WARBURG PINCUS ADVISOR FUNDS FEBRUARY 28, 1997
GROWTH & INCOME FUND
BALANCED FUND
[GRAPHIC OMITTED]
S
SEMIANNUAL REPORT
A Prospectus containing more complete information, including charges and
expenses and, where applicable, the special considerations and risks associated
with international investing, may be obtained by calling 800-369-2728 or by
writing to Warburg Pincus Advisor Funds, P.O. Box 9030, Boston, MA 02205-9030.
Investors should read the Prospectus carefully before investing.
WARBURG PINCUS (LOGO)
[GRAPHIC OMITTED]
INVESTMENTS
<PAGE>
The views of the Funds' management are as of the date of the letters and
portfolio holdings described in this semiannual report are as of February 28,
1997; these views and portfolio holdings may have changed subsequent to these
dates. Nothing in this semiannual report is a recommendation to purchase or sell
securities.
<PAGE>
WARBURG PINCUS ADVISOR GROWTH & INCOME FUND
SEMIANNUAL INVESTMENT ADVISER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: April 11, 1997
During the six months ended February 28, 1997, Warburg Pincus Advisor Growth
& Income Fund was extensively restructured. As a result of its recent change in
portfolio manager (effective January 9), many new stocks were added and most of
the holdings that were in the Fund as of the end of 1996 have been sold. This
generated an abnormally high turnover for the Fund.
The Fund appreciated 7.48% over the period, vs. a 22.50% return for the S&P
500 Index. The Fund's performance over the period can, for the sake of
convenience, be put in terms of its pre- and post-restructuring components. In
the last four months of 1996, the Fund's precious-metals holdings, most notably,
hurt its return. After contributing quite positively to the Fund early in 1996,
these holdings turned sharply down, accounting for much of its underperformance
in the latter part of the year. In fact, the strong performances the Fund
enjoyed from other holdings, such as its financial-services stocks, were largely
offset by the slump in metals.
In the first two months of 1997, the Fund participated in what continued to
be a strong domestic stock market (it appreciated 5.74% year-to-date through
February 28, vs. a 7.08% return for the S&P 500 Index), despite its extensive
restructuring. Our aim throughout the process was to match our buys and sells in
a way that would not lead to significant "gaps" in market performance.
The most notable sector changes resulting from the Fund's recent
restructuring included a substantial reduction in its financial holdings to a
more market-neutral 13.90% at the end of February. This was largely due to our
decision to rein in the Fund's position in banks, in order to explore other
opportunities and limit our exposure to credit risk. Sectors that we
significantly increased in the period included utilities, energy, consumer
staples and consumer cyclicals. We finished the period underweighted in the
capital-equipment sector, as well as the technology sector, due to the
prevalence of tech stocks trading at the higher end of their historical
valuation ranges. Our technology holdings were limited to companies such as IBM
and Hewlett-Packard, which have relatively strong balance sheets and good free
cash flow.
1
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WARBURG PINCUS ADVISOR GROWTH & INCOME FUND
SEMIANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- --------------------------------------------------------------------------------
We will continue to seek investments that offer the most attractive
risk-adjusted total returns. Central to this strategy is the early
identification of out-of-favor stocks of companies that stand to benefit from
factors such as reorganizations, promising new products and services, or a
rebound in a cyclically depressed industry. Two of the Fund's holdings that
exemplify our approach are Chrysler and Wal-Mart, both of which have gone
through significant restructurings. We find Chrysler, which we added to the Fund
at a multiple of less than seven times estimated 1997 earnings, attractive on
the basis of its balance-sheet and cash-flow strengths, compared to its
fundamentals at previous, similar stages in the economic cycle. Wal-Mart, though
added at a higher multiple of 15 times 1997 earnings, had once again begun to
generate significant free cash flow, after being hampered in recent years by an
extensive domestic and international expansion program.
Looking ahead, we expect to maintain significant industry diversification in
the current market environment, where valuations remain generally compressed
within and across sectors. We will, however, continue to select stocks based on
their individual merits, looking for companies that stand to benefit from
factors such as restructurings or new products and services.
Brian S. Posner
Portfolio Manager
2
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WARBURG PINCUS ADVISOR BALANCED FUND
SEMIANNUAL INVESTMENT ADVISER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: April 11, 1997
Warburg Pincus Advisor Balanced Fund gained 9.33% for the six months ended
February 28, 1997, vs. a return of 13.24% for the Lipper Balanced Funds Index
and a 22.50% return for the S&P 500 Index.
The Fund's underperformance for the period can be separated into its
fixed-income and stock components. Within fixed income, we continued to
concentrate our holdings in the intermediate-duration area, as we view the
Fund's fixed-income portion primarily as a provider of income and stability,
rather than a potential source of capital appreciation. We also continued to
hold only highly rated issues, mostly Treasuries. Reports of a generally healthy
economy over the period gave a boost to lower-rated issues, including
non-investment-grade debt. In our view, however, narrow yield spreads between
AAA-rated government securities and even AA-rated corporate bonds did not
justify a move down the quality ladder.
Our stock holdings, which include companies across the market-capitalization
spectrum, were biased toward small caps during the period. This proved to be a
disadvantage because the small-cap market, which registered a positive yet
lagging return in the latter half of 1996, turned sharply down in late January,
with particular weakness among small-company growth stocks. We pared the Fund's
exposure to small caps near the end of the period, though we continue to have a
substantial stake there (22.7% as of February 28). We believe that small caps
have some compelling features going forward. For one, analysts are predicting
substantially higher projected earnings growth for small caps in 1997 vs. large
caps. Many such stocks, moreover, have recently been trading at P/E ratios well
below their growth rates.
We made few significant asset-allocation moves during the period. While
paring from the small-cap area, we added modestly to our mid- and large-cap
stocks, particularly those stocks of companies with significant exposure to
international markets. We kept the Fund's weighting in foreign stocks,
meanwhile, steady at about 8% of its assets (these holdings were scattered
across a number of Asian and European countries, none of which accounted for
more than 1% of assets). Regarding fixed income, we modestly increased our
weighting near the end of the period as long-term yields began to approach the
7% mark, which made bonds more attractive to us on a risk-reward basis.
3
<PAGE>
WARBURG PINCUS ADVISOR BALANCED FUND
SEMIANNUAL INVESTMENT ADVISER'S REPORT (CONT'D)
- --------------------------------------------------------------------------------
Going forward, our outlook is somewhat more defensive, as both the U.S. stock
and bond markets face uncertainties. A recently benign inflation picture
notwithstanding, bonds could suffer in the short term as long as the Federal
Reserve remains concerned enough about the strength of the economy to consider
further raising interest rates. And we are similarly cautious about the
near-term potential for volatility in U.S. stocks if we begin to see earnings
disappointments. Finally, we expect to continue to find good opportunities in
foreign countries on a stock-by-stock basis, providing the Fund with some
diversification away from the domestic markets.
