3713) (0.4128) (0.4296) (0.3419)
Distributions (from
capital gains)...... (1.4696) (0.5950) (0.2781) (0.4199) --
---- ------ ------ ------ ------
Total
distributions....... (2.0108) (0.9663) (0.6909) (0.8495) (0.3419)
---- ------ ------ ------ ------
Net asset value, end
of period............ $ 11.71 $ 12.04 $ 12.05 $ 10.60 $ 11.32
==== ====== ====== ====== ======
Total Returns......... 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)........ $762 $1,026 $1,290 $1,373 $1,128
Ratios of operating
expenses to average
net assets.......... %0(a) 0.67%(a) 1.40%(a) 1.40%(a) 1.40%(a)(b)

Ratios of net
investment income to
average net
assets.............. 4.13% 3.68% 3.58% 3.80% 4.90%(b)
Portfolio turnover
rate................. 30% 93% 76% 95% 35%(c)
Average commission
rate................. 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
2.03% (annualized) for the two months ended October 31, 1997 and 1.90%,
2.43%, 6.04%, 5.46%, 5.37%, 3.88%, 3.89% and 3.76% for the years ended
August 31, 1997, 1996, 1995, 1994, 1993, 1992, 1991 and 1990, respectively,
and 2.83% (annualized) for the period ended August 31, 1989.

(b) Annualized.
(c) Non-annualized.

(d) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the Fund's
net expense ratio.

(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.

<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, under normal market
conditions, substantially all of its assets in equity securities that Warburg
Pincus Asset Management, Inc., the Funds' investment adviser ("Warburg"),
considers to be relatively undervalued. Warburg will determine whether a company
is undervalued based upon research and analysis, taking into account, among
other factors, price/earnings ratio, price/book ratio, price/cash flow ratio,
earnings growth, debt/capital ratio and multiples of earnings of comparable
securities. Other relevant factors, including a company's asset value, franchise
value and quality of management, will also be considered. These factors are not
applied to prospective investments in a mechanical way; rather, Warburg analyzes
each security individually, taking all relevant factors into account. 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 may hold securities of any size, but currently expects to focus on
companies with market capitalizations of $1 billion or greater at the time of
initial purchase. The Fund seeks to achieve its income objective by investing in
dividend-paying equity securities. The amount of income generated from the Fund
will fluctuate, and 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 20% 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.

<PAGE>

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 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 corporate, U.S. government, municipal, bank and
commercial obligations and asset-backed and mortgage-backed securities. 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. The Fund may invest up to 15%
of its total assets in securities of foreign issuers. 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, 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 managers of Warburg. One Manager is
designated as the overall portfolio strategist and is 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 three sectors in the equity portion are:

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. Large Company Sector invests primarily in a diversified portfolio of
common stocks, warrants and convertible securities of "large capitalization"
U.S. companies, i.e., companies having stock market capitalizations of $1
billion or greater at the time of initial purchase.
International Equity Sector invests primarily in a broadly diversified
portfolio of equity securities of companies that, wherever organized, have their
princi-

<PAGE>

pal 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, U.S. government, municipal, bank and commercial
obligations and asset-backed and mortgage-backed securities.

PORTFOLIO INVESTMENTS
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DEBT SECURITIES. The Growth & Income and Balanced Funds may each invest in debt
securities and preferred stocks. When Warburg believes that a defensive posture
is warranted, a Fund may invest temporarily without limit in investment grade
debt obligations and in domestic and foreign money market obligations, including
repurchase agreements. 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.

Up to 10% of a Fund's net assets may be invested in debt securities rated
below investment grade, including convertible debt securities. 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
Services ("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. A Fund's holdings of debt
securities rated below investment grade (commonly referred to as "junk bonds")
may be rated as low as C by Moody's or D by S&P at the time of purchase, or may
be unrated securities considered to be of equivalent quality. Securities that
are rated C by Moody's comprise the lowest rated class and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Debt rated D by S&P is in default or is expected to default upon maturity or
payment date. 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.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether a Fund should continue to hold the securities.

<PAGE>

Among the types of debt securities in which a Fund may invest are asset-backed
and mortgage-backed securities.

Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle has not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The remaining maturity of
any asset-backed security a Fund invests in will be 397 days or less. A Fund may
purchase asset-backed securities that are unrated.

U.S. GOVERNMENT SECURITIES. 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 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).
MONEY MARKET OBLIGATIONS. Each Fund is authorized to invest, under normal
market conditions, up to 20% of its assets in domestic and foreign short-term
(one year or less remaining to maturity) money market obligations. Money market
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities;

<PAGE>

bank obligations (including certificates of deposit, time deposits and bankers'
acceptances of domestic or foreign banks, domestic savings and loans and similar
institutions) that are high quality investments; commercial paper rated no lower
than A-2 by S&P or Prime-2 by Moody's or the equivalent from another major
rating service or, if unrated, of an issuer having an outstanding, unsecured
debt issue then rated within the three highest rating categories; and repurchase
agreements with respect to the foregoing.
Repurchase Agreements. Each 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").

Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to a Fund and appropriate considering the factors of return and liquidity, a
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund or Warburg. As a shareholder in any
mutual fund, a Fund will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject to payment of the Fund's
administration fees and other expenses with respect to assets so invested.

CONVERTIBLE SECURITIES. Convertible securities in which a 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 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 underly-

<PAGE>

ing common stock. Up to 10% of a Fund's net assets may be invested in
convertible securities rated below investment grade at the time of purchase (as
low as C by Moody's or D by S&P) or deemed by Warburg to be of equivalent
quality. Subsequent to purchase by a Fund, convertible securities may cease to
be rated or a rating may be reduced. Neither event will require sale of such
securities, although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.

WARRANTS. A Fund may invest up to 15% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.

RISK FACTORS AND SPECIAL CONSIDERATIONS

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

Investing in securities is subject to the inherent risk of fluctuations in the
prices of such securities. For certain additional risks relating to each Fund's
investments, see "Portfolio Investments" beginning at page 7 and "Certain
Investment Strategies" beginning at page 12.

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

<PAGE>

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.

BELOW INVESTMENT GRADE SECURITIES. Medium- and lower-rated debt securities and
comparable unrated securities (commonly referred to as "junk bonds") (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominately speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. 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 these ratings 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. The lack of a liquid secondary market for certain securities may have an
adverse impact on the Funds' ability to dispose of particular issues and may
make it more difficult for a Fund to obtain accurate market quotations for
purposes of valuing the Funds and calculating their respective net asset values.
For a complete description of rating systems of Moody's and S&P, see the
appendix to the Statement of Additional Information for each Fund.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment. This leveraging
increases an investor's risk, however, in the event of a decline in the value of
the underlying security and can result in a complete loss of the amount invested
in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If
the market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.

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

<PAGE>

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
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 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. The Balanced Fund's portfolio
turnover policy is the same for both the common stock and non-common stock
portions of its portfolio. 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.

<PAGE>

risks is contained below and in the Fund's Statement of Additional Information.

STRATEGIES AVAILABLE TO BOTH FUNDS
FOREIGN SECURITIES. 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 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.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with ADRs,
European Depositary Receipts ("EDRs") and International Depositary Receipts
("IDRs"), instruments that evidence ownership in underlying securities issued by
a foreign corporation. ADRs, EDRs and IDRs may not necessarily be denominated in
the same currency as the securities whose ownership they represent. ADRs are
typically issued by a U.S. bank or trust company. EDRs (sometimes referred to as
Continental Depositary Receipts) are issued in Europe, and IDRs (sometimes
referred to as Global Depositary Receipts) are issued outside the United States,
each typically by non-U.S. banks and trust companies.
STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, a Fund may,
but is not required to, engage in a number of strategies involving options,
futures and forward currency contracts. These strategies, commonly referred to
as "derivatives," may be used (i) for the purpose of hedging

<PAGE>

against a decline in value of a Fund's current or anticipated portfolio
holdings, (ii) as a substitute for purchasing or selling portfolio securities or
(iii) except with respect to currency exchange transactions, 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 A
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 other applicable
regulatory authorities.
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 on a security 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.
Futures Contracts and Related Options. Each Fund may enter into foreign
currency, interest rate and stock 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

<PAGE>

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.

Currency Exchange Transactions. A Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing exchange-
traded currency options. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date at a price set at the time
of the contract. An option on a foreign currency operates similarly to an option
on a security. Risks associated with currency forward contracts and purchasing
currency options are similar to those described in this Prospectus for futures
contracts and securities and stock index options. In addition, the use of
currency transactions could result in losses from the imposition of foreign
exchange controls, suspension of settlement or other governmental actions or
unexpected events.

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 contracts and currency exchange 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; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts. The use of these strategies may require that the Fund maintain cash
or liquid securities in a segregated account with its custodian or a designated
sub-custodian to the extent the Fund's obligations with

<PAGE>

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.
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
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," may be entered into by a Fund to, for
example, lock in a sale price for a security the Fund does not wish to sell
immediately. 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. Not more than 10% of a Fund's net assets (taken at current
value) may be held as collateral for short sales against the box at any one
time.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. A Fund may utilize
up to 20% of its total assets to 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. Each Fund is required to segregate assets
equal to the amount of its when-issued and delayed-delivery purchase
commitments.

STRATEGY AVAILABLE TO THE GROWTH & INCOME FUND
REITS. The Growth & Income Fund may invest up to 15% of its total assets in
real estate investment trusts ("REITs"), which are pooled investment vehicles
that invest primarily in income-producing real estate or real estate related
loans or interests. Like regulated investment companies such as the Fund, REITs
are not taxed on income distributed to shareholders provided they comply with
several requirements of the Internal Revenue Code of 1986, as amended (the
"Code"). By investing in a REIT, the Fund will indirectly bear

<PAGE>

its proportionate share of any expenses paid by the REIT in addition to the
expenses of the Fund.
Investing in REITs involves certain risks. A REIT may be affected by changes
in the value of the underlying property owned by such REIT or by the quality of
any credit extended by the REIT. REITs are dependent on management skills, are
not diversified (except to the extent the Code requires), and are subject to the
risks of financing projects. REITs are subject to heavy cash flow dependency,
default by borrowers, self-liquidation, the possibilities of failing to qualify
for the exemption for tax for distributed income under the Code and failing to
maintain their exemptions from the 1940 Act. REITs are also subject to interest
rate risks.

STRATEGY AVAILABLE TO THE BALANCED FUND
MUNICIPAL OBLIGATIONS. The Balanced Fund may invest up to 15% of its total
assets 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. The Fund 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 the 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 minimum income tax liability on Alternative Minimum Tax
Bonds.

<PAGE>

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. 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; 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 Fund's Statement of Additional Information.
ZERO COUPON SECURITIES. The Balanced Fund may invest up to 15% of its assets
in "zero coupon securities." Zero coupon securities pay no cash income to their
holders until they mature and are issued at substantial discounts from their
value at maturity. When held to maturity, their entire return comes from the
difference between their purchase price and their maturity value. Because
interest on zero coupon securities is not paid on a current basis, the values of
securities of this type are subject to greater fluctuations than are the values
of securities that distribute income regularly and may be more speculative than
such other securities. Accordingly, the values of these securities may be highly
volatile as interest rates rise or fall. Redemption of shares of the Fund that
require it to sell zero coupon securities prior to maturity may result in
capital gains or losses that may be substantial. In addition, a Fund's
investment in

<PAGE>

zero coupon securities will result in special tax consequences, which are
described under "Dividends, Distributions and Taxes -- Taxes."

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) repurchase agreements with maturities greater than seven days;
(iii) time deposits maturing in more than seven calendar days; and (iv) certain
Rule 144A Securities. 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 make any additional investments
(including roll-overs). 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.
For the services provided by Warburg, the Growth & Income Fund and the
Balanced Fund each pay Warburg a fee calculated at an annual rate of .75% and
.90%, 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 advisory firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of November 30, 1997,
Warburg managed approximately $20.0 billion of assets, including approximately
$11.5 billion of investment company assets. Incorpo-

<PAGE>

rated in 1970, Warburg is indirectly controlled by Warburg, Pincus & Co.
("WP&Co."), which has no business other than being a holding company of Warburg
and its affiliates. Lionel I. Pincus, the managing partner of WP&Co., may be
deemed to control both WP&Co. and Warburg. 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, has been the Portfolio Manager of the Fund since 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.

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. Dale C. Christensen is the overall portfolio strategist for the Fund
and is responsible for determining the portion of the Fund's portfolio to be
allocated among sectors.

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 Managing Director of
Warburg, has been a Portfolio Manager of Warburg since 1978. Mr. Lurito, a
Managing Director of Warburg, has been with Warburg since 1987. Mr. Frey is a
Vice President of Warburg and has been with Warburg since 1989.

U.S. Large Company Sector. George U. Wyper and Susan L. Black, Managing
Directors of Warburg, manage the U.S. Large Company 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 Managing Director of Warburg, 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 Warburg,
manages the Fixed Income Sector and has been with Warburg since 1989.
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

<PAGE>

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 and semiannual reports, assisting in the preparation
of tax returns 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, and the
Balanced Fund pays 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 Funds
each pay PFPC a fee calculated at an annual rate of .15% of the Fund's first
$500 million of average daily net assets, .10% of the next $1 billion in average
daily net assets, and .05% of average daily net assets over $1.5 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 Funds and State Street Bank and Trust Company ("State
Street") serves as custodian of the Funds' non-U.S. assets. Like PFPC, PNC is a
subsidiary of PNC Bank Corp. and its principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103. 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 the Balanced Fund's Common
Shares for distribution services, pursuant to a shareholder servicing and
distribution plan (the "12b-1 Plan") adopted by the 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-

<PAGE>

accounting services or administrative services related to the sale of the Common
Shares, all as set forth in the 12b-1 Plan. Payments under the 12b-1 Plan are
not tied exclusively to the distribution expenses actually incurred by
Counsellors Securities and the payments may exceed distribution expenses
actually incurred. The Board of the Balanced Fund evaluates the appropriateness
of the 12b-1 Plan on a continuing basis and in doing so considers 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 for qualified recipients who support the sale of shares of a Fund,
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Fund. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. 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 the Fund's shares.
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 the Fund's 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 UTMA/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 Transfers to Minors Act ("UTMA") account or Uniform
Gifts 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

<PAGE>

their own tax advisers about the establishment of retirement plans and UTMA or
UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration and/or address an investor should
telephone Warburg Pincus Funds at (800) 927-2874. Shareholders are responsible
for maintaining current account registration and addresses with a Fund. No
interest will be paid on amounts represented by uncashed distribution or
redemption checks.

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 UTMA/UGMA accounts, the minimum initial investment is $500.
The Fund reserves the right to change investment minimum requirements at any
time. The investment minimums may be waived for accounts in which employees of
Warburg or its affiliates have an interest or for investors maintaining advisory
accounts with Warburg or brokerage accounts with Counsellors Securities.
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
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 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, Inc. (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

<PAGE>

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 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]
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 OneSource(TM) Program;
Fidelity Brokerage Services, Inc. Funds Network(TM) Program; Jack White &
Company, Inc.; and Waterhouse Securities, Inc. Generally, these programs require
customers to pay either no or low transaction fees in connection with purchases
or redemptions. The Fund is also available through certain broker-dealers,
financial institutions and other industry professionals (including the brokerage
firms offering the programs described

<PAGE>

above, collectively, "Service Organizations"). 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 or, if applicable, their designees may enter confirmed
purchase or redemption 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. A Fund will be deemed to have received a
purchase or redemption order when a Service Organization, or, if applicable, its
authorized designee, accepts the order. Orders received by a Fund in proper form
will be priced at the Fund's net asset value next computed after they are
accepted by the Service Organization or its authorized designee.

For administration, subaccounting, transfer agency and/or other services,
Warburg, Counsellors Securities or their affiliates may pay Service
Organizations and certain recordkeeping organizations with whom they have
entered into agreements a fee of up to .40% (the "Service Fee") of the average
annual value of accounts with the Funds maintained by such Service Organizations
or recordkeepers. 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

<PAGE>

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,
including certain purchases made by exchange (see "How to Redeem and Exchange
Shares -- Exchange of Shares" below). 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 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

<PAGE>

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 up to five days (for funds received through the Automatic Investment
Program) or up to ten days (for check purchases) from the date of purchase.
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 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.
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

<PAGE>

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 will be
effected without a sales charge but must satisfy the minimum dollar amount
necessary for new purchases. Currently, exchanges may be made between 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 primarily in equity securities of 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 Small Company Growth Fund is currently closed to certain new
investors; the Small Company Growth Fund's prospectus describes the types of
investors that may purchase shares.

<PAGE>

- - 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 securities of
U.S. and foreign issuers in their post-venture capital stage of development;

- - WARBURG PINCUS MANAGED EAFE(R)COUNTRIES FUND -- an equity fund seeking
long-term capital appreciation by investing in equity securities of issuers
having their principal business activities and interests in foreign
countries included in the Morgan Stanley Capital International EAFE(R) Index;

- - 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.
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. Accounts under common ownership or control, including accounts
with the same taxpayer identification number may be counted together for
purposes of the three exchange limit.
The Funds reserve the right to refuse exchange purchases by any person or
group if, in Warburg's judgment, a Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. Exchanges may also be restricted

<PAGE>

or refused if a Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a pattern of exchanges
that coincides with a "market timing" strategy may be disruptive to a Fund.
Although the Funds will attempt to give prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time. The
Funds reserve the right to terminate or modify the exchange privilege at any
time upon 30 days' notice to shareholders.

TELEPHONE TRANSACTIONS. In order to request exchange and redemptions by
telephone, investors must have completed and returned to Warburg Pincus Funds an
account application containing a telephone election. The election to request
exchanges and redemptions by telephone may be made subsequently by writing to
Warburg Pincus Funds at the address set forth under "How to Open an Account in
the Fund." 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
designated to give reasonable assurance 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.

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 Funds each declare and pay their dividends from
their net investment income quarterly. 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.
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. As regulated investment compa-

<PAGE>

nies, the Funds will be subject to a 4% non-deductible excise tax measured with
respect to certain undistributed amounts of ordinary income and capital gain.
The Funds expect to pay such dividends and to make such 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 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 long-term capital gain or loss if he
has held his shares for more than one year and will be 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.
The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposition
of assets on or after July 29, 1997 held for more than one year and up to 18
months at the time of disposition will be taxed as "mid-term gain" at a maximum
rate of 28%. A rate of 18% instead of 20% will apply after December 31, 2000 for
assets held for more than 5 years. However, the 18% rate applies only to assets
acquired after December 31, 2000 unless the taxpayer elects to treat an asset
held prior to such date as sold for fair market value on January 1, 2001. In the
case of individuals whose ordinary income is taxed at a 15% rate, the 20% rate
is reduced to 10% and the 18% rate for assets held for more than 5 years is
reduced to 8%. The Funds will provide information relating to that portion of a
"capital gain dividend" that may be treated by investors as eligible for the
reduced capital gains tax rate for capital assets held for more than 18 months.
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, will not result in unrelated business
taxable income to a tax-exempt investor. The Funds will designate that portion
of each Fund's dividends that will qualify for the federal dividends received
deduction for corporations. The Funds' investments in foreign securities may
subject them to certain withholding and other taxes imposed by foreign countries

<PAGE>

with respect to dividends, interest, capital gains and other income. It is not
expected that the payment of such taxes by the Funds will give rise to a direct
credit or deduction available to the Funds' shareholders.
Special Tax Matters Relating to the Balanced Fund. The investment by the
Balanced Fund in zero coupon securities may create special tax consequences.
Zero coupon securities do not make interest payments; however, a portion of the
difference between a zero coupon security's maturity value and its purchase
price is imputed as income to the Fund each year even though the Fund receives
no cash distribution until maturity. Under the U.S. federal tax laws applicable
to mutual funds, the Fund will not be subject to tax on this income if it pays
dividends to its shareholders substantially equal to all the income received
from, or imputed with respect to, its investments during the year, including
its zero coupon securities. These dividends will ordinarily constitute taxable
income to the shareholders of the Fund.
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 a Fund's prior taxable
year with respect to certain dividends and distributions that were paid (or that
were treated as having been paid) by 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, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, 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

<PAGE>

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 Statements 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. 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-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 total return 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

<PAGE>

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 S&P 500 Index; 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 Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine, Smart Money and
The Wall Street Journal. 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.
In reports or other communications to investors or in advertising, each Fund
may discuss relevant economic and market conditions affecting the Fund. In
addition, a Fund and its portfolio managers may render updates of Fund
investment activity, which may include, among other things, discussion or
quantitive statistical or comparative analysis of portfolio composition and
significant portfolio holdings including analyses of holdings by sector,
industry, country or geographic region, credit quality and other
characteristics. Each Fund may also describe the general biography, work
experience and/or investment philosophy or style 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 objectives. Each
Fund may also discuss measures of risk, including those based on statistical or
econometric analyses, the continuum of risk and return relating to different
investments and the potential impact of foreign stocks on a portfolio otherwise
composed of domestic securities.

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." and "Warburg, Pincus Balanced 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,

<PAGE>

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 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, as well as
certain statistical characteristics of the 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.

<PAGE>

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.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Funds' Expenses...................................... 2
Financial Highlights..................................... 3
Investment Objectives and Policies....................... 5
Portfolio Investments.................................... 7
Risk Factors and Special Considerations.................. 10
Portfolio Transactions and Turnover Rate................. 12
Certain Investment Strategies............................ 12
Investment Guidelines.................................... 19
Management of the Funds.................................. 19
How to Open an Account................................... 22
How to Purchase Shares................................... 23
How to Redeem and Exchange Shares........................ 26
Dividends, Distributions and Taxes....................... 30
Net Asset Value.......................................... 32
Performance.............................................. 33
General Information...................................... 34
</TABLE>

LOGO

P.O. BOX 9030, BOSTON, MA 02205-9030
WARBURG (800-927-2874)
WWW.WARBURG.COM

COUNSELLORS SECURITIES INC., DISTRIBUTOR. WPGBT-1-1297

PROSPECTUS December 30, 1997

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"). The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund.
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. Warburg Pincus Funds
maintain a Web site at www.warburg.com. The Statement of Additional Information
relating to the Fund, 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 FEDERALLY 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.
- --------------------------------------------------------------------------------

<PAGE>

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)......................................... .37%+
12b-1 Fees.................................................................. .50%*
Other Expenses (after expense reimbursements)............................... .73%+
----
Total Fund Operating Expenses (after fee waivers and expense
reimbursements)........................................................... 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>

- --------------------------------------------------------------------------------
* 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.

+ Absent the waiver of fees by the Fund's investment adviser and
co-administrator, Management Fees would equal .90%, Other Expenses would equal
1.55% and Total Fund Operating Expenses would equal 2.95%.

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

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").

<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(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 fiscal years ended August 31, 1996 and 1997
and for the two months ended October 31, 1997 has been audited by Coopers &
Lybrand L.L.P., independent accountants, whose report dated December 19, 1997 is
incorporated by reference to the Statement of Additional Information. The
financial data included in this table for the period from July 31, 1995 to
August 31, 1995 relate solely to the Advisor Class of shares of the Warburg
Pincus Balanced Fund investment portfolio of the RBB Fund and is part of the RBB
Fund's financial statements which have also been audited by Coopers & Lybrand
L.L.P. Further information about the performance of the Fund is contained in the
Fund's annual report, for the period ended October 31, 1997, copies of which may
be obtained without charge by calling Warburg Pincus Funds at (800) 369-2728.

WARBURG PINCUS BALANCED FUND

<TABLE>
<CAPTION>
For the For the Period
Years Ended July 31, 1995
For the Two August 31, (Commencement
Months Ended --------------------- of Operations) to
October 31, 1997 1997 1996 August 31, 1995
---------------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 14.22 $ 11.94 $ 11.13 $ 10.72
------- ------- ------- ------
Income From Investment
Operations:
Net Investment Income........ 0.0275 (0.0233) 0.3689 0.0170
Net Gains (Losses) on
Securities (both realized
and unrealized)............ 0.1527 2.6774 0.6815 0.3930
------- ------- ------- ------
Total from Investment
Operations................. 0.1802 2.6541 1.0504 0.4100
------- ------- ------- ------
Less Distributions:
Dividends (from net
investment income)......... (0.0364) (0.2226) (0.0942) --
Distributions (from capital
gains)..................... -- (0.1511) (0.1462) --
------- ------- ------- ------
Total Distributions.......... (0.0364) (0.3737) (0.2404) --
------- ------- ------- ------
Net Asset Value, End of Period... $ 14.37 $ 14.22 $ 11.94 $ 11.13
======= ======= ======= ======
Total Returns.................... 1.30%(c) 22.66% 9.56% 3.82%(c)
Ratios/Supplemental Data
Net Assets, End of Period
(000).......................... $ 158 $ 149 $ 12 $ 1
Ratio of Expenses to Average Net
Assets......................... 1.60%(a)(b)(d) 1.60%(a)(d) 1.71%(a)(d) 1.76%(a)(b)
Ratio of Net Investment Income to
Average Net Assets............. 1.13%(b) 1.53% (4.11%) 2.00%(b)
Portfolio Turnover Rate.......... 15%(c) 120% 108% 107%(c)
Average Commission Rate.......... $ 0.0430(e) $0.0400(e) $0.0453(e) 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 Balanced Fund would have been 2.95% (annualized)
for the two months ended October 31, 1997 and 2.81%, 205.06% and 628.47%
annualized for the years ended August 31, 1997 and 1996 and for the period
ended August 31, 1995, respectively.

(b) Annualized.
(c) Not Annualized.

(d) Interest earned on uninvested cash balances is used to offset portions of
the transfer agent expense. These arrangements had no effect on the Fund's
expense ratio.

(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. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.

<PAGE>

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
corporate, U.S. government, municipal, bank and commercial obligations and
asset-backed and mortgage-backed securities. 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. The Fund may invest up to 15% of its total assets in
securities of foreign issuers. 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 Asset Management, 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 managers of Warburg. One manager is
designated as the overall portfolio strategist and is 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.

The three sectors in the equity portion are:

<PAGE>

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. Large Company Sector invests primarily in a diversified portfolio of
common stocks, warrants and convertible securities of "large capitalization"
U.S. companies, i.e., companies having stock market capitalizations of $1
billion or greater at the time of initial purchase.
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, U.S. government, municipal, bank and commercial
obligations and asset-backed and mortgage-backed securities.

PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES. The Fund may invest in debt securities and preferred stocks.
When Warburg believes that a defensive posture is warranted, the Fund may
invest temporarily without limit in investment grade debt obligations and in
domestic and foreign money market obligations, including repurchase agreements.
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.

Up to 10% of the Fund's net assets may be invested in debt securites rated
below investment grade, including convertible debt securities. 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
Services ("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. The Fund's holdings of debt
securities rated below investment grade (commonly referred to as "junk bonds")
may be rated as low as C by Moody's or D by S&P at the time of purchase, or may
be unrated securities considered to be of equivalent quality. Securities that
are rated C by Moody's comprise the lowest rated class and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Debt rated D by S&P is in default or is expected to

<PAGE>

default upon maturity or payment date. 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. Subsequent to its purchase by the Fund, an issue of securities
may cease to be rated or its rating may be reduced. Neither event will require
sale of such securities, although Warburg will consider such event in its
determination of whether the Fund should continue to hold the securities.

Among the types of debt securities in which the Fund may invest are asset-backed
and mortgage-backed securities.

Asset-backed securities are collateralized by interests in pools of consumer
loans, with interest and principal payments ultimately depending on payments in
respect of the underlying loans by individuals (or a financial institution
providing credit enhancement). Because market experience in these securities is
limited, the market's ability to sustain liquidity through all phases of the
market cycle has not been tested. In addition, there is no assurance that the
security interest in the collateral can be realized. The remaining maturity of
any asset-backed security the Fund invests in will be 397 days or less. The Fund
may purchase asset-backed securities that are unrated.

Mortgage-backed securities are collateralized by mortgages or interests in
mortgages and may be issued by government or non-government entities.
Non-government issued mortgage-backed securities may offer higher yields than
those issued by government entities, but may be subject to greater price
fluctuations. The value of mortgage-backed securities may change due to shifts
in the market's perceptions of issuers, and regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Prepayment, which
occurs when unscheduled or early payments are made on the underlying mortgages,
may shorten the effective maturities of these securities and may lower their
returns.
U.S. GOVERNMENT SECURITIES. 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

<PAGE>

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).
MONEY MARKET OBLIGATIONS. The Fund is authorized to invest, under normal
market conditions, up to 20% of its assets in domestic and foreign short-term
(one year or less remaining to maturity) money market obligations. Money market
instruments consist of obligations issued or guaranteed by the U.S. government
or a foreign government, their agencies or instrumentalities; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances of
domestic or foreign banks, domestic savings and loans and similar institutions)
that are high quality investments; commercial paper rated no lower than A-2 by
S&P or Prime-2 by Moody's or the equivalent from another major rating service
or, if unrated, of an issuer having an outstanding, unsecured debt issue then
rated within the three highest rating categories; and repurchase agreements with
respect to the foregoing.
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").

Money Market Mutual Funds. Where Warburg believes that it would be beneficial
to the Fund and appropriate considering the factors of return and liquidity, the
Fund may invest up to 5% of its assets in securities of money market mutual
funds that are unaffiliated with the Fund or Warburg. As a shareholder in any
mutual fund, the Fund will bear its ratable share of the mutual fund's expenses,
including management fees, and will remain subject

<PAGE>

to payment of the Fund's administration fees and other expenses with respect to
assets so invested.

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 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. Up to 10% of the Fund's net assets may be invested
in convertible securities rated below investment grade at the time of purchase
(as low as C by Moody's or D by S&P) or deemed by Warburg to be of equivalent
quality. Subsequent to purchase by the Fund, convertible securities may cease to
be rated or a rating may be reduced. Neither event will require sale of such
securities although Warburg will consider such event in its determination of
whether the Fund should continue to hold the securities.

WARRANTS. The Fund may invest up to 15% of its total assets in warrants.
Warrants are securities that give the holder the right, but not the obligation,
to purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period.

RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------

Investing in securities is subject to the inherent risk of fluctuations in the
prices of such securities. For certain additional risks relating to the Fund's
investments, see "Portfolio Investments' beginning at page 5 and "Certain
Investment Strategies" beginning at page 11.

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 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

<PAGE>

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.

BELOW INVESTMENT GRADE SECURITIES. Medium- and lower-rated debt securities and
comparable unrated securities (commonly referred to as "junk bonds") (i) will
likely have some quality and protective characteristics that, in the judgment of
the rating organizations, 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 obligation. 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 these ratings 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. The lack of a liquid secondary market for certain securities may
have an adverse impact on the Fund's ability to dispose of particular issues and
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.
For a complete description of the rating systems of Moody's and S&P, see the
appendix to the Statement of Additional Information for the Fund.
WARRANTS. At the time of issue, the cost of a warrant is substantially less
than the cost of the underlying security itself, and price movements in the
underlying security are generally magnified in the price movements of the
warrant. This leveraging effect enables the investor to gain exposure to the
underlying security with a relatively low capital investment. This leveraging

<PAGE>

increases an investor's risk, however, in the event of a decline in the value of
the underlying security and can result in a complete loss of the amount invested
in the warrant. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If
the market price of the underlying security is below the exercise price of the
warrant on its expiration date, the warrant will generally expire without value.
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
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. The Fund's portfolio turnover policy is the
same for both the common stock and non-common stock portions of its portfolio.
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

<PAGE>

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 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.
FOREIGN SECURITIES. 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 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.
DEPOSITARY RECEIPTS. Certain of the above risks may be involved with ADRs,
European Depositary Receipts ("EDRs") and International Depositary Receipts
("IDRs"), instruments that evidence ownership in underlying securities issued by
a foreign corporation. ADRs, EDRs and IDRs may not necessarily be denominated in
the same currency as the securities whose ownership they represent. ADRs are
typically issued by a U.S. bank or trust

<PAGE>

company. EDRs (sometimes referred to as Continental Depositary Receipts) are
issued in Europe, and IDRs (sometimes referred to as Global Depositary Receipts)
are issued outside the United States, each typically by non-U.S. banks and trust
companies.

STRATEGIC AND OTHER TRANSACTIONS. At the discretion of Warburg, the Fund may,
but is not required to, engage in a number of strategies involving options,
futures and forward currency contracts. These strategies, commonly referred to
as "derivatives," may be used (i) for the purpose of hedging against a decline
in value of the Fund's current or anticipated portfolio holdings, (ii) as a
substitute for purchasing or selling portfolio securities, or (iii) except with
respect to currency exchange transactions, 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 FUND'S INVESTMENT RISK.
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 other applicable
regulatory authorities.

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 on a security 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 foreign
currency, interest rate and stock 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

<PAGE>

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.
Currency Exchange Transactions. The Fund will conduct its currency exchange
transactions either (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on futures contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing exchange-
traded currency options. A forward currency contract involves an obligation to
purchase or sell a specific currency at a future date at a price set at the time
of the contract. An option on a foreign currency operates similarly to an option
on a security. Risks associated with currency forward contracts and purchasing
currency options are similar to those described in this Prospectus for futures
contracts and securities and stock index options. In addition, the use of
currency transactions could result in losses for the imposition of foreign
exchange controls, suspension of settlement or other governmental actions or
unexpected events.
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 contracts and currency exchange 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

<PAGE>

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; currency, interest rate and stock index
futures contracts and options on these futures contracts; and forward currency
contracts. The use of these strategies may require that the Fund maintain cash
or liquid 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.
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," may be entered into by the Fund to, for
example, lock in a sale price for a security the Fund does not wish to sell
immediately. 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. Not more than 10% of the Fund's net assets (taken at current
value) may be held as collateral for short sales against the box at any one
time.
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.

<PAGE>

MUNICIPAL OBLIGATIONS. The Fund may invest up to 15% of its total assets 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 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

<PAGE>

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.
ZERO COUPON SECURITIES. The Fund may invest up to 15% of its assets in "zero
coupon securities." Zero coupon securities pay no cash income to their holders
until they mature and are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return comes from the difference
between their purchase price and their maturity value. Because interest on zero
coupon securities is not paid on a current basis, the values of securities of
this type are subject to greater fluctuations than are the values of securities
that distribute income regularly and may be more speculative than such other
securities. Accordingly, the values of these securities may be highly volatile
as interest rates rise or fall. Redemption of shares of the Fund that require it
to sell zero coupon securities prior to maturity may result in capital gains or
losses that may be sustantial. In addition, the Fund's investment in zero coupon
securities will result in special tax consequences, which are described below
under "Dividends, Distributions and Taxes -- Taxes."

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) repurchase agreements with maturities greater than seven days; (iii) time
deposits maturing in more than seven calendar days; and (iv) certain Rule 144A
Securities. 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

<PAGE>

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 make any additional investments (including roll-overs). 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 November 30,
1997, Warburg managed approximately $20.0 billion of assets, including
approximately $11.5 billion of investment company assets. Incorporated in 1970,
Warburg is indirectly controlled by Warburg, Pincus & Co. ("WP&Co."), which has
no business other than being a holding company of Warburg and its affiliates.
Lionel I. Pincus, the managing partner of WP&Co., may be deemed to control both
WP&Co. and Warburg. 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. Dale C. Christensen is the overall portfolio strategist for the Fund
and is responsible for determining the portion of the Fund's portfolio to be
allocated among sectors.