Dale C. Christensen Anthony G. Orphanos
Co-Portfolio Strategist Co-Portfolio Strategist
4
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
COMMON STOCKS (84.8%)
AEROSPACE & DEFENSE (3.6%)
Litton Industries, Inc.(DAGGER) 210,000 $ 9,030,000
Lockheed Martin Corp.(DAGGER) 62,000 5,487,000
Raytheon Co. 50,000 2,356,250
Rockwell International Corp. 30,000 1,942,500
-----------
18,815,750
-----------
BANKS & SAVINGS & LOANS (5.4%)
BankAmerica Corp. 75,000 8,531,250
Bank of New York Co., Inc. 210,000 8,137,500
Chase Manhattan Corp. 85,000 8,510,625
First Chicago NBD Corp. 57,500 3,363,750
-----------
28,543,125
-----------
BUSINESS SERVICES (1.7%)
Deluxe Corp. 80,000 2,530,000
Electronic Data Systems Corp. 95,000 4,286,875
H & R Block, Inc. 80,000 2,350,000
-----------
9,166,875
-----------
CAPITAL EQUIPMENT (2.2%)
AlliedSignal, Inc. 65,000 4,696,250
Cummins Engine Co., Inc. 75,000 3,796,875
Dresser Industries, Inc. 105,000 3,189,375
-----------
11,682,500
-----------
CHEMICALS (3.5%)
Du Pont (E.I.) De Nemours & Co. 10,000 1,072,500
Ferro Corp. 80,000 2,520,000
Imperial Chemical Industries PLC ADR 119,000 5,935,125
Olin Corp. 75,000 3,000,000
Union Carbide Corp. 125,000 5,906,250
-----------
18,433,875
-----------
COMPUTERS (4.4%)
Automatic Data Processing, Inc. 90,000 3,836,250
Hewlett-Packard Co. 90,000 5,040,000
Internationl Business Machines Corp. 62,500 8,984,375
Sun Microsystems, Inc.(DAGGER) 170,000 5,248,750
-----------
23,109,375
-----------
CONGLOMERATES (0.4%)
Harsco Corp. 60,000 2,160,000
-----------
See Accompanying Notes to Financial Statements.
5
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
COMMON STOCKS (CONT'D)
CONSUMER DURABLES (6.5%)
Chrysler Corp. 502,500 $ 17,022,187
Ford Motor Co. 330,000 10,848,750
Volvo AB ADR 265,000 6,591,875
------------
34,462,812
------------
CONSUMER NON-DURABLES (4.0%)
Newell Co. 50,000 1,856,250
RJR Nabisco Holdings Corp. 280,000 10,255,000
Russell Corp. 60,000 2,257,500
Unilever NV 35,000 6,667,500
------------
21,036,250
------------
ENERGY (7.9%)
Amerada Hess Corp. 35,000 1,868,125
British Petroleum Co. PLC ADR 82,500 10,920,938
Exxon Corp. 100,000 9,987,500
Occidental Petroleum Corp. 125,000 3,187,500
Parker & Parsley Petroleum Co. 105,000 3,097,500
Royal Dutch Petroleum Co. 27,500 4,757,500
Total SA, Sponsored ADR 100,000 3,962,500
Union Pacific Resources Group, Inc. 160,000 3,900,000
------------
41,681,563
------------
ENVIRONMENTAL SERVICES (0.4%)
Browning-Ferris Industries, Inc. 60,000 1,882,500
------------
FINANCIAL SERVICES (8.4%)
Aetna, Inc. 35,000 2,900,625
American Express Co. 90,000 5,883,750
Berkley (W.R.) Corp. 52,500 2,697,187
Federal Home Loan Mortgage Corp. 127,500 3,793,125
Federal National Mortgage Association 125,000 5,000,000
GCR Holdings, Ltd. 75,000 1,790,625
General Re Corp. 25,000 4,240,625
Lehman Brothers Holdings, Inc. 120,000 4,035,000
MBIA, Inc. 57,500 5,613,437
Protective Life Corp. 25,000 1,075,000
Student Loan Marketing Association 50,000 5,293,750
Terra Nova (Bermuda) Holdings, Ltd., Class A 30,600 627,300
TIG Holdings, Inc. 45,000 1,608,750
------------
44,559,174
------------
See Accompanying Notes to Financial Statements.
6
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
COMMON STOCKS (CONT'D)
FOOD, BEVERAGES & TOBACCO (6.4%)
Anheuser-Busch Companies, Inc. 115,000 $ 5,117,500
PepsiCo, Inc. 170,000 5,588,750
Philip Morris Companies, Inc. 115,000 15,539,375
Ralston Purina Group 25,000 2,053,125
Sara Lee Corp. 147,500 5,715,625
------------
34,014,375
------------
HEALTHCARE (6.5%)
Bausch & Lomb, Inc. 35,000 1,308,125
Baxter International, Inc. 133,000 6,118,000
Columbia/HCA Healthcare Corp. 190,000 8,003,750
Foundation Health Co. 95,000 3,586,250
McKesson Corp. 25,000 1,656,250
PacifiCare Health Systems, Inc., Class B 40,000 3,350,000
Tenet Healthcare Corp. 110,000 2,983,750
United Healthcare Corp. 65,000 3,241,875
Wellpoint Health Networks, Inc. 100,200 4,296,075
------------
34,520,325
------------
INDUSTRIAL MFG. & PROCESSING (1.8%)
Eaton Corp. 50,000 3,587,500
Inco, Ltd. 75,000 2,634,375
LTV Corp. 150,000 1,875,000
Pall Corp. 55,000 1,196,250
------------
9,293,125
------------
METALS & MINING (1.5%)
Alumax, Inc. 80,000 3,130,000
Aluminum Co. of America 70,000 4,987,500
------------
8,117,500
------------
OFFICE EQUIPMENT & SUPPLIES (1.6%)
Pitney Bowes, Inc. 137,500 8,542,188
------------
OIL SERVICES (2.0%)
Halliburton Co. 25,000 1,615,625
Schlumberger, Ltd. 35,000 3,521,875
Western Atlas, Inc. 92,500 5,630,938
------------
10,768,438
------------
See Accompanying Notes to Financial Statements.
7
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- ---------------------------------------------------------- ---------------------
NUMBER OF
SHARES VALUE
--------- -----
COMMON STOCKS (CONT'D)
PHARMACEUTICALS (1.8%)
Bristol-Myers Squibb Corp. 45,000 $ 5,872,500
Schering-Plough Corp. 47,500 3,639,687
------------
9,512,187
------------
PUBLISHING (1.0%)
Donnelley (R.R.) & Sons Co. 40,000 1,235,000
Harcourt General, Inc. 85,000 4,005,625
------------
5,240,625
------------
RETAIL (6.0%)
Carson Pirie Scott & Co. 110,000 2,997,500
Federated Department Stores, Inc. 130,000 4,517,500
Neiman-Marcus Group, Inc. 125,000 3,359,375
Payless ShoeSource, Inc.(DAGGER) 80,000 3,440,000
Rite Aid Corp. 65,000 2,738,125
Tandy Corp. 45,000 2,266,875
Wal-Mart Stores, Inc. 465,000 12,264,375
------------
31,583,750
------------
TELECOMMUNICATIONS & EQUIPMENT (4.6%)
ALLTEL Corp. 80,000 2,830,000
Ameritech Corp. 97,500 6,215,625
AT&T Corp. 155,000 6,180,625
MCI Communications Corp. 90,000 3,217,500
NYNEX Corp. 115,000 5,922,500
------------
24,366,250
------------
TRANSPORTATION (1.2%)
Burlington Northern Santa Fe Corp. 30,000 2,497,500
CSX Corp. 87,500 4,035,938
------------
6,533,438
------------
UTILITIES-ELECTRIC (2.0%)
American Electric Power Co. 85,000 3,548,750
DPL, Inc. 50,000 1,231,250
DQE, Inc. 50,000 1,481,250
Entergy Corp. 100,000 2,637,500
Illinova Corp. 70,000 1,750,000
------------
10,648,750
------------
TOTAL COMMON STOCKS (Cost $425,023,777) 448,674,750
------------
See Accompanying Notes to Financial Statements.