<PAGE>

Fixed Income Sector. Dale C. Christensen, a Managing Director of Warburg,
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 and semiannual reports, assisting in the preparation of tax returns 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 $500
million of average daily net assets, .10% of the next $1 billion in average
daily net assets, and .05% of average daily net assets over $1.5 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 1600

<PAGE>

Market Street, Philadelphia, Pennsylvania 19103. 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 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 for qualified recipients who support the sale of shares of a Fund,
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. Incentives
may include opportunities to attend business meetings, conferences, sales or
training programs for recipients' employees or clients and other programs or
events and may also include opportunities to participate in advertising or sales
campaigns and/or shareholder services and programs regarding one or more Warburg
Pincus Fund. Warburg or its affiliates may pay for travel, meals and lodging in
connection with these promotional activities. 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 the Fund's 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 OPEN AN ACCOUNT
- --------------------------------------------------------------------------------
In order to invest in the Fund, an account application must first be completed
and signed. To obtain an application, telephone the Fund at (800) 369-2728. An
application may also be obtained by writing to:
Warburg Pincus Advisor Funds
335 Madison Avenue, 15th Floor
New York, New York 10017
Attn: Institutional Services
Completed and signed applications should be mailed to the above address.
UTMA/UGMA ACCOUNTS. For information about opening a Uniform Transfers to
Minors Act ("UTMA") account or Uniform Gifts to Minors Act ("UGMA") account, an
Institution should telephone the Fund at

<PAGE>

(800) 369-2728 or write to the Fund at the address set forth above. Individual
investors should consult their own tax advisers about the establishment of UTMA
or UGMA accounts.
CHANGES TO ACCOUNT. For information on how to make changes to an account,
including changes to account registration and/or address, telephone the Fund at
(800) 369-2728. Institutions and their customers are responsible for maintaining
current account registrations and addresses with the Fund. No interest will be
paid on amounts represented by uncashed distribution or redemption checks.

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 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, Inc. (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

<PAGE>

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 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.
Purchase orders may be refused if, in Warburg's opinion, they are of a size that
would disrupt the management of the Fund. 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

<PAGE>

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.
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 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 will be effected without a sales charge.
The exchange privilege is available to shareholders residing in any state in
which the Advisor Shares being acquired may legally be sold. When an

<PAGE>

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.
Due to the costs involved in effecting exchanges, the Fund reserves the right
to refuse to honor more than three exchange requests in any 30-day period.
Accounts under common ownership or control, including accounts with the same
taxpayer identification number, may be counted together for purposes of the
three exchange limit.
The Fund reserves the right to refuse exchange purchases by any person or
group if, in Warburg's judgment, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected. Exchanges may also be restricted or
refused if the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a pattern of exchanges
that coincides with a "market timing" strategy may be disruptive to the Fund.
Although the Fund will attempt to give prior notice whenever it is reasonably
able to do so, it may impose these restrictions at any time. The Fund reserves
the right to terminate or modify the exchange privilege at any time upon 30
days' notice to shareholders.
TELEPHONE TRANSACTIONS. In order to request redemptions and exchanges by
telephone, the account application must be completed and returned to the Fund
containing a telephone election. The election to request exchanges and
redemptions by telephone may be made subsequently by writing to the Fund at the
address set forth under "How to Open an Account in the Fund." Neither the 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 the Fund designed to give reasonable assurance 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.

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

<PAGE>

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 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 Internal Revenue Code of 1986, as amended
(the "Code"). 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. The Fund expects to pay such
dividends and to make such 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 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 long-term capital gain or loss if he
has held his shares for more than one year and will be 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.
The Taxpayer Relief Act of 1997 made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets (including long-term capital gains recognized by shareholders on the
sale or redemption of Fund shares that were held as capital assets). This 20%
rate applies to sales on or after July 29, 1997 only if the asset was held for
more than 18 months at the time of disposition. Capital gains on the disposition
of assets on or after July 29, 1997 held for more than one year and up to 18
months at the time of disposition will be taxed as "mid-term gain" at a maximum
rate of 28%. A rate of 18% instead of 20% will apply after

<PAGE>

December 31, 2000 for assets held for more than 5 years. However, the 18% rate
applies only to assets acquired after December 31, 2000 unless the taxpayer
elects to treat an asset held prior to such date as sold for fair market value
on January 1, 2001. In the case of individuals whose ordinary income is taxed at
a 15% rate, the 20% rate is reduced to 10% and the 18% rate for assets held for
more than 5 years is reduced to 8%. The Fund will provide information relating
to that portion of a "capital gain dividend" that may be treated by investors as
eligible for the reduced capital gains tax rate for capital assets held for more
than 18 months.
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, will not result in unrelated business
taxable income to a tax-exempt investor. The Fund will designate that portion of
its dividends that will qualify for the federal dividends received deduction for
corporations. The Fund's investments in foreign securities may subject it to
certain withholding and other taxes imposed by foreign countries with respect to
dividends, interest, capital gains and other income. It is not expected that the
payment of such taxes by the Fund will give rise to a direct credit or deduction
available to the Fund's shareholders.
The investment by the Fund in zero coupon securities may create special tax
consequences. Zero coupon securities do not make interest payments; however, a
portion of the difference between a zero coupon security's maturity value and
its purchase price is imputed as income to the Fund each year even though the
Fund receives no cash distribution until maturity. Under the U.S. federal tax
laws applicable to mutual funds, the Fund will not be subject to tax on this
income if it pays dividends to shareholders substantially equal to all the
income received from, or imputed with respect to, its investments during the
year, including its zero coupon securities. These dividends will ordinarily
constitute taxable income to the shareholders of the Fund.
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 that were paid (or that
are treated as having been paid) by 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
- --------------------------------------------------------------------------------
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, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence

<PAGE>

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

<PAGE>

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 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 Barron's, Business Week,
Financial Times, Forbes, Fortune, Inc., Institutional Investor, Investor's
Business Daily, Money, Morningstar, Inc., Mutual Fund Magazine, Smart Money and
The Wall Street Journal. 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 its expense ratio 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.
In reports or other communications to investors or in advertising, the Fund
may discuss relevant economic and market conditions affecting the Fund. In
addition, the Fund and its portfolio managers may render updates of Fund
investment activity, which may include, among other things, discussion or
quantitative statistical or comparative analysis of portfolio composition and
significant portfolio holdings, including analyses of holdings by sector,
industry, country or geographic region, credit quality and other
characteristics. The Fund may also describe the general biography, work
experience and/or investment philosophy or style of the portfolio managers of
the Fund and may include quotations attributable to the portfolio managers
describing the Fund's investment objectives, approaches taken in managing the
Fund's investments or the research methodology underlying stock selection. The
Fund may also discuss various measures of risk, including those

<PAGE>

based on statistical or econometric analyses, the continuum of risk and return
relating to different investments and the potential impact of foreign stocks on
a portfolio otherwise composed of domestic securities.

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 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.

<PAGE>

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, as well as
certain statistical characteristics of 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 prospectus of another Warburg Pincus Fund is 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 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 and/or
administration services fee)

<PAGE>

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.

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund's Expenses...................................... 2
Financial Highlights..................................... 3
Investment Objective and Policies........................ 4
Portfolio Investments.................................... 5
Risk Factors and Special Considerations.................. 8
Portfolio Transactions and Turnover Rate................. 10
Certain Investment Strategies............................ 11
Investment Guidelines.................................... 16
Management of the Fund................................... 17
How to Open an Account................................... 19
How to Purchase Shares................................... 20
How to Redeem and Exchange Shares........................ 21
Dividends, Distributions and Taxes....................... 23
Net Asset Value.......................................... 25
Performance.............................................. 26
General Information...................................... 28
Shareholder Servicing.................................... 29
</TABLE>

LOGO

P.O. BOX 9030. BOSTON, MA 02205-9030

800-369-2728
WWW.WARBURG.COM

COUNSELLORS SECURITIES INC., DISTRIBUTOR. ADBAL-1-1297

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

December 30, 1997

WARBURG PINCUS BALANCED FUND

WARBURG PINCUS GROWTH & INCOME FUND

P.O. Box 9030, Boston, Massachusetts 02205-9030
For information, call (800) WARBURG

Contents

Page

Investment Objectives................................................2
Investment Policies..................................................2
Management Of The Fund..............................................28
Additional Purchase And Redemption Information......................37
Exchange Privilege..................................................37
Additional Information Concerning Taxes.............................38
Determination Of Performance........................................43
Independent Accountants And Counsel.................................45
Miscellaneous.......................................................46
Financial Statements................................................47
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 "Balanced Fund") and Warburg Pincus Growth & Income
Fund (the "Growth & Income Fund," and collectively with the Balanced Fund, the
"Funds") and with the Prospectus for the Advisor Shares of each Fund, each dated
December 30, 1997, 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 a Fund should be made solely upon the information contained herein.
Copies of the Funds' Prospectuses and information regarding each 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 a Fund
at (800) 927-2874 or by writing to the Fund, P.O. Box 9030, Boston,
Massachusetts 02205-9030.

<PAGE>

INVESTMENT OBJECTIVES

The investment objective of the Balanced Fund is maximum total
return through a combination of long-term growth of capital and current income
consistent with preservation of capital.

The investment objectives of the Growth & Income Fund are
long-term growth of capital and income and a reasonable current return.

INVESTMENT POLICIES

The following policies supplement the descriptions of each
Fund's investment objective and policies in the Prospectuses.

Options, Futures and Currency Exchange Transactions

Securities Options. A 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").

A 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, a 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,
a 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 a 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.

<PAGE>

In the case of options written by a 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 a Fund may write covered call options. For example, if a
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 a 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. A Fund may write (i) in-the-money call options
when Warburg Pincus Asset Management, Inc., each 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, a 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 a Fund prior to
the exercise of options that it has purchased or written, respectively, of
options of the same series) in which a 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
<PAGE>

exchange or in the over-the-counter market. When a 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 a
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. A 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 a Fund under an option it
has written would be terminated by a closing purchase transaction, but a Fund
would not be deemed to own an option as a result of the transaction. So long as
the obligation of a 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 a Fund
effects a closing purchase transaction. A 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,
a 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 Funds, however, intend 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, written or exercised in
one or more accounts or through one or more brokers). It is possible

<PAGE>

that a 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. A 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. A 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 a 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 a 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, a 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 a 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 dealer to which the
Fund originally wrote the option. Although a 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

<PAGE>

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 a 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 a 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, a Fund may be unable to liquidate a dealer option.

Futures Activities. A Fund may enter into foreign currency,
interest rate and stock 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 Growth & Income Fund will not enter into future contracts
and related options for which the aggregate initial margin and premiums
(discussed below) required to establish positions other than those considered to
be "bona fide hedging" by the CFTC exceed 5% of the Growth & Income Fund's net
asset value after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into.

A 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.

Futures Contracts. A foreign currency futures contract
provides for the future sale by one party and the purchase by the other party of
a certain amount of a specified non-U.S. currency at a specified price, date,
time and place. 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 a 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

<PAGE>

amounts in the margin account if the Fund fails to meet its 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." A Fund
will also incur brokerage costs in connection with entering into futures
transactions.

At any time prior to the expiration of a futures contract, a
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
Funds intend 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 a Fund to substantial losses. In such event, and in the
event of adverse price movements, a Fund would be required to make daily cash
payments of variation margin. In such situations, if a 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 a
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 a Fund's
performance.

Options on Futures Contracts. A Fund may purchase and write
put and call options on foreign currency, 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 a currency, 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
transaction costs). Because the value of the option is fixed at the point of

<PAGE>

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 a
Fund.

Currency Exchange Transactions. The value in U.S. dollars of
the assets of a Fund that are invested in foreign securities may be affected
favorably or unfavorably by changes in exchange control regulations, and the
Fund may incur costs in connection with conversion between various currencies.
Currency exchange transactions may be from any non-U.S. currency into U.S.
dollars or into other appropriate currencies. A Fund will conduct its currency
exchange transactions (i) on a spot (i.e., cash) basis at the rate prevailing in
the currency exchange market, (ii) through entering into futures contracts or
options on such contracts (as described above), (iii) through entering into
forward contracts to purchase or sell currency or (iv) by purchasing
exchange-traded currency options.

Forward Currency Contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract as agreed
upon by the parties, at a price set at the time of the contract. These contracts
are entered into in the interbank market conducted directly between currency
traders (usually large commercial banks and brokers) and their customers.
Forward currency contracts are similar to currency futures contracts, except
that futures contracts are traded on commodities exchanges and are standardized
as to contract size and delivery date.

At or before the maturity of a forward contract, a Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and fully or partially offset its contractual obligation to deliver
the currency by negotiating with its trading partner to purchase a second,
offsetting contract. If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices.

Currency Options. A Fund may purchase exchange-traded put and
call options on foreign currencies. Put options convey the right to sell the
underlying currency at a price which is anticipated to be higher than the spot
price of the currency at the time the option is exercised. Call options convey
the right to buy the underlying currency at a price which is expected to be
lower than the spot price of the currency at the time the option is exercised.

Currency Hedging. A Fund's currency hedging will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of the Fund generally accruing in connection
with the purchase or sale of its portfolio securities. Position hedging is the
sale of forward currency with respect to portfolio security positions. A Fund
may not position hedge to an extent greater than the aggregate market value (at
the time of entering into the hedge) of the hedged securities.

A decline in the U.S. dollar value of a foreign currency in
which a Fund's securities are denominated will reduce the U.S. dollar value of
the securities, even if their value in the foreign currency remains constant.

<PAGE>

The use of currency hedges does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. For example, in order to protect against diminutions
in the U.S. dollar value of securities it holds, a Fund may purchase currency
put options. If the value of the currency does decline, a Fund will have the
right to sell the currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on the U.S. dollar value of its
securities that otherwise would have resulted. Conversely, if a rise in the U.S.
dollar value of a currency in which securities to be acquired are denominated
is projected, thereby potentially increasing the cost of the securities, a Fund
may purchase call options on the particular currency. The purchase of these
options could offset, at least partially, the effects of the adverse movements
in exchange rates. The benefit to a Fund derived from purchases of currency
options, like the benefit derived from other types of options, will be reduced
by premiums and other transaction costs. Because transactions in currency
exchange are generally conducted on a principal basis, no fees or commissions
are generally involved. Currency hedging involves some of the same risks and
considerations as other transactions with similar instruments. Although currency
hedges limit the risk of loss due to a decline in the value of a hedged
currency, at the same time, they also limit any potential gain that might
result should the value of the currency increase. If a devaluation is generally
anticipated, a Fund may not be able to contract to sell a currency at a price
above the devaluation level it anticipates.

While the values of currency futures and options on futures,
forward currency contracts and currency options may be expected to correlate
with exchange rates, they will not reflect other factors that may affect the
value of a Fund's investments and a currency hedge may not be entirely
successful in mitigating changes in the value of the Fund's investments
denominated in that currency. A currency hedge, for example, should protect a
Yen-denominated bond against a decline in the Yen, but will not protect a Fund
against a price decline if the issuer's creditworthiness deteriorates.

Hedging. A Fund may enter into options, futures and currency
exchange 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, futures and currency
exchange 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 a 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 a 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

<PAGE>

imperfect correlation increases as the composition of a 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, a 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 a 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.

A 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 currencies, 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 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 a Fund's
performance.

Asset Coverage for Options, Futures and Options on Futures. As
described in the Prospectuses, a Fund will comply with guidelines established by
the Securities and Exchange Commission (the "SEC") with respect to coverage of
options written by a 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 a Fund of cash or liquid
securities.

For example, a call option written by a 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 a 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 a Fund
may require the Fund to segregate assets (as described above) equal to the
exercise price. A 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 a Fund holds a futures contract, the Fund could purchase a put option

<PAGE>

on the same futures contract with a strike price as high or higher
than the price of the contract held. A 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. A 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. A 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 U.S. government is not obligated by law to provide support to an
instrumentality it sponsors, a 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-Backed Securities. A Fund may invest in
mortgage-backed securities issued by U.S. government entities, such as GNMA,
FNMA or FHLMC. In addition, a Fund may invest in mortgage-backed securities
sponsored by U.S. and foreign issuers as well as non-governmental issuers.
Mortgage-backed 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. Although there may be
government or private 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-backed 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

<PAGE>

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-backed 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 assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original investment, thus
affecting a Fund's yield.

The rate of interest on mortgage-backed 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-backed
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-backed securities, and this delay reduces the effective
yield to the holder of such securities.

Asset-Backed Securities. A 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 a 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

<PAGE>

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.

Below Investment Grade Securities. 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 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.

A 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 Funds
anticipate 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 a 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 a 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 a
Fund's net asset value. A Fund will rely on the judgment, analysis and
experience of Warburg in evaluating the creditworthiness of an issuer.

<PAGE>

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. A 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.

Securities of Other Investment Companies. A Fund may invest in
securities of other investment companies to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). Presently, under
the 1940 Act, a Fund may hold securities of another investment company in
amounts which (i) do not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the Fund's total assets and (iii)
when added to all other investment company securities held by the Fund, do not
exceed 10% of the value of the Fund's total assets.

Lending of Portfolio Securities. A 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"). A Fund will not lend portfolio
securities to Warburg or its affiliates 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, a 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, a 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 Funds, income
received could be used to pay a Fund's expenses and would increase an investor's
total return. A 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

<PAGE>

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 a Fund's ability to recover the loaned securities or dispose
of the collateral for the loan.

Foreign Investments. The Balanced Fund may invest up to 15% of
its total assets and the Growth & Income Fund may invest up to 20% 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. Since
a Fund may be investing in securities denominated in currencies other than the
U.S. dollar, and since a Fund may temporarily hold funds in bank deposits or
other money market investments denominated in foreign currencies, a Fund's
investments in foreign companies may be affected favorably or unfavorably by
exchange control regulations or changes in the exchange rate between such
currencies and the dollar. 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 a 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 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. A Fund may use hedging techniques with the objective of
protecting against loss through the fluctuation of the valuation of foreign
currencies against the U.S. dollar, particularly the forward market in foreign
exchange, currency options and currency futures. See "Currency Exchange
Transactions" and "Futures Activities" above.

Information. Many of the foreign securities held by a 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.

<PAGE>

Political Factors. 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 a 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. A 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.

Delays. 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 a Fund to market and foreign exchange fluctuations brought about by
such delays, and due to the corresponding negative impact on Fund liquidity, a
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 and the effect of gains and losses in
the denominated currencies against the U.S. dollar, which have had a substantial
impact on investment in foreign fixed income securities. 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, a 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.
A Fund may engage in a short sale if at the time of the short sale the Fund owns
or has the right to obtain without additional cost an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the box." If a Fund engages in a short sale, the collateral for the
short position will be maintained by the Fund's custodian or qualified
sub-custodian.

The Funds do not intend to engage in short sales against the
box for investment purposes. A 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). 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 a Fund will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.

<PAGE>

If a Fund effects a short sale of securities at a time when it
has an unrealized gain on the securities, it may be required to recognize that
gain as if it had actually sold the securities (as a "constructive sale") on the
date it effects the short sale. However, such constructive sale treatment may
not apply if the Fund closes out the short sale with securities other than the
appreciated securities held at the time of the short sale and if certain other
conditions are satisfied. Uncertainty regarding the tax consequences of
effecting short sales may limit the extent to which a Fund may effect short
sales.

Warrants. A Fund may invest up to 15% of net assets in
warrants to purchase equity securities consisting of common and preferred stock.
The equity security underlying a warrant is authorized at the time the warrant
is issued or is issued together with the warrant.

Investing in warrants can provide a greater potential for
profit or loss than an equivalent investment in the underlying security, and,
thus, can be a speculative investment. The value of a warrant may decline
because of a decline in the value of the underlying security, the passage of
time, changes in interest rates or in the dividend or other policies of the
company whose equity underlies the warrant or a change in the perception as to
the future price of the underlying security, or any combination thereof.
Warrants generally pay no dividends and confer no voting or other rights other
than to purchase the underlying security.

Depositary Receipts. The assets of a Fund may be invested in
the securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and International Depositary
Receipts ("IDRs"). These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs, which
are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
receipts issued in Europe, and IDRs, which are sometimes referred to as Global
Depositary Receipts ("GDRs"), are receipts issued outside the United States.
EDRs, CDRs, IDRs and GDRs are typically issued by non-U.S. banks and trust
companies that evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in U.S. securities
markets, and EDRs (CDRs) and IDRs (GDRs) in bearer form are designed for use in
European securities markets and non-U.S. securities markets, respectively.

Non-Publicly Traded and Illiquid Securities. A Fund may not
invest more than 15% of its net assets in non-publicly traded and 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.

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

<PAGE>

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).

Borrowing. A 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 a Fund's
net assets. The Growth & Income Fund will not purchase portfolio securities
whenever borrowings (including reverse repurchase agreements) exceed 5% of the

<PAGE>

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. Each 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. A 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 a Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time a 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). A 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.

When Issued Securities and Delayed Delivery Transactions. A
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). When
issued transactions normally settle within 30-45 days. The Fund will enter into
a when-issued transaction for the purpose of acquiring portfolio securities and
not for the purpose of leverage, 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 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 a Fund agrees to purchase when-issued or delayed-delivery
securities, its custodian will set aside cash or certain liquid 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, a 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 a 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.

<PAGE>

When a 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 a Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.

Municipal Obligations. Municipal Obligations (as defined in
the Balanced Fund's 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 Balanced 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.

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 Services ("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 Balanced 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 Balanced 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

<PAGE>

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.

Securities of Smaller Companies. The Balanced 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.

Zero Coupon Securities. The Balanced Fund may invest in "zero
coupon" U.S. Treasury, foreign government and U.S. and foreign corporate
convertible and nonconvertible debt securities, which are bills, notes and bonds
that have been stripped of their unmatured interest coupons and custodial
receipts or certificates of participation representing interests in such
stripped debt obligations and coupons. A zero coupon security pays no interest
to its holder prior to maturity. Accordingly, such securities usually trade at a
deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest. The Balanced Fund anticipates that it will not normally hold zero
coupon securities to maturity. Federal tax law requires that a holder of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year, even though the holder receives no interest
payment on the security during the year. Such accrued discount will be
includible in determining the amount of dividends the Balanced Fund must pay
each year and, in order to generate cash necessary to pay such dividends, the
Balanced Fund may liquidate portfolio securities at a time when it would not
otherwise have done so.

<PAGE>

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 each of the
Balanced and Growth & Income 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 a Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares. If a
percentage restriction (other than the percentage limitation set forth in No. 1
below) 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 a Fund's assets will not constitute a violation
of such restriction. Investment limitations 12 through 15 may be changed by a
vote of the Board at any time.

A 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.

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."

<PAGE>

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.

14. 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.

15. 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
15% of the value of the Fund's total assets.

With regard to investment limitation No. 10, relating to a
Fund's holdings of illiquid securities, the Fund will monitor the liquidity of
its portfolio on an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained. Particularly,
the Board will check routinely the value of illiquid securities in its portfolio
and should the value of such securities approach 15% of the net assets of the
Fund's portfolio, the Board will take action to reduce the Fund's holdings of
illiquid securities in an orderly fashion to maintain adequate liquidity. In no
event, however, will a Fund purchase an illiquid security if doing so would
result in more than 15% of the Fund's net assets being invested in illiquid
securities.

<PAGE>

Portfolio Valuation

The Prospectuses discuss the time at which the net asset value
of a Fund is determined for purposes of sales and redemptions. The following is
a description of the procedures used by a 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 determined to be the primary market
for such security. The valuation of short sales of securities, which are not
traded on a national exchange, will be at the mean of bid and asked prices.
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 a 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

<PAGE>

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 a 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 a 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 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 a 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 a
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 a 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

<PAGE>

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. Research received from brokers or dealers is
supplemental to Warburg's own research program. The fees to Warburg under its
advisory agreement with the Fund are not reduced by reason of its receiving any
brokerage and research services.

During the two-month period ended October 31, 1997 and the
fiscal years ended August 31, 1997, 1996 and 1995 the Balanced Fund and, for
relevant periods, the Warburg Pincus Balanced Fund investment portfolio of The
RBB Fund (the "RBB Fund") paid brokerage commissions of $14,333, $87,403,
$61,926 and $8,122, respectively. (The Balanced 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.) As of October 31, 1997, the
Balanced Fund had an outstanding repurchase agreement in the amount of
$1,141,000 with Goldman, Sachs & Co., one of the Fund's regular broker-dealers.

During the two-month period ended October 31, 1997 and the
fiscal years ended August 31, 1997, 1996 and 1995 the Growth & Income Fund and,
for relevant periods, the Warburg Pincus Growth & Income Fund investment
portfolio of the RBB Fund paid brokerage commissions of $279,210, $3,350,811,
$2,898,813 and $3,055,939, respectively. (The Growth & Income Fund is the
successor to the Warburg Pincus Growth & Income Fund investment portfolio of the
RBB Fund having acquired its assets and liabilities on May 3, 1996.) As of
October 31, 1997, the Growth & Income Fund had an outstanding repurchase
agreement in the amount of $46,811,000 with Goldman, Sachs & Co., one of the
Fund's regular broker-dealers.

Investment decisions for a 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.

<PAGE>

Any portfolio transaction for a 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.

Transactions for a 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.

A 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 Funds do 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. A 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 a 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, a 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.

<PAGE>

MANAGEMENT OF THE FUND

Officers and Board of Directors

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

Richard N. Cooper* (63) Director
Harvard University Professor at Harvard University;
1737 Cambridge Street National Intelligence Counsel from June
Cambridge, MA 02138 1995 until
January 1997; Director or Trustee of Circuit
` City Stores, Inc. (retail electronics and
appliances) and Phoenix Home
Mutual Life Insurance Company.

Donald J. Donahue (73) Director
27 Signal Road Chairman of Magma Copper Company
Stamford, Connecticut 06902 from December 1987 until December 1995;
Chairman and Director of
NAC Holdings from September
1990-June 1993; Director of
Pioneer Companies, Inc.
(chlor-alkali chemicals)
and predecessor companies
since 1990 and Vice
Chairman since December
1995.

Jack W. Fritz (70) 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* (66) Chairman of the Board
466 Lexington Avenue Vice Chairman and Director of Warburg;
New York, New York 10017-3147 Associated with Warburg since 1970; Director
of Counsellors Securities; Chairman of the
Board and officer of other investment
companies advised by Warburg.

<PAGE>

Thomas A. Melfe (65) 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 (68) 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* (49) Director
466 Lexington Avenue Managing Director, Chief Operating
New York, New York 10017-3147 Officer and Assistant Secretary of Warburg;
Associated with Warburg since 1984; Director,
Secretary and Chief Operating Officer of
Counsellors Securities; Director/Trustee
of other investment companies advised by
Warburg.

Eugene L. Podsiadlo (40) President
466 Lexington Avenue Managing Director of Warburg;
New York, New York 10017-3147 Associated with Warburg 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 (44) Vice President
466 Lexington Avenue Managing Director, Controller and
New York, New York 10017-3147 Assistant
Secretary of Warburg;
Associated with Warburg
since 1984; Treasurer of
Counsellors Securities;
Vice President of other
investment companies
advised by Warburg.

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

<PAGE>

Eugene P. Grace (46) Vice President and Secretary
466 Lexington Avenue Associated with Warburg 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 (43) Vice President and Chief
466 Lexington Avenue Financial Officer
New York, New York 10017-3147 Associated with Warburg 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 Warburg since 1995;
New York, New York 10017-3147 Associated with BlackRock Financial
Management, Inc. from
September 1994 to October
1996; 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, Esq. (30) Assistant Secretary
466 Lexington Avenue Associated with Warburg 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.

No employee of Warburg or PFPC Inc., each Funds'
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.

<PAGE>

Directors' Compensation
(for the period ended October 31, 1997)

Total Total Compensation from
Compensation from all Investment Companies
Name of Director each Fund Managed by Warburg*
----------------------- ------------------ -------------------

John L. Furth None** None**

Arnold M. Reichman None** None**

Richard N. Cooper $1,750 $44,500

Donald J. Donahue $1,750 $44,500

Jack W. Fritz $1,750 $44,500

Thomas A. Melfe $1,750 $44,500

Alexander B. Trowbridge $1,750 $44,500

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

* Each Director also serves as a Director or Trustee of 23 other investment
companies advised by Warburg.

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

As of December 1, 1997 Directors or officers of the Fund as a group
owned less than 1% of the outstanding shares of each Fund.

Portfolio Managers of the Balanced Fund

Mr. Dale C. Christensen is the overall portfolio strategist
for the Balanced Fund and the Manager of the Fixed Income Sector.
Mr. Christensen is also the 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.

<PAGE>

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 Pincus 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. 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-Manager of the U.S. Large Company 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. Large Company
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

<PAGE>

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.

Portfolio Manager of the Growth & Income Fund

Mr. Brian S. Posner is the Portfolio Manager of the Growth &
Income Fund, the Growth & Income Portfolio of the Warburg Pincus Trust and the
Value Portfolio of the Warburg Pincus Institutional Fund, Inc. Prior to joining
Warburg, Mr. Posner was employed from 1987 to 1996 by Fidelity Investments,
where, most recently, he was the vice president and portfolio manager of the
Fidelity Equity-Income II Fund. Mr. Posner received an undergraduate degree
from Northwestern University and his M.B.A. in finance from the University of
Chicago.

Investment Adviser and Co-Administrators

Warburg serves as investment adviser to each Fund pursuant to
a written agreement (the "Advisory Agreement"). Counsellors Funds Service, Inc.
("Counsellors Service") and PFPC both serve as co-administrators to each Fund
pursuant to separate written agreements (the "Counsellors Service
Co-Administration Agreement" and the "PFPC Co-Administration Agreement,"
respectively). The services provided by, and the fees payable by the Funds 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 a 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 Balanced Fund, for the two-month period ended October
31, 1997 and the fiscal years ended August 31, 1997 and 1996, Warburg earned
$24,883 ($60,121 without waivers), $178,795 ($319,264 without waivers) and
$25,040 ($170,672 without waivers), respectively, 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 PNC Institutional Management Corp.
received $0 ($362 without waivers). Under the Counsellors Service
Co-Administration Agreement, for the two-month period ended October 31, 1997

<PAGE>

and the fiscal years ended August 31, 1997, 1996 and 1995, Counsellors
Service was paid $6,680, $35,474, $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 two-month period ended October 31, 1997 and
the fiscal years ended August 31, 1997, 1996 and 1995, PFPC received $10,020,
$53,211, $4,713 ($28,445 without waivers) and $0 ($2,394 without waivers),
respectively, in co-administration fees.

For the Growth & Income Fund for the two-month period ended
October 31, 1997 and the fiscal years ended August 31, 1997, 1996 and 1995
Warburg earned $901,812, $4,637,851, $7,914,238 and $5,824,947, respectively, in
investment advisory fees. Under the Counsellors Co-Administration Agreement, for
the two-month period ended October 31, 1997 and the fiscal years ended August
31, 1997, 1996 and 1995, Counsellors Service was paid $109,797, $555,880,
$992,718 and $714,152, respectively. Under the PFPC Co-Administration Agreement,
for the two-month period ended October 31, 1997 and the fiscal years ended
August 31, 1997, 1996 and 1995, PFPC was paid $180,362, $927,570, $1,645,362 and
$1,222,497, respectively.

Custodians and Transfer Agent

PNC Bank, National Association ("PNC") and State Street Bank
and Trust Company serve as custodians of each Funds' U.S. and non-U.S. 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
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 each 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.

<PAGE>

Organization of the Fund

The Balanced Fund and the Growth & Income Fund were
incorporated on January 29, 1996, under the laws of the State of Maryland under
the names Warburg, Pincus Balanced Fund, Inc. and Warburg, Pincus Growth &
Income Fund, Inc., respectively. Each 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.

Shareholders of each 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 Balanced 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 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.

<PAGE>

For the fiscal period ended October 31, 1997, distribution
fees of $105,101 were paid to Counsellors Securities, on behalf of the Common
Shares of the Balanced Fund for printing and fulfillment of marketing
literature.

Advisor Shares. The Funds 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
Prospectuses, "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 a 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
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 Funds' distributor upon request. No
preference will be shown in the selection of Fund portfolio investments for the
instruments of Institutions.

For the two-month period ended October 31, 1997 and the fiscal
year ended August 31, 1997, distribution fees of $131 and $437, respectively,
were expended on behalf of the Advisor Shares of the Balanced Fund for
advertising.

For the two-month period ended October 31, 1997 and the fiscal
year ended August 31, 1997, distribution fees of $75,076 and $372,841,
respectively, were paid to Counsellors Securities Inc., on behalf of the Advisor
Shares of the Growth & Income Fund for direct payments to financial institutions
or other financial intermediaries.

General. The Distribution Plans 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 Plans or the 12b-1 Plan
("Independent Directors"). Any material amendment of the Distribution Plans or
the 12b-1 Plan would require the approval of the Board in the same manner.

<PAGE>

Neither the Distribution Plans 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 Plans and 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 a Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The offering price of a 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, a 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. (A Fund may also suspend or postpone the recordation of an
exchange of its shares upon the occurrence of any of the foregoing conditions.)

If the Board determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, a Fund may
make payment wholly or partly in securities or other investment instruments
which may not constitute securities as such term is defined in the applicable
securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the
redemption proceeds. The Funds 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 a Fund as may be necessary to cover the stipulated
withdrawal payment. To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a 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 a Fund. All dividends and distributions on shares in the Plan are
automatically reinvested at net asset value in additional shares of a Fund.

EXCHANGE PRIVILEGE

An exchange privilege with certain other funds advised by
Warburg is available to investors in each Fund. The funds into which exchanges

<PAGE>

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 30 days' notice to shareholders.

ADDITIONAL INFORMATION CONCERNING TAXES

The following is a summary of the material United States
federal income tax considerations regarding the purchase, ownership and
disposition of shares in the Funds. Each prospective shareholder is urged to
consult his own tax adviser with respect to the specific federal, state, local
and foreign tax consequences of investing in a Fund. The summary is based on the
laws in effect on the date of this Statement of Additional Information, which
are subject to change.

The Funds and Their Investments

The Funds and Their Investments. Each Fund intends to continue
to qualify to be treated as a regulated investment company each taxable year
under the Internal Revenue Code of 1986, as amended (the "Code"). To so qualify,
the Fund must, among other things: (a) derive at least 90% of its gross income
in each taxable year from dividends, interest, payments with respect to
securities, loans and gains from the sale or other disposition of stock or
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
its business of investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the end of each quarter of the Fund's taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash, securities of other regulated investment companies, United States
government securities and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the Fund's
assets and not greater than 10% of the outstanding voting securities of such
issuer and (ii) not more than 25% of the value of its assets is invested in the
securities (other than United States government securities or securities of
other regulated investment companies) of any one issuer or any two or more
issuers that the Fund controls and are determined to be engaged in the same or

<PAGE>

similar trades or businesses or related trades or businesses. The Fund expects
that all of its foreign currency gains will be directly related to its principal
business of investing in stocks and securities.

As a regulated investment companies, each Fund will not be
subject to United States federal income tax on its net investment income (i.e.,
income other than its net realized long- and short-term capital gains) and its
net realized long- and short-term capital gains, if any, that it distributes to
its shareholders, provided that an amount equal to at least 90% of the sum of
its investment company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers), plus
or minus certain other adjustments as specified in the Code) and its net
tax-exempt income for the taxable year is distributed, but will be subject to
tax at regular corporate rates on any taxable income or gains that it does not
distribute. Furthermore, each Fund will be subject to a United States corporate
income tax with respect to such distributed amounts in any year that it fails to
qualify as a regulated investment company or fails to meet this distribution
requirement. Any dividend declared by a Fund in October, November or December of
any calendar year and payable to shareholders of record on a specified date in
such a month shall be deemed to have been received by each shareholder on
December 31 of such calendar year and to have been paid by the Fund not later
than such December 31, provided that such dividend is actually paid by the Fund
during January of the following calendar year.

Each Fund intends to distribute annually to its shareholders
substantially all of its investment company taxable income. The Board of the
Fund will determine annually whether to distribute any net realized long-term
capital gains in excess of net realized short-term capital losses (including any
capital loss carryovers). Each Fund currently expects to distribute any excess
annually to its shareholders. However, if a Fund retains for investment an
amount equal to all or a portion of its net long-term capital gains in excess of
its net short-term capital losses and capital loss carryovers, it will be
subject to a corporate tax (currently at a rate of 35%) on the amount retained.
In that event, a Fund will designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a) will be required to
include in income for United Stares federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, (b) will
be entitled to credit their proportionate shares of the 35% tax paid by the Fund
on the undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal income tax
on such capital gains will be entitled to a refund of their pro rata share of
such taxes paid by the Fund upon filing appropriate returns or claims for refund
with the Internal Revenue Service (the "IRS").