8
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
PREFERRED STOCKS (3.0%)
Airtouch Communications, Inc. Series B,
6.00% Convertible 70,000 $ 2,056,250
Allstate Corp. Exchangable Notes,
6.76% Convertible 160,000 7,520,000
McKesson Corp. 2.50% Convertible 50,000 2,656,250
Merrill Lynch &Co., 6.25% 85,000 3,261,875
------------
TOTAL PREFERRED STOCKS (Cost $15,210,277) 15,494,375
------------
RATE MATURITY PAR (000)
---- -------- ---------
CORPORATE BONDS (0.5%)
WMX Technologies, Inc. 2.000% 1/24/05 $3,000 2,748,750
------------
TOTAL CORPORATE BONDS
(Cost $2,781,776) 2,748,750
------------
REPURCHASE AGREEMENTS (10.9%)
Goldman, Sachs & Co. 5.32% 03/03/97 57,842
(Agreement dated 02/28/97 to
be repurchased at $57,867,643,
collateralized by $56,820,000
U.S. Treasury Notes 8.250% due
07/15/98. Market value of
collateral is $59,035,980.)
(Cost $57,842,000) 57,842,000
------------
TOTAL INVESTMENTS (99.2%) (Cost $500,857,830)* 524,759,875
OTHER ASSETS IN EXCESS OF LIABILITIES (0.8%) 4,387,795
------------
NET ASSETS (100.0%) (Applicable to 28,476,332
Common Shares and 4,557,086 Advisor Shares) $529,147,670
============
NET ASSET VALUE, offering and redemption price
per Common Share
($456,268,945 (DIVIDE) 28,476,332) $16.02
======
NET ASSET VALUE, offering and redemption price
per Advisor Share
($72,878,725 (DIVIDE) 4,557,086) $15.99
======
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
(DAGGER) Non-income producing security.
* Cost for Federal income tax purposes at February 28, 1997 is $501,068,056.
The gross appreciation (depreciation) on a tax basis is as follows:
Gross Appreciation $30,243,617
Gross Depreciation (6,551,798)
-----------
Net Appreciation $23,691,819
===========
See Accompanying Notes to Financial Statements.
9
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
COMMON STOCKS (59.5%)
U.S. COMMON STOCKS (51.2%)
AEROSPACE & DEFENSE (2.1%)
General Dynamics Corp. 800 $ 53,800
Lockheed Martin Corp. 2,300 203,550
Loral Space & Communications Ltd. 11,200 180,600
Sundstrand Corp. 3,400 148,325
Tracor, Inc.(DAGGER) 6,700 159,962
----------
746,237
----------
AGRICULTURE (0.4%)
Monsanto Co. 3,600 130,950
----------
BANKS & SAVINGS & LOANS (6.0%)
Banc One Corp. 1,200 52,950
Bancorp of Hawaii, Inc. 1,100 48,400
BankAmerica Corp. 1,000 113,750
Bank of Boston Corp. 1,600 120,600
Bank of New York Co., Inc. 5,200 201,500
Bankers Trust New York Corp. 600 54,450
Chase Manhattan Corp. 3,380 338,422
Citicorp 1,100 128,425
Cullen Frost Bankers Inc. 3,100 110,631
Dime Bancorp, Inc. 2,000 35,000
First Chicago NBD Corp. 1,500 87,750
Fleet Financial Group, Inc. 1,500 91,500
Great Western Financial Corp. 3,500 153,562
Morgan (J.P.) & Co., Inc. 500 52,562
PNC Bank Corp. 1,300 55,087
Quaker City Bancorp. Inc. 7,500 146,250
RCSB Financial, Inc. 4,150 139,544
Texas Regional Bancshares, Inc. 2,300 75,037
Wells Fargo & Co. 466 141,780
----------
2,147,200
----------
BUSINESS SERVICES (0.8%)
First Data Corp. 3,000 109,875
Pittston Brink's Group 2,000 51,500
Reynolds & Reynolds Co., Class A 2,000 56,000
Sitel Corp. 1,500 24,937
SunGard Data Systems, Inc.(DAGGER) 800 40,600
----------
282,912
----------
CAPITAL EQUIPMENT (0.9%)
Allied Products Corp. 5,200 152,100
Allied-Signal, Inc. 500 36,125
Avondale Industries, Inc.(DAGGER) 6,500 134,062
----------
322,287
----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
U.S. COMMON STOCKS (CONT'D)
CHEMICALS (0.9%)
Avery-Dennison Corp. 5,600 $ 226,100
Morton International, Inc. 2,000 82,500
----------
308,600
----------
COMMUNICATIONS & MEDIA (0.7%)
Harte-Hanks Communications, Inc. 4,000 103,500
U.S. West, Inc. - Media Group 7,400 135,975
----------
239,475
----------
COMPUTERS (3.0%)
Amdahl Corp.(DAGGER) 4,400 43,450
Citrix Systems, Inc.(DAGGER) 1,000 12,625
Clarify, Inc.(DAGGER) 2,000 51,250
Computer Horizons Corp. 500 13,000
Hewlett-Packard Co. 1,300 72,800
Honeywell, Inc. 2,000 142,250
International Business Machines Corp. 2,200 316,250
McAfee Associates, Inc. (DAGGER) 1,500 68,812
National Instruments Corp.(DAGGER) 2,000 76,500
Newbridge Networks Corp. (DAGGER) 3,000 95,625
Pure Atria Corp.(DAGGER) 1,589 30,489
Rational Software Corp. (DAGGER) 2,000 51,750
Sun Microsystems, Inc. (DAGGER) 2,500 77,187
----------
1,051,988
----------
CONGLOMERATES (1.2%)
Oglebay Norton Co. 1,800 75,600
Thermo Electron Corp.(DAGGER) 1,200 40,950
United Technologies Corp. 1,600 120,400
Westinghouse Electric Corp. 10,640 183,540
----------
420,490
----------
CONSUMER DURABLES (0.7%)
Citation Corp.(DAGGER) 8,300 108,937
Triangle Pacific Corp.(DAGGER) 4,600 129,950
----------
238,887
----------
CONSUMER NON-DURABLES (2.9%)
Alberto-Culver Co. Class A 5,600 133,700
American Safety Razor Corp.(DAGGER) 7,600 111,150
Clorox Co. 800 95,600
Samsonite Corp.(DAGGER) 2,500 118,750
Scotts Co. Class A (DAGGER) 5,000 106,250
Sola International, Inc.(DAGGER) 1,200 31,200
See Accompanying Notes to Financial Statements.