The Code imposes a 4% nondeductible excise tax on a Fund to
the extent the Fund does not distribute by the end of any calendar year at least
98% of its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any income
or gain retained by the Fund that is subject to corporate income

<PAGE>

tax will be considered to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to avoid
the excise tax will be increased or decreased to reflect any underdistribution
or overdistribution, as the case may be, from the previous year. Each Fund
anticipates that it will pay such dividends and will make such distributions as
are necessary in order to avoid the application of this tax.

With regard to each Fund's investments in foreign securities,
exchange control regulations may restrict repatriations of investment income and
capital or the proceeds of securities sales by foreign investors such as the
Fund and may limit the Fund's ability to pay sufficient dividends and to make
sufficient distributions to satisfy the 90% and excise tax distribution
requirements.

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

A Fund's short sales against the box, if any, and transactions
in foreign currencies, forward contracts, options and futures contracts
(including options and futures contracts on foreign currencies) will be subject
to special provisions of the Code that, among other things, may affect the
character of gains and losses realized by the Fund (i.e., may affect whether
gains or losses are ordinary or capital), accelerate recognition of income to
the Fund and defer Fund losses. These rules could therefore affect the
character, amount and timing of distributions to shareholders. These provisions
also (a) will require the Fund to mark-to-market certain types of the positions
in its portfolio (i.e., treat them as if they were closed out) and (b) 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. Each 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 foreign
currency, forward contract, option, futures contract or hedged investment in
order to mitigate the effect of these rules and prevent disqualification of the
Fund as a regulated investment company.

Passive Foreign Investment Companies. If a Fund purchases
shares in certain foreign investment entities, called "passive foreign
investment companies" (a "PFIC"), it may be subject to United States federal

<PAGE>

income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on the Fund in respect of deferred taxes arising from
such distributions or gains. Any tax paid by a Fund as a result of its ownership
of shares in a PFIC will not give rise to any deduction or credit to the Fund or
any shareholder. If a Fund were to invest in a PFIC and elected to treat the
PFIC as a "qualified electing fund" under the Code, in lieu of the foregoing
requirements, the Fund might be required to include in income each year a
portion of the ordinary earnings and net capital gains of the qualified election
fund, even if not distributed to the Fund, and such amounts would be subject to
the 90% and excise tax distribution requirements described above. In order to
make this election, a Fund would be required to obtain certain annual
information from the passive foreign investment companies in which it invests,
which may be difficult or not possible to obtain.

Recently, legislation was enacted that provides a
mark-to-market election for regulated investment companies effective for taxable
years beginning after December 31, 1997. This election would result in a Fund
being treated as if it had sold and repurchased all of the PFIC stock at the end
of each year. In this case, a Fund would report gains as ordinary income and
would deduct losses as ordinary losses to the extent of previously recognized
gains. The election, once made, would be effective for all subsequent taxable
years of the Fund, unless revoked with the consent of the IRS. By making the
election, a Fund could potentially ameliorate the adverse tax consequences with
respect to its ownership of shares in a PFIC, but in any particular year may be
required to recognize income in excess of the distributions it receives from
PFICs and its proceeds from dispositions of PFIC company stock. A Fund may have
to distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. Each Fund will make
the appropriate tax elections if possible, and take any additional steps that
are necessary to mitigate the effect of these rules.

Dividends and Distributions. Dividends of net investment
income and distributions of net realized short-term capital gains are taxable to
a United States shareholder as ordinary income, whether paid in cash or in
shares. Distributions of net-long-term capital gains, if any, that a Fund
designates as capital gains dividends are taxable as long-term capital gains,
whether paid in cash or in shares and regardless of how long a shareholder has
held shares of the Fund. Dividends and distributions paid by a Fund (except for
the portion thereof, if any, attributable to dividends on stock of U.S.
corporations received by the Fund) will not qualify for the deduction for
dividends received by corporations. Distributions in excess of a Fund's current
and accumulated earnings and profits will, as to each shareholder, be treated as
a tax-free return of capital, to the extent of a shareholder's basis in his
shares of the Fund, and as a capital gain thereafter (if the shareholder holds
his shares of the Fund as capital assets).

Shareholders receiving dividends or distributions in the form
of additional shares should be treated for United States federal income tax
purposes as receiving a distribution in the amount equal to the amount of money

<PAGE>

that the shareholders receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.

Investors considering buying shares just prior to a dividend
or capital gain distribution should be aware that, although the price of shares
just purchased at that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may nevertheless be taxable to them.

If a Fund is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income not as of the date received but as of the
later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Fund acquired
such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.

Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the difference between
the amount realized and his basis in his 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 will be long-term capital gain or loss if the shares
are held for more than one year and short-term capital gain or loss if the
shares are held for one year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in the Fund, within a 61-day period 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. Any loss realized by
a shareholder on the sale of a Fund share held by the shareholder for six months
or less will be treated for United States 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.

Foreign Taxes. Income received by a Fund from non-U.S. sources
may be subject to withholding and other taxes imposed by other countries.
Because it is not expected that more than 50 percent of the value of the Fund's
total assets at the close of its taxable year will consist of stock and
securities of non-U.S. corporations, it is not expected that the Fund will be
eligible to elect to "pass through" to the Fund's shareholders the amount of
foreign income and similar taxes paid by the Fund. In the absence of such an
election, the foreign taxes paid by a Fund will reduce its investment company
taxable income, and distributions of investment company taxable income received
by the Fund from non-US sources will be treated as United States source income.

Backup Withholding. A Fund may be required to withhold, for
United States federal income tax purposes, 31% of the dividends and
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 IRS that they are subject to backup withholding.
Certain shareholders are exempt from backup withholding. Backup withholding

<PAGE>

is not an additional tax and any amount withheld may be credited against a
shareholder's United States federal income tax liabilities.

Notices. Shareholders will be notified annually by a Fund as
to the United States federal income tax status of the dividends, distributions
and deemed distributions attributable to undistributed capital gains (discussed
above in "The Funds and Their Investments") made by the Fund to its
shareholders. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding the
United States federal income tax status of certain dividends, distributions and
deemed distributions that were paid (or that are treated as having been paid) by
a Fund to its shareholders during the preceding taxable year.

Other Taxation

Distributions also may be subject to additional state, local
and foreign taxes depending on each shareholder's particular situation.

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

DETERMINATION OF PERFORMANCE

From time to time, each Fund may quote the total return of its
Common Shares and/or Advisor Shares in advertisements or in reports and other
communications to shareholders. 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 average annual total return of the Common Shares of the
Balanced Fund for the one-year period ended October 31, 1997 was 19.47% (18.79%
without waivers), and for Advisor Shares it was 19.12% (18.40% without waivers).
The average annual total return for the Common Shares for the five-year period
ended October 31, 1997, was 14.75% (14.13% without waivers). For the period
beginning on the commencement of the predecessor fund's operations (October
1988) and ending October 31, 1997, the average annual total return for the
Common Shares was 13.59% (12.05% without waivers). For the period beginning on
the commencement of the predecessor fund's offering of Advisor Shares

<PAGE>

(July 1995) and ending on October 31, 1997, the average annual
total return for the Advisor Shares was 16.56% (13.50% without waivers).

The average annual total return for Common Shares of the
Growth & Income Fund for the one-year period ended October 31, 1997 was 26.47%
and for Advisor Shares 26.02%. The average annual total return for Common Shares
for the five-year period ended October 31, 1997 was 17.47%. The average annual
total return for Common Shares for the period beginning on the commencement of
operations of the Warburg Pincus Growth & Income Fund investment portfolio of
the RBB Fund (October 1988) and ending October 31, 1997 was 14.18% (13.45%
without waivers). The average annual total return for Advisor Shares for the
period beginning on the commencement of offering of Advisor Shares by the
Warburg Pincus Growth & Income Fund investment portfolio of the RBB Fund (May
1995) and ending October 31, 1997 was 12.28%.

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. 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)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 yield for the Common Shares of the Balanced Fund for the
thirty-day period ended October 31, 1997 was 1.56% and for the Advisor Shares
was 1.31%.

The yield for the Common Shares of the Growth & Income Fund
for the thirty-day period ended October 31, 1997 was 1.04% and for the Advisor
Shares was 0.63%.

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 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

<PAGE>

other investment alternatives. However, a 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 a 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. A 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 each Fund. The financial statements for the Funds
that are incorporated by reference in this Statement of Additional Information
have been audited by Coopers & Lybrand and have been included herein by
reference in reliance upon the report of such firm of independent accountants
given upon their authority as experts in accounting and auditing.

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

MISCELLANEOUS

As of December 1, 1997, the names, addresses and percentage
ownership of each person that owned 5% or more of the outstanding shares of the
Balanced Fund were as follows:

Percent Owned as of
Type of Shares Name and Address December 1, 1997
- -------------- ---------------- ----------------

Common Shares Charles Schwab & Co Inc. 47.93%
Reinvest Account
Attn Mutual Funds Dept
101 Montgomery St.
San Francisco, CA 94104-4122

5.13%
Lasalle National Trust NA
TTEE For Various Defined
Contribution Plan-Omnibus Acct
P.O. Box 1443
Chicago, IL 60690-1443
16.09%

Nat'l Financial Svcs Corp.
PBC Customers
P.O. Box 3938
Church St. Station
New York, NY 13008-3908

<PAGE>

Advisor Shares SBT & Co For Various Accts 18.48%
P.O. Box 8469
La Jolla, CA 92038-8469

Bradley M. Lines 9.61%
Tina K. Pankiewicz TTEES
Axxess TECH Inc. 401K Retire Plan
U/A DTD 10/01/96
1555 W. 10th PL
Tempe, AZ 85281-5234

Olcoba Co 64.04%
P.O. Box 1000
Minneapolis, MN 55480-1000

Albert J. Laserman
Gene W. Reisinger TTEES
Family Practice Center PC
401K Trust
307 E. Chestnut St. 6.89%
Mifflinburg, PA 17844-9678

As of December 1, 1997, the names, addresses and percentage
ownership of each person that owned 5% or more of the outstanding shares of the
Growth & Income Fund were as follows:

Percent owned as of
Type of Shares Name and Address December 1, 1997
- -------------- ---------------- ----------------
Common Shares Charles Schwab & Co. Inc. 25.97%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery St.
San Francisco, CA 94134-4122

Nat'l Financial Svcs. Corp. 19.21%
FBO Customers
Church St. Station
P.O. Box 3908
New York, NY 10008-3908

Advisor Shares Connecticut General Life Ins. Co. 39.19%
On Behalf of Its Separate Accounts
55S c/o Melissa Spencer M110
Cigna Corp. P.O. Box 2975
Hartford, CT 06104-2975

FINANCIAL STATEMENTS

Each Fund's audited report for the period ended October 31,
1997, which either accompanies this Statement of Additional Information or has
previously been provided to the investor to whom this Statement of Additional
Information is being sent, is incorporated herein by reference with respect

<PAGE>

to all information regarding the relevant Fund included therein. Each Fund will
furnish without charge a copy of the annual reports upon request by calling the
Fund at (800) 927-2874.

<PAGE>

APPENDIX

DESCRIPTION OF RATINGS

Commercial Paper Ratings

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

The rating Prime-1 is the highest commercial paper rating
assigned by Moody's 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.

Corporate Bond and Municipal Obligations Ratings

The following summarizes the ratings used by S&P for corporate
bonds and Municipal Obligations:

<PAGE>

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. 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.

<PAGE>

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.

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

<PAGE>

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.

<PAGE>

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements

(1) Financial Statements included in Part A
(a) Financial Highlights

(2) Financial Statements included in Part B (incorporated
by reference to the
Fund's annual report for the period ended
October 31, 1997)
(a) Report of Coopers & Lybrand L.L.P.,
Independent Accounts
(b) Statement of Net Assets
(c) Statement of Operations
(d) Statement of Changes in Net Assets
(e) Financial Highlights
(f) Notes to Financial Statements

(b) Exhibits:

Exhibit No. Description of Exhibit

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) Custodian Agreement with State Street
Bank and Trust Company.(4)

<PAGE>

9(a) Form of Transfer Agency Agreement.(2)

(b) Form of Co-Administration Agreement with
Counsellors Funds Service, Inc.(2)

(d) Forms of Services Agreements.(2)

10(a) Consent of Willkie Farr & Gallagher,
counsel to the Fund.(4)

(b) Opinion of Willkie Farr & Gallagher,
counsel to the Fund.(3)

11 Consent of Coopers & Lybrand L.L.P.,
Independent Accountants.(4)

12 Not Applicable.

13 Purchase Agreement.(5)

14 Not applicable.

15(a) Form of Shareholder Servicing and
Distribution Plan.(2)

(b) Form of Distribution Plan.(6)

16 Schedule for Performance Information.(4)

17 Financial Data Schedule.(4)

<PAGE>

(1) Incorporated by reference to Registrant's Registration Statement
on Form N-1A, filed on January 30, 1996 (Securities Act File
No. 333-00533).

(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) Filed herewith.

(5) 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).

(6) 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).

(7) Incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A, filed on
December 30, 1996. (Securities Act File NO. 333-00533).

<PAGE>

Item 25. Persons Controlled by or Under Common Control with Registrant

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

Item 26. Number of Holders of Securities

On December 1, 1997, there were 1,460 holders of Common Shares
and 35 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

<PAGE>

Fund; Warburg Pincus Emerging Markets Fund; Warburg Pincus
Fixed Income Fund; Warburg Pincus Global Fixed Income Fund; Warburg Pincus
Global Post-Venture Capital 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 Managed EAFE(R) Countries Fund; Warburg Pincus New York
Intermediate Municipal Fund; Warburg Pincus New York Tax Exempt Fund; Warburg
Pincus Post-Venture Capital Fund; Warburg Pincus Small Company Growth Fund;
Warburg Pincus Small Company Value Fund; Warburg Pincus Strategic Value 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.

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 Asset Management, 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)
<PAGE>

(6) PNC Bank, National Association
1600 Market Street
Philadelphia, Pennsylvania 19103
(records relating to its functions as custodian)

(7) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(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.

<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 of 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, 1997.

WARBURG, PINCUS BALANCED FUND, INC.

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

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

Signature Title Date
- --------- ----- ----
<S> <C> <C>

/s/ John L. Furth Chairman of the December 30, 1997
John L. Furth Board of Directors

/s/ Eugene L. Podsiadlo President December 30, 1997
Eugene L. Podsiadlo

/s/ Howard Conroy Vice President December 30, 1997
Howard Conroy and Chief
Financial Officer

/s/ Daniel S. Madden Treasurer and December 30, 1997
Daniel S. Madden Chief Accounting
Officer

/s/ Richard N. Cooper Director December 30, 1997
Richard N. Cooper

/s/ Donald J. Donahue Director December 30, 1997
Donald J. Donahue

/s/ Jack W. Fritz Director December 30, 1997
Jack W. Fritz

/s/ Thomas A. Melfe Director December 30, 1997
Thomas A. Melfe

/s/ Arnold M. Reichman Director December 30, 1997
Arnold M. Reichman

/s/ Alexander B. Trowbridge Director December 30, 1997
Alexander B. Trowbridge
</TABLE>

<PAGE>

INDEX TO EXHIBITS

Exhibit No. Description of Exhibit
- ----------- ----------------------
8(b) Custodian Agreement with State Street Bank
and Trust Company.

10(a) Consent of Willkie Farr & Gallagher,
counsel to the Fund.

11 Consent of Coopers & Lybrand L.L.P.,
Independent Accountants.

16 Schedule for Performance Information.

17 Financial Data Schedule.

CUSTODIAN CONTRACT

This Contract is between Warburg Pincus Balanced Fund, a corporation
organized and existing under the laws of the State of Maryland, having a Board
of Directors (the "Board") and its principal place of business at 466 Lexington
Avenue, New York, New York 10017 (the "Fund"), and State Street Bank and Trust
Company, a Massachusetts trust company having its principal place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Custodian"),

WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:

1. Employment of Custodian and Property to be Held by It

The Fund hereby employs the Custodian as the custodian of the assets of
the Fund, including securities which the Fund desires to be held in places
within the United States of America ("domestic securities") and securities it
desires to be held outside the United States of America ("foreign securities")
pursuant to the provisions of the Fund's Articles of Incorporation, as amended
from time to time (the "Charter"). The Fund agrees to deliver to the Custodian
its securities and cash, all payments of income, payments of principal or
capital distributions received by it with respect to such securities owned by it
from time to time, and, in the Fund's discretion, cash consideration received by
it for new or treasury shares of capital stock of the Fund as may be issued or
sold from time to time ("Shares"). The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to (i)
the Custodian to be held by it, (ii) a sub-custodian located in the United
States and employed pursuant to this Article 1 or (iii) a foreign sub-custodian
or a foreign securities system employed pursuant to Article 3.

Upon receipt of "Proper Instructions" (as such term is defined in
Article 5 of this Contract), the Custodian shall on behalf of the Fund from time
to time employ one or more sub-custodians located in the United States of
America, including any state or political subdivision thereof and any territory
over which its political sovereignty extends (the "United States" or "U.S."),
but only in accordance with an applicable vote by the Board. The Custodian may
also employ as sub-custodians for the Fund's foreign securities the foreign
sub-custodians and foreign securities depositories designated in Schedule A
hereto but only in accordance with the terms hereof and an applicable vote of
the Board.

<PAGE>

2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States

2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund non-cash property to be held by it in the
United States including all domestic securities owned by the Fund other
than (a) securities which are maintained in a "U.S. Securities System"
(as such term is defined in Section 2.10 of this Contract) and (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper System") which
is deposited and/or maintained in the Custodian's Direct Paper Book
Entry System pursuant to Section 2.11.

2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund and (i) held by the Custodian,
(ii) held in an account of the Custodian in a U.S. Securities System
(as defined in Section 2.10 hereof) or (iii) held in the Direct Paper
System Account (as defined in Section 2.11 hereof), only upon receipt
of Proper Instructions from the Fund, which may be continuing
instructions when deemed appropriate by the parties, and only in the
cases listed below. Any U.S. Securities System account shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for its customers ("U.S. Securities
System Account"). The Custodian's Direct Paper Book-Entry System
account shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for its customers ("Direct
Paper System Account").

1) Upon sale of such securities for the account of the Fund and
receipt of full payment therefor;

2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;

3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;

4) To the depository agent in connection with tender or other
similar offers for securities of the Fund; provided that the
Custodian shall have taken reasonable steps to ensure timely
collection of the payment for, or the return of, such
securities by the depository agent;

5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian; and
provided further that the Custodian shall have taken
reasonable steps to ensure timely collection of such cash or
other consideration;

2
<PAGE>

6) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any domestic sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in
any such case, the new securities are to be delivered to the
Custodian;

7) In the case of delivery of physical certificates or
instruments representing securities, upon the sale of such
securities for the account of the Fund, to the broker or its
clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that, in
any such case, the Custodian shall have taken reasonable steps
to ensure prompt collection of the payment for, or the return
of, such securities by the broker or its clearing agent, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Custodian's own negligence or willful misconduct;

8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement or
protective plan; provided that, in any such case, the new
securities and/or cash are to be delivered to the Custodian;

9) In the case of warrants, puts, calls, futures contracts,
options, rights or similar securities, the surrender thereof
in the exercise or sale of such warrants, puts, calls, futures
contracts, options, rights or similar securities; provided
that, in any such case, the securities and cash received in
exchange therefor are to be delivered to the Custodian;

10) For delivery in connection with any loans of securities made
by the Fund to the borrower thereof in accordance with the
terms of a written securities lending agreement to which the
Fund is a party or is otherwise approved by the Fund, but only
against receipt of adequate collateral, as agreed upon from
time to time by the Custodian and the Fund, which may be in
the form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's U.S. Securities System Account,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Fund prior to the receipt
of such collateral provided that, if Proper Instructions
require such delivery to be

3
<PAGE>

made through a U.S. Securities System, such delivery is made
in accordance with the requirements of such U.S. Securities
System;

11) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;

12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;

13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a futures
commission merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any contract market, or of
any similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;

14) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the Fund's currently effective prospectus and statement of
additional information (the "Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption;

15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund, a copy
of a resolution of the Board or of any executive committee
thereof signed by an officer of the Fund and certified by the
Fund's Secretary or Assistant Secretary (a "Certified
Resolution") specifying the securities of the Fund to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made; and

Upon the termination of this Contract as hereinafter set
forth, in accordance with Article 16 hereof.

4
<PAGE>

2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee name
of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any domestic sub-custodian appointed pursuant to
Article 1. The Fund reserves the right to instruct the Custodian as to
the method of registration and safekeeping of its securities. All
securities accepted by the Custodian on behalf of the Fund under the
terms of this Contract shall be in "street name" or other good delivery
form at the time of delivery on behalf of the Fund.

2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940, as amended (the "1940 Act"). Cash
held by the Custodian for the Fund may be deposited by it to its credit
as Custodian in the banking department of the Custodian or in such
other banks or trust companies (a "Banking Institution") as it may in
its discretion deem necessary or desirable; provided, however, that
every Banking Institution shall be qualified to act as a custodian
under the 1940 Act, and that each such Banking Institution and the cash
to be deposited with each Banking Institution on behalf of the Fund
shall be approved by vote of a majority of the Board. Such cash shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.

2.5 Availability of Federal Funds. Upon agreement between the Fund and the
Custodian, the Custodian shall, upon the receipt of Proper Instructions
from the Fund make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares which are deposited
into the Fund's account.

2.6 Collection of Income. Subject to the provisions of the last sentence of
the first paragraph of this Section 2.6, the Custodian shall collect on
a timely basis all income and other payments with respect to United
States-registered securities held hereunder to which the Fund shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other
payments with respect to domestic bearer securities if, on the date of
payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Fund's account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and

5
<PAGE>

when they become due and shall collect interest when due on securities
held hereunder. If payment is not received by the Custodian within a
reasonable time after proper demands have been made, the Custodian
shall so notify the Fund in writing and send copies of all demand
letters, any written responses and memoranda of all oral responses to
telephonic demands therefor. If, however, the Fund directs the
Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts to timely collect income due the Fund on such
securities.

Collection of income due the Fund on domestic securities
loaned pursuant to the provisions of Section 2.2(10) shall be the
responsibility of the Fund; the Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data in its possession as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian
of the income to which the Fund is properly entitled.

2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out monies of the Fund in the
following cases only:

1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Fund but only (a) against the delivery of such securities
or evidence of title to such options, futures contracts or
options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the 1940 Act to act
as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the
case of a purchase effected through a U.S. Securities System,
in accordance with the conditions set forth in Section 2.10
hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered
into between the Fund and the Custodian, another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of securities owned by
the Custodian along with written evidence of the agreement by
the Custodian to repurchase such securities from the Fund or
(e) for transfer to a time deposit account of the Fund in any
bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions
from the Fund as defined in Article 5;

6
<PAGE>

2) In connection with conversion, exchange or surrender of
securities owned by the Fund as set forth in Section 2.2 (4),
(5), (8) or (9) hereof;

3) For the redemption or repurchase of Shares as set forth in
Article 4 hereof;

4) For the payment of any expense or liability incurred by the
Fund, including but not limited to the following payments for
the account of the Fund: interest, taxes, advisory fees,
administration fees, accounting fees, transfer agent fees,
legal fees and operating expenses of the Fund whether or not
such expenses are to be in whole or part capitalized or
treated as deferred expenses;

5) For the payment of any dividends and capital distributions on
Shares declared pursuant to the Charter and Prospectus;

6) For payment of the amount of dividends received in respect of
securities sold short;

7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a Certified
Resolution specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made; and

8) Upon the termination of this Contract as hereinafter set
forth, in accordance with Article 16.

2.8 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of domestic securities
for the account of a the Fund is (i) made by the Custodian in advance
of receipt of the securities purchased and (ii) such payment in advance
of receipt is not made with respect to a transaction settling via the
Depository Trust Company, in the absence of Proper Instructions from
the Fund to so pay in advance the Custodian shall be absolutely liable
to the Fund for the non-receipt of such securities purchased except as
specifically stated otherwise in Sections 2.7(1)(e), 2.7(2) and 2.10(3)
of this Contract, in which case the Custodian will be subject to the
standard of care set forth in Article 13 hereof.

2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act, as its agent to
carry out such of the provisions of this Article 2 as the Custodian may
from time to time direct; provided, however, that the appointment of
any agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.

7
<PAGE>

2.10 Deposit of Securities in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by the Fund in a
clearing agency registered with the Securities and Exchange Commission
(the "SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies or its
successor or successors (each a "U.S. Securities System") in accordance
with applicable Federal Reserve Board and SEC rules and regulations, if
any, and subject to the following provisions:

1) The Custodian may keep eligible domestic securities of the
Fund in a U.S. Securities System provided that such securities
are held in a U.S. Securities System Account;

2) The records of the Custodian with respect to securities of the
Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;

3) The Custodian shall pay for domestic securities purchased for
the account of the Fund only upon (i) receipt of advice from
the U.S. Securities System that such securities have been
transferred to the U.S. Securities System Account and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund. The
Custodian shall transfer securities sold for the account of
the Fund only upon (x) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the U.S. Securities System Account and (y) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Fund. Copies
of all advices from the U.S. Securities System of transfers of
securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a written
advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Fund;

4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities
System;

5) The Custodian shall have received from the Fund the initial
certificate required by Article 14 hereof; and

8
<PAGE>

6) The Custodian, at the Fund's expense in the absence of
negligence or willful misconduct on the Custodian's part or on
the part of sub-custodians or agents appointed pursuant to
this Contract, shall enforce on behalf of the Fund such rights
as it may have against the U.S. Securities System. Anything to
the contrary in this Contract notwithstanding, the Custodian
shall be liable to the Fund for any loss or damage to the Fund
resulting from use of the U.S. Securities System by reason of
any negligence, misfeasance, bad faith or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent
to enforce effectively such rights as it may have against the
U.S. Securities System. At the election of the Fund, it shall
be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the U.S. Securities System
or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or
damage.

2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:

1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund;

2) The Custodian may keep Fund securities in the Direct Paper
System only if such securities are represented in the Direct
Paper Account;

3) The records of the Custodian with respect to securities of the
Fund which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Fund;

4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the records
of the Custodian to reflect such payment and transfer of
securities to the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund upon the
making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Fund;

5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of a
written advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's
transaction in the Direct Paper System for the account of the
Fund; and

9
<PAGE>

6) The Custodian shall provide the Fund with any report on its
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Direct Paper
System which had been prepared as of the time of such request.

2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in a U.S. Securities System Account by the
Custodian pursuant to Section 2.10 hereof (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation or of any registered national securities exchange
(or the Commodity Futures Trading Commission and/or any contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash and/or securities in
connection with (a) options purchased, sold or written by the Fund, (b)
commodity futures contracts or options thereon purchased, sold or
written by the Fund or (c) other transactions requiring segregation as
described in the Fund's registration statement as in effect from time
to time, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the SEC relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of this clause
(iv), upon receipt of, in addition to Proper Instructions from the
Fund, a Certified Resolution setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper
corporate purposes.

2.13 Proxies. The Custodian or its sub-custodian shall, with respect to the
domestic securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if the securities are
registered otherwise than in the name of the Fund or a nominee of the
Fund, all proxies, without indication of the manner in which such
proxies are to be voted, and shall promptly deliver to the Fund all
proxies, including those for bearer securities, all proxy soliciting
materials and all notices relating to such securities.

2.14 Communications Relating to Fund Securities. The Custodian shall
transmit promptly to the Fund all written notices, announcements or
information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in
connection therewith, notices of exercise of call and put options
written by the Fund and the maturity of futures contracts and options
thereon purchased or sold by the Fund) received by the Custodian from
issuers of the securities being held for the Fund. With respect to
tender or exchange offers or other similar transactions, the Custodian
shall transmit promptly to the Fund all written notices, announcements
or information

10
<PAGE>

received by the Custodian from issuers of the securities whose tender
or exchange is sought and from the party (or its agents) making the
tender or exchange offer. If the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts to notify the Fund of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or exchange
offers. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall
notify the Custodian at least two (2) business days prior to the date
on which the Custodian is to take such action; with respect to notice
given by the Fund to the Custodian subsequent thereto, the Custodian
shall use its best efforts under the circumstances to take the
requested action.

2.15 Reports to Fund by Independent Public Accountant. The Custodian shall
provide the Fund with reports by independent public accountants on
accounting system, internal accounting control and procedures for
safeguarding cash, securities, futures contracts and options on futures
contracts and other assets, including cash, securities and other assets
deposited and/or maintained in a U.S. Securities System (as defined in
Section 2.10) or with a sub-custodian, relating to the services
provided by the Custodian under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may reasonably be
required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.

3. Duties of the Custodian with Respect to Property of the Fund Held
Outside the United States

3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States
eligible foreign custodians as defined in Rule 17f-5 under the 1940 Act
("Rule 17f-5") designated on Schedule A hereto (the "foreign
sub-custodians"). Upon receipt of Proper Instructions, together with a
Certified Resolution, the Custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional or
different foreign sub-custodians. Upon receipt of Proper Instructions,
the Fund may instruct the Custodian to cease the employment of any one
or more such foreign sub-custodians for maintaining custody of the
Fund's assets.

3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5, (b)
cash and cash equivalents in such amounts as the Custodian may
determine to be reasonably necessary to effect the Fund's foreign
securities transactions and (c) such cash and securities as the Fund
shall give Proper Instructions to be held in segregated accounts
pursuant to Section 3.21 hereof. The

<PAGE>

Custodian shall identify on its books as belonging to the Fund the
foreign securities of the Fund held by each foreign sub-custodian.

3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Fund shall be
maintained in a clearing agency or a securities depository within the
meaning of Rule 17f-5(c)(2)(iii) and (iv) listed on Schedule A (each a
"foreign securities system") only through arrangements implemented by
the foreign banking institutions (as defined in Section 3.5 below)
serving as sub-custodians pursuant to the terms hereof (foreign
securities systems and U.S. Securities Systems are referred to herein
collectively as the "Securities Systems"). Where possible after
reasonable efforts, such arrangements shall include entry into
agreements containing the provisions set forth in Section 3.5 hereof.

3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers; provided,
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund, (ii) the Custodian shall
require that the securities and other non-cash property so held by the
foreign sub-custodian be held separately from the assets of the foreign
sub-custodian or of others, (iii) the Custodian shall reconcile the
holdings of each customer in the single account daily, and (iv) such
holding shall be consistent with the terms of the SEC staff no-action
letter to the Custodian (NO. 95-35-CC) or subsequent SEC position or
Rule.

3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign sub-custodian as defined in Rule 17f-5(c)(2)(i) or (ii) (each a
"foreign banking institution") shall provide that (a) the Fund's assets
will be indemnified or its assets insured in the event of loss; (b) the
assets of the Fund will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (c) beneficial ownership of the
assets of the Fund will be freely transferable without the payment of
money or value other than for custody or administration; (d) adequate
records will be maintained identifying the assets as held by the
Custodian on behalf of its customers; (e) officers of or auditors
employed by or other representatives of the Custodian, including to the
extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records
of the foreign banking institution relating to its actions under its
agreement with the Custodian; (f) assets of the Fund held by the
foreign sub-custodian will be subject only to the instructions of the
Custodian or its agents; and (g) such foreign banking institution shall
notify the Custodian in the event that it ceases to qualify as either a
branch of a "qualified U.S. bank" or an "eligible foreign custodian",
as such terms are defined in Rule 17f-5(c), as amended.

<PAGE>

3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of the foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.

3.7 Delivery of Securities. The Custodian (or its foreign sub-custodian)
shall release and deliver foreign securities of the Fund held by the
foreign sub-custodian, or in a foreign securities system account of the
Custodian (or its foreign sub-custodian), only upon receipt of Proper
Instructions from the Fund, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:

(a) Upon sale of such securities for the Fund in accordance with
reasonable market practice in the jurisdiction where such
securities are held or traded, including, without limitation:
(i) delivery against expectation of receiving later payment
where such delivery is the customarily established securities
trading practice generally accepted by Institutional Clients
(as hereinafter defined) in the jurisdiction or market where
the transaction occurs; or (ii) in the case of a sale effected
through a foreign securities system, in accordance with the
rules governing the operation of the foreign securities
system;

(b) In connection with any repurchase agreement related to such
securities;

(c) To the depository agent in connection with tender or other
similar offers for securities of the Fund; provided that the
Custodian (or its foreign sub-custodian) shall have taken
reasonable steps in accordance with procedures generally
accepted by Institutional Clients in the particular market to
ensure timely collection of the payment for, or the return of,
such securities by the depository agent;

(d) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian (or its
foreign sub-custodian); and provided further that the
Custodian (or its foreign sub-custodian) shall have taken
reasonable steps in accordance with procedures generally
accepted by Institutional Clients in the particular market to
ensure timely collection of such cash or other consideration;

(e) To the issuer thereof, or its agent, for transfer into the
name of the Custodian (or its foreign sub-custodian) or of any
nominee of the Custodian (or its foreign sub-custodian) or for
exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units;

<PAGE>

provided that, in any such case, the new securities are to be
delivered to the Custodian (or its foreign sub-custodian);

(f) To brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market
custom; provided that, in any such case, the Custodian (or its
foreign sub-custodian) shall have taken reasonable steps in
accordance with procedures generally accepted by Institutional
Clients in the particular market to ensure prompt collection
of the payment for, or the return of, such securities by the
broker, clearing bank or clearing agent, the Custodian (or its
foreign sub-custodian) shall have no responsibility or
liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities
except as may arise from the negligence or willful misconduct
of the Custodian (or of its foreign sub-custodian);

(g) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and/or
cash are to be delivered to the Custodian (or its foreign
sub-custodian) in accordance with procedures generally
accepted by Institutional Clients in the particular market;

(h) In the case of warrants, puts, calls, futures contracts,
options, rights or similar securities, the surrender thereof
in the exercise or sale of such warrants, puts, calls, futures
contracts, options, rights or similar securities; provided
that, in any such case, the securities and cash received in
exchange therefor are to be delivered to the Custodian (or its
foreign sub-custodian) in accordance with procedures generally
accepted by Institutional Clients in the particular market;

(i) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets of the Fund, but only
against receipt of amounts borrowed;

(j) In connection with trading in options and futures contracts,
including delivery as original margin and variation margin;

(k) In connection with the loan of securities made by the Fund to
the borrower thereof in accordance with (i) the terms of a
written securities lending agreement to which the Fund and
State Street Bank and Trust Company, as lending agent, are
parties or (ii) in accordance with the terms of Proper
Instructions;

<PAGE>

(l) For any other purpose, but only upon receipt of a Certified
Resolution and Proper Instructions specifying the securities
to be delivered, setting forth the purpose for which delivery
is to be made, declaring such purpose to be a proper corporate
purpose and naming the person or persons to whom delivery of
such securities shall be made; and

(m) Upon termination of this Contract as hereinafter set forth, in
accordance with Article 16 hereof.

3.8 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund, which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out, or direct its foreign
sub-custodians to pay out, monies of the Fund in the following cases
only:

(a) Upon the purchase of foreign securities, options, futures or
options on futures contracts for the Fund, unless otherwise
directed by Proper Instructions, by (i) delivering money to
the seller thereof or to a dealer therefor (or an agent for
such seller or dealer), against delivery of such securities to
the foreign sub-custodian; or (ii) in accordance with the
customarily established securities trading practices generally
accepted by Institutional Clients in the jurisdiction or
market in which the transaction occurs, against expectation of
receiving later delivery of such securities; or (iii) in the
case of a purchase effected through a foreign securities
system, in accordance with the rules governing the operation
of such foreign securities system;

(b) In connection with the conversion, exchange or surrender of
securities of the Fund as set forth in Section 3.7 hereof;

(c) For the payment of any expense or liability including but not
limited to the following payments for the account of the Fund:
interest, taxes, advisory, administration, accounting,
transfer agent and legal fees, and operating expenses;

(d) For the purchase or sale of foreign exchange or foreign
exchange contracts for the Fund, including transactions
executed with or through the Custodian or its foreign
sub-custodians;

(e) In connection with trading in options and futures contracts,
including delivery as original margin and variation margin;

(f) In connection with the borrowing of securities;

<PAGE>

(g) For any purpose, but only upon receipt of a Certified
Resolution and Proper Instructions specifying the amount of
such payment and naming the person or persons to whom such
payment is to be made; and

(h) Upon termination of this Contract as hereinafter set forth, in
accordance with Article 16 hereof.