11
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
U.S. COMMON STOCKS (CONT'D)
CONSUMER NON-DURABLES (cont'd)
Standex International Corp. 4,700 $ 132,775
Unilever N V 1,000 190,500
Westpoint Stevens, Inc.(DAGGER) 3,400 117,300
----------
1,037,225
----------
CONSUMER SERVICES (0.3%)
DeVRY, Inc.(DAGGER) 4,000 79,500
ITT Educational Services, Inc.(DAGGER) 1,650 38,981
----------
118,481
----------
ELECTRONICS (2.7%)
EA Industries Inc. 5,400 28,350
ESCO Electronics Corp. Common Trust
Receipt (DAGGER) 10,300 119,737
Glenayre Technologies, Inc.(DAGGER) 1,300 17,225
Intel Corp. 1,500 212,812
KLA Instruments Corp.(DAGGER) 800 33,350
Larson Davis, Inc.(DAGGER) 20,300 223,300
Linear Technology Corp. 1,500 67,687
Maxim Integrated Products, Inc.(DAGGER) 2,600 129,025
Methode Electronics, Inc. Class A 3,250 51,594
Synopsys, Inc.(DAGGER) 2,500 89,219
----------
972,299
----------
ENERGY (2.8%)
Amoco Corp. 1,400 118,300
Anadarko Petroleum Corp. 1,300 73,125
Barrett Resources Corp.(DAGGER) 1,200 39,450
Burlington Resources, Inc. 2,300 100,912
Forest Oil Corp.(DAGGER) 7,600 101,650
KCS Energy, Inc. 1,500 54,000
Nuevo Energy Co. (DAGGER) 3,500 145,250
Texas Meridian Resources Corp.(DAGGER) 20,700 292,388
United Meridian Corp., Series A(DAGGER) 2,000 60,250
----------
985,325
----------
ENGINEERING & CONSTRUCTION (0.3%)
Gradall Industries, Inc. 8,000 104,000
----------
ENVIRONMENTAL SERVICES (0.5%)
Allied Waste Industries, Inc.(DAGGER) 8,000 70,000
USA Waste Services, Inc.(DAGGER) 3,500 126,000
----------
196,000
----------
See Accompanying Notes to Financial Statements.
12
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
U.S. COMMON STOCKS (CONT'D)
FINANCIAL SERVICES (6.5%)
Allstate Corp. 1,000 $ 63,375
Berkshire Hathaway, Inc. Class B 80 95,040
City National Corp. 2,200 53,350
Commerce Group, Inc. 4,300 113,413
Federal Home Loan Mortgage Corp. 6,400 190,400
First Alliance Corp.(DAGGER) 3,100 84,475
Fund American Enterprises Holdings, Inc. 700 74,550
Household International, Inc. 600 58,125
Legg Mason, Inc. 5,000 222,500
Liberty Financial Companies, Inc. 3,000 128,250
National Western Life Insurance Co.,
Class A(DAGGER) 1,600 135,200
Paine Webber Group, Inc. 4,400 143,550
PartnerRe Ltd. 2,700 89,100
Security Connecticut Corp. 8,000 372,000
Student Loan Marketing Association(DAGGER) 500 52,938
The Chubb Corp. 1,600 93,800
TIG Holdings, Inc. 1,300 46,475
Transactions Systems Architects, Inc.
Class A(DAGGER) 4,800 124,800
USF&G Corp. 3,500 78,750
White River Corp.(DAGGER) 1,500 99,000
----------
2,319,091
----------
FOOD, BEVERAGES & TOBACCO (0.8%)
Philip Morris Companies, Inc. 1,000 135,125
Suiza Foods Corp.(DAGGER) 5,800 145,725
----------
280,850
----------
HEALTHCARE (2.3%)
Allergan Inc. 2,400 81,600
ALZA Corp.(DAGGER) 3,400 96,475
Amgen Corp. 500 30,563
Ballard Medical Products 2,500 49,063
Bausch & Lomb, Inc. 1,800 67,275
Baxter International, Inc. 1,300 59,800
Becton Dickinson & Co. 2,100 103,425
EmCare Holdings, Inc.(DAGGER) 2,200 60,500
HealthCare COMPARE Corp.(DAGGER) 3,000 128,063
Health Management Associates Inc.,
Class A(DAGGER) 4,050 107,325
Healthsource, Inc. 2,500 52,188
----------
836,277
----------
See Accompanying Notes to Financial Statements.
13
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
U.S. COMMON STOCKS (CONT'D)
INDUSTRIAL MANUFACTURING & PROCESSING (0.7%)
FMC Corp. 800 $ 55,000
Schnitzer Steel Industries, Inc. Class A 4,200 116,550
Seda Specialty Packaging Corp.(DAGGER) 1,900 33,725
Waters Corp.(DAGGER) 1,300 39,163
---------
244,438
---------
LEISURE & ENTERTAINMENT (0.6%)
Mirage Resorts, Inc.(DAGGER) 4,000 99,500
SCP Pool Corp.(DAGGER) 4,700 112,800
---------
212,300
---------
LODGING & RESTAURANTS (1.4%)
Doubletree Corp.(DAGGER) 2,000 83,500
Hilton Hotels Corp. 2,400 60,300
IHOP Corp.(DAGGER) 4,400 113,850
Marriott International, Inc. 800 42,400
McDonald's Corp. 2,100 90,825
Mortons Restaurant Group, Inc.(DAGGER) 6,000 100,500
---------
491,375
---------
METALS & MINING (0.4%)
Universal Stainless & Alloy Products,
Inc.(DAGGER) 13,300 135,494
---------
OFFICE EQUIPMENT & SUPPLIES (0.6%)
New England Business Service, Inc. 3,900 87,750
Nu-Kote Holding, Inc., Class A 13,600 76,500
Viking Office Products, Inc.(DAGGER) 2,000 47,250
---------
211,500
---------
OIL SERVICES (1.8%)
Baker Hughes, Inc. 1,300 46,150
Global Industries, Ltd.(DAGGER) 4,000 73,000
Halliburton Co. 800 51,700
Input/Output, Inc.(DAGGER) 2,600 55,575
Nabors Industries, Inc.(DAGGER) 3,000 46,125
Pride Petroleum Services, Inc.(DAGGER) 1,500 25,125
Smith International, Inc.(DAGGER) 8,000 325,000
Western Atlas, Inc. 300 18,263
---------
640,938
---------
See Accompanying Notes to Financial Statements.
14
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
U.S. COMMON STOCKS (CONT'D)
PHARMACEUTICALS (2.1%)
Bristol-Myers Squibb Co. 1,100 $ 143,550
Columbia Laboratories, Inc.(DAGGER) 2,100 32,025
Gilead Sciences, Inc.(DAGGER) 2,000 61,000
Human Genome Sciences, Inc.(DAGGER) 3,000 114,000
Ligand Pharmaceuticals, Inc.
Class B(DAGGER) 4,000 48,500
Merck & Co., Inc. 1,500 138,000
Vertex Pharmaceuticals, Inc.(DAGGER) 800 37,000
Vivus Inc.(DAGGER) 500 27,625
Warner-Lambert Co. 1,600 134,400
----------
736,100
----------
REAL ESTATE (2.2%)
Healthcare Realty Trust 7,500 208,125
Home Properties of New York, Inc. 5,800 142,100
Jameson Inns, Inc. 11,000 138,875
NHP, Inc.(DAGGER) 5,700 138,225
U.S. Restaurant Properties Master LP 4,820 141,588
----------
768,913
----------
RETAIL (2.9%)
Borders Group, Inc.(DAGGER) 3,000 126,375
Cole National Corp. Class A(DAGGER) 5,500 176,000
Galoob (Lewis) Toys, Inc. 4,800 78,600
Home Depot, Inc.(DAGGER) 1,000 54,500
Neiman-Marcus Group, Inc. 5,000 134,375
Payless ShoeSource, Inc.(DAGGER) 800 34,400
Penney, (J.C.) , Inc. 1,200 59,100
Rite Aid Corp. 2,500 105,313
Saks Holdings, Inc. 1,300 43,550
Wal-Mart Stores, Inc. 8,000 211,000
----------
1,023,213
----------
TELECOMMUNICATIONS & EQUIPMENT (1.6%)
Bay Networks, Inc.(DAGGER) 2,500 47,500
DSC Communication Corp.(DAGGER) 4,500 94,500
Globalstar Telecommunications, Ltd.(DAGGER) 800 48,400
Lucent Technologies, Inc. 2,000 107,750
QUALCOMM, Inc. 2,800 155,925
WorldCom, Inc.(DAGGER) 4,200 111,825
----------
565,900
----------
See Accompanying Notes to Financial Statements.
15
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
U.S. COMMON STOCKS (CONT'D)
TRANSPORTATION (1.3%)
Heartland Express, Inc.(DAGGER) 2,250 $ 47,250
Landstar Systems, Inc.(DAGGER) 4,200 93,975
Mark VII, Inc.(DAGGER) 3,000 93,750
MTL, Inc.(DAGGER) 6,500 153,563
OMI Corp. 10,400 93,600
--------
482,138
--------
FOREIGN COMMON STOCKS (8.3%)
AUSTRALIA (0.6%)
Boral, Ltd. 78,000 212,066
--------
AUSTRIA (0.5%)
VA Technologie AG 1,165 175,837
--------
BRAZIL (0.3%)
Telebras ADR 1,275 123,675
--------
DENMARK (0.5%)
ISS International Service System B 6,800 195,648
--------
FINLAND (0.1%)
Valmet Corp. Class A 1,805 32,860
--------
FRANCE (0.3%)
Total SA Class B 1,355 108,138
--------
GERMANY (0.5%)
BMW 278 187,136
--------
HONG KONG (0.6%)
Guangshen Railway Co., Ltd. ADR 3,200 77,200
Hong Kong Land Holdings 41,424 118,058
--------
195,258
--------
INDONESIA (0.4%)
Indonesian Satellite Corp. ADR 5,500 158,125
--------
JAPAN (0.6%)
Keyence Corp. 1,000 121,860
Sankyo Co. Ltd. 3,000 83,561
--------
205,421
--------
MEXICO (0.3%)
PanAmerican Beverage ADR 1,900 107,113
--------
NEW ZEALAND (0.6%)
Brierley Investments Ltd. 225,500 217,155
--------
See Accompanying Notes to Financial Statements.
16
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
--------- -----
FOREIGN COMMON STOCKS (CONT'D)
NORWAY (0.3%)
Smedvig ASA ADR Class B(DAGGER) 4,000 $ 95,500
-----------
PHILIPPINES (0.5%)
Millicom International Cellular S.A 4,735 182,298
-----------
PORTUGAL (0.4%)
Portugal Telecommunications SA ADR(DAGGER) 4,300 149,963
-----------
SOUTH KOREA (0.2%)
Samsung Electronics GDR(DAGGER) 3,400 66,300
-----------
SWITZERLAND (0.9%)
Novartis AG 170 194,800
Ciba Specialty Chemicals Holding Inc. 170 10,773
Julius Baer Holdings AG Class B 90 98,608
-----------
304,181
-----------
UNITED KINGDOM (0.7%)
British Sky Broadcasting Group PLC ADR 1,000 59,000
Energy Group PLC 13,400 114,294
Hanson 16,750 75,459
-----------
248,753
-----------
TOTAL COMMON STOCKS (Cost $18,282,164) 21,216,310
-----------
PREFERRED STOCKS (1.7%)
Equity Residential Properties Trust 9.125% 10,000 261,250
MEPC International Capital Series A 9.125% 4,500 118,688
Oasis Residential, Inc. Series A
(Convertible) 9.000% 5,000 135,625
Security Capital Industries, Series C 8.540% 2,000 99,675
-----------
TOTAL PREFERRED STOCKS (Cost $599,570) 615,238
-----------
PAR
RATE MATURITY (000)
---- -------- -----
CORPORATE BONDS (0.9%)
Korea Electric Power Notes
(Putable 12/01/01 @ $100)
(A1, AA-) 6.000% 12/01/26 $ 325 $ 317,281
-----------
TOTAL CORPORATE BONDS
(Cost $324,308) 317,281
-----------
See Accompanying Notes to Financial Statements.
17
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
PAR
RATE MATURITY (000) VALUE
---- -------- ----- -----
MORTGAGE-BACKED SECURITIES (5.8%)
Ge Capital Mortgage Services,
Inc. Series 1994-7
Class A10 (Aaa, AAA) 6.000% 02/25/09 $ 484 $ 457,236
Government National Mortgage
Association
Pass Through (Aaa, AAA) 6.500% 08/15/03 10 9,677
Government National Mortgage
Association Single Family
Pass Through (Aaa, AAA) 8.000% 10/15/26 996 1,015,840
Morgan Stanley Mortgage Trust
Series 40
Class 8 (NR, AAA) 7.000% 07/20/21 600 575,761
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $2,076,110) 2,058,514
-----------
U.S. TREASURY OBLIGATIONS (24.9%)
U.S. TREASURY NOTES (24.9%)
U.S. Treasury Notes Series D
(Aaa, AAA) 8.500% 11/15/00 6,855 7,344,789
U.S. Treasury Notes Series J
(Aaa, AAA) 6.500% 05/31/01 1,500 1,508,055
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $8,849,974) 8,852,844
-----------
CALL OPTIONS
SINGAPORE
DBS 50 Index 01/26/98,
(Strike Price $407.39)(DAGGER) 384 13,299
-----------
THAILAND
SET 50 Index 01/26/98,
(Strike Price $2.48)(DAGGER) 41,467 4,122
-----------
TOTAL CALL OPTIONS (Cost $30,000) 17,421
-----------
REPURCHASE AGREEMENTS (7.4%)
Goldman, Sachs & Co. 5.320% 03/03/97 2,624
(Agreement dated 2/28/97 to
be purchased at $2,625,163
collateralized by $2,560,000
U.S. Treasury Notes 9.25% due
08/15/98. Market value of
collateral is $2,680,320
(Cost $2,624,000) 2,624,000
-----------
TOTAL INVESTMENTS AT VALUE (100.2%)
(Cost $32,786,126*) 35,701,608
LIABILITIES IN EXCESS OF OTHER ASSETS (0.2%) (88,118)
-----------
NET ASSETS (100.0%) (Applicable to
2,777,319 Common Shares and 6,481
Advisor Shares) $35,613,490
===========
See Accompanying Notes to Financial Statements.
18
<PAGE>
WARBURG PINCUS BALANCED FUND
STATEMENT OF NET ASSETS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
VALUE
-----
NET ASSET VALUE, offering and redemption
price per Common Share
($35,530,371 (DIVIDE) 2,777,319) $12.79
======
NET ASSET VALUE, offering and redemption
price per Advisor Share
($83,119 (DIVIDE) 6,480) $12.83
======
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
GDR = Global Depository Receipt
- --------------------------------------------------------------------------------
(DAGGER) Non-income producing security.
* Cost for Federal income tax purposes at February 28, 1997 is $32,787,404.
The gross appreciation (depreciation) on a tax basis is as follows:
Gross Appreciation $3,343,107
Gross Depreciation (428,903)
----------
Net Appreciation $2,914,204
==========
See Accompanying Notes to Financial Statements.