3.9 Market Conditions. Notwithstanding any provision of this Contract to
the contrary, settlement and payment for securities received for the
account of the Fund and delivery of securities maintained for the
account of the Fund may be effected in accordance with the customary
securities trading or securities processing practices and procedures
generally accepted by Institutional Clients in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer. For purposes of this Contract, "Institutional
Clients" means U.S. registered investment companies, or major,
U.S.-based commercial banks, insurance companies, pension funds or
substantially similar financial institutions which as a part of their
ordinary business operations, purchase or sell securities and make use
of non-U.S. custodial services. For the purposes of this section, the
"DVP/RVP Model" is a settlement system which offers a simultaneous and
irrevocable exchange of securities (on the delivery side) and cash
value (on the payment side) to settle a transaction. The Custodian will
provide the Fund (i) with a copy of The Guide to Custody in World
Markets, which at the time of its printing shall contain the
Custodian's best information with respect to customary securities
trading or securities processing practices and procedures generally
accepted by Institutional Clients in the jurisdictions and markets set
forth therein, (ii) a summary extracted therefrom and dated the date
hereof which shall set forth the Custodian's best information with
respect to the markets in which some or all securities transactions do
not settle in accordance with the DVP/RVP Model, and (iii) updates to
The Guide to Custody in World Markets as published and to the
aforementioned summary as appropriate.

3.10 Registration of Securities. Securities maintained in the custody of a
foreign banking institution (other than bearer securities) shall be
registered in the name of the Fund or in the name of any nominee of the
Fund or in the name of any nominee of the Custodian or of such foreign
banking institution, and the Fund agrees to hold any such nominee
harmless from any liability arising solely as a result of its status as
a holder of record of such securities unless liability results from the
negligence, bad faith or willful misconduct on the part of such
nominee, the Custodian or such foreign banking institution. The
Custodian and its foreign sub-custodian shall not be obligated to
accept securities on behalf of the Fund under the terms of this
Contract unless the form of such securities and the manner in which
they are delivered are in accordance with reasonable market practice in
the particular jurisdiction and generally accepted by Institutional
Clients.

<PAGE>

3.11 Bank Accounts. The Custodian (or its foreign sub-custodian) may open
and maintain outside the United States a bank account or bank accounts
on behalf of the Fund in foreign banking institutions designated on
Schedule A, subject only to draft or order by the Custodian or its
foreign sub-custodian, acting pursuant to the terms of this Contract to
hold cash received by or from or for the account of the Fund.

3.12 Collection of Income. The Custodian (or its foreign sub-custodian)
shall use reasonable efforts in accordance with market practice
generally accepted by Institutional Clients to collect all income and
other payments in due course with respect to the securities held
hereunder to which the Fund shall be entitled and shall credit such
income, as collected, to the Fund. With respect to Fund securities held
in an account with a foreign banking institution as described in
Section 3.4 hereof, income collected with respect to such securities
will be allocated to the Fund pro-rata based on the Fund's settled and
registered position in such securities. In the event that extraordinary
measures are required to collect such income, the Fund and the
Custodian shall consult as to such measures and as to the compensation
and expenses of the Custodian attendant thereto.

Collection of income due the Fund on securities loaned shall be the
responsibility of the Fund; the Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data in its possession as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian
or its foreign sub-custodians of the income to which the Fund is
properly entitled.

3.13 Appointment of Agents. The Custodian (or its foreign sub-custodian) may
at any time or times in its discretion appoint (and may at any time
remove) agents to carry out such of the provisions of this Article 3 as
the Custodian (or its foreign sub-custodian) may from time to time
direct; provided, however, that any such agent shall be an "eligible
foreign custodian" within the meaning of Rule 17f-5 under the 1940 Act
and that the appointment of any agent shall not relieve the Custodian
(or such foreign sub-custodian) of its responsibilities or liabilities
hereunder.

3.14 Proxies. The Custodian will generally, with respect to the foreign
securities held under this Article 3, use best efforts accepted by
Institutional Clients to facilitate the exercise of voting and other
shareholder proxy rights, subject always to the laws, regulations and
practical constraints that may obtain in the jurisdiction where such
securities are issued. The Fund acknowledges that local conditions may
have the effect of severely limiting the ability of the Fund to
exercise shareholder rights.

3.15 Communications Relating to Fund Securities. The Custodian shall
transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of securities and
expirations of rights in connection therewith) received by the
Custodian via its sub-custodians from issuers of the securities being
held for the account of the Fund. With respect to tender or exchange
offers, the Custodian shall transmit

<PAGE>

promptly to the Fund written information so received by the Custodian
from issuers of the securities whose tender or exchange is sought or
from the party (or his or its agents) making the tender or exchange
offer. Provided the Custodian has complied with the requirements in the
previous sentence, the Custodian shall not be liable for any untimely
exercise of any tender, exchange or other right or power in connection
with securities or other property of the Fund at any time held by it or
its foreign subcustodians unless (i) it or its foreign subcustodians
are in actual possession of such securities or property and (ii) it
receives Proper Instructions with regard to the exercise of any such
right or power, and both (i) and (ii) occur at least three business
days prior to the date on which such right or power is to be exercised.
With respect to Proper Instructions received by the Custodian
thereafter, the Custodian shall use its best efforts in the light of
local conditions to take the requested action.

3.16 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution (i) to exercise reasonable
care in the performance of its duties and (ii) to indemnify, and hold
harmless, the Custodian and the Fund from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with
the institution's performance of such obligations. The Custodian shall
take reasonable steps, which, in the absence of negligence or willful
misconduct on the Custodian's part or on the part of the relevant
foreign banking institution, shall be at the Fund's expense, to enforce
effectively (i) the rights of the Custodian and the Fund under such
agreements and (ii), in the event of any loss, damage, cost, expense,
liability or claim arising out of or in connection with the performance
of a foreign securities system, the rights of the Custodian, the
applicable foreign banking institution or the Fund against such system.

3.17 Subrogation. If the Custodian shall be unsuccessful in enforcing its
and the Fund's rights as set forth in Section 3.16 hereof, it shall so
inform the Fund, noting the steps it has taken. Thereafter, at the
election of the Fund, (a) the Fund shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the Fund
has not been made whole for any such loss, damage, cost, expense,
liability or claim, (b) the Fund shall be entitled to be subrogated to
the rights of the Custodian with respect to any claims against a
foreign securities system which the Custodian may have as a consequence
of any loss, damage, cost, expense, liability or claim arising out of
or in connection with the performance by a foreign securities system if
and to the extent that the Fund has not been made whole for any such
loss, damage, cost, expense, liability or claim, and (c) the Custodian
shall to the extent allowable under applicable law, take commercially
reasonable steps to procure the subrogation to the Fund of the foreign
banking institution's rights against the foreign securities system as a
consequence of any loss, damage, cost, expense, liability or claim
arising out of or in connection with the performance by a foreign
securities system if and

<PAGE>

to the extent that the Fund has not been made whole for any such loss,
damage, cost, expense, liability or claim.

3.18 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning each foreign
sub-custodian listed from time to time on Schedule A. Such information
shall be similar in kind and scope to that furnished to the Fund in
connection with the initial approval of this Contract, but shall also
include a report concerning any recommendations to consider change of a
foreign subcustodian (including the reason for said change). In
addition, the Custodian will provide the Fund with such information as
the Fund shall reasonably request in order to enable the Fund to comply
with Rule 17f-5. In addition, the Custodian will promptly inform the
Fund in writing in accordance with Article 17 in the event that the
Custodian learns of (i) a material adverse change in the condition,
financial or otherwise, of a foreign sub-custodian, (ii) any loss of
the assets of the Fund or (iii), in the case of any foreign
sub-custodian not the subject of an exemptive order from the SEC
modifying the shareholder equity requirement under Rule 17f-5, is
notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below
$200 million or that its shareholders' equity has declined below $200
million (in each case in terms of U.S. dollars or the local currency
equivalent thereof and computed in accordance with generally accepted
U.S. accounting principles).

3.19 State Street London. Cash held for the Fund in the United Kingdom shall
be maintained in an interest bearing account established for the Fund
with the Custodian's London branch, which account shall be subject to
the direction of the Custodian, State Street London Ltd. or both.

3.20 Tax Law. It shall be the responsibility of the Custodian and the
foreign banking institutions to use reasonable efforts and due care to
perform such steps typical for persons acting as global custodian for
Institutional Clients as are required to collect any tax refund, to
ascertain the appropriate rate of tax withholding and to provide such
documents as may be required to enable the Fund to receive appropriate
tax treatment under applicable tax laws and any applicable treaty
provisions. Except to the extent that imposition of such item arises
from the Custodian's or the foreign banking institutions' failure to
perform in accordance with the terms of this Section, the Custodian
shall have no responsibility or liability for any obligations now or
hereafter imposed on the Fund, the Fund's custody account in the
relevant jurisdiction or the Custodian as custodian of the Fund by the
tax law of the domicile of the Fund's custody account in the
jurisdiction or of any jurisdiction in which the Fund is invested or
any political subdivision thereof. Unless otherwise informed by the
Fund in writing, the Custodian, in performance of its duties under this
Section, shall be entitled to apply treatment of the Fund according to
the nationality of the Fund, the particulars of its organization and
other relevant details that shall be supplied by the Fund. The
Custodian shall be entitled to rely on any information supplied in
writing by an authorized representative of the Fund. The Custodian may

<PAGE>

engage reasonable professional advisors knowledgeable about the subject
matter, which may include attorneys, accountants or financial
institutions in the regular business of investment administration, and
may rely upon advice received therefrom. It shall be the duty of the
Fund to inform the Custodian of any change in the organization,
domicile or other relevant fact concerning tax treatment of the Fund,
and further to inform the Custodian if the Fund is or becomes the
beneficiary of any special ruling or treatment not applicable to the
general nationality and category of entity of which the Fund is a part
under general laws and treaty provisions.

3.21 Segregated Account. The Custodian shall, upon receipt of Proper
Instructions from the Fund, establish and maintain, or cause the
applicable foreign banking institution to establish and maintain, a
segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or securities (i)
in accordance with the provisions of any agreement among the Fund, the
Custodian (or such foreign banking institution) and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation or of any registered national securities exchange (or the
Commodity Futures Trading Commission and/or any contract market), or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii) for
purposes of segregating cash and/or securities in connection with (a)
options purchased, sold or written by the Fund, (b) commodity futures
contracts or options thereon purchased, sold or written by the Fund or
(c) other transactions requiring segregation as described in the Fund's
registration statement as in effect from time to time, (iii) for the
purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the SEC relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of this clause (iv), upon receipt of,
in addition to Proper Instructions from the Fund, a Certified
Resolution, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.

4. Payments for Sales or Repurchases or Redemptions of Shares

The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the Fund such payments as are
received for Shares issued or sold from time to time. The Custodian will provide
timely notification to the Fund and the Transfer Agent of any receipt by it of
payments for Shares.

<PAGE>

From such funds as may be available for the purpose but subject to the
limitations of the Charter and any applicable votes of the Board pursuant
thereto, the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of Shares who have delivered
to the Transfer Agent a request for redemption or repurchase of their Shares.

5. Proper Instruction

Proper Instructions as used throughout this Contract means a writing
signed or initialed by two persons as the Board shall have from time to time
authorized. Each such writing shall set forth the specific transaction or type
of transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing,
provided that the fact that such confirming written instructions are not
received by the Custodian shall in no way invalidate the enforceability of
transactions authorized by oral instructions. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three - party agreement which requires a segregated asset
account in accordance with Sections 2.12, 3.7(j), 3.8(e) and 3.20.

5A. Contractual Settlement

The Custodian shall credit or debit the appropriate cash account of the
Fund in connection with the purchase, sale, maturity, redemption or other
disposition of securities and other Fund assets held hereunder on an actual
settlement basis. Notwithstanding the foregoing, with respect to the markets set
forth on Schedule E hereto the Custodian may, in its sole discretion, from time
to time agree to provide the Fund with an arrangement whereby the Fund will be
given the opportunity of settling the purchase, sale, maturity, redemption or
other disposition of Fund securities to be held hereunder in the manner and
subject to the terms and limitations described in this Article 5A. A transaction
to which these contractual settlement provisions applies shall be called a
"Covered Transaction."

(a) With respect to a Covered Transaction that represents a
purchase of securities, the Custodian shall debit the Fund's
cash account in accordance with Proper Instructions as of the
time and date that monies would ordinarily be required to
settle such a transaction in the applicable markets as set
forth on Schedule E hereto. Such amounts shall be re-credited
to the appropriate cash account on settlement date upon Proper
Instructions to the Custodian that the Fund has canceled the
Covered Transaction.

<PAGE>

(b) With respect to the settlement of a Covered Transaction which
is a sale, maturity, redemption or other disposition,
provisional credit of an amount equal to the net sale,
maturity, redemption or other disposition proceeds of the
transaction (the "Settlement Amount") shall be made to the
account of the Fund as if the Settlement Amount had been
received as of the close of business on the date that monies
would ordinarily be required to settle such transaction in the
applicable markets as set forth on Schedule E. Such
provisional credit will be made if the Custodian has received
Proper Instructions with respect to, or reasonable notice of,
the Covered Transaction, as applicable, and if the Custodian
or its agents are in possession of the asset(s) associated
with the Covered Transaction in good deliverable form and are
not aware of any facts which would lead them to reasonably
believe that the Covered Transaction will not settle in the
time period ordinarily applicable to transactions in the
applicable market. In the event that the Custodian determines
not to provide a provisional credit with respect to a
particular transaction, the Custodian will promptly notify the
Fund of this determination.

(c) For each Covered Transaction with respect to which the
Custodian shall provide provisional credit in an amount up to
the Settlement Amount (the "Credited Amount"), simultaneously
with the making of such provisional credit, the Fund agrees
that the Custodian shall have, and hereby grants to the
Custodian, a first- priority security interest in any property
at any time held for the account of the Fund to the full
extent of the Credited Amount.

(d) The Custodian shall have the right, upon sending notice to the
Fund, to reverse any provisional credit given in accordance
with subsection (b) hereof in the event that the actual
proceeds of the subject Covered Transaction have not been
received by the Custodian, its agents or its sub-custodians
within thirty (30) days of having made such provisional credit
or at any time when the Custodian believes for reasonable
cause that such Covered Transaction will not settle in
accordance with its terms or amounts due pursuant thereto will
not be collectable, as applicable (in which case the notice
required herein will contain a description of such cause),
whereupon (i) the Custodian shall promptly notify the Fund
with respect thereto and (ii) a sum equal to the Credited
Amount shall become immediately payable by the Fund to the
Custodian and may be debited from any cash account held for
benefit of the Fund in accordance with the terms of any notice
given hereunder; the Custodian's right to debit the account as
set forth above shall not be contingent on the giving of
notice to the Fund. The amount of any accrued dividends,
interest and other distributions with respect to assets
associated with such Covered Transaction may be set off
against the Credited Amount.

<PAGE>

(e) In the event that the Custodian is unable to debit an account
of the Fund, with respect to the Fund, and the Fund fails to
pay any sums due to the Custodian at the time the same becomes
payable in accordance with subsection (d), and such failure is
not cured within one (1) business day after notice of such
failure to the Fund, or if any of the following conditions
occurs, the Custodian may charge the Fund for reasonable costs
and expenses associated with the provisional credit, including
without limitation the cost of funds associated therewith at
the then- prevailing Federal Funds rate (or local market
equivalent thereof where the Credited Amount was advanced),
and the provisions of subsection (f) will apply:

(1) If a final judgment for the payment of money shall be
rendered against the Fund and such judgment shall not
have been discharged or its execution stayed pending
appeal within sixty (60) days of entry or such
judgment shall not have been discharged within sixty
(60) days of expiration of any such stay;

(2) the Fund passing a resolution for its voluntary
winding-up (otherwise than for the purpose of
corporate reconstruction or amalgamation);

(3) the presentation of a petition for the winding-up of
or the making of an administration order in relation
to the Fund;

(4) the appointment of a receiver or administrator over
any of the assets of the Fund; or

(5) the Fund ceasing or threatening to cease to carry on
its business.

(f) If an event outlined in subsection (e) occurs, including to
the extent permitted by applicable law the events described in
(1) through (5) thereof, the Custodian shall have the right to
immediately execute and foreclose upon its security interest
in any of the assets of the Fund.

(g) The Custodian shall not be obliged to transfer any sums
credited to the Fund in accordance with subsection (b) to or
to the order or benefit of the Fund while any amount which is
payable to the Custodian under this Article 5A remains unpaid.

(h) The operation of the provisions of this Article 5A shall be
without prejudice to any other remedies provided the Custodian
in this Contract, including without limitation the remedies
set forth in Article 13 hereof, or under any applicable law.
The Fund agrees that the Custodian shall have a right of
set-off against cash held for the Fund in any currency for any
amount provided to the Fund by the Custodian hereunder or from
time to time arising out of or in connection with this
Contract, as amended, and/or the operation of any account
hereunder and the

<PAGE>

Custodian shall have the right to debit the Fund with all or
part of such sums and apply or appropriate the cash in or
towards the discharge of such amounts in such manner and order
as is commercially reasonable under the circumstances. For the
purposes of this right of set-off, the Custodian may make such
currency conversions or effect any transactions in such
currencies at the Custodian's then-prevailing rates at such
times as are commercially reasonable under the circumstances
and may effect any transfers between, or entries on, any
account of the Fund as is commercially reasonable under the
circumstances.

6. Actions Permitted without Express Authority

The Custodian may in its discretion, without express authority from the
Fund:

1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to the
Custodian's duties under this Contract as set forth in
Schedule B, provided that all such payments shall be accounted
for to the Fund;

2) surrender securities to the issuer or its agent in temporary
form for securities in definitive form;

3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and

4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board.

7. Evidence of Authority

The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed by or on behalf
of the Fund. The Custodian may receive and accept a certified copy of a vote of
the Board as conclusive evidence (a) of the authority of any person to act in
accordance with such resolution or (b) of any determination or of any action by
the Board pursuant to the Charter as described in such resolution, and such
resolution may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.