19
<PAGE>
WARBURG PINCUS FUNDS
STATEMENTS OF OPERATIONS
For the Six Months Ended February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
WARBURG PINCUS WARBURG PINCUS
GROWTH & INCOME FUND BALANCED FUND
-------------------- ---------------
INVESTMENT INCOME:
Dividends $ 3,865,337 $ 160,160
Interest 725,545 337,456
Foreign taxes withheld (44,521) (1,297)
------------ ----------
Total investment income 4,546,361 496,319
------------ ----------
EXPENSES:
Investment advisory 2,297,217 148,897
Administrative services 734,746 41,360
Audit 31,988 7,065
Custodian/Sub-custodian 65,765 27,014
Directors 3,750 3,102
Distribution 185,483 41,425
Insurance 17,846 337
Interest 23,538 0
Legal 12,758 16,913
Printing 32,102 2,459
Registration 61,559 16,425
Transfer agent 360,578 21,111
Miscellaneous 7,205 6,013
------------ ----------
3,834,535 332,121
Less fees waived and expenses reimbursed (8,448) (108,710)
------------ ----------
Total expenses 3,826,087 223,411
------------ ----------
Net investment income 720,274 272,908
------------ ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS AND FOREIGN CURRENCY
RELATED ITEMS:
Net realized gain (loss) from
security transactions 67,658,981 662,118
Net realized gain from foreign
currency related items 0 200
Net change in unrealized appreciation
(depreciation) from investments and
foreign currency related
items (26,835,235) 1,976,087
------------ ----------
Net realized and unrealized gain
from investments and foreign
currency related items 40,823,746 2,638,405
------------ ----------
Net increase in net assets resulting
from operations $ 41,544,020 $2,911,313
============ ==========
See Accompanying Notes to Financial Statements.
20
<PAGE>
WARBURG PINCUS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARBURG PINCUS WARBURG PINCUS
GROWTH & INCOME FUND BALANCED FUND
----------------------------------- -----------------------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED FOR THE YEAR ENDED FOR THE YEAR
FEBRUARY 28, 1997 ENDED FEBRUARY 28, 1997 ENDED
(UNAUDITED) AUGUST 31, 1996 (UNAUDITED) AUGUST 31, 1996
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 720,274 $ 6,958,699 $ 272,908 $ 314,297
Net realized gain from security transactions 67,658,981 20,871,086 662,118 490,109
Net realized gain from foreign currency
related items 0 0 200 37
Net change in unrealized appreciation from
investments and foreign currency related items (26,835,235) (67,018,131) 1,976,087 472,314
------------- -------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 41,544,020 (39,188,346) 2,911,313 1,276,757
------------- -------------- ----------- -----------
FROM DISTRIBUTIONS:
Dividends to shareholders from net investment
income:
Common shares (724,973) (8,430,598) (277,742) (212,883)
Advisor shares (15,181) (306,084) (63) (10)
Distributions from realized gains:
Common shares 0 (49,915,078) (395,800) (149,992)
Advisor shares 0 (3,362,883) (809) (16)
------------- -------------- ----------- -----------
Net decrease in net assets from
distributions (740,154) (62,014,643) (674,414) (362,901)
------------- -------------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares 101,359,826 370,678,850 12,398,563 33,327,987
Reinvested dividends 678,411 58,584,414 645,553 345,753
Net asset value of shares redeemed (420,886,640) (615,963,314) (10,531,748) (9,065,222)
------------- -------------- ----------- -----------
Net increase (decrease) in net assets from
capital share transactions (318,848,403) (186,700,050) 2,512,368 24,608,518
------------- -------------- ----------- -----------
Total increase (decrease) in net assets (278,044,537) (287,903,039) 4,749,267 25,522,374
NET ASSETS:
Beginning of period 807,192,207 1,095,095,246 30,864,223 5,341,849
------------- -------------- ----------- -----------
End of period $ 529,147,670 $ 807,192,207 $35,613,490 $30,864,223
============= ============== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
21
<PAGE>
WARBURG PINCUS GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MAY 15, 1995
MONTHS ENDED (COMMENCEMENT)
FEBRUARY 28, 1997 FOR THE YEAR ENDED OF OPERATIONS TO
(UNAUDITED) AUGUST 31, 1996 AUGUST 31, 1995
----------------- ------------------ ---------------
<S> <C> <C> <C>
NET ASSET VALUE,BEGINNING OF PERIOD $ 14.88 $ 16.38 $ 14.87
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (0.0077) .0800 0.0236
Net Gains (Losses) on Securities (both
realized and unrealized) 1.1194 (.6931) 1.5323
------- ------- -------
Total from Investment Operations 1.1117 (.6131) 1.5559
------- ------- -------
LESS DISTRIBUTIONS:
Dividends (fromnet investment income) (0.0029) (.0736) (0.0459)
Distributions (from capital gains) 0.0000 (.8133) --
------- ------- -------
Total Distributions (0.0029) (.8869) (0.0459)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 15.99 $ 14.88 $ 16.38
======= ======= =======
Total Returns 7.48%(d) (3.92%) 10.49%(d)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $72,879 $79,565 $56,902
Ratios of Expenses to Average Net Assets 1.57%(a)(c) 1.59% 1.92%(c)
Ratios of Net Investment Income (Loss)
to Average Net Assets (.06)%(c) .28% 0.43%(c)
Portfolio Turnover Rate 131%(d) 94% 109%(c)
Average Commission Rate $.0585(b) $.0596(b) N/A
<FN>
- --------------------------------------------------------------------------------
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Warburg Pincus Balanced Fund would have been
4.52% (annualized) for the six months ended February 28, 1997 and 205.06%
for the periods ended August 31, 1995, and 1996.
(b) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
(c) Annualized
(d) Not Annualized
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
WARBURG PINCUS BALANCED FUND
FINANCIAL HIGHLIGHTS
(For an Advisor Share of the Fund Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 15, 1995
MONTHS ENDED (COMMENCEMENT)
FEBRUARY 28, 1997 FOR THE YEAR ENDED OF OPERATIONS TO
(UNAUDITED) AUGUST 31, 1996 AUGUST 31, 1995
----------------- ------------------ ---------------
<S> <C> <C> <C>
NET ASSET VALUE,BEGINNING OF PERIOD $ 11.94 $ 11.13 $ 10.72
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (0.4703) 0.3689 0.0170
Net Gains (Losses) on Securities (both
realized and unrealized) 1.5781 0.6815 0.3930
------- ------- -------
Total from Investment Operations 1.1078 1.0504 0.4100
------- ------- -------
LESS DISTRIBUTIONS:
Dividends (fromnet investment income) (0.0641) (0.0942) 0.0000
Distributions (from capital gains) (0.1511) (0.1462) 0.0000
------- ------- -------
Total Distributions (0.2152) (0.2404) 0.0000
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 12.83 $ 11.94 $ 11.13
======= ======= =======
Total Returns 9.33%(d) 9.56% 3.82%(d)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $83 $12 $1
Ratios of Expenses to Average Net Assets 1.60%(a)(c) 1.71%(a) 1.76%(a)(c)
Ratios of Net Investment Income (Loss)
to Average Net Assets 1.48%(c) (4.11%) 2.00%(c)
Portfolio Turnover Rate 76%(d) 108% 107%(c)
Average Commission Rate $.0345(b) $.0453(b) N/A
<FN>
- --------------------------------------------------------------------------------
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Warburg Pincus Balanced Fund would have been
4.52% (annualized) for the six months ended February 28, 1997 and 205.06%
for the periods ended August 31, 1995, and 1996.
(b) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
(c) Annualized
(d) Not Annualized
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Warburg Pincus Funds covered in this report are comprised of Warburg
Pincus Growth & Income Fund (the "Growth & Income Fund") and Warburg Pincus
Balanced Fund (the "Balanced Fund") which are registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as diversified, open-end
management investment companies. The Growth & Income Fund and the Balanced Fund
each have two classes of shares: Common Class and Advisor Class.
On May 3, 1996, pursuant to an Agreement and Plan of Reorganization, the
Growth & Income Fund and the Balanced Fund (each, an "Acquiring Fund") each
acquired all of the assets of an investment series of The RBB Fund, Inc.,
Warburg Pincus Growth & Income Fund (the "Acquired Growth & Income Fund") and
Warburg Pincus Balanced Fund (the "Acquired Balanced Fund"). The acquisitions
were accomplished by a tax-free exchange of 62,938,828 Common Shares and
5,340,670 Advisor Shares, in the case of the Acquired Growth & Income Fund and
2,135,930 Common Shares and 111 Advisor Shares, in the case of the Acquired
Balanced Fund, for the same amount of shares of the same class of the
corresponding Acquiring Fund. Shares were reissued to shareholders at the time
of the reorganizations. The net assets of each Acquiring Fund directly after the
reorganization were the same as the net assets of the relevant Acquired Fund:
$1,112,424,664 in the case of the Growth & Income Fund, including $129,715,900
of unrealized appreciation and $25,721,368 in the case of the Balanced Fund,
including $1,465,365 of unrealized appreciation. Each Acquiring Fund assumed the
prior operating history of the corresponding Acquired Fund.
The net assets value of each Fund is determined daily as of the close of
regular trading on the New York Stock Exchange. Each Fund's investments are
valued at market value, which is currently determined using the last reported
sales price. If no sales are reported, investments are generally valued at the
mean between the last reported bid and asked prices. In the absence of market
quotations, investments are generally valued at fair value as determined by or
under the direction of the Funds' governing board. Short-term obligations with
maturities of 60 days or less are valued at amortized cost which approximates
market value.
Security transactions are accounted for on the trade date basis. The cost of
investments sold is determined by use of the specific identification method for
both financial reporting and income tax purposes. Interest income is recorded
24
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
on the accrual basis. Dividends are recorded on the ex-dividend date. Income,
expenses (excluding class-specific expenses, principally distribution,
Shareholder servicing fees and transfer agency fees) and realized/unrealized
gains (losses) are allocated proportionally to each class of shares based upon
the relative net-asset value of outstanding shares.
Dividends from net investment income, if any, are declared and paid at least
quarterly. Dividends from net realized capital gains, if any, will be
distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify for and elect the tax treatment applicable to regulated
investment companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it from
Federal income and excise taxes.
Money market instruments may be purchased subject to the seller's agreement
to repurchase them at an agreed upon date and price. The seller will be required
on a daily basis to maintain the value of the securities subject to the
agreement at not less than the repurchase price. The agreements are conditioned
upon the collateral being deposited under the Federal Reserve book-entry system
or with the Fund's custodian or a third party sub-custodian.
Each Fund may enter into repurchase agreement transactions. Under the terms
of a typical repurchase agreement, a Fund acquires an underlying security
subject to an obligation of the Seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Fund's possession.
The Funds, together with other Warburg-advised funds (collectively the
"Warburg Funds"), have established committed and uncommitted line of credit
facilities with certain banks for temporary or emergency purposes primarily
relating to fund share redemptions and funding payments of dividend or capital
gain distributions. Under the terms of the committed line of credit, the Warburg
Funds with access to the facility pay a commitment fee at a rate of .10% per
annum on the amount of the line of credit. In addition, under the terms of both
the committed and uncommitted facilities, the Warburg Funds
25
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
will pay interest on borrowings at the banks base rate plus .55%. Aggregate
borrowings for each fund under these credit facilities may not exceed the lower
of (a) the maximum amount permitted by such fund's investment policies and
restrictions or (b) thirty three and one-third percent (331/3%) of such fund's
total assets. At February 28, 1997, there were no outstanding balances under
these line of credit facilities for any of the funds.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
The Growth & Income Fund and the Balanced Fund have each changed their fiscal
and tax year-ends from August 31st to October 31st, beginning September 1, 1997,
which was approved by the Funds' board of directors on January 15, 1997.
The Funds have an arrangement with their transfer agent whereby interest
earned on uninvested cash balances was used to offset a portion of the transfer
agent expense. For the six months ended February 28, 1997, the Funds received
credits or reimbursements under this arrangement as follows:
FUND AMOUNT
---- --------
Growth & Income $8,448
Balanced 213
2. INVESTMENT ADVISOR, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ("Warburg"), a wholly owned subsidiary of
Warburg, Pincus Counsellors G.P. ("Counsellors G.P.") serves as each Fund's
investment adviser. For its advisory services, Warburg is entitled to receive
the following fees, computed daily and payable monthly based on the Funds' daily
net assets:
FUND ANNUAL RATE
---- -----------
Growth & Income Fund .75% average daily net assets
Balanced Fund .90% average daily net assets
26
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Warburg may, at its discretion, voluntarily waive all or any portion of its
advisory fees for any of the Funds. In addition Warburg may voluntarily
reimburse the Funds' for a portion of the Funds' expenses. For the six months
ended February 28, 1997, investment advisory fees, waivers and expense
reimbursements were as follows:
GROSS NET
ADVISORY FEE WAIVER ADVISORY FEE
------------ ------ ------------
Growth & Income Fund $2,297,217 $ 0 $2,297,217
Balanced Fund 148,897 (83,681) 65,216
PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank Corp.,
and Counsellors Funds Service, Inc.("CFSI"), a wholly owned subsidiary of
Warburg, serve as co-administrators for each of the Funds. The Funds each pay
PFPC a fee calculated at an annual rate of .15% of the Fund's first $1 billion
of average daily net assets and .05% of average daily net assets over $1
billion.
The Growth & Income Fund pays CFSI a fee calculated at an annual rate of .05%
of the Fund's first $125 million of average daily net assets and .10% of average
daily net assets over $125 million; the Balanced Fund pays CFSI a fee calculated
at an annual rate of .10% of the Fund's average daily net assets.
CFSI and PFPC may, at their discretion, voluntarily waive all or any portion
of their co-administration fees for any of the Funds. For the six months ended
February 28, 1997, CFSI and PFPC's co-administration fees and waivers were as
follows:
GROSS NET
CO-ADMINISTRATION FEES WAIVERS CO-ADMINISTRATION FEES
---------------------- ------- ----------------------
Growth & Income Fund $734,746 $ 0 $734,746
Balanced Fund 41,360 (24,816) 16,544
The Funds have adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Counsellors Securities Inc. ("CSI"),
also a wholly owned subsidiary of Warburg, serves as each Fund's distributor.
For distribution services with respect to the Balanced Fund's Common Shares, CSI
receives a fee at the annual rate of .25%, computed daily and payable monthly,
on average daily net assets. For distribution services with respect to the
Growth & Income and the Balanced Funds' Advisor Shares, CSI receives a fee of
.50%, respectively, computed daily and payable
27
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISOR, CO-ADMINISTRATORS AND DISTRIBUTOR (CONT'D)
monthly, on average daily net assets. No compensation is payable by the Growth
& Income Fund's Common Shares. For the six months ended February 28, 1997,
distribution fees were as follows:
DISTRIBUTION FEES
-----------------
Growth & Income Fund
Advisor Shares $185,483
========
Balanced Fund
Common Shares $ 41,295
Advisor Shares 130
--------
$ 41,425
========
3. INVESTMENT IN SECURITIES
For the six months ended February 28, 1997, purchases and sales of investment
securities (other than short-term investments) were as follows:
INVESTMENT SECURITIES
----------------------------
PURCHASES SALES
--------- -----
Growth & Income Fund $770,507,224 $930,229,299
Balanced Fund 27,384,985 23,478,042
4. CAPITAL SHARES
The Growth & Income Fund and the Balanced Fund are each authorized to issue
three billion full and fractional shares of capital stock, $.001 par value per
share, of which one billion shares of each fund are designated as Advisor
Shares.