<PAGE>

8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income

The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board to keep the books of account of
the Fund and/or compute the net asset value per share of the outstanding Shares
or, if directed in writing to do so by the Fund, shall itself keep such books of
account and/or compute such net asset value per share for a fee to be agreed to
by the Custodian and the Fund. If so directed, for a fee to be agreed upon by
the parties at the time of such direction, the Custodian shall also calculate
daily the net income of the Fund as described in the Prospectus and shall advise
the Fund and the Transfer Agent daily of the total amount of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of the Fund shall be made at the time or times described from time
to time in the Prospectus.

9. Records and Reports

The Custodian shall with respect to the Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and, together with any
insurance policies and fidelity or similar bonds maintained by the Custodian,
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund
(including counsel and independent accountants) and employees and agents of the
SEC and other governmental regulatory authorities having jurisdiction. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by the Fund and held by the Custodian. When requested to do so
by the Fund and for such compensation as shall be agreed upon between the Fund
and the Custodian, the Custodian shall include certificate numbers in such
tabulations.

None of the parties hereto shall, unless compelled to do so by any
court or entity of competent jurisdiction either before or after the termination
of this Contract, disclose to any person not authorized by the relevant party to
receive the same any confidential information relating to such party and to the
affairs of such party of which the party disclosing the same shall have become
possessed during the period of this Contract and each party shall use its best
endeavors to prevent any such disclosure as aforesaid.

The Custodian shall send to the Fund an advice or notification of any
transfers of securities to or from the custody accounts indicating, as to
securities acquired for the Fund, the identity of the entity having physical
possession of such securities.

<PAGE>

In addition to reports required to be provided elsewhere herein, the
Custodian agrees to provide to the Fund (i) the reports set forth on Schedule D
hereto, as amended from time to time, at such times as set forth on such
Schedule and in substantially the forms provided to the Fund, and (ii) any other
special and periodic reports related to the services to be provided hereunder as
the Fund may reasonably request and as may be mutually agreed upon by the
parties.

The Custodian agrees to attend periodic meetings of the Board to
discuss the operations to be performed under this Contract at such times and at
such places as the Fund may reasonably request.

The Custodian shall provide GlobalQuest[R] software to the parties and
at the locations specified on attached Schedule C pursuant to the terms of the
Data Services Addendum to Custodian Contract at no additional charge other than
as provided therein.

10. Opinion by Fund's Independent Accountant

The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to the Custodian's activities
hereunder in connection with the preparation of the Fund's Form N-1A, Form N-SAR
and any other special or periodic reports to the SEC and with respect to any
other SEC requirements.

11. Disaster Recovery; Banker's Blanket Bond

In the event of equipment failures beyond the Custodian's control, the
Custodian shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. The Custodian shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision for (i) periodic back-up of the computer files and data
with respect to the Fund and (ii) emergency use of electronic data processing
equipment to provide services under this Contract and the Data Access Services
Addendum hereto.

The Custodian hereby warrants to the Fund that the Custodian is
maintaining a Bankers' Blanket Bond in a commercially reasonable amount, and the
Custodian hereby agrees to notify the Fund in the event its Bankers' Blanket
Bond is canceled or otherwise lapses.

12. Compensation of Custodian

The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as set forth on Schedule B hereto, as such
Schedule B may be amended in writing from time to time by the Fund and the
Custodian.

<PAGE>

13. Responsibility of Custodian

The Custodian shall exercise reasonable care in carrying out the
provisions of this Contract and Proper Instructions.

The Custodian shall be responsible for the acts and omissions of (i)
sub-custodians located in the United States of America appointed pursuant to
Article 1 hereof, (ii) foreign banking institutions appointed pursuant to the
terms of Article 3 hereof as if such acts and omissions were those of the
Custodian, and (iii) Japan Securities Depository Center ("JASDEC"), Euroclear
and Cedel Bank S.A.

So long as and to the extent that it exercises reasonable care, the
Custodian shall not be responsible for the title, validity or genuineness of any
property or evidence of title thereto received by it or delivered by it pursuant
to this Contract and shall be held harmless in acting upon any notice, request,
consent, certificate or other instrument reasonably believed by it to be genuine
and to be signed by the proper party or parties, including any futures
commission merchant acting pursuant to the terms of a three-party futures or
options agreement. The Custodian shall be kept indemnified by, and shall be
without liability to, the Fund for any action taken or omitted by it in good
faith without negligence or willful misconduct on its part or on the part of its
sub-custodians or agents. The Custodian shall be entitled reasonably to rely on
and may act upon advice of counsel experienced in the pertinent area of law (who
may be counsel for the Fund) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice.

Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian, agent or
nominee, the Custodian shall be without liability to the Fund for any loss,
liability, claim or expense resulting from or caused by (i) events or
circumstances beyond the reasonable control of the Custodian or any
sub-custodian or Securities System or any agent or nominee of any of the
foregoing, including, without limitation, (a) the interruption, suspension or
restriction of trading on or the closure of any securities markets, and (b)
power or other mechanical or technological failures or interruptions, computer
viruses or communications disruptions, recognizing in each such case the
obligation of the Custodian, its subcustodians, agents and nominees to take
reasonable steps as circumstances require to minimize the effect of such
failures, interruptions, viruses and disruptions; (ii) errors by the Fund or its
investment advisor in their instructions to the Custodian provided such
instructions have been given in accordance with this Contract; (iii) the
insolvency of or acts or omissions by a Securities System except to the extent
set forth in subparagraph (iii) in the second paragraph of this Section 13; (iv)
any delay or failure of any broker, agent or intermediary, central bank or other
commercially prevalent payment or clearing system to deliver to the Custodian's
sub-custodian or agent securities purchased or in the remittance of payment made
in connection with securities sold; (v) any delay or failure of any company,
corporation, or other body in charge of registering or transferring securities
in the name of the Custodian, the Fund,

<PAGE>

the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System;
(vii) any provision of any present or future law or regulation or order of the
United States, or any other country, or political subdivision thereof or of any
court of competent jurisdiction; and (viii) any loss where the Custodian, its
sub-custodian, its agent or its nominee has otherwise exercised reasonable care.
Regardless of whether assets are maintained in the custody of a foreign banking
institution or a foreign securities system, the Custodian shall not be liable
for "country risk", i.e., any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or authorization by the Fund to
maintain custody of any securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, imposition of currency controls or restrictions, acts of war or
terrorism, riots, revolutions, work stoppages, natural disasters or other
similar events or acts. Notwithstanding the foregoing, in delegating custody
duties to State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except such loss
as may result from (a) political risk (including, but not limited to, exchange
control restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses (excluding
a bankruptcy or insolvency of State Street London Ltd. not caused by political
risk) due to Acts of God, nuclear incident or other losses, provided that the
Custodian and State Street London Ltd. have exercised reasonable care.

If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to the Custodian.

If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, the purchase or sale of foreign exchange or of
contracts for foreign exchange, and assumed settlement), any property at any
time held for the account of the Fund shall be security therefor and should the
Fund fail to repay the Custodian promptly, the Custodian shall (a) promptly
notify the Fund with respect thereto and (b) be entitled to utilize available
cash and to dispose of the Fund's assets to the extent necessary to obtain
reimbursement, provided that such utilization shall not be contingent on the
giving of notice to the Fund.

In the event that the Custodian or its nominee shall incur or be
assessed any taxes (except as are directly attributable to income, franchise or
similar taxes which may be imposed on or assessed against the Custodian, its
affiliates, subsidiaries, agents, or nominees) accruing to the Custodian, its
affiliates, subsidiaries or agents in the course of its or their performance of
this Contract, including without limitation taxes on dividends, interest and
capital gain earned with

<PAGE>

respect to Fund assets, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefor and the
Custodian shall (a) provide the Fund with three (3) New York business days'
notice with respect thereto and (b), in the event such matter has not been
resolved within such time, be entitled to utilize available cash and to dispose
of the Fund's assets to the extent necessary to obtain reimbursement.

In the event that the Custodian or its nominee shall be subject to any
claims or liabilities accruing to the Custodian, its affiliates, subsidiaries or
agents in the course of its or their performance of this Contract, which claims
or liabilities either (i) are described on Schedule B hereto or (ii) could not
reasonably have been anticipated by the Custodian on the date hereof, except
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and the Custodian shall (a)
provide the Fund with three (3) New York business days' notice with respect
thereto and (b), in the event such matter has not been resolved within such
time, be entitled to utilize available cash and to dispose of the Fund's assets
to the extent necessary to obtain reimbursement.

Upon the Custodian becoming aware in the course of the performance of
its duties hereunder of the occurrence of any event with respect to the assets
of the Fund held by the Custodian or its sub-custodian or agent hereunder which
causes or may cause any loss, damage, cost, expense or other liability to the
Fund, the Custodian shall promptly notify an authorized person of the Fund and,
at the Fund's request, assist the Fund in using all commercially reasonable key
steps under the circumstances to mitigate the effects of such event and to avoid
continuing harm to the Fund. If the steps referred to in the previous sentence
would be, in the reasonable determination of the Custodian, beyond the normal
scope of the Custodian's services as a global custodian of mutual fund assets,
the taking of those steps shall be at the Fund's expense.

In no event shall the Custodian be liable hereunder for indirect,
special or consequential damages.

14. Effective Period, Termination and Amendment

This Contract shall become effective as of the date set forth below,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
in writing and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such termination to
take effect (i) in the case of termination by the Fund not sooner than one
hundred eighty (180) days after the date of such delivery or mailing or (ii) in
the case of termination by the Custodian not sooner than one hundred twenty
(120) days after the date of such delivery or mailing, except that, in the event
of a breach of this Contract on the part of the Fund, such termination shall not
take effect

<PAGE>

sooner than sixty (60) days thereafter; provided, however that the Custodian
shall not act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board has
approved the initial use of a particular Securities System as required by Rule
17f-4 under the 1940 Act and that the Custodian shall not act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board has approved the initial use of the Direct
Paper System; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Charter, and further provided, that the
Fund may at any time by action of the Board (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the relevant Federal or State
agency or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.

Upon termination of this Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and the
Custodian's reasonable out-of-pocket costs, expenses and disbursements in
connection therewith, such termination to be conducted in a professional and
businesslike manner.

15. Ownership Certificates for Tax Purposes

The Custodian shall, in its capacity as the Fund's agent, execute
ownership and other certificates and affidavits for all governmental purposes in
connection with receipt of income or other payments with respect to securities
or other assets of the Fund held by it and in connection with transfers of such
securities or assets.

16. Successor Custodian

If a successor Custodian shall be appointed by the Board, the Custodian
shall, upon termination, deliver to such successor Custodian at the offices of
the Custodian, duly endorsed and in the form for transfer, all securities, funds
and other properties of the Fund then held by it hereunder and shall transfer to
an account of the successor Custodian all of the securities of the Fund held in
a Securities System. If no such successor Custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a Certified Resolution, deliver
at the offices of the Custodian and transfer such securities, funds and other
properties in accordance with such resolution. In the event that no written
order designating a successor Custodian or Certified Resolution shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the 1940 Act, doing business
in Boston, Massachusetts, or New York, New York, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than

<PAGE>

$200,000,000, all securities, funds and other properties held by the Custodian
on behalf of the Fund and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract on behalf of the Fund and
to transfer to an account of such successor Custodian all of the securities of
the Fund held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.

In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the Certified Resolution referred to or of the
Board to appoint a successor Custodian, the Custodian shall be entitled to fair
compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.

17. Notices.

Any notice, instruction or other instrument required to be given
hereunder may be delivered in person to the offices of the parties as set forth
herein during normal business hours or delivered prepaid registered mail or by
telex, cable or telecopy to the parties at the following addresses or such other
addresses as may be notified in writing by any party from time to time. If
notice is sent by confirming telegram, cable, telex, or facsimile sending
device, it shall be deemed to have been given immediately if confirmed in
writing by overnight delivery. If notice is sent by first-class mail, it shall
be deemed to have been given five days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the day it is
delivered.

To the Company: WARBURG PINCUS BALANCED FUND
466 Lexington Avenue
New York, NY 10017-3147, USA
Attention: Eugene P. Grace
Telephone: 212-878-0812
Telecopy: 212-878-9351

To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive
North Quincy, Massachusetts 02171, USA
Attention: Neal J. Chansky
Telephone: 617-985-5127
Telecopy: 617-537-2626

<PAGE>

18. Headings

The section headings in this Contract are for the convenience of
reference only and do not form a part of this Contract.

19. Counterparts

This Contract may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

20. Massachusetts Law to Apply

This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.

21. Prior Contracts

This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the assets of the Fund.

22. Reproduction of Documents.

This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.

23. Shareholder Communications Election

SEC Rule 14b-2 under the Securities Exchange Act of 1934, as amended,
requires banks which hold securities for the account of customers to respond to
requests by issuers of securities for the names, addresses and holdings of
beneficial owners of securities of that issuer held by the bank unless the
beneficial owner has expressly objected to disclosure of this information. In
order to comply with the rule, the Custodian needs the Fund to indicate whether
it authorizes the Custodian to provide the Fund's name, address, and share
position to requesting companies

<PAGE>

whose securities the Fund owns. If the Fund tells the Custodian "no", the
Custodian will not provide this information to requesting companies. If the Fund
tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.

YES [ ] The Custodian is authorized to release the Fund's name,
address and share positions.

NO [X] The Custodian is not authorized to release the Fund's
name, address and share positions.

<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of October 1, 1997.

WARBURG PINCUS BALANCED FUND

By: ______________________________

Name: ______________________________

Title: ______________________________

STATE STREET BANK AND TRUST COMPANY

By: ______________________________

Name: Ronald E. Logue

Title: Executive Vice President

<PAGE>

SCHEDULE C

Pursuant to the terms of (i) the Custodian Contract dated October 1, 1997
between Warburg Pincus Balanced Fund and State Street Bank and Trust Company and
(ii) the Data Access Services Addendum thereto of even date therewith (the "Data
Access Services Addendum"), the following persons and/or entities may use the
Data Access Services (as such term is defined in the Data Access Services
Addendum):

<PAGE>

SCHEDULE D

Reports
-------

Description of Report Period of Report
--------------------- ----------------

Open Trades* Daily
Cash Availability Daily (by 10:00 a.m.)
Cash Transaction Statement* Daily
Portfolio Holdings Report* Daily
Failed Trades Report Daily
Corporate Action Report - (Pre-Notification) Daily
Global Cash Statement* Daily
Currency Balance Report Daily
Cash Transaction Statement* Weekly
Corporate Action Report (Summary) Weekly
Out-for-Transfer Report Weekly
Sedol Holdings Report Weekly
Purchase/Sales Report* Monthly
Broker Top Ten Report* Monthly
Capital Stock Activity Report Monthly
Cash Transaction Statement* Monthly
Corporate Action Report Monthly
Global Cash Statement* Monthly
Failed Trades Monthly
Outstanding Receivables* Monthly
FX Activity Report Monthly
Base Equivalent Cash Statement* Monthly
Corporate Action Final Notification When Applicable

* Also Available Via GlobalQuest[R]

<PAGE>

SCHEDULE E

Countries/Settlement Systems with Respect to which
Contractual Settlement May be Provided
--------------------------------------

Australia
Austria
Belgium
Canada
Denmark
Euroclear
Finland
France
Germany
Hong Kong
Indonesia
Ireland
Italy
Japan
Luxembourg
Malaysia
Mexico
Netherlands
New Zealand
Norway
Philippines
Portugal
Singapore
South Africa
Spain
Sweden
Switzerland
Thailand
United States
United Kingdom

<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. (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

December 30, 1997
New York, New York

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in this Post-Effective Amendment
No. 4 to the Registration Statement of the Warburg, Pincus Balanced Fund, Inc.
under the Securities Act of 1933 on Form N-1A (File No. 333-00533) of our report
dated December 19, 1997 of our audit of the financial statements and financial
highlights of the Fund, which report is included in the Annual Report to
Shareholders for the period ended October 31, 1997 and which is also
incorporated by reference in the Post-Effective Amendment to the Registration
Statement. 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.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center Philadelphia, Pennsylvania
December 29, 1997

Warburg, Pincus Balanced Fund, Inc.

Annualized Total Returns With Waiver as of 10/31/97

Common Shares
<TABLE>
<CAPTION>
<S> <C> <C> <C>

One Year ((11,947.15/10,000)1/1 -1)= 19.47%
Three Year ((17,132.29/10,000)1/3 -1)= 19.66%
Five Year ((19,896.05/10,000)1/5 -1)= 14.75%
From Inception ((31,801.10/10,000)1/9.07671 -1)= 13.59%

Advisor Shares

One Year ((11,911.93/10,000)1/1 -1)= 19.12%
Three Year N/A
Five Year N/A
From Inception ((14,133.63/10,000)1/2.25753 -1)= 16.56%

Annualized Total Returns Without Waiver as of 10/31/97

Common Shares

One Year ((11,879.36/10,000)1/1 -1)= 18.79%
Three Year ((17,404.20/10,000)1/3 -1)= 20.29%
Five Year ((19,366.66/10,000)1/5 -1)= 14.13%
From Inception ((28,094.92/10,000)1/9.07671 -1)= 12.05%
Advisor Shares

One Year ((11,839.81/10,000)1/1 -1)= 18.40%
Three Year N/A
Five Year N/A
From Inception ((13,309.75/10,000)1/2.25753 -1)= 13.50%

</TABLE>

<PAGE>

Yield for the 30-Day Period ended 10/31/97

Common Shares

93,436.91 - 43,969.13 6
YIELD = 2 {(---------------------- +1) -1} = 1.5632%
2,649,279.357 X 14.38

Advisor Shares

378.45 - 210.65
YIELD = 2 {(-------------------+1) -1}6* = 1.3069%
10,751.109 X 14.37

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<ARTICLE> 6
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<SERIES>
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<GROSS-EXPENSE> 672794
<AVERAGE-NET-ASSETS> 87409
<PER-SHARE-NAV-BEGIN> 11.94
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<PER-SHARE-GAIN-APPREC> 2.68
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</TABLE>