28
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
WARBURG PINCUS GROWTH & INCOME FUND
-----------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
----------------------------- -----------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Common Shares 6,364,013 $ 99,358,902 20,913,915 $ 336,297,357
Advisor Shares 130,338 2,000,924 2,135,316 34,381,493
Shares issued in reinvestment of dividends:
Common Shares 45,179 663,235 3,538,291 54,915,454
Advisor Shares 1,034 15,176 237,054 3,668,960
Shares repurchased:
Common Shares (26,772,631) (406,939,651) (38,907,636) (608,244,172)
Advisor Shares (920,241) (13,946,989) (499,292) (7,719,142)
----------- ------------- ----------- -------------
Net decrease (21,152,308) $(318,848,403) (12,582,352) $(186,700,050)
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
WARBURG PINCUS BALANCED FUND
-----------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
----------------------------- -----------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold:
Common Shares 982,101 $12,320,454 2,799,590 $32,792,373
Advisor Shares 6,245 78,109 45,037 535,614
Shares issued in reinvestment of dividends:
Common Shares 52,138 644,869 29,938 345,728
Advisor Shares 55 684 2 25
Shares repurchased:
Common Shares (841,139) (10,521,509) (725,370) (8,530,390)
Advisor Shares (799) (10,239) (44,170) (534,832)
-------- ------------ ---------- -----------
Net increase 198,601 $ 2,512,368 2,105,027 $24,608,518
======== ============ ========== ===========
</TABLE>
5. NET ASSETS
Net Assets at February 28, 1997 consisted of the following:
GROWTH & INCOME FUND BALANCED FUND
-------------------- -------------
Capital contributed, net $438,411,843 $31,929,302
Accumulated net investment income 655,304 103,645
Amortized market discount 0 0
Accumulated net realized gain from
security transactions 66,178,478 666,645
Net unrealized appreciation from
investments and foreign
currency related items 23,902,045 2,913,898
------------ -----------
Net assets $529,147,670 $35,613,490
============ ===========
29
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
6. OTHER FINANCIAL HIGHLIGHTS
The Growth & Income and the Balanced Funds currently offer one other class of
shares, Common Shares representing an additional interest in each of the Funds.
The financial highlights of each of the Common Shares are as follows:
<TABLE>
<CAPTION>
COMMON SHARES
------------------------------------------------------
FOR THE SIX WARBURG PINCUS GROWTH & INCOME FUND
MONTHS ------------------------------------------------------
ENDED FOR THE YEARS ENDED AUGUST 31,
FEBRUARY 28, 1997 ------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.90 $ 16.40 $ 14.56 $ 16.72 $ 11.99 $ 12.11
-------- -------- ---------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.0291 0.1116 0.2224 0.0785 0.0464 0.1912
Net Gains (Losses) on Securities (both
realized and unrealized) 1.1116 (0.6633) 1.9834 1.8151 4.8499 0.0402
-------- -------- ---------- -------- ------- -------
Total from Investment Operations 1.1407 (0.5517) 2.2058 1.8936 4.8963 0.2314
-------- -------- ---------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (0.0166) (0.1350) (0.1824) (0.0785) (0.0875) (0.1871)
Distributions from Capital Gains 0.0000 (0.8133) (0.1834) (3.9751) (0.0788) (0.1643)
-------- -------- ---------- -------- ------- -------
Total Distributions (0.0166) (0.9483) (0.3658) (4.0536) (0.1663) (0.3514)
-------- -------- ---------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 16.02 $ 14.90 $ 16.40 $ 14.56 $ 16.72 $ 11.99
======== ======== ========== ======== ======= =======
Total Returns 7.64%(d) (3.54%) 15.62% 14.41% 41.17% 1.99%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $456,269 $727,627 $1,038,193 $410,658 $60,689 $28,976
Ratios of Expenses to Average Net Assets 1.21%(c) 1.21% 1.22% 1.28%(a) 1.14%(a) 1.25%(a)
Ratios of Net Investment Income to Average
Net Assets 0.28%(c) 0.69% 1.64% 0.41% 0.30% 1.66%
Portfolio Turnover Rate 131%(d) 94% 109% 150% 344% 175%
Average Commission Rate $.0585(b) $.0596(b) N/A N/A N/A N/A
<FN>
- --------------------------------------------------------------------------------
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Warburg Pincus Growth & Income Fund would have
been 1.28%, 1.14% and 1.28% for the years ended August 31, 1994, 1993 and
1992, respectively.
(b) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
(c) Annualized
(d) Non-annualized
</FN>
</TABLE>
30
<PAGE>
WARBURG PINCUS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONT'D)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON SHARES
------------------------------------------------------
FOR THE SIX WARBURG PINCUS BALANCED FUND
MONTHS ------------------------------------------------------
ENDED FOR THE YEARS ENDED AUGUST 31,
FEBRUARY 28, 1997 ------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.94 $ 11.12 $11.01 $11.71 $12.04 $12.05
------- ------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.1080 0.1573 0.2080 0.4132 0.5555 0.4408
Net Gains (Losses) on Securities (both
realized and unrealized) 1.0053 0.9389 1.7225 0.3248 1.1253 0.5155
------- ------- ------ ------ ------ ------
Total from Investment Operations 1.1133 1.0962 1.9305 0.7380 1.6808 0.9563
------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income (0.1080) (0.1300) (0.3136) (0.4586) (0.5412) (0.3713)
Distributions from Capital Gains (0.1511) (0.1462) (1.5069) (0.9794) (1.4696) (0.5950)
------- ------- ------ ------ ------ ------
Total Distributions (0.2591) (0.2762) (1.8205) (1.4380) (2.0108) (0.9663)
------- ------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 12.79 $ 11.94 $11.12 $11.01 $11.71 $12.04
======= ======= ====== ====== ====== ======
Total Returns 9.37%(d) 9.99% 21.56% 6.86% 15.27% 8.07%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $35,530 $30,853 $5,342 $ 808 $ 762 $1,026
Ratios of Expenses to Average Net Assets 1.35%(a)(c) 1.53%(a 1.53%(a) 0%(a) 0%(a) .67%(a)
Ratios of Net Investment Income to Average
Net Assets 1.65%(c) 1.66% 2.30% 3.76% 4.13% 3.68%
Portfolio Turnover Rate 76%(d) 108% 107% 32% 30% 93%
Average Commission Rate $ .0345(b) $ .0453(b) N/A N/A N/A N/A
<FN>
- --------------------------------------------------------------------------------
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Warburg Pincus Balanced Fund would have been
2.00% (annualized) for the six months ended February 28, 1997 and 2.43%,
6.04%, 5.46%, 5.37% and 3.88% for the years ended August 31, 1996, 1995,
1994, 1993 and 1992, respectively.
(b) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
(c) Annualized
(d) Non-annualized
</FN>
</TABLE>
31
<PAGE>
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<PAGE>
-------------------------------------
WARBURG PINCUS
ADVISOR FUNDS
COUNSELLORS
SECURITIES INC.,
DISTRIBUTOR
800-369-2728
-------------------------------------
WARBURG PINCUS
[LOGO OMITTED]
INVESTMENTS
ADGB-3-0297
